Civil Fraud Quarterly Round-Up: Q1 2021
The Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) (collectively “The Regulators”) and HM Revenue and Customs (HMRC) have agreed how they will share information and expertise in the future. This follows the Regulators’ joint investigation into their existing relationship with HMRC.
Their new agreement is aimed at enhancing their “understanding of banks and their behavioural responses to regulatory, tax and other changes” as well as helping them identify any significant issues undermining their objectives and enabling them to take necessary action to “address such issues more quickly and on a more coordinated basis”.
They believe that these operational changes will enable them to meet their needs “whilst continuing to respect the restrictions on Regulators in sharing confidential information obtained under EU Directives with HMRC”.
Background to their agreement
Their intentions were initially set out in their joint letter to George Osborne, the Chancellor of the Exchequer, dated 7 November 2014 (the “Joint Letter”) which they subsequently accepted to jointly publish on 14 November 2014, in response to the Parliamentary Commission for Banking Standards (PCBS)’s final report and recommendations of May 2013 and the Government’s published response to the PCBS of July 2013.
The agreed operational changes
They have agreed to:
Further to the PCBS’ recommendation, the PRA has also agreed that the National Audit Office (NAO) should undertake “a periodic review of how effectively the PRA uses its powers to promote information sharing with HMRC”. The FCA and HMRC have suggested that “the review scope be extended to include information sharing between both the Regulators and the HMRC”.
Information and technical assistance to be provided
The Regulators will provide information and technical assistance to HMRC regarding:
What has not been agreed
Contrary to the PCBS’s suggestion, the PRA has indicated that it believes that it cannot commission reports by skilled persons on a specific function of a bank’s business on behalf of HMRC, in order to advance HMRC’s objectives as a tax authority, as it would otherwise act outside its remit under Section 166 of the Financial Services and Markets Act 2000 (FSMA). This is because these organisations do not have functions and objectives similar to those of the PRA.
HMRC has however stated that, whilst it will continue to keep its powers under review, these powers are sufficient to meet its objectives, “including in areas highlighted by the PCBS such as tax risk management and financial transfer pricing”. This is because it already has “a range of information gathering and investigation powers to address the majority of tax and regulatory risks to enable it to achieve its objectives”. Section 36 to the Finance act 2008 enables it for instance to obtain “information about specific taxpayers where an issue has been identified or as part of a check”.
Whilst the Regulators and HMRC’s exchange and sharing of information is not new, it was usually undertaken on an ad hoc basis and depended on the individual contacts within the various entities. Under the proposed changes, it is expected the relationship between the Regulators and HMRC will be more structured.
The Regulators and HMRC have, in their Joint Letter, acknowledged that they will carry on sharing confidential information (this is, under Section 348(2) of FSMA, information related to a person’s business or affairs, not otherwise publicly available and which was received by the Regulators in the course of their functions under FSMA), unless relevant UK confidentiality rules restrict them to do so.
These rules include for instance the Commissioners for Revenue and Customs Act 2005 (CRCA) regarding HRMC’s disclosures to third parties and FSMA regarding the Regulators’ disclosures. There are also restrictions on the Regulators’ disclosure of Directive Information under certain EU Directives. All of these restrictions and their relevant exceptions are set out in Annex 2 of the Joint Letter.
It is worth noting that most of the disclosures by the Regulators to HMRC are anticipated to be in connection with related criminal investigations.
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