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.
Unfortunately, throughout June the Ukrainian crisis continued. Accordingly, Russian sanctions have continued to evolve. Therefore, firms should ensure they are signed up to the OFSI’s sanctions alerts, which they can do here.
For other regulatory newsletters, the latest PRA regulatory digests for May has been published and can be found here. The Financial Ombudsman Service has published a newsletter in May which was no 171. The ICO has issued its e-newsletters for June.
The FCA published an update on its work on market abuse and manipulation, on 17 June 2022.
Those who abuse insider knowledge disadvantage those who play by the rules and undermine confidence in markets that are vital for companies seeking capital and investors building their savings.
The FCA conducts daily monitoring to ensure the timeliness and accuracy of the disclosure of inside information. The FCA receives over 30 million transaction reports and over 100 million order reports a day, which its market data processor analyses. The processor allows the FCA to oversee the market as close to ‘real time’ as possible, with its dedicated software and algorithms to detect potential issues. This data is complimented by Suspicious Transaction and Order Reports sent to the FCA by market participants when they have reasonable grounds to suspect market abuse, such as insider dealing or market manipulation. In 2021, the FCA received 90 reports per week, an increase of almost 15% on 2020. Every report is assessed by the FCA’s specialist team, which investigates if any abusive or manipulative behaviour has taken place and what further action should be taken, where necessary.
The FCA regularly publishes the findings from its oversight work in its Market Watch publications – the latest version was published in May 2022. The publication highlights good practice and weaknesses likely to be common in firms’ systems and controls. These publications provide up to date information for firms that also facilitates their scrutiny of the market which, in turn, improves the quality of the Suspicious Transaction and Order Reports the FCA receives from firms. Intensive scrutiny is as important as a deterrent as much as it is for detection as if market participants know they are being watched. They are less likely to engage in activity that seeks an unfair advantage.
Where the FCA does detect market abuse, it can fine both firms and individuals as well as proceeding with criminal prosecution. The FCA has taken criminal action against firms and in 2022 has been in court for a trial in which the jury was unable to reach a verdict and it has an upcoming trial involving two defendants that is scheduled to start in October 2022. Additionally, there are a further three cases in which prosecution decisions will be made relating to ten individuals before the end of 2022. Aside from its power to seek criminal prosecution, the regulator also makes use of its civil enforcement powers, which can be used to secure redress for investors, as was the case when the FCA censured Redcentric in 2020.
The FCA uses its intelligence to assess one-off cases however, it also uses it to disrupt the activity suspected serial market abusers. These individuals and activities often cross national boundaries, meaning they may be out of reach of the FCA’s enforcement powers. The FCA works with its international partners to share intelligence and data. It has recently had success collaborating with the DFSA in Dubai and the AMF in France and sharing intelligence with colleagues in the United States, all of which have led to action in those locations.
The FCA has warned that those considering attempting to manipulate markets should be aware that the regulator will not hesitate to act. The regulator works to deter, detect and take action where market abuse is suspected – this involves the collective efforts of approximately 90 enforcement staff supported by dedicated specialist intelligence, legal and cyber resources as well as primary and secondary market oversight teams, dedicated to tackling market abuse in all forms.
The FCA is using data to tackle online fraud faster as part of its data strategy. The FCA scans approximately 100,000 websites created every day to identify those that appear to be scams. Where it identifies fraudulent websites, it proactively requests the website host shut them down although the FCA doesn’t have the power to enforce this.
Between May 2021 and April 2022, the FCA added 1,966 possible scams to its consumer warning list – this is over a third more than during the same period during the previous year. This action forms part of an update on the FCA’s data strategy showing the progress it has made improving its use of data and its plans to identify and prevent harm sooner.
The FCA plans to invest heavily in its use of data in 2022/23, recruiting a significant number of skilled roles, across Artificial Intelligence (AI), analytics, data science, cloud engineering and digital technology – adding to the 100 it has recruited since 2020. The new recruits will be responsible for a range of data and digital initiatives, including improving the quality of the data the FCA collects.
The use of advanced analytics and the new sources of data to identify inappropriate financial adverts. Last year 564 adverts were withdrawn or amended, double the number compared to previous years.
Following Russia’s invasion of Ukraine, the FCA has developed and implemented a sanctions screening tool to support the monitoring of the effectiveness of a firm’s control in identifying organisations or individuals that have been sanctioned. This has been vital in supporting the FCA’s ongoing work with its domestic and international partners in response to the war in Ukraine.
The FCA confirmed it will provide its staff with a dashboard for all the financial companies it regulates and sectors it oversees, making it easier to identify and focus on the highest risk cases.
This data strategy underpins the FCA’s recent three-year strategy to reduce and prevent serious harm, set higher standards, and promote competition.
Chief Data, Information and Intelligence Officer, Jessica Rusu said:
“Better use of data means we can be more proactive and find and stop harm faster. We are continuing to improve our data, technology and capabilities to act decisively in consumers interests, while making it easier for firms to report to us.”
CP22/10: Quarterly Consultation Paper No 36. The FCA is proposing minor amendments to:
DEPP to reflect changes to its decision-making processes implemented in November 2021.
Amendments to the Compensation rules relating to the FSCS in relation to funeral plans.
Update to the annuitant mortality tables in COBS to provide better annuity income information to consumers.
Changes to row 10(f) of the table in IPRU-INV 5.8.2R to clarify the items to be deducted as illiquid assets.
Updates to our IFPR reporting forms and accompanying guidance.
GC22/2: Branch and ATM closures or conversions: Updated guidance for firms.
The FCA is working to strengthen the protection of access to banking services. The FCA is consulting on requirements for more detailed analysis on how firms assess the impact on customers when they plan to close a branch, remove or convert an ATM or reduce the services they provide. The FCA has found that some banks and building societies are not currently doing enough to understand the impact of such changes or to keep customers informed. The regulator’s proposal includes extending communications to other groups such as local charities and councils to understand the wider impact from changes to services. The proposal also includes protecting access to cash at branches, which the UK Government has supported by giving the FCA powers to ensure cash remains accessible. Sheldon Mills, Executive Director of Consumers and Competition at the FCA said:
“We expect firms to continue to offer easy and accessible banking services to their customers, and this is even more important as the country faces a cost-of-living crisis. We saw firms successfully do this and support consumers through the pandemic, and this standard needs to continue with firms really thinking about their customers, especially those in vulnerable circumstances, and ensuring they continue to meet their needs.”
PS22/6: Preventing claims management phoenixing by financial services firms. The FCA is introducing new rules for claims management companies prohibiting them from carrying out regulated claims management activity in certain circumstances.
The FCA has set out an ambitious vision for potential reform to the way companies list in the UK that aims to attract more high quality, growth companies and give investors greater opportunities. DP22/2 gives feedback on earlier discussions of the purpose of the listing regime and outlines further discussion points when considering potential reforms.
The FCA has issued a feedback statement (FS22/2) following a joint discussion paper from The Pension Regulator (TPR) and the FCA in September 2021 on a proposed framework to assess and promote Value for Money in all FCA and TPR-regulated pension schemes.
The FCA has appointed from 1 June, Helen Charlton as the Chair of the Financial Services Consumer Panel and Andy Mielczarek as the Chair of the FCA Smaller Business Practitioner Panel.
Richard Lloyd has become Interim Chair of the FCA from 1 June, taking over from Charles Randell who held the role for 4 years.
The FCA has contacted more than 3,500 lenders to remind them of the expected standards they should be meeting as consumers throughout the UK are facing the rising cost of living. Household bills are expected to continue rising into the autumn and firms need to act now to make sure borrowers struggling with payments and vulnerable consumers can access the help they need. The FCA has been investigating how borrowers in financial difficulty are treated by lenders and found that some lenders are providing the right support to customers. However, it found that most firms need to be having better conversations to fully understand their customers’ individual circumstances, to enable them to provide appropriate support and ensure that repayment plans are sustainable. It was also noted that some vulnerable customers were not getting the support they need and some lenders are not discussing the potential benefits of money guidance or free debt advice and are not helping and supporting borrowers to access these. The more serious failings were found at more than 30 firms, largely in the consumer credit sector – these firms are expected to make improvements in how customers are treated. Borrowers who are struggling are urged to seek support from lenders as early as they can.
The FCA has appointed members for its new secondary markets advisory committee. The committee will be chaired by Edwin Schooling Latter (Director of Markets and Wholesale Policy at the FCA) and will run until 1 June 2024. The purpose of the committee is to support the wholesale secondary markets work in equities, derivatives, fixed income and commodity derivatives. The committee’s objectives are to:
Help develop reforms that improve market competition, increase consumer protection and enhance the integrity of markets
Identify market changes that may affect the proper functioning of secondary markets
Provide data and analysis to support policy reforms
The FCA has confirmed changes to its Firm Reference Numbers (FRNs) and Product Reference Numbers (PRNs). The regulator currently uses six-digit FRNs and PRNs to uniquely identify firms and funds however, it has confirmed that it is likely to meet the limit (999999) during 2023, given the number of applications and notifications the FCA receives. Existing firms and funds will keep the 6-digit FRNs and PRNs however, newly registered firms and funds will be moved to seven-digit FRNs and PRNs. The regulator hasn’t confirmed a date for this change however, it is making the necessary changes to its systems to allow for the change.
The FCA has updated its webpage on pricing categories for application fees following the introduction of the new £250 charge for standalone Long Form A individual applications.
The FCA has issued Handbook Notice no. 99 which includes implementation of new rules on the FCA’s powers to vary or cancel a firm’s permissions.
The FCA has issued an update on its Mutual Societies Registration function covering 2021 to 2022, including an overview on the function, the FCA’s strategy in this area and details of developments during this period.
Speech: Keeping pace with rising costs – improving financial inclusion for consumers. Delivered by Sheldon Mills, Executive Director, Consumers and Competition at the Financial Inclusion Virtual Summit 2022.
Speech: The FCA’s second phase of reform of the Listing Rules: Increasing transparency and encouraging more market participation. Delivered by Clare Cole, FCA Director of Market Oversight, to The Regulation of Listed Companies Summit.
Speech: Shaping the rules for a data-driven future. Delivered by FCA’s Chief Executive, Nikhil Rathi at the Dutch Authority for the Financial Markets (AFM) 20th anniversary seminar.
The jury has been discharged in a trial brought by the FCA against Stuart Bayes and Jonathan Swann for insider dealing after it was unable to reach a verdict.
BNY Mellon has been fined $1.5m by the Securities and Exchange Commission (SEC) for making misleading statements about its ESG processes, including statements on ESG quality reviews which were not all taking place as stated. The asset manager has agreed to pay the penalty.
The Serious Fraud Office (SFO) has charged Glencore Energy Ltd with seven counts of bribery in connection with its oil operations. At a hearing at Westminster Magistrates court, the company indicated that it will plead guilty to all charges. This followed the conclusion of an investigation that started in June 2019.
Two company directors of Global Forestry Investments (GFI), which was behind a fraudulent Brazilian green investment scheme, have been found guilty by jury after it was found they had deceived around 2,000 investors. The SFO brought charges against the duo in 2019 and the directors were later disqualified after it had found they paid £13m of investors money into their own bank accounts.
TFS Loans Ltd has been fined £811,900 by the FCA in relation to deficient affordability checks on 3,150 guarantors in its consumer credit business. The firm has also been ordered to provide redress to the guarantors that were harmed by the firm not conducting appropriate checks.
The FCA has fined insurance broker JLT Specialty Limited (JLTSL) £7.8m for financial crime control failings. The UK based firm provided insurance broking, risk management and insurance claims services and was part of JLT Group plc, which had several subsidiaries around the world. JLTSL placed business in the London reinsurance market for JLT Re Columbia, another company in the JLT group – this business had been introduced by a third-party based in Panama. Between November 2013 and June 2017, JLTSL paid $12.3m in commission to JLT Columbia Wholesale Limited, the parent company of JLT Re Columbia, which in turn paid $10.8m to the third-party introducer. This introducer then paid over $3m to government officials at a state-owned insurer to help retain and secure their business for JLTSL and JLT Re Colombia. Mark Steward, Executive Director of Enforcement and Market Oversight said “Lax controls by JLT Specialty meant, ultimately, that money flowed into the pockets of corrupt officials. It is because of risks such as this that we are maintaining our focus on financial businesses’ financial crime systems, taking action where these firms fall short”.
Ghana International Bank Plc (GIB) has been fined £5.8m for failings in its anti-money laundering controls. GIB provided correspondent banking services to overseas banks. This allowed the bank to provide products and services they would not otherwise be able to, including making payments in different currencies and across borders. The FCA requires banks to conduct extra due diligence on correspondent banking customers to reduce the higher risk of money laundering and terrorist financing associated with the service. The FCA found that between January 2012 and December 2016, GIB did not sufficiently conduct the required due diligence when it established relationships with the overseas banks and failed to demonstrate that it had assessed those banks’ anti-money laundering controls. The bank also failed to conduct annual reviews of the information it held on the banks it had relationships with, failed to give staff adequate training on how to scrutinise transactions properly and did not establish appropriate policies and procedures for staff. In December 2016, the FCA visited GIB to review its financial crime controls and as a result of this visit GIB voluntarily agreed not to take on new customers and this restriction still remains in place. While no evidence of actual money laundering was detected, the risk of money laundering as a result of deficient systems was significant. The bank did not dispute the findings and agreed to settle at the earliest possible opportunity, meaning it qualified for a 30% discount.
The FCA imposed several restrictions on Colbourne & Company stopping it from carrying out any regulated activities due to concerns about the way it conducts business. The FCA believes that the firm, a small IFA, has for a number of years been carrying out regulated activities outside it’s Part4A Permission and during this time, it has taken unauthorised fees, believed to total over £250,000 from a number of its retail clients, some of whom were elderly and who may be vulnerable. The FCA’s restrictions will stop Colbourne & Company from carrying on any regulated activity and prevent it from reducing the value of its assets it holds without the consent of the FCA – the full description of the restrictions on the firm can be found on the FCA register.
HSBC has suspended its global head of responsible investing following a speech in which he made light of climate change concerns.
An industry think-tank, Independent Investment Management Initiative (IIMI), has called forseveral reforms to UK asset management industry regulations so that UK funds can better compete with their European equivalents. IIMI said that the FCA and the government should adopt a more proactive approach when promoting the industry post-Brexit.
According to the FCA’s executive director of markets, Sarah Pritchard, global firms want as much consistency as possible between UK and EU regulations rather than major Brexit rulebook book changes.
A committee of MPs has launched an enquiry into financial firms’ commitment to decarbonising the UK economy. Signatories to a global coalition have been criticised for the little actions taken to reduce their exposure to fossil fuels.
In October 2020, the FCA published a warning against BubbleXT as it believed the firm was providing financialservices or products in the UK without authorisation. The FCA has since become aware that consumers are still being targeted by scammers who have set up ‘recovery rooms’ with promises of returning their funds for a small upfront fee. The scams have included false emails claiming that the FCA was sponsoring the recovery schemes. Consumers should note that the FCA would never propose that consumers should make payments to recover lost funds.
The Financial Services Compensation Scheme (FSCS) has cut the amount it expects advisers to pay this year to £213m after it delayed processing some complex pension advice claims to 2023-24.
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.