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FCA Business Plan 2019-20: priority to make the UK’s financial markets a difficult target for criminals
Louise Hodges
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.
HM Treasury has published a draft statutory instrument which, when brought into force, will introduce a new regulatory regime for cryptoassets in the UK.
On 6 February the House of Lords Financial Services Regulation Committee published its response to the latest iteration of the FCA’s proposals to “name and shame” firms under investigation by the regulator.
In March 2024 the FCA published a clear warning to those advertising trading and investments on social media about the risks of doing so, making it clear that it will “will take action against those touting financial products illegally.” Just two months later, in May 2024, the regulator announced that it had commenced criminal proceedings against a number of individuals for advertising foreign trading schemes on their social media platforms.
The FCA is conducting a review into whether motor finance customers were overcharged as a result of the widespread use of discretionary commission arrangements in the motor finance industry. It had expected to set out its next steps in light of this review in September 2024. However, it has announced that it will not now do so until May 2025.
Maintaining the integrity and cleanliness of the financial markets remains a key FCA priority and, indeed, is a statutory legal obligation on the regulator. Against that, however, is the fact that FCA’s track record in taking enforcement action against insider dealing and other forms of abusive behaviour is relatively poor. Since 2017 it has only achieved three criminal convictions for insider dealing, whilst its record for imposing civil fines on firms and individuals for breaches of the Market Abuse Regulation (“MAR”) is also unimpressive.
The FCA’s long awaited anti-greenwashing rule came into force on 31 May 2024. This rule is part of the wider Sustainability Disclosure Requirements regime and reflects the FCA’s strong commitment to ESG and to supporting the Government’s commitment to achieving net zero by 2050.
The FCA’s recent consultation (CP24/2) on changes to its enforcement process has provoked what appears to be unanimous opposition from government and industry bodies. Of particular concern is the proposal in consultation paper (“the CP”) that the FCA will publish information about its enforcement investigations, including the identity of the subject of the investigation, where it assesses it to be in the public interest to do so.
For firms regulated by the Financial Conduct Authority (FCA), it is vital that the business – and its relevant employees – ensure that its conduct is without reproach in order to avoid supervisory or regulatory difficulties. This extends to issues of governance and administrative matters, as well as more obvious issues of conduct (such as, for example, financial misconduct) which often receive more press.
This article first featured in Employee Benefits in November 2023.
A recent sequence of adverse decisions by the Upper Tribunal could have significant implications for future Financial Conduct Authority cases.
Under the Senior Managers and Certification Regime (“SMCR”), which was introduced by the Financial Conduct Authority (“FCA”) to seek to remedy perceived industry wide failings following the 2008 financial crash, regulated staff must meet certain standards of fitness and propriety and will be personally accountable to the FCA for any failure to do so.
Firms covered by the SMCR are required to assess, both at the point of recruitment and on an annual basis, whether SMCR staff are fit and proper to perform their role. In the case of senior managers, firms that are covered by the regime must also seek approval from the FCA prior to appointment and in many cases the FCA may wish to closely scrutinise any such application.
Non-financial misconduct has been an area of increasing regulatory focus for the Financial Conduct Authority (FCA) over the last five years. To date, published regulatory outcomes have focused on the most egregious end of the spectrum, with the FCA handing out bans and fines for those already convicted in the criminal courts of serious sexual offences. However, these cases provide little guidance for FCA-regulated firms grappling with allegations of more nuanced conduct, such as the inappropriate use of social media on a personal
Pre-Brexit, some 8,000 financial services firms based in the EA or EEA relied on the mutual passporting regime to do business in the UK. Since 1 January 2021, such firms have been able to operate under a transitional temporary permissions regime (TPR). While some of those firms have now exited the UK market, most of those intending to continue to operate here are required to apply for full UK authorisation. The deadline for applications is 31 December 2022.
The FCA’s transformation to becoming an assertive, front footed regulator has been accelerated by three recent developments, all of which prioritise the protection of consumers.
This half-year update provides an overview of recent enforcement activity by the Financial Conduct Authority (“FCA”) in the period from January to June 2022.
As the cost of living continues to rise, and subsequent demand for credit increases, the FCA has been clear with lenders as to its expectations for their treatment of customers. Indeed, with inflation predicated to reach 14%, consumers will see a significant reduction in disposable income and many may experience financial vulnerability for the first time. In this context, the FCA has clearly identified that a potential increase in dependence on credit poses significant risks to consumers.
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’.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
Louise Hodges
Anna Holmes
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