FCA Updates - July 2021

LIBOR—six months to go

Mark Ford and Warren Radloff

5 July 2021

Edwin Schooling Latter, FCA Director of Markets and Wholesale Policy, spoke about the importance of ensuring that the industry is ready for the discontinuation of LIBOR at the end of 2021. This speech was delivered at UK Finance’s Commercial Finance Week.

It has been four years since the FCA announced that LIBOR would be scrapped at the end of 2021, and many challenges have been overcome, including moving sterling markets (in bonds, securitizations, linear swaps, loans and non-linear OTC derivatives) from LIBOR to overnight Sterling Overnight Interbank Average Rate (SONIA).

Latter outlined two key areas of focus for the rest of the year:

• Legacy conversion—ensuring that all legacy contracts that can be converted are converted by the end of the year (the next Risk-Free Reference Rates Working Group milestone is for sterling to be completed by the end of Q3 2021).
• USD market transition—while the USD panel (and the five more commonly used USD LIBOR panel-bank settings) are continuing until the end of June 2023, this is only for legacy transactions. USD LIBOR will not be used for new transactions by the end of the year.

The FCA is currently consulting on the implementation of synthetic LIBOR rates for six sterling and yen LIBOR settings. The FCA will then consult on precisely which legacy contracts will be able to use these synthetic rates, and a final decision is expected in Q4 2021.

The full text of the speech, as drafted, can be found here.

Fund managers falling short on assessing the value of their funds

Lauren Foulstone and Darragh Finn

6 July 2021

Following the FCA Asset Management Market Study, which was completed in 2017, the FCA implemented a requirement for AFMs to carry out an Assessment of Value (AoV) at least annually. 

During July 2020 and May 2021, the FCA conducted a review of 18 AFMs in order to assess how they had implemented the AoV arrangements, and it was found that most did not meet the expected standards. 

AFMs are required to assess whether the fund fees are justified by the value provided to investors using a set of minimum considerations, details of which must be reported to investors. While the FCA found that some managers were performing the assessment as expected, many made assumptions that could not be justified to the FCA, which ultimately undermined the credibility of their assessments. The FCA found that many managers did not take into account what the fund should deliver given its investment policy, investment strategy and fees when considering the fund performance. Instead, managers were spending a disproportionate amount of time looking for savings in administration service charges as opposed to the more significant asset management and distribution costs. Other firms did not meet the expected standards because they used poorly designed processes that resulted in incomplete assessments. Overall, the FCA expects more rigour from AFMs when assessing value in funds. The FCA expects firms to take the findings onboard and intends to review firms again within the next 12 to 18 months. 

The full article can be found here. 

Guilty of forgery

Kristian Sotiriou and Peter Ray

13 July 2021

The FCA has charged a man with forgery. He has pleaded guilty and will be sentenced on 24 September 2021.

The charge was in respect of events that occurred following action concerning several unauthorised collective investment schemes, which ended in a ruling against various defendants in 2018. At the conclusion of these proceedings, they were ordered to pay £16.9 million in restitution to investors. 

The defendant forged a trust deed that hid the interest in a property that fell within the compensation order. 

The property has now been sold and proceeds distributed to investors.

The full article can be found here.

FCA bans convicted fraudster from carrying out regulated activity

Laura Febbrari and Alex Lander 

14 July 2021

The FCA has banned a company director from performing any regulated activity. This decision follows an FCA investigation that found that the individual failed to inform the FCA about their bankruptcy and their disqualification as a company director.

The individual was also convicted of dishonesty offences under the Insolvency Act 1986. The FCA found that the individual “lacked honesty and integrity” in respect of their dealings with the Authority.

The individual was approved to carry out FCA-regulated functions for a firm between January 2005 and December 2019. They were also the director of a company not regulated by the FCA between January 2002 and April 2013. Between February and August 2012, the individual dishonestly executed eight transfers that removed £166,000 from the unregulated firm’s accounts.

The individual provided an undertaking that disqualified them from holding office as a company director in March 2016. In June 2016, they became aware they were the subject of a criminal investigation for executing fraudulent transactions. As an approved person, the individual was required to report the fact of their disqualification and the fact they were under criminal investigation to the FCA but failed to do so.

Although the individual challenged the decision to prohibit, their appeal was ultimately withdrawn.

The full article can be found here. 

FCA Business Plan 2021/22

Laura Febbrari and Warren Radloff

16 July 2021

The FCA has published its business plan for 2021/22. The business plan outlines the FCA’s role, consumer priorities, wholesale markets priorities, priorities across all markets and its budget. 

The FCA plans to take forward the four priorities it identified in last year’s business plan and its new Consumer Duty. It will continue to enhance market integrity by reinforcing the effectiveness of UK wholesale markets and enhancing its supervisory approach to specific issues. It will also focus on six of the most important cross-market issues: fraud, financial resilience, operational resilience, improving diversity and inclusion, enabling a more sustainable financial future and international cooperation. 

In response to the challenges brought by the pandemic, Brexit and climate change, the FCA plans to be more: 

• Innovative by taking advantage of data and technology to increase its ability to act decisively in the interests of consumers;
• Assertive to test the limits of its powers and engage with partners to make sure they bring their powers to bear; and 
• Adaptive by constantly learning and adjusting its approach as consumer choices, markets, services and products evolve.

The full business plan can be found here.