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.
On 13 May 2022, the FCA published a final refusing Alexander Jon Compliance Consulting Ltd.’s (“AJCC”) application for authorisation to provide regulatory hosting services. There is no specific definition of what a regulatory host is, but the FCA generally regards it as a commercial arrangement whereby an authorised Principal firm appoints and oversees a number of unconnected Appointed Representatives (“ARs”) which operate across a range of markets.
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
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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.
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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.
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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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