FCA Updates – April 2021

  • Warren Radloff is a director in the London office at Duff & Phelp
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  • Darragh Finn is a director at Duff & Phelps.
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Speech by Mark Steward, Executive Director of Enforcement and Market Oversight, Delivered at the AML & ABC Forum 2021

Mark Steward, Executive Director of Enforcement and Market Oversight, delivered a speech at the AML and ABC Forum on 24 March 2021. Mr. Steward examined the systems and controls failures behind recent high-profile financial crime and anti–money laundering sanctions. He also highlighted the risk of overly complex systems and controls as a lesson for firms in ensuring that the management challenge of maintaining the system does not obscure its key purpose of identifying and managing real risks faced by the firm.

Mr Steward explained that the FCA currently has 42 investigations ongoing into firms and individuals—25 investigations into firms and 17 investigations into individuals. These span systems and controls over politically exposed persons, customers with significant cash-intensive operations, correspondent banking and trade finance, and transaction monitoring. Investigating and prosecuting breaches of the Money Laundering Regulations, SYSC 6.3 and the FCA’s Principles for Business remain top priorities for the regulator for the year ahead.

Mr. Steward identified emerging risks as a key area of focus for the FCA. These include online investment promotions targeting offers from unauthorized firms and potential investment scams, as well as risks relating to cryptocurrency firms.

The full speech can be read here.

Securities and Exchange Commission (SEC) Environmental, Social and Governance (ESG) Risk Alert 

The SEC Division of Examinations has issued a Risk Alert on its review of ESG investing, noting an increased demand for ESG investment products. The SEC believes that this rapid growth in demand for ESG products, coupled with a lack of standardized ESG definitions, presents certain risks.

The Risk Alert highlighted observations from recent examinations of investment advisers offering ESG products and services. SEC examination staff observed some instances of potentially misleading statements regarding ESG investing processes and representations regarding the adherence to global ESG frameworks. Despite claims to have formal processes in place for ESG investing, the SEC noted a lack of policies and procedures related to ESG investing.

Other deficiencies highlighted by the SEC included:

  • Weak or unclear documentation of ESG-related investment decisions;
  • Compliance programs that did not appear to be reasonably designed to guard against inaccurate ESG-related disclosures and marketing materials;
  • Inadequate controls to maintain, monitor and update clients’ ESG-related investing guidelines, mandates and restrictions;
  • Proxy voting that may have been inconsistent with advisers’ stated approaches; and
  • Unsubstantiated or otherwise potentially misleading claims regarding ESG approaches.

However, the SEC noted that some firms did have effective ESG practices in place.

Please find a link to the Risk Alert here.

Regulating the UK as a Global Financial Centre

On 13 April 2021, Nausicaa Delfas, Interim COO and Executive Director of International at the FCA, gave a speech at the City & Financial Global’s Future of UK Financial Services Regulation Virtual Summit. Highlights included:

  • Regulating the UK as a global financial centre to international firms in the UK;
  • The FCA’s commitment to maintaining open and fair UK markets and regulating in the interests of consumers, competition and market integrity;
  • The need for firms serving UK customers and businesses to meet high standards, as well as the need for strong supervisory co-operation between our respective jurisdictions; and
  • Working with international colleagues to shape global standards, work towards regulatory convergence and co-operate on cross border issues.

Ms Delfas stated that the FCA’s newfound position, as a result of leaving the EU, will allow it to “have a new, more nimble approach to domestic policymaking” and that collaborative and effective working with global regulators will continue.

To read the full article, click here.

A Peer Review of the UK Remuneration Regime Published by the Financial Stability Board (FSB) 

The FCA and Prudential Regulation Authority (PRA) have released a statement on the FSB peer review on remuneration. The review notes the effectiveness of the domestic framework and the strong collaboration between the PRA and the FCA. The UK is the first FSB member to be monitored on the efficiency of its remuneration regime in the financial sector.

The report recognizes the emphasis UK authorities place on the importance of remuneration for setting incentives that are consistent with effective risk management and prudent decision-making to support the long-term viability of firms.

To further strengthen the remuneration framework, the FSB has made four recommendations:

  • Reviewing the interaction between the UK’s remuneration regimes and the senior managers and certification regime (SM&CR);
  • Improving the efficiency of data collection;
  • Considering other supervisory approaches for assessing the effectiveness of the regime; and
  • Providing additional guidance to the insurance sector.

Please find a link to the full article here.

FCA Bans and Fines Individual for Lack of Honesty and Integrity 

An individual who acted as a director, compliance officer and controlled function holder for a small financial advisory firm has been fined £68,300 and banned by the FCA from working in financial services. He knowingly performed a controlled function without approval and provided investment advice to retail customers although he was not qualified or approved to do so. This individual misled his fellow directors by falsely claiming he had passed the relevant exams required for him to continue advising. He also stated that he had applied to the FCA for approval as a CF30, but the FCA had not updated the Financial Services Register. The individual provided false information to the FCA and to his firm’s professional indemnity insurance provider. His actions led to liquidation of the advisory firm.

The FCA statement can be read here.

Nausicaa Delfas’ Appointment as Interim Chief Executive and Chief Ombudsman of Financial Ombudsman Service

The Financial Ombudsman Service has announced that Nausicaa Delfas, currently Executive Director of International and Interim COO of the FCA, will take up the role of Interim Chief Executive and Chief Ombudsman of the organization from mid-May.

Stephanie Cohen will join the FCA’s Executive Committee, taking up the role of COO in June.

Please see here for more information.

FCA: Sustainability and Technology Hires 

The FCA has hired Sacha Sadan to fill a newly created role as Director of Environment Social and Governance. The purpose of this role will be to develop policy and advocate for the FCA’s approach to sustainable finance.

Nikhil Rathi, CEO of the FCA, observed that “the FCA is rightly seen as an international leader on the role financial regulation should play in delivering a more sustainable and green future.” He outlined the FCA’s new requirement to “have regard to the UK target of net zero carbon emissions,” as requested in a letter of recommendations from the Chancellor of the Exchequer in March 2021. According to Nikhil Rathi, bringing Sacha’s experience to the FCA will help it to “accelerate this important work.”

In further hires, Ian Alderton has been recruited as CIO, and Ian Phoenix has been brought on board as Director of Intelligence and Digital. Both hires are geared towards the FCA’s transformation programme to build a quick and responsive data-led regulator.

Ian Alderton will be spearheading the FCA’s technological change programme to help the FCA regulate the 60,000 financial services firms within its remit.

Ian Phoenix will focus on enhancing the FCA’s intelligence and surveillance capabilities, as well as disrupting harmful online activity by leading on digital work.

Please find a link to the full press release here.

FCA Business Plan 2021/2022 

On 20 April 2021, the FCA announced that it will publish its 2021/2022 Business Plan in July, rather than April. The business plan will be published alongside its 2020/2021 Annual Report and Accounts, and it will include an update on its plans for transforming the FCA.

To read the full article, click here.

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