Legal advice after baby loss
The Financial Conduct Authority published its Business Plan for 2016-17 on 5 April. Underlining its aim to ensure that the UK has an effective, innovative and trusted financial sector which meets the needs of its users, a number of core priorities for the coming year were set out. Louise Hodges and Julie Matheson examine what’s on the agenda for the next 12 months.
Key themes emerge from the plan: ensuring effective and proportionate regulation; tackling the problems of the past without inhibiting developments of the future; ensuring a sustainable approach to regulation; constructive deterrence; risk – and potential rewards – of technological innovation; proactive engagement and transparency. Seven key priorities are then set out.
In addition to treatment of existing customers, advice, pensions and technology and innovation, the FCA will continue in its ambition to reform banking culture as “poor culture and poor conduct are closely related”. It sets Firms’ Culture and Governance as a key priority. The FCA considers it vital that the financial services industry “continues to work to deliver its own cultural change” as the “industry’s goal to restore trust can only be sustainably achieved by this route.” The plan underlines how “while the specific design of governance arrangements provides an infrastructure for how firms are run our focus is in on their effectiveness”. The FCA is looking for leadership in delivering cultural change with clear indicators that the drivers of culture are measured, monitored and managed.
Certain risks associated with culture and governance are set out. The plan underlines how poor cultures in firms drive behaviours that result in poor outcomes for consumers and markets. It raises a warning flag in circumstances where firms’ strategies, business models and governance arrangements are not aligned with firms’ values and good conduct. The FCA’s view is that weak governance and lack of accountability create poor oversight of risks to customers and market integrity risks in how firms are run – incentive structures and performance management being key areas of concern.
Holding Senior Managers to account
With the Senior Managers and Certification Regimes having commenced on 7 March 2016, firms’ Senior Managers remain in the spotlight. The plan sets out the crucial role Senior Managers have in demonstrating that they are accountable and responsible for their part in delivering effective governance. Firms’ responsibilities maps and individual Senior Managers’ statements of responsibilities will be used throughout the regulatory lifecycle, including when approving individuals, supervising individuals and firms and considering enforcement. These tools will further help the FCA to identify and assess key senior individuals in the context of their management and governance arrangements. Relevant firms will also need to carry out fitness and propriety checks on all individuals subject to the Certification Regime, and comply with notification and training requirements for the application of conduct rules to all but ancillary staff. The FCA intends to use 2016-17 to embed this new approach and begin developing the policy on extending the accountability regime to all FSMA firms. Such provisions are included in the Bank of England and Financial Services Bill making its way through Parliament.
Tackling financial crime; strengthening AML controls
One of the core priorities of the FCA this coming year will be to tackle money laundering and financial crime. The FCA seeks to ensure that the UK financial system is a hostile sector for money launderers. It will undertake proactive supervisory assessments of firms whose business models present a higher inherent risk of money laundering and roll out the ‘Financial Crime Annual Data Return’ whereby firms submit an annual data return on financial crime risks. Where FCA finds firms with material weaknesses in their money laundering controls, it will use its enforcement powers to send a deterrent message to the industry and/or impose business restrictions to limit the level of risk. It will refer cases to law enforcement. The FCA hopes to secure, in the medium to long term, an improvement in firms’ AML controls and an improvement in the perception of the UK’s AML regime from international assessors and overseas authorities.
Scale of the challenge ahead
When Andrew Bailey takes over the helm from Tracey McDermott in July, he will preside over a body that regulates over 56,000 firms and 125,000 approved persons. With an annual funding requirement of £519.3 in 2016/17 (an uplift of 7. 8% due to Consumer Credit firms) and a financial penalty rebate, estimated to be £49.6 million, this may be no small feat. In addition he will be under intense media pressure and parliamentary scrutiny to demonstrate that he is not in the pocket of the Treasury.
The 2015/ 2016 financial year proved to be significant for the FCA: in particular, the Senior Managers and Certification Regimes were brought to fruition, emphasising the FCA’s approach to ensuring standards are met, whilst demonstrating its supervisory approach in allowing authorised firms more autonomy in decision making, particularly in carrying out ‘fit and proper’ assessments. The 2016/2017 plan looks to build upon this: we will monitor with interest whether the proposed initiatives will result in the public’s perception of the financial sector being more effective, innovative and trusted, as is the FCA’s objective.
Partner and Head of Department
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