FCA Updates & Developments

The FCA has launched a call for input asking for feedback on its proposed approach to reviewing the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR). The review will consider how the market satisfies customer needs and analyse how new market trends and developments might affect the future of advice and guidance services.

The deadline for feedback is 3 June 2019.

The FCA has held a round table event with representatives from the Financial Services Compensation Scheme (FSCS), Financial Ombudsman Service, the Insolvency Service and Scotland’s Accountant in Bankruptcy to build on existing collaborations and launch a working group to tackle the issue of phoenixing in financial services.

Phoenixing in financial services involves firms and individuals who seek to deliberately avoid their liabilities to consumers by closing down the firm and re-emerging as a separate legal entity.

The discussion sees the group looking for ways to effectively share data and intelligence whilst working together to tackle the issue.

The FCA has published on its website an update to the National Private Placement Regime (NPPR). The regime allows the marketing of non-EEA Alternative Investment Funds (AIFs) managed by full-scope UK and EEA Alternative Investment Fund Managers (AIFMs) as well as any AIFs managed by non-EEA AIFMs. It may also relate to feeder AIFs where the master funds manager is a non-EEA AIFM, or the master fund is a non-EEA AIF.

To market under the regime in the UK, the AIFM must meet regulations 57, 58, 59 of the UK AIFM regulation before making a notification.

The FCA has published its findings from looking at how principal firms in the investment management sector understood and complied with its regulatory responsibilities in their management of Appointed Representatives (ARs). The FCA found that the majority of firms reviewed had weak or under-developed governance arrangements in place, which included a lack of an effective risk framework, internal controls and resources. The FCA assessed there to be a significant risk of harm to consumers and to the market and has written a Dear CEO Letter setting out its expectations to principal firms.

The FCA identifies multiple deficiencies, some of which are listed below:

  • Principal firms had not put in place appropriate control frameworks to monitor its AR’s activities on an ongoing basis to ensure they were compliant with the firm’s policies and procedures and regulatory requirements
  • Deficient risk frameworks exist, leading to a lack of bespoke AR monitoring
  • Firms should assess risks arising from AR activities and consider what financial resources are appropriate to meet its obligations
  • Inherent conflicts of interests which have not been managed

The principal firm has responsibility to ensure its ARs are fit and proper to deal with clients in its name and to ensure the same level of protection to clients as they would have, had they dealt with the principal firm direct.

CCL has expertise, particularly through the use of technology, in helping Principal Firms develop and implement systems and controls, and to manage and evidence control over ARs. To find out more, please contact us.

In 2015 the FCA introduced the 5 conduct questions programme to leading wholesale banking firms and have now introduced the programme across other sectors of wholesale financial markets. The first step before addressing the five questions was for firms to develop their own definition of conduct risk.

Some of the FCA’s observations were published in feedback reports in 2017 and 2018 and now the key messages in its latest report include:

  • Good conduct and culture being recognised as a competitive advantage
  • Framing conduct as an integral part of corporate goals has a positive impact on effective implementation
  • Non-financial misconduct needs more attention from staff at all levels

The FCA will continue its engagement with firms using the 5 conduct questions as a backdrop to discussion.

 

PRA Updates & Developments

Nick Strange, Supervisory Risk Specialist at the Bank of England (BoE), has given a speech in London regarding the Operational Risk and Resilience work programme, in which he outlined two major components:

  • the development of the supervisory approach to operational resilience
  • the development of a cyber stress testing programme

The BoE intends to publish a consultant paper later in 2019 setting out its policies and an explanation of its approach to supervision within the area. Where possible, the BoE intends to draw upon existing policies and rules to maintain a consistent approach.

EU Regulatory Updates

The European Securities and Markets Authority (ESMA) has launched a call for evidence on position limits and management in commodity derivatives. The call for evidence forms a review ESMA must perform under MiFID II with the European Commission and is seeking stakeholders’ input to consider and address any relevant issues.

ESMA seeks input on the impact of position limits to liquidity, market abuse and pricing and settlement conditions. The deadline for feedback is 5 July 2019.

ESMA has published an updated version of its Q&As on the following:

  • The implementation of the European Markets Infrastructure Regulation (EMIR). The updated document provides clarification on the new framework regarding clearing obligations, procedure for notification and derivative novation reporting.
  • The securitisation regulation providing guidance on templates contained in ESMA’s draft technical standards on disclosure requirements.
Financial Crime

The UK Government has published a guidance to assist the implementation and compliance of the Counter-Terrorism (International Sanctions) (EU Exit) Regulations 2019. The guidance covers the prohibitions and requirements imposed by the regulations and provides guidance and best practice on how to comply and enforce, and circumstances when the regulations do not apply.

The guidance should be read alongside the sanctions’ guidance published by the Department for International Trade (DIT), Home Office and HM Treasury through the Office of Financial Sanctions Implementation (OFSI).

The Commission Delegated Regulation (EU) 2019/758 lays down a set of additional measures that credit institutions and financial institutions must take to mitigate money laundering and terrorist financing risk where a third country’s law does not permit the implementation of group-wide policies and procedures in Article 45(1) and (3) of Directive 2015/849.

The RTS will be applicable from 3 September 2019.

Enforcement Action

The FCA has published decision notices for Financial Page Ltd, Henderson Carter Associates Limited and Bank House Investment Management Limited and five individuals (Andrew Page, Thomas Ward, Aiden Henderson, Robert Ward and Tristan Freer).

The notice outlines the disciplinary actions to be taken against the relevant parties:

Firm/Individual

Sanction

Financial Page Ltd

Public Censure

Andrew Page

Prohibition and penalty of £321,033

Thomas Ward

Prohibition and penalty of £416,558

Henderson Carter Associates Limited

Public Censure

Aiden Henderson

Prohibition and penalty of £179,179

Bank House Investment Management Limited

Penalty of £311,639

Robert Ward

Prohibition and penalty of £88,100

Tristan Freer

Prohibition and penalty £52,725

 

The cases have been referred to the Upper Tribunal and the proposed actions will have no effect until the determination of the case by the Tribunal.

The Competition & Markets Authority (CMA) has taken action against Santander UK plc in response to a breach of the Retail Banking Market Investigation Order 2017. The firm breaches the Order by imposing unarranged overdraft charges to around 20,000 customers without notifying them.

As a result of the breach, Santander has put procedures in place, introduced additional controls and refunded around £1.4 million of charges levied on customers who did not receive an alert.

The FCA has provided a final notice making an order to prohibit Mr Terry John Farr from performing any function in relation to any regulated activity by an authorised person, exempt person or exempt professional firm.

The action taken against the individual was a result of nine Wash Trades between 2008 and 2009 to obtain unwarranted brokerage payments for no legitimate commercial purpose. The action demonstrated to the regulator that the individual lacked honesty and integrity and individual was therefore deemed to be not a fit and proper person to perform any function in relation to any regulated activity.

The FCA and PRA have both fined R. Raphael & Sons plc for failing to manage its outsourcing arrangement properly between 2014 and 2016. The firm received separate fines of £775,100 from the FCA and £1,112,152 from the PRA (a combined amount of £1,887,252).

The regulators found the firm’s systems and controls overseeing the governance of its outsourcing arrangement to be inadequate, and exposed customers to unnecessary and avoidable harm and inconvenience. It failed to adequately understand the business continuity and disaster recovery arrangements of its outsourced service providers and how they would support the continued operation during a disruptive event. This lack of understanding caused the complete failure of its arrangements to last over eight hours and affected thousands of customers.

The firm agreed to resolve the matter and qualified for a 30% reduction on the fine by both regulators. Without the discount, the combined fine would have been £2,709,574.

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