FCA Updates & Developments

The FCA has published an alert that is applicable to Principals who have Appointed Representatives or Introducer Appointed Representatives (ARs) across all sectors. This alert expands on a previous alert, 2 August 2016, regarding the increase of introducers having an inappropriate influence on business carried out by authorised firms. The alert highlights the following as risks that the Principal is expected to act upon:

  • Introducer’s influence
  • AR activities and use of Firm Reference Number (FRN)
  • Monitoring and due diligence by Principals

The FCA cautions that an introducer can inappropriately influence the business of the Principal and its ARs. In accepting business from an introducer, a Principal must meet its regulatory requirements in the FCA Handbook and ensure it understands and mitigates the risks whilst providing oversight of its ARs and introducers.

An FRN is given to an AR from the Principal’s appointment. An AR could potentially use its FRN to carry out additional regulated activities outside of the arrangements provided by the Principal. A Principal should be aware of all activities carried out by the AR to avoid the risk of misleading customers about the ARs authority to act in accordance with its FRN.

The FCA has identified insufficient due diligence by Principals on ARs and introducers. There exists a risk to customers which may result in financial harm if underlying investments are controlled by the introducer or ARs. The FCA maintains that a Principal needs to have a well-structured monitoring process and consider whether inactive ARs who have not provided business for some time should remain registered. Principals should further ensure that their ARs do not appoint an individual without prior FCA approval where required.

Lastly, the FCA sets out a list of considerations for the review of the Principal which include:

  • introducer relationships between the Principal and the ARs
  • ensuring AR relationships are necessary, appropriate and relevant
  • processes in relation to persons with significant control and senior management responsibilities within ARs
  • whether due diligence and monitoring processes are adequate
  • whether any additional steps are needed to meet regulatory responsibilities
  • previous alert

The FCA expects this alert to be considered and appropriate action taken.

The FCA has published a consultation paper (CP17/37) on industry codes of conduct and a discussion paper on FCA principle 5. The paper sets out proposals to address the areas of markets and activities not covered by regulatory rules and principles, and to clarify the FCA’s expectations for the framework for conduct. This is in relation to the development of voluntary industry-written codes of conduct for unregulated financial markets and the FCA’s Senior Managers and Certification Regime (SM&CR).

The FCA proposes changes to the following:

  • A general approach to supervising and enforcing the SM&CR rules for unregulated markets and activities, including those covered by industry-written codes of conduct
  • A public recognition for industry codes of conduct that, in the FCA’s view, sets out proper standards of market conduct for unregulated markets and activities

And a discussion for the following:

  • Extending the application of FCA Principle for Businesses 5 to unregulated activities.

This document is applicable to authorised firms, particularly to those already subject to the SM&CR and, as the SM&CR is extended, to any further relevant firms.

The FCA has published its Market Watch 54. The Market Watch covers the following topics:

  • A reminder to firms of their obligation to have a Legal Entity Identifier (LEI)
    • Firms must ensure that they have an updated LEI and to include eligible clients’ LEI in transaction reports when trading on their behalf.
  • Access to the European Securities and Markets Authority (ESMA)
    • Details have been published regarding reference data files along with instructions of access.
  • FCA Transitional Arrangements
    • The FCA will decommission the transaction reporting system ZEN on 12 January 2018 and then introduce the new FCA Market Data Processor (MDP) system from 3 January 2018.
  • Markets in Financial Instruments Directive II (MiFID II) and market data obligations
    • A MDP Industry Test Environment (ITE) has been made available for entities who may wish to demonstrate compliance with the new technical specification.
    • The FCA urges those who have wanted to and have not yet started using the MDP to do so now, as the testing may last several weeks.
  • Authorisations and variation of permissions for MiFID II
    • Any firms which have not applied for permissions under MiFID II need to take immediate action.
    • For firms which have applied, but for whom the application is not yet complete, the missing information will need to be provided immediately.

The FCA has published Handbook Notice 49 setting out changes made to the FCA Handbook on 9 November 2017.

The key changes include:

  • A new Regulatory Guide that will not form part of the Handbook but will aim to help navigate the complexities of MiFID II.
  • Amendment to IFPRU 2.2 to ensure full implementation of article 83(3) of the Capital Requirements Directive.

The FCA has published a consultation paper setting out its proposed policy changes on FCA fees from 2018/2019. Each chapter of the proposal identifies the firms and bodies that will be affected. The proposed changes are as follows:

  • Proposed tariff data to calculate insurers’ FCA periodic fees and Financial Ombudsman Service annual levies
  • The scope of our financial penalty scheme (FPS)
  • Steps on how to refine the definition of credit-related income, taking account of specific circumstances of consumer hire agreements
  • How Northern Ireland would fit into the fees structure
  • Requests for views on the recovery of administration costs of paper invoices from firms
  • Revised methodology for calculating the levy which funds the debt advice work.

The FCA’s Director of Market Oversight, Julia Hoggett,  delivered a speech on the 14 November  2017, regarding recent developments in the Market Abuse Regime. The speech makes note of the following topics:

  • Inside information
    • The FCA comments that inside information cannot be a simple set of rules, rather it should be a state of mind to keep vigilance
  • Listing Transactions
    • The FCA undertakes in assessing the eligibility of securities to be listed and in assessing the necessary disclosures in place
  • Primary Market Oversight
    • The introduction of a new department, Primary Market Oversight, responsible for the former UKLA functions of the supervision of sponsors and primary information providers
  • Secondary Market Oversight
    • The move from MiFID I to MiFID II/Markets in Financial Instrument Regulation (MiFIR) data
  • Optimisation of surveillance
    • Increasing focus on using disruptive techniques to prevent abusive behaviour from impacting the UK markets
    • It is not simply about the enactment of legislation or rules but the application of rules that already exist

The FCA’s Executive Director and Chief Operating Officer, Nausicaa Delfas, has delivered a speech regarding issues of cyber risk. Cyber risk remains one of the FCA’s top priorities and the key area of focus has been identified as cyber resilience. There is active engagement on this topic internationally with institutions such as the International Organisation of Securities Commissions (IOSCO), Group of Seven (G7), Financial Stability Board (FSB) and others.

The speech notes that cyber risks can cause harm to consumers and markets through:

  • Markets being disrupted through loss of availability of platforms
  • Sensitive market or customer data being stolen or compromised
  • Denial of access to core banking services

The speech focuses on two key areas to address these issues:

  • Cyber resilience being beyond compliance
    • The process should be business led with active engagement in the boardroom
  • How to manage the issue of ‘supplier risk’
    • Audits, intermediaries, automated tools and ‘nudge theory’

The FCA has released a useful publication on completing the application to cancel a firm’s authorisation. The document is neither a checklist nor a guidance or rules, but is intended to help a firm complete the electronic application fully and accurately.

The FCA has published an article regarding a review of compliance function in wholesale banks. The article summarises the observations and feedbacks as well as detailed information from the FCA’s questionnaire.

The questionnaire targeted 22 wholesale banks ranging from large global banks to firms with less significant UK footprints. The topics covered in the questionnaire included:

  • role and structure
  • strategy and planning
  • compliance monitoring
  • technology
  • support and challenge
  • personnel

The FCA does not expect firms to take any specific action. The document may be useful to firms and heads of compliance in developing their departments.

The FCA has updated its article regarding dual-regulation firms’ Remuneration Code (SYSC 19D). The FCA has sent a letter to the Remuneration Committee sharing its findings and observations from the 2016/17 Remuneration Round and informs them of the FCA’s approach to supervision for 2017/18.

The FCA’s approach:

  • To be in a position to issue a non-objection to the paying out of a firm’s awards, following on from the FCA’s understanding of remuneration issues as they arise through the year
  • Assessing how issues identified in your firm’s remuneration arrangements communicated in the 206/17 feedback have been addressed
  • Continued co-ordination of the FCA’s supervisory work with the PRA, even though the PRA will not change its approach.
  • An emphasis on enhanced accountability for individuals responsible for remuneration in accordance with SYSC 19D.

The FCA has released a statement of objections regarding the following asset management firms for suspected breach of competition law:

  • Artemis Investment Management LLP (Artemis)
  • Hargreave Hale Ltd (Hargreave)
  • Newton Investment Management Limited (Newton)
  • River & Mercantile Asset Management LLP (River & Mercantile)

The FCA believes that the four firms may have broken competition law. It alleges that the four firms shared information by disclosing the price they intended to pay, or accepting such information, or both, in relation to one or more of two Initial Public Offerings (IPOs) and one placing, shortly before the share prices were set.

The FCA allegations for the four firms are as follows:

  • In 2015, Newton, Hargreave and River & Mercantile disclosed and/or accepted information about the price they intended to pay for shares in relation to one IPO and a placing
  • In 2014, Artemis and Newton shared information about the price they intended or were willing to pay for shares in relation to another IPO.

The findings may not lead to an infringement decision and the firms will have the opportunity to respond by making written/oral representations. This is the first case in which the FCA is bringing its competition enforcement powers.

PRA Updates & Developments

The PRA has published a policy statement (PS27/17) providing feedback to responses in previous consultation paper (CP 17/17) regarding regulated fees and levies.

The paper sets out final rules intended to correct the fee rates for the annual funding requirement (AFR) for 2017/18. The appendix of the document includes the final fee rates applicable.

This statement is relevant to all firms currently paying the PRA or expecting to do so within the 2017/18 year.

The Bank of England (BoE) has published a consultation paper setting out how the new Enforcement Decision Making Committee (EDMC) will operate. The EDMC aims to strengthen independence and robustness of the decision-making process in any enforcement cases.

The proposed document extends the model of operation across regulatory areas where the Bank has been granted enforcement powers. These will include the PRA, Financial Market Infrastructure and Resolution.

This document will be of interest to authorised deposit-takers and insurance firms and approved persons within the Senior Managers Regime.

The BoE has published the results of its stress testing of the UK banking system for 2017.

The results showed that, for the first time since 2014 of stress testing, no bank will be required to strengthen their capital position. The BoE in its publication has stated that the banking system could absorb £50 billion of UK losses and a US$40 billion hit on overseas assets in the next few years.

EU Regulatory Updates

ESMA has published a number of questions and answers (Q&A) regarding the implementation of MiFID II.

Investor protection

ESMA has added additional Q&A to its guidance on the implementation of investor protection under MiFID II. The new Q&A are regarding:

  • Record keeping
  • Inducements
  • Post-sale reporting

Trading obligation for shares

ESMA has updated its Q&A regarding the application of the trading obligation for shares to trade certain instruments on-venue. The Q&A includes the clarification of the scope of the trading obligation and the compliance of the requirements under Article 23(1) of MiFIR.

MiFIR Data reporting

ESMA has updated its Q&A regarding data reporting under MiFID II and MiFIR. The Q&A provides clarification on:

  • transaction reporting for primary issuances
  • corporate events
  • portfolio management
  • swaps related to indices

Commodity derivatives

ESMA has updated its Q&A regarding commodity derivatives under MiFID II and MiFIR. The updated Q&A includes the following:

  • position limits
  • ancillary activities
  • position reporting

Market Structure

ESMA has updated its Q&A regarding market structure issues under MiFID II and MiFIR. The updated Q&A includes the following:

  • Tick size regime
  • Direct Electronic Access
  • Multilateral systems

Transparency and Market Structure Issues

ESMA has updated its Q&A regarding transparency and market structure issues under MiFID II and MiFID. The updated Q&A includes the following:

  • Pre- and post-trade transparency, for both equity and non-equity instruments
  • Systematic internalisers
  • Data reporting service providers
  • Third country issues

ESMA has published results of its peer review on the guidelines on certain aspects of the compliance function under MiFID. The guidelines cover national competent authorities(NCA) supervision of investment firms’ compliance functions, particularly how those function carry out risk assessments, monitor compliance obligations, report to senior management and fulfil their advisory role.

The review identified good practices that will help enhance the supervisory convergence across EEA NCA. The report provides a detailed assessment of the effective application of the guidelines as well as the NCA’s capacity to respond to market developments.

The European Banking Authority (EBA) has published a consultation to review and proposes to update three guidelines aimed at enhancing risk management and supervisory convergence in the supervisory review and examination process (SREP).

The update to the three guidelines include:

  • EBA guidelines on common procedures and methodology for SREP
    • Enhancing the requirements for supervisory stress testing and explains how the outcome will be used in Pillar II capital guidance 
  • EBA guidelines on the management of interest rate risk arising from non-trading activities 
    • Clarifies internal governance and supervisory test requirements
    • Intends to act as a bridge for future requirements under Capital Requirement Directive V 
  • EBA guidelines on institutions’ stress testing.

The consultation on all guidelines will run until 31 January 2018. The expected implementation date, in accordance with previous pillar II roadmap, is 1 January 2019.

The EBA has published its final recommendation relating to the coverage of entities in banking group recovery plans. The aim of the recommendations is to define common criteria to identify the extent of the coverage and the entities that need to be covered in the plan. This document is addressed to Competent Authorities (CA) and institutions. It is intended to provide help to institutions to avoid a fragmented approach as well as to clarify the relevant supervisory expectations for those applicable.

The recommendation relating to recovery planning purposes categorises entities in the following categorisations:

  • relevant for the group
  • relevant for the economy or financial system of a relevant member state
  • not relevant for either of the two

The difference in categorisations will mean that different levels of information will be required. The EBA also recommends that the coverage of entities in the plan be proportional to the relevance of the entities.

Below are the various Q&A published by relevant authorities and parties on the Market Abuse Regulation (MAR).

MAR Practical situations

The joint working parties consisting of the City of London Law Society (CLLS) and the Law Society company law committee have published a Q&A on MAR. The document is a reflection of how the joint working party would apply MAR to practical situations.

Implementation of MAR

ESMA has updated its Q&A regarding the implementation of MAR. The updated Q&A includes two new answers on managers’ transactions in particular addressing trading during ‘closed periods’ by persons discharging managerial responsibilities.

The EBA has published a finalised guideline regarding the supervision of significant branches. The guidelines are intended to facilitate cooperation in relation to prudential supervision, between CAs and significant branches of EU institutions in another member state.

The guideline provides a framework for the identification of ‘significant-plus’ branches and proposes a set of principles that CAs should comply with in performing risk assessments for the institutions that have ‘significant-plus’ branches.

The International Swaps and Derivatives Association (ISDA) has published a paper regarding a proposal to modify the European Markets Infrastructure Regulation (EMIR) with the aims of strengthening the framework and eliminating any remaining areas of complexity. The proposals build upon previous suggested amendments from the European Commission.

The following topics are proposed in the paper:

  • reporting
    • responsibility for reporting transactions with a non-financial counterparty not subject to the clearing obligation would fall entirely on the financial counterparty
  • scope and timing
    • definition of financial counterparty to include alternative investment funds (AIFs)
  • clearing
    • new clearing thresholds for small financial counterparties
    • clearing requirements for non-financial counterparties to only apply to a particular asset class when threshold breached
  • margin
    • to have global consistency
  • equivalence
    • compensating for lack of equivalence decisions

The Investment Association has published a revised version of the principles of remuneration for 2018. The document seeks to provide a guide to shareholder expectations and good practice from the association’s views on the role of shareholders and directors in relation to remuneration and the manner in which it should be determined and structured.

This document is applicable to companies listed on the main market but also relevant to companies of other public markets such as AIM.

The Central Securities Depositories Regulations 2017 has been laid before Parliament. The document implements certain parts of Articles of Regulation (EU) No 909/2014 on improving securities settlement in the European Union and on Central Securities Depositories (CSDs).

In general, the Regulation contains:

  • Regulatory roles and responsibilities for competent authorities
  • BoE’s further powers to carry out regulatory obligations by extending the FSMA enforcement regime
  • BoE’s power to require reports from skills persons or appoint skilled persons for reports on behalf of settlement internaliser
  • Permission for the BoE to charge fees in order to recover the costs of setting up IT systems necessary to carry out their functions
  • Creation of a new Recognised Central Securities Depositories (RCSDs)
  • Requirement for CSDs to have effective default rules in place and appropriate reporting procedures for employees

The following legislations have been published in the Official Journal of the EU (OJ):

  • Delegated Regulation supplementing MiFID II regarding technical standards specifying information to be notified by investment firms, market operators and credit institutions
  • Regulation (EU) 2017/1991 amending Regulation No 345/2013 and No 346/2013 on European venture capital funds and on European social entrepreneurship funds - applicable from 1 March 2018.

The following European Central Bank (ECB) legislation and decisions have been published in the OJ:

  • Regulation (EU) 2017/2094 amending Regulation (EU) 795/2014 on oversight requirements for systemically important payment systems
  • Regulation (EU) 2017/2095 amending Regulation (EC) No 2157/1999 on the powers of the ECB to impose sanctions
  • Decision (EU) 2017/2097 on the methodology for calculating sanctions for infringements of the oversight requirements for systemically important payment systems
  • Decision (EU) 2017/2098 on procedural aspects concerning the imposition of corrective measures for non-compliance with Regulation (EU) No 795/2014

The following level 2 measures have been published in the OJ:

Both RTS will be applicable from 3 January 2018.

The following regulatory technical standard published in the OJ will be applicable from 3 January 2018:

The European Commission has published a consultation on how asset managers and institutional investors could include environmental, social and governance factors when taking decisions. The document forms part of the Commission’s efforts to move towards green and sustainable investments to enable the transition to a low-carbon economy and show the EU’s strong commitment to mitigating risks posed by environmental challenges.

The consultation is open until 28 January 2018 and the Commission will adopt an action plan on sustainable finance in the first quarter of 2018.

The EBA has published its final guidelines on the treatment of connected clients as defined in the Capital Requirements Regulations (CRR). The document aims at supporting institutions in identifying possible connections among clients. This will apply to all areas of CRR where ‘group of connected client’ is used.

The guideline focuses on covering the two types of connection that lead to clients being identified as a single risk (control relationships and economic dependencies). The EBA expects, through the guideline, for institutions to take reasonable steps to identify all control relationships and economic dependencies in their clients. A proportionate approach must also be taken to strengthen the investigation of economic dependencies in all cases where the sum of all exposure of one client exceeds 5% of Tier 1 capital.

The ECB has released an article setting out its supervisory expectations regarding Brexit relocation plans. It comments that whilst the ECB Banking Supervision appreciates the effort and progress made by banks, there are some banks who have not met the expectations and requirements from the ECB. As reiterated by ECB, the elements that are required of Banks are for them to be well-capitalised and to have sufficient liquidity and funding, as well as having substance locally. This means that they cannot be empty shells or letter box banks.

The ECB has focused on the following topics:

  • Sourcing of risk
    • An indication of sourcing of risk management from outside the EU
    • Many banks have indicated they wish to transfer all market risk to a third-country group entity
    • This approach is not deemed comfortable with the ECB as it could create risks in crisis situations where local capabilities may be crucial.
  • Staffing
    • Severalbanks’ plans have included dual-hatting which may limit dependence, create conflicts of interest, and result in insufficient time being available for each function.
    • Concerns would be even greater if employees of a euro area bank were focused on third country areas rather than in the euro area.
    • Sufficient independence is expected for banks to have placed staff locally.

The Council of the EU has issued a press release regarding summaries on the confirmed final compromise texts for:

  • The directive amending the Bank Recovery and Resolution Directive
  • The regulation amending the Capital Requirements Regulation, implementing transitional arrangements for mitigating the potential negative regulatory capital impact on banks from the introduction of International Financial Reporting Standards (IFRS) 9.

The Joint Committee, consisting of the EBA, the European Insurance and Occupational Pensions Authority (EIOPA) and ESMA, has published alongside the European Commission and the European Systemic Risk Board (ESRB) a work programme for 2018.

The work programme for 2018 will focus on:

  • Consumer protection issues such as supporting the implementation of the new PRIIPs rules
  • Analysing the adequacy of cross-border supervision of financial services
  • Fintech developments
  • Review and development of Guidelines and Technical Standards for the fourth Anti-Money Laundering Directive.

The European Commission has released the Commission Implementing Regulation amending mplementing Regulation (EU) No 680/2014 (CRD IV/CRR) as regards to templates and instructions. This is in conjunction with an annex to the document.

ESMA has published a transcript of a speech by the Chair of ESMA, Steven Maijoor, at the EFAMA Investment Management Forum 2017. The speech is focused on the following issues regarding investment funds:

  • Costs and charges
  • Investment fund stress testing
  • Work conducted in relation to Brexit and future objectives to minimise risks

The Council of the European Union has published a proposal for a regulation amending Regulation (EU) No 648/2012 regarding clearing obligation, suspension of the clearing obligation, reporting requirements, risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, registration and supervision of trade repositories, and the requirements for trade repositories.

The Law Society has released a response regarding  the extension of the SM&CR to all FCA firms (CP17/25). The Law Society rests on the view that the legal function should be excluded from the scope of the SM&CR. It reasons that the inclusion of the legal function would raise significant risks for clients and solicitors including:

  • The erosion of Legal Professional Privilege
  • In-house lawyers being placed in conflict with employers
  • The prospect of dual regulation for some lawyers

The Law Society suggests that proposals should be subject to full consultation to both FCA and affected organisations and stakeholders to respond.

ESMA has updated its Q&A regarding the implementation of the Central Securities Depository Regulation (CSDR). The updated Q&A is in relation to:

  • Relevant authorities
  • Conduct of business rules
  • Protection of securities
  • Prudential requirements

ESMA and the Council of the EU have respectively published a Q&A and a compromise proposal regarding European Markets Infrastructure Regulation (EMIR).

ESMA has updated its Q&A regarding practical questions of the EMIR. The updated Q&A consists of the new question on the reporting to trade repositories. 

The EBA has published the final methodology for the 2018 EU-wide stress test. The document covers all relevant risk areas and incorporates the IFRS 9 accounting standards.

The exercise will be formally launched in January 2018 and the results will be published by 2 November 2018.

The European Commission has published a Commission Delegated Regulation supplementing Regulation (EU) No 600/2014 on markets in financial instruments with regard to regulatory technical standards on the trading obligation for certain derivatives.

The EBA has published a press release welcoming the Council’s decision on its relocation to Paris in light of UK’s intention to withdraw from the EU. The decision will allow for a seamless continuation of the EBA’s activity and placing an end the uncertainty caused by Brexit.

The Director General for Market Infrastructure and Payments of ECB, Marc Bayle de Jessé, delivered a speech on the regulation of cyber security. The strategy developed is centred on three pillars:

  • Working with financial firms and financial market infrastructures to ensures defences are built and to enhance the level of cyber maturity;
  • Strengthening the resilience of the sector through:
    • Cross-regulatory collaboration
    • Information sharing
    • Improved threat intelligence
    • Close collaboration with European law enforcement agencies
    • Market-wide exercises
    • Deeper understanding of third parties and the supply chain
  • Establishment of a strategic dialogue between industry and regulators to develop effective solutions.

The ECB reiterates that trust and collaboration make up the core elements for effective cyber resilience. The continuously evolving nature of cyber threat must be countered by an equally agile and adaptive response. This means a balance in both regulations and appropriate tools to implement the right measures at an institutional and sector level.

The EBA has published its third annual report on the convergence of supervisory practices across the EU. The report reviews the consistency in the application of the Supervisory Review and Evaluation Process (SREP) in order to promote consistency in outcomes across the single market.

The report includes:

  • Recognition of the progress made by competent authorities in the implementation of SREP as well as the adoption of recommendations and observations made by the EBA
  • An observation into
    • the different approaches in the use of the outcome for banks’ own internal capital adequacy assessment process (ICAAP)
    • the disparity of risk taxonomies
    • the differences in the clarity of risk by risk determination of additional own funds requirements
  • A notice about the widespread use of Pillar 2 Guidance.

The EBA comments that it will continue to promote supervisory convergence through active monitoring and assessment.

The International Organisation of Securities Commissions (IOSCO) has published a report regarding good practices on the termination of investment funds that seek to protect investors’ interests during the process.

The good practices are categorised in the following five categories and offer 14 good practices:

  • Disclosure at Time of Investment
  • Decision to terminate
  • Decision to merge
  • During the termination process
  • Specific types of investment funds

These practices apply to voluntary terminations rather than national level legislation that cover involuntary terminations.

The European Commission has published a report to the European Parliament and the Council on the review of Article 13, 18 and 45 regarding the EBA’s powers to conduct binding mediation to take account of future developments in financial services law.

The report identifies the following challenges:

  • Composition of mediation panels
  • Powers of initiative
  • Fiscal safeguards

The report concludes that some of the issues highlighted in the document have been reviewed by the Commission. The rest are left to be seen based on the outcome of legislative procedures and other consideration such as appropriateness and experience gathered.

Financial Crime

The FCA has published a registration form for certain individuals required to complete the Money Laundering Regulation (MLR) Individual Form. The requirement comes under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. The following are examples of individuals that are required to complete the MLR Individual Form:

  • A sole proprietor, a partner or a director
  • A senior manager responsible for compliance with the Regulations under Regulation 21(1)(a)
  • The nominated officer for reporting Suspicious Activity Reports to the National Crime Agency under Regulations 21(3)
  • A beneficial owner

The Financial Action Task Force (FATF) is conducting its fourth round of mutual evaluations and has released a document updating its methodology for assessing compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems (2013).

The document aims to assess whether the AML/CFT systems are working and the extent to which the country is achieving the defined set of outcomes.

The European Parliament has published a press release regarding a block by the Council’s lack of mandate to negotiate the 5th Anti-Money Laundering Directive (5MLD) and the absence of a text as a basis for discussion. There is a concern that a knock-on effect will occur with the delay in finalising a deal on the 5th update of AMLD to the implementation of the 4th AMLD.

The Financial Action Task Force (FATF) has adopted a supplement to the AML/CFT Measures and Financial Inclusion regarding customer due diligence. The guidance focuses on the reinforcement of the risk-based approach and the underlying principle of all AML/CTF systems.

The supplement provides country examples of customer due diligence measures adopted to the context of financial inclusion. It is designed to show how a simplified set of measures or alternative forms of identity verification can support financial inclusion and appropriately mitigate the ML/TF risks.

The Joint Money Laundering Steering Group (JMLSG) has published a proposed revision to its guidance on the prevention of money laundering and he financing of terrorism for the UK. The proposed revisions reflect:

  • Comments made by HM Treasury in the context of seeking Ministerial approval of the June 2017 test
  • The correction of a number of references in the text to take account of late changes made during the finalisation of the new MLR
  • References to certain provisions in the Criminal Finances Act 2017
Enforcement Action

The FCA has decided to prohibit Tom Hayes from performing any function in relation to any regulated activity in the financial services industry. The FCA considers Tom Hayes to be not fit and proper as a result of his conviction on indictment of conspiracy to defraud in relation to the manipulation of Yen LIBOR.

The decision will not take immediate effect as the FCA’s decision has been referred to the Upper Tribunal. The Tribunal has delayed proceedings pending Mr Hayes’ conviction referral to the Criminal Cases Review Commission.

The FCA has announced on its website that Capita Financial Managers Limited has been publicly censured due to its breach of Principle 2 of the FCA’s Principles for Businesses. CFM failed to conduct adequate due diligence on the fund prior to taking it on and failed to fully rectify the mistake when it was aware of its inadequate processes. The FCA also found that CFM breached Principle 7 because it failed to communicate to investors in a clear, fair and not misleading way.

The above failings would have ordinarily resulted in a penalty. However, the FCA considered the fact that CFM would not have been able to make a payment of up to 66 million and therefore decided it was inappropriate to make a penalty. It has instead issued a public censure to CFM whilst taking into account that Capita plc is supporting the obligation of CFM to make the payment of 66 million to the FCA.

The FCA has imposed on Paul Walter, a former Bank of America Merrill Lynch International Limited (BAML) bond trader, a penalty of £60,090 in relation to market abuse.

Mr Walter was an experienced trader who was found to engage in market abuse by creating a false and misleading impression to supply/demand for Dutch State Loans (DLS) in the market between July and August 2014. Although the FCA found Mr Walter not to have known his conduct amounted to market abuse, it was considered negligent of Mr Walter not to have known this.

Mr Walter’s action resulted in a profit of €22,000 to his trading book. The FCA has therefore imposed a £60,090 penalty.

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