FCA Business Plan 2019-20: priority to make the UK’s financial markets a difficult target for criminals
Reports of COVID-19 related scams are already emerging, with Action Fraud expecting reports of fraud to continue to rise. The FCA has urged consumers, particularly those who are more vulnerable or susceptible, to be vigilant for financial services related scams over the coming months, including loan fee or advance fee fraud, good cause scams, high risk investments and the use of clone firms.
Given the current volatility of global markets, low interest rates and the financial uncertainty of many people, consumers may be enticed into investing or transferring existing investments into non-standard high risk investments, including investments in cryptoassets. Consumers should be wary of requests to pay upfront fees (often described as a deposit or administrative fee) and cold calls promoting investments that may turn out to be non-tradable, worthless, overpriced or even non-existent. Consumers should also be cautious of cold calls from purported claims management companies offering to help recover losses for the cost of a holiday or event such as a wedding cancelled due to COVID-19.
While markets remain extremely volatile, the FCA considers that UK markets have continued to operate in an orderly fashion. Increased volatility has led some European countries to introduce bans on short selling. To date, the FCA has not followed suit, noting that investment and risk management strategies typically rely on taking long and short positions and short selling is a critical underpinning of liquidity provision. Further, its analysis of recent market activity suggests that there is no evidence that short selling has been the driver of recent market falls.
In the coming weeks and months, the FCA will continue to monitor market activity closely and to take action where necessary to safeguard orderly markets. In doing so, and as market participants seek to benefit from increasing volatility, the FCA will no doubt seek to identify any abusive behaviour by market participants, such as insider dealing, market manipulation and other forms of market abuse. The FCA has made clear that despite its postponement of “non-critical” regulatory work, it is not changing its policy on enforcement action, especially where misconduct threatens consumers, orderly markets or firms.
The FCA expects firms to be taking reasonable steps to ensure they are prepared to meet the challenges that COVID-19 could pose to customers and staff, particularly through their business continuity plans. For example, it advises that if a firm has to close a call centre – requiring staff to work from other locations (including their homes) – it should establish appropriate systems and controls to ensure it maintains appropriate records, including call recordings if required. That being said, the FCA has also noted that some regulatory requirements, such as recording calls, may not always be possible when workers are working remotely. Firms should contact the FCA if unable to meet any such usual regulatory requirements.
The FCA also expects firms to be planning ahead and ensuring the sound management of their financial resources. For example, if a firm needs to exit the market, it will need to consider how this can be done in an orderly way while taking steps to reduce the harm to consumers and the markets. The FCA also notes that firms that have been set capital and liquidity buffers can use them to support the continuation of the firm’s activities. Firms should also consider the use of government schemes as part of their plans to ensure they can meet debts as they fall due. If firms are concerned that they will not be able to meet their capital requirements, or their debts as they fall due, they should contact their FCA supervisor with a plan for the immediate period ahead.
Companies and their auditors face unprecedented challenges in preparing and auditing financial information. This has significant potential ramifications for capital markets, investors and other stakeholders which rely on timely, accurate information backed by auditing.
In order to ensure that information continues to be made available for the proper functioning of the UK’s capital markets, the FCA, Prudential Regulation Authority (PRA) and Financial Reporting Council (FRC) have announced a series of actions including (a) a statement by the FCA allowing listed companies an extra 2 months to publish their audited annual financial reports; (b) guidance from the FRC for companies preparing financial statements; (c) guidance from the PRA regarding the approach that should be taken by banks, building societies and PRA-designated investment firms in assessing expected loss provisions; and (d) guidance from the FRC for audit firms seeking to overcome challenges in obtaining audit evidence.
The FCA also notes that in the current challenging environment, previous market practices relating to the timing and content of financial information and the audit work that is done must change. These changes are likely to include: (a) modified audit opinions where auditors have been unable to gather the necessary evidence to complete the audit in full; (b) the inclusion of disclosures that management is aware of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern; and (c) changes to timetables for publication of financial information that had been set before the full implications of coronavirus were clear.
For further information on the issues raised in this blog post, please contact a member of our criminal team.
Phil Salvesen is an associate in the criminal litigation team who specialises in advising individuals and corporates in relation to criminal and regulatory issues. His cases frequently involve serious allegations such as fraud, market abuse, insider dealing, money laundering, false accounting, bribery and corruption, electoral offences and anti-competitive behaviour.
Phil maintains a general crime practice and also advises on contentious regulatory issues in a range of other sectors, including matters involving the Financial Reporting Council (FRC), Institute of Chartered Accountants in England and Wales (ICAEW), Gambling Commission and CFA Institute.
In a case that attracted national media coverage and emphasises the crucial importance of regulatory compliance and the highest standards of professional conduct in the financial services sector, the High Court dismissed a breach of contract claim brought by an investment manager.
For the fourth year the FCA has published research on the changing relationship between consumers and cryptoassets. In spite of the pandemic, the strong upward trend in public engagement and media coverage has continued, with the FCA estimating 2.3 million adults now hold cryptoassets.
Global financial markets are preparing to transition away from the use of the London Interbank Offered Rate (“LIBOR”) and adopt an appropriate alternative risk free rate (“RFR”) by the end of 2021. What are the reasons for the move away from LIBOR, the progress to date in terms of identifying the Sterling Overnight Index Average (“SONIA”) as the most appropriate alternative rate in the Sterling markets, and the steps still required to be taken to ensure such markets are ready for the phasing out of LIBOR by the end of the year
At the end of last month, the Competition and Markets Authority (CMA) published a letter written to Danske Bank concerning its breach of the Small and Medium-sized Enterprise (SME) Banking Behavioural Undertakings 2002, following loans it had offered under the ‘Bounce Back Loan Scheme’.
As of 10 January 2021, all cryptoasset firms are required to be registered with the Financial Conduct Authority (FCA) under the Money Laundering Regulations.
FCA focuses on risks associated with unmonitored communications, including the use of unencrypted apps, such as WhatsApp, for sharing potentially sensitive or confidential information when working from home.
As we near the first anniversary of the extension of the Senior Managers & Certification Regime (SM&CR) to solo-regulated FCA firms, the first round of annual fitness and propriety assessments will be topping the to-do lists of many compliance professionals.
One of the impacts of the Covid-19 pandemic is that national income has fallen dramatically. In response to concerns from homeowners unable to meet their mortgage repayment requirements due to a drop in income, the Treasury and Financial Conduct Authority announced a ‘mortgage payment holiday’. This was the result of banks agreeing to allow mortgage-holders suffering from a drop in income to pause their repayments. A ban on home repossessions was put in place at the same time
The FCA announced on 5 November that it has banned three individuals from working in the financial services industry for non-financial misconduct.
How should regulated firms respond when issues come to light which call into question the fitness and propriety of a member of staff? In the second part of their series of fitness and propriety blogs, Jill Lorimer and Nick Ralph consider best practice. You can read the first part of the series by clicking here.
The Financial Conduct Authority (“FCA”) has recently provided information to their regulated firms as to good and bad practice relating to, amongst other things, the carrying out of fitness and propriety (“F&P”) assessments.
Research recently undertaken by the FCA has found that 5.35% of the UK population hold (or have previously held) cryptoassets where in 2019 this figure was 3%. For several years now the Government, the Bank of England and the FCA have been consulting on and considering how best to regulate this burgeoning market.
The news that Stephen Jones, head of UK Finance, has quit over "thoroughly unpleasant" personal comments he made in 2008 about financier Amanda Staveley, is a stark reminder to executives that their past behaviour may one day come back to haunt them.
The indications are that an increasing number of individuals are coming forward, particularly in the financial services sector, to call out wrongdoing.
Whilst the prime minister's broadcast on 10 May did not open the floodgates to City employers requiring staff to "return to work" enmasse, most firms are already drawing up plans for how that should be organised and many of us will have been thinking about what will happen when employers start to update their 'work from home' advice.
Coronavirus (COVID-19) is having an undeniably serious impact on businesses and the global economy. Everyone has been affected in some way. Sadly, the looming financial crash means that many businesses have been impacted to the extent that they will have to put cost-cutting measures in place in the near and mid-term future. For some individuals this will result in their role being put at risk of redundancy.
In a startling opening to a recent Newsnight, presenter Emily Maitlis began with the words “They tell us Coronavirus is a great leveller. It’s not. It's much harder if you’re poor."
Partners need to do what they would advise their own clients to do: be well prepared.
The moral arguments may well still apply but where salaries are less stellar, there may be more for an individual to lose on a relative basis and thornier issues to weigh on a practical level.
While plenty of people in all sectors are now working from home, designated key workers in the financial services industry are still being forced to go to work.
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