Issue 83 - August 2021

Welcome to the latest edition of Gem Compliance’s monthly regulation newsletter. The aim of the newsletter is to present a summary of relevant industry news which has occurred during the month in an easily digestible format. As such, not all sources of industry information or FCA publications (and no PRA publications unless specified) may be included.  

Clients and associates of Gem Compliance should periodically check the FCA’s, and where relevant, the PRA’s websites for regulatory developments. We hope you find this newsletter useful and should you have any feedback, compliance queries or require advice on any of these topics, please do not hesitate to contact us.


Other Newsletters & Updates

Many of the headlines in August have been concerned with the collapse of the government in Afghanistan and the taking of control of the country by the Taliban. In response, OFSI has issued a reminder to firms that the Taliban has a number of sanctioned individuals and suggests conducting enhanced due diligence on relevant clients and transactions. Whilst Afghanistan has not yet been formally recognised as a high-risk jurisdiction by the Financial Action Task Force or listed as such in the Money Laundering Regulations, it would be prudent for firms to treat it as a high-risk country. On 31st August, the FCA has issued a statement about the potential financial crime links to Afghanistan intimating the same approach.
August has been a relatively quiet month for publications from the FCA. However, its work on the new Investment Firm Prudential Regime continues with a further consultation paper and policy statement issued in August, both of which are summarised in this edition of the newsletter. The FCA confirmed its plans to issue its fifth COVID-19 impact survey to tranche 2 firms between 23rd and 25th August, and, following feedback from firms that they are confused about the processes to follow to ensure the details the FCA  holds are correct, the FCA updated its webpage on firm details and directory persons setting out the steps to follow in relation to firm details and directory persons. The FCA has also set out how to apply to the second phase of its pilot digital sandbox, which is focussing on providing support to innovators looking to develop and validate solutions in the area of ESG data and disclosure.
At the EU level, on 2nd August the EU’s Regulation and an amending Directive on the cross-border distribution of funds, which aim to address several barriers to the efficient marketing of investment funds, came into force across member states, and ESMA published some accompanying guidelines on marketing communications at the same time, which are summarised in a feature below.  Draft guidelines for AML/CTF governance under the 4th Money Laundering Directive, which was implemented in the UK through the Money Laundering Regulations 2017, were also issued and covered below.
In other news, Google’s new financial services advertising rules came into force on 30th August, which will include, amongst other things, Google asking for the FCA number of the firm responsible for the advert. Google will also follow up directly with relevant firms where it receives reports of misleading or fraudulent adverts. 
The latest policy developments updates can be found here, which was last updated in June.
There have been no other regulatory newsletters issued in August. 

Main Features

1. PS21/9: Implementation of Investment Firms Prudential Regime 

This is the second of a series of policy statements on the proposed rules for the Investment Firm Prudential Regime (IFPR), which is due to come into force on 1st January 2022.
PS21/9 summarises the feedback received to consultation paper (CP) CP21/7, which contained proposals on: the own funds requirement (OFR); basic liquid asset requirement; the introduction of an ICARA (internal capital and risk assessment) process for firms to determine any additional own funds and liquid asset requirements, in addition to the OFR and basic liquid asset requirement, in order for firms to meet an Overall Financial Adequacy Rule (OFAR); remuneration requirements; and regulatory reporting requirements. 
The FCA reports that most respondents supported the proposals and the FCA has mostly implemented them as consulted on. However, it has made some amendments to provide more clarity on some of the feedback received. Chapter 15 of the PS provides a detailed summary of the amendments to the Handbook text consulted on in CP21/7 including those that are described elsewhere in the PS and those changes the FCA has made so that the rules work as intended. 
Near-final rules are attached to the PS, which will be made final once the Financial Services Bill receives Royal Assent and the relevant statutory instruments are in place. However, the FCA doesn’t expect to make any further changes to the rules unless essential to ongoing policy work. The FCA has published its final CP on the IFPR (also summarized in this newsletter) and will publish a further PS in Q4 2021 bringing together all the final rules. Firms should regularly visit the FCA’ dedicated webpage on the IFPR for updates, access to relevant publications and practical guidance. 
Some of the main changes to CP21/7 are:
Scope and application of regime:

  • MiFIDPRU will apply to CPMI (collective portfolio management investment) firms.
  • Tied agents also in scope to a degree.
  • FCA has changed its definition of small and non-interconnected (SNI) firm following feedback on two K-factors. 
Risk management, ICARA and SREP:
  • The FCA has clarified the types of firms that should conduct more in-depth stress testing and reverse stress testing, as well as what would be an ‘imminent and credible’ recovery. 
  • The FCA has also provided an example on how a firm might determine the potential harm caused by a cyber incident. 
  • In addition, the FCA has set out what firms with existing individual capital guidance (ICG) or individual liquidity guidance (ILG) should do and when they need to submit their first ICARA questionnaire, MIF007. The FCA will also let these firms know that it will be sending them a transitional questionnaire to help the FCA assess if their existing guidance remains appropriate. 
MIFIDPRU Remuneration Code - scope and application: The FCA has made changes to clarify:
  • how the MIFIDPRU Remuneration Code applies to FCA investment firm consolidation groups, 
  • how the requirements apply in situations where a firm or material risk taker (MRT) is subject to more than 1 remuneration code, 
  • how non-SNI firms should calculate the metrics they will use to determine whether they are subject to the extended remuneration requirements, and 
  • that the Code applies to carried interest, but the FCA has also added a rule which disapplies some variable remuneration requirements to carried interest arrangements that meet certain conditions.
Applications and notifications: 
  • The FCA will require separate forms for each MIFIDPRU permission application and notification. Further improvements have been made to the forms but there has been no change to the substance of the forms. All application and notification forms will be available through Connect in the Autumn.  
  • After considering the practicalities of charging fees for a small number of MIFIDPRU applications, the FCA has decided not to introduce this proposal at this stage and will, instead, recover its costs through annual regulatory fees. However, the FCA will consult on recovering its costs for larger permission applications through the Special Project Fees model, which it will outline in the fees policy CP due out in the Autumn. 
  • With the publication of the near-final rules in this PS, the FCA has introduced a new MIFIDPRU supplement form in Connect to enable it to collect information from applicant FCA investment firms to assess their ability to meet the IFPR requirements in advance of the new regime coming into force. It will also ensure that firms can set be up on the appropriate reporting schedules once their applications have been determined.

2. CP21/26: A new UK prudential regime for MiFID investment firms 

CP21/26 is the 3rd and final CP in the IFPR series and should be read in conjunction with policy statements, PS21/6and PS21/9. Draft legal rules in this CP also include certain non-material additions and amendments to the text, such as updating cross-references and terminology.
The Consultation period closes on 17th September 2021. Once the FCA has considered the feedback, it will publish a final PS and final rules for the whole regime in autumn 2021.
This CP covers the following sections and some of the key proposals under each heading have been included, but firms in scope of the regime should review the CP itself and all other CPs and PSs in the series to ensure they fully understand and can properly prepare for the impacts of the regime before it comes into force on 1st January 2022:
Disclosure – chapter 3 

  • The FCA’s external disclosure proposals have been summarized in the extracted table below from page 11 of the CP (AT1 = additional tier 1)
  • The FCA expects firms to consider what information is likely to be relevant to investors and other stakeholders.
  • Disclosure should be easily accessible and understandable by all stakeholders. Therefore, the FCA is proposing disclosures to be made in an easily found and accessible part of their websites. For firms that don’t have websites, firms could publish or provide the information in an annual report or investor brochure. 
  • The FCA is not proposing that firms disclose their ICARA document.
  • Templates are not being proposed for risk management disclosures, but the FCA provides examples of information firms may consider relevant to disclose.
  • Templates will be provided for own funds, own funds requirements and investment policy disclosures. 
  • All non-SNI firms will be required to disclose the number of directorships held by each member of the management body, broken down into executive and non-executive directorships. Non-SNI firms will also be required to publish a summary of their policy promoting diversity of the management body, a policy requirement of all FCA investment firms. 
  • All FCA investment firms must make some disclosure on their remuneration policies and practices. This will be qualitative and quantitative and proportionate to the size and type of firm.
  • Apart from the governance arrangements already mentioned, environmental, social and governance (ESG) related disclosures are not being consulted on in this CP. The FCA will consult specifically on ESG disclosures in a subsequent CP. 
Own funds – excess drawings by partners and members – chapter 4: The FCA is proposing a rule to address the situation where excess drawings can be made by partners in a partnership or members in a limited liability partnership (LLP) without being recorded as a loss and is, instead, treated as a loan to partners or members. Under proposed rule MIFIDPRU 3.3.6R, the FCA will require an FCA investment firm, that is a partnership or LLP, to deduct excess drawings by its partners or members which exceed the profits of the firm. However, this does not apply to the extent that the amount is already: 
  • deducted from the firm’s own funds as a loss for the current financial year, 
  • offset by new capital contributions from other partners or members where permitted, or
  • reflected in a reduction of the firm’s own funds that was permitted under articles 77 and 78 of the UK CRR (Capital Requirements Regulation).
Technical standards – chapter 5: In most cases, the FCA is proposing that firms should apply the onshored technical standards with specific modifications that are set out in MIFIDPRU. These modifications are included in MIFIDPRU so that the Binding Technical Standards (BTSs) work in the way they should with the IFPR. However, the FCA believes that 2 of the BTSs (listed below) would make the rules difficult to follow if there were too many amendments and cross-references back to the corresponding BTS, so the FCA intends to incorporate these into a MIFIDPRU annex:
  • Commission Delegated Regulation (EU) No 241/2014 regarding own fund requirements for institutions – CRR Own Funds BTS.
  • Commission Delegated Regulation (EU) No 2016/101 regarding prudent valuation under Article 105(14) – CRR BTS on prudent valuation.
Depositaries – chapter 6:
  • The FCA proposes to amend the requirements that depositaries must meet so that they no longer need to have the permission to deal on own account. 
  • Allowing other FCA investment firms to act as a depositary where they also provide the MiFID ancillary service of safe-keeping and administration of financial instruments is also being proposed.
  • A change to the minimum own funds requirement is being proposed and the relevant requirement will be moved from FUND and COLL into MIFIDPRU.
UK resolution regime – chapter 7: This chapter covers changes to the FCA’s Handbook to implement the Treasury decision to remove FCA investment firms from the scope of the UK’s resolution regime.
Consequential amendments – chapter 8: This chapter covers the remaining consequential amendments needed to:
  • delete provisions that are no longer required,
  • ensure that the interactions between them and MIFIDPRU work in practice.

Enforcement of Part 9C of FSMA (introduced by the Financial Services Act 2021) – chapter 9: Part 9C gives the FCA new supervisory, investigative, and disciplinary powers over non-authorised parent undertakings of FCA investment firms. These new disciplinary powers will enable the FCA to take action against undertakings and persons knowingly concerned in a breach by the parent undertaking of any obligations directly imposed on the non-authorised parent undertaking by the FCA. Under the new Part 9C, a prohibition order can be made against an individual, a breach of which is a criminal offence. As such, relevant chapters of the FCA’s Handbook (DEPP and EG) will be updated accordingly.
Applications and notifications – chapter 10: A specific notification form for changes to investment firm groups is proposed along with generic application and notification forms for specific requirements arising from the various technical standards the FCA proposes to incorporate into MIFIDPRU.

3. CP21/25: Changes to the FCAs decision-making procedure

The FCA has the same expectation of itself as it has regulated firms and individuals, which is to be equipped with up-to-date procedures that keep pace with the constantly evolving financial environment. Furthermore, the FCA believes it is imperative to develop its capabilities as the world becomes more complex. Therefore, adapting effective procedures will further enable them to pursue confident and well-informed choices. 
One such way the FCA is transforming is through its proposed new approach to issuing statutory notices, outlined in CP21/25. Through this transformation programme, it aims to be more robust and assertive in the decision-making process, also to prevent harm faster and more effectively. As a result, the FCA intends to alleviate some decision-making responsibility from the Regulatory Decisions Committee (RDC) and transfer it to its Authorisations, Supervision and Enforcement Divisions.
This Consultation Paper is relevant to and will affect all regulated firms and consultation period closes on 17th of September 2021. The FCA aims to publish a Policy Statement and, subject to the responses to the consultation, implement the revised framework in or around November 2021.
Key proposals:
  • The FCA proposes that the decision to issue a statutory notice on the following issues is made under Executive Procedures rather than by the RDC:
  • Authorisations (refusal of permission)
  • Straightforward cancellations (e.g. threshold conditions)
  • Interventions (variation of permission and imposition of requirements that are either fundamental or non-fundamental)
  • Approvals to commence civil or criminal procedures
The aim for this proposal is to place greater emphasis on individual responsibility and accountability for decisions by having more decisions made by senior FCA staff rather than by RDC members who, aside from the Chair, are not FCA staff. This will mean more decisions are taken within the FCA division with responsibility for the issue. For example, decisions regarding authorisation applications will be made within the Authorisations division. This will provide a more flexible approach, allowing decisions to be made faster, more effectively and efficiently.  
After proceedings have commenced, the FCA’s conduct will be subject to and governed by the Court’s case management powers. 
However, the RDC will remain the decision maker in cancellation cases where the FCA has opened an investigation, is proposing disciplinary sanction or is seeking to impose a prohibition order.
  • Amend the definition of a Senior Staff Committee meeting, so that it would comprise a minimum of two, rather than three people. 
  • For statutory notice decisions to be made under Executive Procedures, the FCA permits recipients of statutory notices, in exceptional circumstances, to make oral representations. The FCA proposes that these could be made in addition to written representations or as an alternative. 
  • Removal of the requirement for urgency where the FCA believes it necessary to act on its own initiative, as set out in Enforcement Guide 8.3. The focus, instead, will be on the seriousness of the situation including risk of loss for consumers, financial crime risks, where the FCA has been misled, or where the FCA has such serious concerns that the firm’s ability to satisfy the threshold conductions is questioned. 
4. ESMA Guidelines on marketing communications

The draft guidelines on marketing communications under the Regulation on the cross-border distribution of funds, apply to all marketing communications addressed to investors or potential investors for UCITS and AIFs, including when they are set up as EuVECAs, EuSEFs, ELTIFs and MMFs.
The definition of a ‘marketing communication’ is broad and includes all advertising messages regardless of format. However, certain communications are excluded, such as legal and regulatory documents for the fund, pre-marketing information/communications, and short messages on social media which only contain a link to a webpage where a marketing communication is available. 
Most of the guidelines match existing rules governing financial promotions and general principles and standards for all communications from regulated firms including the ‘clear, fair and not misleading’ principle. However, there are prescriptive guidelines for disclosure of costs, past performance and expected future returns.  
Some key points from the guidelines are as follows:
Marketing communications should be clearly identifiable:
  • Such as by containing a simple and prominent disclosure of the phrase “marketing communication” and, where possible, including a clearly displayed disclaimer such as the following:
  • “This is a marketing communication. Please refer to the [prospectus of the [UCITS/ AIF/EuSEF/EuVECA]/Information document of the [AIF/EuSEF/EuVECA] and to the [KIID/KID](delete as applicable)] before making any final investment decisions.”
The above may be replaced with a shorter description where needed. 
  • Marketing communications will not be considered identifiable when they contain excessive cross-references to legal or regulatory provisions unless this is appropriate.
  • Only contain references to a UCITs or an AIF in a press release, advert or press release where approval of the fund has been granted (where required for marketing) and, if applicable, the manager/management company has received notification that it may market the promoted fund in the targeted host member state.  
Description of risks and rewards – marketing communications should:
  • Contain a balanced view of risks and rewards and describe risks accurately, fairly, and prominently using a font and size at least equal to the predominant font size used throughout the information provided, and its position should ensure such indication is prominent (i.e. not disclosing risk information in a footnote or in small characters within the main body of the communication). Presenting risks and rewards in the form of a two-column table or as a list on a single page are said to be good examples of how risks and rewards can be presented in an equally prominent manner.
Clear, fair and not misleading requirement:
  • Information in the marketing communication should be consistent with, and not diminish or contradict, information contained in legal and regulatory documents of the promoted fund. 
  • Short marketing communications, such as on social media, should be as neutral as possible and indicate where more detailed information is available. 
  • All statements and claims should be adequately justifiable and based on objective and verifiable sources, which should be quoted. 
Information on costs:
  • Include an explanation to enable investors to understand the overall impact of costs on their investment amount and potential returns.
  • The currency of the costs should be clearly stated as well as a warning that costs may increase or decrease because of currency and exchange rate fluctuations. 
Past performance and expected future returns
  • This type of information should not be the main information on the marketing communication. 
  • Past performance information should be based on historical data and cover at least 5 years (10 years for funds with a KIID), or the whole period it has been offered.
  • In every case, past performance information should be based on complete 12-month periods, but this can be supplemented with performance information from the current year to the end of the most recent quarter. 
  • Changes with the potential to significantly impact the performance should be prominently disclosed. 
  • For funds where no past performance records are available, the reward profile may be represented only by reference to the benchmark’s past performance or to the objective return, when a benchmark or objective return are envisaged in the legal and regulatory documents of the promoted fund. Avoid disclosing a simulated past performance based on non-pertinent information.
  • Expected future performance should be disclosed per fund and not aggregated and disclosed on a time horizon consistent with the recommended investment horizon of the fund
5. EBS's draft guidelines on compliance management policies and procedures and the role of the AML/CTF Compliance officer

These guidelines further specify the role, tasks and responsibilities of the AML/CFT compliance officer, the management body and senior manager in charge of AML/CFT compliance as well as internal policies, controls and procedures, as referred to in the 4th Money Laundering Directive, which the UK implemented through the Money Laundering Regulations 2017. 
Through these guidelines, the EBA aims to achieve a common understanding across the EU, by competent authorities and financial sector operators, of financial sector operators’ AML/CFT governance arrangements. Specifically, they set clear expectations of the role, tasks and responsibilities of the AML/CFT compliance officer and the management body. A common understanding, which is applied consistently and enforced as necessary, will be key to strengthening the EU’s AML/CFT defences.
The provisions should be applied in a proportionate and effective manner and according to various factors concerning the firm in questions including the ML/TF risks to which it is exposed. 
The guidelines complement, but do not replace, relevant guidelines issued by the European Supervisory Authorities on wider governance arrangements and suitability checks, such as the guidelines on the compliance function under MiFID II. 
These guidelines describe the expectations of firms’ AML/CTF frameworks under 4MLD, such as permitted and prohibited outsourcing, group control arrangements, the location of the AML/CTF compliance officer, reporting content and frequency, and training, and are set out across 4 sections:
  • Role and responsibilities of the management body in the AML/CTF framework and the senior management responsible for AML/CTF
  • Role and responsibilities of the AML/CTF compliance officer
  • Organisation of the AML/CTF compliance function at group level
  • Review of AML/CTF compliance function by competent authorities
The draft guidelines are published for a three-month public consultation. The EBA will finalise these guidelines once the consultation responses have been assessed. 
The EU’s AML/CTF regime is currently undergoing legislative reform and could see the establishment of a new EU AML/CTF authority by 2024 and the application of a new EU single AML CTF Rulebook by 2025. Although the UK is no longer part of the EU, UK firms are advised to keep an eye on EU developments, especially if any part of their business is connected to the EU but also in view of continuing discussions on equivalence/access to the EU by UK firms and also as best practice. 

Other Publications

Consultation Papers
CP21/24: Diversity and inclusion on company boards and executive committees (also see press release below)
Policy Statements/Final Rules 
FCA publishes final rules (PS21/10) to strengthen investor protections in SPACs (special purpose acquisition companies)
FCA publishes PS21/11 with minor changes to the final rules for general insurance pricing practices and a Q&A for the final rules
FCA responds to High Court approval of Provident’s scheme of arrangement and comments that “solo-regulated firms should be regularly assessing the adequacy of their financial resources (both capital and liquidity) and report to the FCA immediately if they determine they are, or will soon be, in financial difficulty”.  
FCA’s Hospitality and gifts log for April to June 2021
Webpage on FCA allowances and expenses – updated 30/07/21
FCA Board minutes from meetings on 21st June and 24th June 2021
FCA has updated its IFPR (Investment Firm Prudential Regime) webpage with access to more MIFIDPRU forms and the addition of three new sections:
  • MIFIDPRU applications and notifications
  • Changes to MiFID authorisation applications
  • IFPR set-up questionnaire
On authorisation for wholesale investment firms, the FCA explains that any firm submitting a new authorisation or variation of permission (VOP) application should consider the requirements that would arise, if approved, under the IFPR, which will come into force on 1 January 2022. During the application process, the FCA will expect applicants to demonstrate how they will meet their ongoing requirements under the current and new prudential regimes, as part of the threshold conditions assessment.
FCA resumes work on Credit Information Market Study (MS19/1)
FCA’s Regulatory Sandbox, which allows businesses to test innovative propositions in the market with real consumers, now open to applications all year round. 
Dear CEO Letter to platform service providers
Dear CEO Letter to lenders regarding SME lending and the FCA’s expectations of firms reporting BBLS (Bounce Back Loan Scheme) fraud 
On 4 August 2021, the FCA updated its webpage on regulating the pre-paid funeral plans sector
Dear Remuneration Committee Chair Letter for level one dual-regulated firms subject to setting out its approach to remuneration for 2021/22 and highlighting areas for firms to consider
FCA has published a new whistleblowing webpage and online whistleblowing form
FCA publishes new Regulatory Sandbox Application Guide
Text of MoU with the US Securities and Exchange Commission (SEC) on OTC Derivatives substituted compliance
Various Portfolio letters published including a letter to investment-based crowdfunding firms summarising the key risks the FCA sees in the sector, setting out the FCA’s expectations and the work it intends to carry out

FCA Press Releases

FCA consults on proposals to boost disclosure of diversity on listed company boards and executive committees by requiring listed companies to publish annually: 

  • A ‘comply or explain statement’ on whether they have achieved certain proposed targets (see notes to editors) for gender and ethnic minority representation on their boards, and 
  • As part of the same annual disclosure obligation, data on the make-up of their board and most senior level of executive management in terms of gender and ethnicity.  

The FCA is also proposing other changes to its disclosure and transparency rules.
FCA obtains High Court Order to remove hundreds of HM Land Registry charges, notices and restrictions registered against consumers’ properties by illegal money lender, Dharam Prakash Gopee. 
Letter from FCA responding to questions from the Treasury Select Committee on the approach to frozen bank accounts.
Enforcement Actions and Prosecutions 

Luxembourg’s privacy watchdog, the National Commission for Data Protection, has fined Amazon €746m under the EU’s General Data Protection Regulation (EU GDPR), the highest ever fine imposed under these regulations. The fine is for failing to process personal data in compliance with EU law, but it is understood that Amazon intends to defend itself against the decision.
Ian Hudson of Richmond Associates has been sentenced to 4 years in prison for carrying on a business for a fraudulent purpose and conducting regulated activities without appropriate authorisation or a legitimate exemption.  
Markos Markou, Chief Executive of mortgage and insurance broker firm, Financial Solutions (Euro) Limited (FSE), has been fined £25K, had his approval withdrawn, and banned from performing any functions in relation to any regulated activity for oversight failures and for conducting regulated activities without valid professional indemnity insurance in place, as required by the prudential rules for mortgage brokers. Mr Markou has referred the decision to the Upper Tribunal. 
Following a complaint, the Advertising Standards Agency (ASA) has banned an FX Instagram post by reality TV star, Lauren Goodger, which promoted a foreign exchange trading tips service and for which she received payment. The ASA agreed with the complainant that the post was not identifiable as an ad and that the ASA had not seen any evidence to support the claims about profits.  
OFSI imposes monetary penalty of £50K for breach of Ukraine financial sanctions by TransferGo Ltd for 16 transactions issuing instructions to make transfer payments to accounts held by the Russian National Commercial Bank. In taking these actions the firm made funds available to a designated person.  
FCA obtains bankruptcy order against Mohammed Maricar who was involved with 24HR Trading Academy Ltd which unlawfully promoted and arranged forex trading using contracts for difference, with the aim of recovering funds for distribution to creditors. This follows a High Court Order in March for Mr Maricar to pay £530K to the FCA for distribution to his victims.  
FCA published Decision Notice against Geoffrey Edward Armin of Retirement and Pension Planning Services Ltd (in liquidation) fining him £1.28m and banning him from performing any senior management function in relation to any regulated activities and from advising consumers on pensions transfers and pension opt outs. Mr Armin has referred the decision to the Upper Tribunal. The FCA found Mr Armin was “seriously incompetent” when advising on pension transfers, as he failed to obtain the necessary information required to assess suitability and disregarded important information about his customers’ circumstances. In some cases, customers were not informed about certain consequences until after they had transferred out of the scheme. 
Director banned by the Insolvency Service for running an unregistered pension scheme.
SFO charges 5 individuals with bribery and money laundering offences over suspected payment of bribes to win UK building contracts between 2014 and 2016. 
Three former Netflix engineers and two close associates are charged by the SEC for insider trading on non-public information about Netflix’s subscriber growth, which generated over $3m in total profit. The individuals are also accused of violating anti-fraud provisions and trying to evade detection using encrypted messaging platforms and paying cash kickbacks. 
The FCA is investigating Monzo bank for possible breaches of money laundering rules between October 2018 to April 2021. The disclosure in the firm’s annual report indicates that the investigation is at an early stage but that the outcome could have a “material impact” on its financial position. 
Cryptocurrency exchange, BitMEX, has agreed to pay $100m to settle allegations that it allowed illegal trades and violated US anti-money laundering rules. FinCEN reports that “for over 6 years, BitMEX failed to implement a compliant ML program and customer ID program and failed to report suspicious activity. These wilful failures expose financial institutions to an increased risk of conducting transactions with money launderers and terrorist financiers, including noncompliant exchanges in high-risk jurisdictions, ransomware attackers, and darknet marketplaces.” In addition to the penalty, BitMEX has agreed to appoint an independent consultant to perform a “SAR lookback” and to conduct reviews and testing to ensure appropriate and effective policies, procedures and controls are implemented. 

Industry News:


HMT is proposing to introduce a Senior Managers and Certification Regime for the following financial market infrastructures: central counterparties, central securities depositaries, payment systems recognised under the Banking Act 2009, and specific services providers to such systems. 
EC adopts answers to questions (in the form of an Annex to a Commission Decision) from the European Supervisory Authorities on the SFDR (Sustainable Finance Disclosure Regulation). Areas covered by the questions include the application of the SFDR to non-EU alternative investment fund managers (AIFMs) and registered AIFMs. 
It is reported that, in a podcast, FCA’s CEO, Nikhil Rathi, urges the UK Government to include investment fraud and economic harm in its Online Safety Bill.
Financial Markets Law Committee has published its response to the Law Commission’s Call for Evidence on digital assets and the City of London Law Society (CLLS) has published its response to the Law Commission's call for evidence on digital assets and its consultation on electronic trade documents. The CLLS’s response sets out details of its experiences relating to the problems of digitalisation and argues that caution should be exercised in relation to any proposal for legislative reform to extend the application of the concept of "possession".
Financial Services Skills Council (“FSSC”) launches inclusion measurement guide to help financial services firms build more inclusive cultures. The guide contains three types of measurement tools, including questions for employee engagement and inclusion surveys and data tracking metrics that organisations can map over time, which should enable firms to evaluate their working cultures and values at a more granular level and pinpoint specific areas for intervention.
EC publishes official translations, including the English language version, of its guidelines for funds’ marketing communications under Article 4 of the Regulation on the cross-border distribution of collective investment schemes. 
Delegated Directive integrating sustainability into MiFID II product governance obligations was published in the Official Journal on 2nd August and enters into force across the EU on 22 August 2022. Member states are required to adopt the Directive by August 2022 and apply provisions from November 2022. The amendments mean that investment firms manufacturing and distributing financial instruments should consider sustainability factors in the product approval process of each financial instrument and in the other product governance and oversight arrangements for each financial instrument that is intended to be distributed to clients seeking financial instruments with a sustainability-related profile.
Cabinet Office launches new consultation on how the government should engage with business and civil society on implementation of the UK-EU trade and co-operation agreement (TCA).
It is reported that just under £124m of investors’ funds remain trapped in the Woodford Equity Income Fund.

Financial Crime

The BBC has published an article accompanying its Radio 4 programme, Bad Business, set 20 years on from the collapse of Enron, on corporate fraud in the wake of a number of high-profile accounting scandals. Following the collapse of Enron, the US quickly passed the Sarbanes Oxley Act, which prevents auditors of publicly traded companies from providing most consultancy services to audit clients. However, the BBC comments that there was little or no reform in the UK in response to Enron, and that an accounting professor from Essex University reports that the fundamental conflict of interest remains. 
It is reported that Deutsche Bank, Standard Chartered Plc and Danske Bank are the subject of a lawsuit filed recently in New York by civilians, members of the military and families of people wounded in Afghanistan from 2011-2016 who claim that the companies “knowingly facilitated transfers of millions” of dollars that provided aid to terrorists in the region. 
The EU is proposing to ban large cash payments over €10K in order to tackle money laundering on a cross-border basis, but also to ensure legislation better reflects society’s move away from cash. 
Blockchain platform, Poly Network, has received back the $600m worth of crypto coins stolen by a hacker who, according to a Q&A published by the hacker, carried out the heist to highlight vulnerabilities in the firm’s software. Poly Network is now starting the process of returning the stolen assets to their owners. Apparently, the hacker had always planned to return the funds. It is also reported that Poly Network has invited the hacker to be its Chief Security Advisory. 


It is reported that, following a 2-year investigation, HMRC has concluded that family investment companies (FICs) are primarily used to transfer wealth between generations and not as tax avoidance vehicles. 
Court of Appeal upholds two petitions from Ingenious Media against HMRC regarding Ingenious’ film partnerships, which have been classified previously as tax avoidance schemes
HMRC publishes an updated list of businesses that have failed to comply with the Money Laundering Regulations 2017. 
Data Protection

ICO has refreshed its document setting out its regulatory approach during the COVID-19 pandemic.
ICO issues statement responding to an article by The Daily Telegraph on 31st July 2021 criticising its performance.
ICO issues call for views to help shape its new data protection and employment practices guidance and products to help employers and staff comply with data protection legislation when personal data is used. 
ICO consultation launched on updated guidance and draft ICO international data transfer agreement for personal data transfers outside UK
ICO approves first certification scheme criteria under the UK GDPR and has approved the criteria for three schemes:

  • ADISA has developed a standard that ensures personal data has been handled appropriately when IT equipment is re-used or destroyed.
  • Age Check Certification Scheme has developed criteria for two schemes, the first relating to age assurance and the second looking at children's online privacy.

ICO states that certification (under Article 42 of the GDPR) “was brought in under the UK GDPR as a way to help organisations demonstrate compliance with data protection rules and, in turn inspire trust and confidence in the people who use their products, processes and services.” The ICO is keen to talk to and advise organisations interested in developing further certification schemes. 

This newsletter contains generic information and has been generated for professional clients and associates of Gem Compliance Consulting Limited only and should not be regarded as advice. We will not be liable for loss, however caused by parties acting on the information contained herein.

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