FCA Updates - December 2021

FCA Confirms New Listing Rules to Boost Growth and Innovation on UK Stock Markets

Sascha Cordonnier and Darragh Finn

The FCA confirmed that new rules regarding the listing of firms on UK stock markets would come into force on 3 of December 2021, being applicable to Initial Public Offerings (IPO) from 2022.

The new rules will aim to maintain the UK stock market as an attractive and dynamic marketplace, drive economic growth and innovation, and increase investors choice while ensuring their protection.

The changes to the rules include:

• Implementing a form of dual class share structures for the premium listing segment to encourage innovative, often founder-led, companies onto public markets sooner.
• Reducing the amount of shares an issuer is required to float before being listed from 25% to 10% 
• Increasing the minimum market capitalization from £700,000 to £30 mn for premium and standard listing segments in ordinary commercial companies, which will give investors greater confidence and clarity about the types of company admitted to those market segments

This change come after recommendations made in the UK Listing Review and the Kalifa Review of UK FinTech, following a sharp fall in the number of UK listed companies.

The FCA plans to also reform the structure of the listing regime in the UK in 2022.

Read the full statement here.

2021 Joint Survey Findings Published by the FCA and Practitioner Panel

Vishan Singh and Alex Lander

The FCA published the findings of a survey in respect to its perceived performance as a regulator. The survey had a response rate of 29%, which totals 3,833 firms completing the survey. 

The FCA stated that it will utilise the findings as part of its transformation process.

According to the FCA, the key themes from the feedback include: 

• A positive view of the FCA’s performance during the pandemic. According to the survey, 87% of respondents felt that the FCA had supported their firm “very or fairly well.” 
• Some firms felt that the FCA had a reactive approach to risk with some firms concerned that there may be significant or emerging risks that the FCA is not aware of. This view was particularly pertinent in the retail investment space.
• Smaller firms are not engaging with the formal consultation process. The FCA intends to make it easier for firms to respond to consultations, including rolling out a new online response process. 
• Firms are unclear about why the FCA collects the data requested. Only four out of 10 flexibly supervised firms felt they understood all the reasons behind all the data requests.
• There were concerns surrounding the time taken for authorizations to be completed. The FCA referred to a new process that it hopes will ensure quicker and more effective decisions for consumers, markets and firms. The new process can be viewed here.

Read the full findings of the survey here.

FCA Introduces a New Consumer Duty

Kristian Sotiriou and Jane Stoakes

The FCA will be introducing a new Consumer Duty focused on improving the financial services experience for consumers. The new plans will ensure a higher standard of consumer protection and help prevent harm. The Regulator has seen firm practices that exploit consumers such as poor customer support and providing products and services that are not fit for purpose. Parliament has also called for a change in the standard of protection for consumers. 

The FCA’s new rules will shift the mindset of firms and drive a change of culture in the industry. They will require firms to focus on empowering their customers to make good financial decisions by acting in their best interests, providing information that is understandable and avoiding harm at all stages of the customer relationship.

The FCA’s consultation paper was published on 7 December, is open for comment until 15 February and final rules are expected by end of July 2022.

A new data led approach will be used by the regulator to intervene quickly when it identifies practices which do not deliver good outcomes for consumers.

Bank Fined for Anti-Money Laundering Failures

Peter Timson and Jane Stoakes

A major high street bank was fined £264.8m following three convictions for offences of failing to comply with money laundering regulations.

The bank failed to monitor the activity of a commercial customer between 8 November 2012 to 23 June 2016. The customer was onboarded on the proviso that the bank would not handle cash from their business, however the bank ultimately took around £264m from the customer in cash deposits out of a total of £365m deposited. Employees reported suspicions regarding these cash deposits but no action was taken. Red flags included deposits of Scottish bank notes throughout England and individuals behaving suspiciously when making deposits in branches. There was a further failure in the bank’s transaction monitoring system, which incorrectly recognized cash deposits as cheque deposits.

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, noted that “anti-money laundering controls are a vital part of the fight against serious crime, like drug trafficking, and such failures are intolerable ones that let down the whole community.” 

The bank in question pleaded guilty and this ruling represents the first time the FCA has pursued criminal charges for money laundering failings under the 2007 Money Laundering Regulations.

Read the full press release here.

Statement on Supervision of Commodity Derivatives Position Limits

Sascha Cordonnier and Alex Lander

The FCA set out its plan for operating MiFID markets after Brexit and the end of the transition period in a supervisory statement. It included changes in supervision and enforcement actions for commodity derivative position limits in light of issues that were highlighted during the pandemic.

Until 1 of January 2022, the FCA’s approach was to not take any supervisory or enforcement action on firms acting as liquidity providers with positions exceeding limits, when it is to satisfy their obligations on trading venues.

The FCA announced that this approach will continue beyond 1 January 2022, as it seemed to have no adverse effect.

Firms will need to evaluate if the positions they are taking are in the scope of liquidity providers, and the FCA warns that the positions should not be larger than necessary to fulfil this role. The FCA does not need to be notified of firms’ assessments, however, it can request firms to explain the assessment. The FCA also expects firms to reduce their positions in case of a breach, or if it is not truly acting as a liquidity provider.

This approach will be revisited if it appears there are market abuse risks, and the FCA reminds firms that this does not modify the expectations on firms to comply with market conduct obligations.

Read the full statement here. 

FCA Extends Temporary Measures for 10% Depreciation Notifications

Mark Ford and Alex Lander

The FCA announced that it would extend until 31 December 2022 the temporary measures for firms required to issue 10% depreciation notifications to investors that were originally introduced in March 2020.

The temporary measures were originally introduced as a result of market volatility linked to both Covid-19 and Brexit and are being retained whilst HMT concludes its Wholesale Markets Review, which has indicated support for amendments to this requirement or, indeed, it’s removal altogether. 

The FCA has set out what it expects firms to do, when dealing with retail clients, to avoid any action for breaching this requirement, which include:

• Issuing at least one 10% depreciation notification in the current reporting period, as required. 
• Informing clients they may not receive similar notifications in the current reporting period.
• Referring clients to relevant non-personalized communications.
• Reminding clients how to check their portfolio value.

Firms providing services to professional investors must have provided these clients with the opportunity to opt-in to receive 10% depreciation notifications.

Despite these temporary measures, the FCA continues to expect firms to have due regard to the interests and information needs of their clients and to continue to treat them fairly.

The full FCA statement can be found here.

FCA Publishes Decision Notice Against Hedge Funds

Tom Bevan and Peter Ray

The FCA published a Decision Notice against a hedge fund manager, detailing its decision to impose a financial penalty of £40,806,700 on the firm.

The manager has referred the case directly to the Upper Tribunal. The Tribunal will determine the appropriate action (if any) for the regulator to take.

The FCA considers that, between 1 October 2011 and 31 December 2015, the manager failed to manage a conflict of interest created by portfolio managers working on an external fund open to external investors and an internal fund with only its partners and employees as investors. The FCA found that the manager’s systems and controls did not manage the risk that portfolio managers’ investment decisions could be allocated in a way that favored the internal fund over the external fund. 

The findings in the Decision Notice are provisional; they only reflect the FCA’s views at this stage. The manager has yet to make representations.

The FCA has also decided to impose a requirement on the manager to pay redress to clients who have suffered loss as a result of its failings. This decision has also been referred by the manager to the Tribunal for determination.

Read more here.