A round up of the news from the Financial Conduct Authority in September.

Regulators Urge Consumers to be Wary of Pension Scams

The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) have reported that, since 2017, over £30 million has been collectively lost by individuals through pension scams. The regulators pointed to evidence that many know more about football finances than their own lifetime savings and have teamed up with legendary football commentator Clive Tyldesley to show there is no transfer deadline for pensions.

Scammers often use promises of guaranteed high returns on savings and time pressure tactics to persuade victims to part ways with their money. Scammers have targeted pension pots of various sizes, with losses ranging from less than £1,000 up to £500,000. 

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, encouraged consumers to use the Financial Services Register to verify the legitimacy of firms and to obtain advice from an FCA authorized firm prior to making any decisions about their pensions.

To protect themselves against a pension scam, the FCA and TPR have suggested that consumers should have regard to the following four steps prior to making any changes to their pension: 

  • Take time to do your research and do not feel pressured into making a decision;
  • Do not accept unexpected pension offers;
  • Visit the Financial Services Register or call the FCA helpline on 0800 111 6768 to verify the authorization of the firm you are engaging with;
  • Obtain independent information and advice.

To read the full article, please click here.

Amerdeep Somal Appointed as Complaints Commissioner

The FCA, the Prudential Regulation Authority (PRA) and the Bank of England announced the appointment of Amerdeep Somal as Complaints Commissioner.

The Commissioner oversees the final stage of investigations into complaints against the FCA, PRA and the Bank and the position is independent from the three organizations.

She replaced the previous Commissioner Antony Townsend on 1 November and will serve an initial term of three years.

On her new role, Amerdeep said:

“The Complaints Commissioner plays a critical role – not only in providing people who are unhappy with the financial regulators with recourse to an independent review but also in helping them focus more widely on where they could improve the experience of all their customers.”

Before starting her role, Amerdeep stepped down from positions as the independent assessor of the Financial Ombudsman Service, a council member on the General Medical Council, and as a senior independent panel member for public appointments at the Cabinet Office.

She retains her positions as a judge of the Asylum and Immigration Tribunal and as Chief Commissioner at the Data and Marketing Commission.

The press release can be viewed here.

Former CEO Censured for Market Misconduct

The FCA publicly censured the former CEO of a spread betting firm (the Firm) for offences relating to market abuse. The regulator also banned him from performing any roles linked to regulated activity.

The FCA initially imposed a financial penalty of £658,900, but after the CEO provided evidence of “serious financial hardship”, the regulator issued a public censure in its place.

The CEO of the Firm and its holding company (the Holding Company), was involved in drafting admission documentation ahead of the Holding Company’s flotation on the Alternative Investment Market of the London Stock Exchange in August 2007. The documents contained misleading information and omitted key information about the company. Specifically, the documentation did not mention that some of the Holding Company’s executives had made significant loans to the Holding Company and its subsidiaries. This was never disclosed in the annual company accounts. The documentation also did not mention an internal hedging strategy by which certain of the Holding Company’s subsidiaries hedged substantial trading exposures internally with company executives.

Additionally, large spread bets were placed on the shares of the Holding Company on the trading accounts of the Firm’s clients, on terms which made statements on the Firm’s credit policy in the Holding Company’s Annual Accounts false and misleading. Furthermore, large spread bets were carried out on two clients’ accounts by the CEO without the knowledge of his clients that gave the appearance of greater demand for the Holding Company shares than actually existed.

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said that the CEO misled investors and manipulated the market in a concerted and deliberate scheme. He should have no place in UK markets.

For more information, please click here.

Annual Report and Accounts 2019/2020 Published

The FCA published its Annual Report and Accounts, which reviews its key work throughout 2019/20.

Highlights from the FCA’s work this year are:

  • coronavirus measures implemented to support over 3.4 million consumers and thousands of businesses
  • preparations for EU withdrawal
  • extension of the Senior Managers and Certification regime
  • educating and informing consumers on scam prevention
  • improving protection for users of high-cost credit
  • imposing 15 financial penalties on firms totaling over £224m for misconduct
  • ensuring £135m was paid to customers for disclosure failings on enhanced annuities

The FCA’s Annual Report and Accounts can be found here.

FCA Looks to Improve the Consumer Investment Market

The FCA launched a Call for Input (CFI) in order to assist with shaping its work on improving the consumer investment market.

Reducing harm in the consumer investments market was identified as a key priority in the FCA’s 2020/21 Business Plan. The FCA has recognized that consumers continue to receive lower returns than they should due to unsuitable products with high fees, reducing consumer confidence in the suitability of advice which they receive. The feedback which the FCA receives from the CFI will shape its work in the coming years to deliver a market that works well for the millions of people who rely on it.

The CFI sought views on the following key questions:

  • What more can the FCA do to help the market offer a range of products that meet straightforward investment needs?
  • How can the FCA better ensure that those who have the financial resources to accept the risks of higher risk investments can do so if they wish, but in a way that ensures they understand the risk they are taking?
  • How can the FCA use the regulation of financial promotions to make it easier for people to understand the level of regulatory protections afforded to them when they invest?
  • What more can the FCA do to ensure that when people lose money because of an act or omission of a regulated firm, they are appropriately compensated and that it is paid for fairly by those who cause the loss?
  • How can people be better protected from scams?
  • How can the FCA help this market to be competitive, with firms striving to offer better products and services?

This CFI follows recent action by the FCA in the market. For example, a temporary ban was imposed on the mass marketing of speculative mini-bonds, which was then made permanent in June 2020. Further to the above, in 2014 the FCA launched its ScamSmart campaign to arm consumers with the knowledge and tools to help prevent them falling victim to investment and pension scams. Through the FCA’s supervisory work, it has taken action against pension transfer advisers where advice has been unsuitable.

The FCA is also developing a new consumer harm campaign to help consumers make better-informed investment decisions, building on the steps already taken through previous ScamSmart campaigns. The new campaign will seek to address the harm caused from consumers investing in high risk, high return, illiquid investments that are not necessarily suitable for their needs.

Read the article in full here.

Decision Notice Against Individual for Market Manipulation

The FCA published a Decision Notice in respect of an experienced trader and portfolio manager, partner and Chief Investment Officer of a financial services firm for market abuse. The FCA imposed a financial penalty of £100,000 and prohibited the individual from performing any functions in relation to regulated activity.

The individual has referred the Decision Notice to the Upper Tribunal. Accordingly, the proposed action outlined in the Decision Notice has no effect pending the determination of the case by the Tribunal.

The FCA considered that during a five-month period in 2017, the individual repeatedly placed large misleading orders in the market for Contract for Differences referenced to equities, which the individual had no intention of executing. At the same time, it is alleged that the individual placed smaller orders, which the individual did intend to execute, on the opposite side of the order book to the misleading orders. Through the individual’s large and misleading orders, the FCA has determined that the individual falsely represented to the market an intention to buy/sell when the true intention was the opposite. As well as this, the individual’s misleading orders were for volumes of shares far greater than the typical market size, which would also have created a false and misleading impression regarding the true supply of and demand for the shares in question to other market participants.

The FCA, who initially identified the trading undertaken through its internal surveillance systems, has concluded that the individual was aware of the risk that their actions might constitute market manipulation, but recklessly went ahead with those actions anyway.

The Decision Notice, which outlines the reasons for the FCA’s actions, can be found here.

A Regulatory Perspective: The Drivers of Culture and the Role of Purpose and Governance

Marc Teasdale, Director of Wholesale Supervision: Supervision Investment, Wholesale and Specialists Division (SIWS) at the FCA, delivered a speech at The Investment Association, Culture in Investment Management Forum, on September 17, 2020.

Mr. Teasdale began by explaining what the FCA means by culture, and particularly the 'drivers of culture'. When the regulator refers to culture, it means the typical, habitual behaviors that characterize an organization. The FCA has identified four factors that it believes are essential to defining that culture:

  • Leadership, which incorporates the tone that is set from the top, and how effectively that tone cascades through the firm.
  • People policies, specifically the types of behavior that are incentivized or disincentivized within the firm, and how this is done.
  • Governance, in the sense of how decisions are made within a firm.
  • Purpose, specifically within asset management.

Mr. Teasdale then discussed what purpose means to the regulator, which is a description of a firm’s business model, as well as the way in which it thinks about the social and economic contribution it provides. Mr. Teasdale asserted that a firm’s purpose should be clear and should be easily identifiable from a firm’s day-to-day operations.

He then asked what this means for the asset management sector, which he highlighted as a large contributor to the economy and a key provider for retirement. The answer, in essence, is that a firm should be able to explain to its staff and its customers what value its business proposition provides, and then to put real scrutiny into assessing the extent to which it delivers on that value: “Where there is mismatch, we expect firms to take action to improve the proposition they are offering to their customers. We would also say that purposeful businesses should be doing this anyway.”

Mr. Teasdale then added that governance does not merely refer to happenings at the senior level, but rather the broader set of processes, systems, controls and arrangements, by which decisions are made. Mr. Teasdale noted the inherent conflict in asset management between an Authorized Fund Manager (AFM) which has an obligation to act in the best interest of investors and a delegated investment manager whose services are being provided.

In his closing remarks, Teasdale covered the importance of diversity and inclusion in firm culture: “If the basic purpose of the asset management industry is to act in the best interest of investors, that must mean all investors, irrespective of their gender, ethnicity or other characteristics.” He also noted research that indicated that algorithms can result in discrimination between ethnic groups and this is an area that Firms should be mindful of.

To read the speech in full, click here.

Financial Regulators Publish Updated Regulatory Initiatives Grid

The UK Financial regulators published an updated Regulatory Initiatives Grid, which sets out the regulatory pipeline. The purpose of publishing the Grid is to enable the financial services industry to plan for these initiatives. The latest Grid includes the LIBOR transition, and preparation for the end of the EU exit transition period, and it can be viewed here.

A New Model for Financial Regulation in the UK

The FCA interim chief executive, Christopher Woolard, made a speech to the International Financial Services Forum before he stepped down addressing the evolution of a new model for financial regulation in the UK.

We live in an ever-changing regulatory environment, with previous trends accelerated by the COVID-19 emergency. Mr. Woolard addressed what the FCA has been doing to meet these challenges. The COVID-19 crisis has accelerated long-term trends such as the retreat from the high street and consumer adoption of tech-enabled business models, which risks leaving the less tech savvy behind.

There remains a demand for credit amongst more vulnerable consumers. With new developments in unsecured lending, this poses fundamental questions about how consumers who rely on such credit are to be protected.

The FCA has moved to prioritize consumer investment to see better outcomes: banning some of the riskier products and investigating bad advice. However, the FCA is still open to making further changes and is calling for input regarding this.

The FCA is reviewing how it uses data and analyses intelligence to efficiently regulate firms. The FCA must look to the future while taking lessons from the past to address challenges faced by the coronavirus emergency, new technology, new business models and the expectations of the public.

Read the full speech here.

Consultation on the Regulation of International Firms Launched

The FCA announced that it would like to hear views from industry participants on the authorization process and ongoing FCA supervision of international firms operating within the UK.

This consultation is pertinent to the following types of firms:

  • EEA firms that intend to seek authorization, then as Third Country Firms, in the UK in the future;
  • EEA firms entering the Temporary Permissions Regime;
  • Non-EEA firms, also Third Country Firms, that have applied or intend to apply for authorization in the UK; and,
  • Non-EEA firms, Incoming Third Country Firms, that are already authorized in the UK.

The FCA noted that it anticipates an increased number of international firms to seek authorization at the end of the Brexit transition period on December 31, 2020. Nausicaa Delfas, Executive Director of International at the FCA, commented that “Firms that have registered for temporary permission will need to consider plans for full authorization”.

The FCA remarked that due to the structure and operation of their businesses, international firms dealing with UK customers can produce different risks of harm when compared to UK-based firms. Therefore, the FCA is interested in receiving feedback on how to reduce such risks and the appropriate time at which an international firm should seek authorization as a UK-incorporated firm “for all or part of its business”.

The FCA reminded international firms that, as well as having a place of business in the UK, they must meet the same minimum standards as UK firms. Upon authorization, they must continue to meet these standards “which are designed to protect consumers and ensure the integrity of markets”.

The consultation closed on November 27, 2020. To read the FCA’ announcement in full, please click here.

Firms Begin Transition to RegData

The FCA announced that it will start the phased transfer of firms from GABRIEL to its new regulatory data collection platform, RegData, with the first Firms having transferred across over the weekend of October 17 -18.

All Firms will, in due course, receive emails from GABRIEL advising them of their moving date. Firms will not be able to access RegData until they and their users’ data have been moved across from GABRIEL, during this time they should continue reporting via GABRIEL.

The FCA also provided a checklist for Firms moving to RegData (here) and a series of helpful videos and step-by-step user guides (here) to take Firms and their authorized users through each aspect of the new platform. For an introduction to RegData, Firms can watch the FCA’s video on how to view their schedule (here).

The full FCA announcement can be found here.

Update Following Government COVID-19 Restriction Statements

The FCA published an update statement following the COVID-19 restriction statements made by the UK Government on September 22, 2020.

In light of this, the FCA has stated that firms should continue to follow Government advice on working from home until further notice. Where office workers can work effectively from home, the FCA have said that they should continue to do so over the winter months. Anyone who cannot work from home should go to their place of work.

We would also highlight the advice previously published by the FCA on the steps financial services firms should take in response to the pandemic. These include guidance on identifying key workers as well as the responsibilities of senior managers – these statements have also been updated to reflect recent developments and are available on the FCA website.

FCA Begins Criminal Proceedings Against Individuals for Market Abuse

The FCA began criminal proceedings against three former employees of an IT managed service provider, following the public censure of the company for market abuse in June 2020.

The former chief executive, the former chief financial officer and a former finance director were charged with making a false or misleading statement, a criminal offence that can result in a fine or up to seven years imprisonment. In addition, the former chief financial officer and former finance director were charged with false accounting and making a false or misleading statement to an auditor. The former chief financial officer was also charged with fraud by false representation. The three accused appeared at Westminster Magistrates court on September 23, 2020.

To read further, click here.

FCA FITRS Testing Begins

As part of the process of taking over the management of the transaction reporting regime in the UK, the FCA has built a Financial Instruments Transparency System (FCA FITRS), which will replace ESMA’s system. The FCA launched the industry testing period for FCA FITRS on October 5, 2020, and that announcement can be read here.

Update on Business Interruption Insurance Test Case Appeals Process

September 28, 2020 was the deadline for parties involved in the FCA’s Business interruption (BI) insurance test case to file a 'leapfrog' application, to appeal against the High Court’s Judgment to the Supreme Court.

The FCA confirms that it has filed its 'leapfrog' application. The FCA has intended to achieve clarity on affected BI policies. The FCA believes that clarity was provided in the initial judgment of 1September 15, 2020.

The FCA continues working with the eight insurers and two intervenors that participated in the test case to reach an agreement in principle on a range of issues whereby an appeal process would not be required, and payments would be made on eligible claims as soon as possible.

The FCA's 'leapfrog' application has been filed on a precautionary basis in the event that this agreement is not reached. The FCA understands that seven insurer parties have made similar precautionary applications.

To read the full article click here.

Companies House Reform to Reduce Fraud and Give Businesses Greater Confidence in Transactions

The UK’s register of company information, Companies House, recently announced enhanced identity verification measures for the appointment of Directors to UK companies. There has long been criticism of the lack of verification of data submitted to Companies House, with commentators feeling false data has been given credibility by being on the Companies House listings. We await confirmation of how the checks will be applied in practice, although Companies House have said it will be a digital verification process in order to minimize delays in incorporations and filings. We will provide a further update once further detail on the measures, and the timing of their introduction, is confirmed.

Read the original press release here.

Financial Services Compliance and Regulation

End-to-end governance, advisory and monitorship solutions to detect, mitigate, drive efficiencies and remediate operational, legal, compliance and regulatory risk.

Retained Compliance Support and Managed Services

With expertise in diverse regulatory frameworks, including the FCA, the SEC, AMF, SFC, MAS and more, Kroll offers practical support, from initial authorization to ongoing compliance support.

Global Regulatory Licensing Services

Kroll's expert compliance consulting team provides regulatory registration and licensing services taking the burden of regulatory requirements off business operators.

Regulatory Advisory and Assurance Services

Within our Regulatory Advisory and Assurance Services, we assist financial services firms in a range of engagements across our suite of subject matter expertise.