Issue 76 - January 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.


  1. Other Newsletters and Updates
  2. Main Features:
    1. FCA clamps down on consumer investment harm
    2. Supreme Court judgement in FCA's business interruption insurance test case
    3. Transition away from LIBOR
  3. Other Publications
  4. FCA Press Releases and Statements
  5. Enforcement Actions and Prosecutions
  6. Industry News:
  7. Regulation
  8. Coronavirus - industry updates
  9. Brexit
  10. Scams, fraud and warnings
  11. Pensions and SIPPs
  12. HMRC & Tax
Other Newsletters & Updates

The industry news continues to be flooded with articles relating to the Covid-19 pandemic into the new year, with much of the UK in under strict lockdowns and restrictions. Firms are recommended to check the dedicated coronavirus section (for firms and consumers) on the FCA’s website on a regular basis for any updated information. 
The FCA issued its January Regulation round-up in which it highlights the publication of the Directory Persons data for solo-regulated firms on the Financial Services Register. The publication also mentions that several EEA states have introduced temporary measures for UK firms providing financial services in the EEA. The FCA continues to update its dedicated Brexit webpage and encourages firms to visit this for any updates. 
The FCA has published minutes from its December board meeting – there were no policy development updates issued during this time period.

The FCA issued its January newsletter on market conduct and transaction reporting issues, Market Watch 66. In this issue, the FCA sets out its expectations for firms on recording telephone conversations and electronic communications while alternative working arrangements are in place. 
December’s PRA Regulatory Digest can be found here.
The ICO’s (Information Commissioner’s Office) most recent newsletter (January) is available here
The Financial Ombudsman has published newsletter 157.

Main Features

1. FCA clamps down on consumer investment harm

The FCA has issued a report highlighting the ways in which it works to protect consumers from investment harm by stopping and disrupting potentially harmful firms and activities. The report focuses on action taken by the FCA during the first ten months of 2020, when many consumers were under increased financial pressure as a result of coronavirus lockdowns and restrictions. The FCA has provided the following breakdown of actions taken during this ten-month period:
  • Stopped the authorisation applications from 343 financial services firms and individuals, where potential for consumer harm was identified – almost one in ten applications.
  • Opened over 1,500 supervisory cases involving scams or higher risk investments.
  • Received over 24,000 reports of unauthorised activity and published over 1,000 consumer alerts – an increase of 82% on the previous year.  
The FCA also provided a breakdown of actions taken against firms found to have caused consumer harm:
  • Pursuing 47 enforcement investigations against unauthorised businesses in 2020, securing almost £6m to be returned to consumers and obtaining court orders ordering that over £14m be returned to consumers which the FCA will take steps to recover.
  • Issuing fines totalling more than £80m to regulated firms and individuals over the course of 2019 and 2020. 
Another market that is particularly susceptible to consumer harm is the Defined Benefit (DB) pension transfers market and this has been an ongoing focus for the FCA. Action taken by the FCA in 2020 has resulted in 130 firms stopping providing DB transfer advice. The FCA is publishing data on this market.

In addition to the focus on the Defined Benefit pensions transfers market, the FCA is tightening supervision of firms regulatory permissions and firms are urged to ‘use it or lose it’. Firms are reminded to regularly review their regulatory permissions to ensure they are up to date and any permissions no longer required are removed. The FCA expects firms to notify it of any material changes and apply to make any required changes in a timely way. The FCA also highlighted that it has the power to cancel a firms Part 4A permission if it has not carried out a regulated activity for at least 12 months. 
The reason that the FCA has issued this reminder on permissions is because the Financial Services Bill is currently making its way through Parliament and its powers will allow the FCA to act much more quickly when it considers firms are no longer carrying out regulated activities. Under new powers, where the FCA believes a firm is not carrying out regulated activities, it will be able to service a notice on the firm asking for a written response within 14 days. If the firm does not respond, then the FCA will be able to publish a public notice explaining that it appears the firm is no longer carrying out regulated activities and then after one month, the FCA can vary or cancel a firm’s permissions. Firms are urged to act now and review existing permissions and make any of the necessary changes to ensure that a clear picture of what the firm does is presented as this will assist the FCA in preventing scams and misleading information. 
Sheldon Mills, Executive Director of Consumers and Competition, commented on the release of the report:
'The UK has one of the world’s leading financial services industries, offering consumers access to a wide range of investment products. In some areas however, the consumer investment market is not working as well as it should and too often consumers are offered unsuitable products or advice. Protecting consumers and ensuring they have confidence in the suitability of advice they receive is a key priority for the FCA and today’s report highlights some of the work we are undertaking to achieve this’.
Continuing on the theme of consumer protection, the FCA is launching the next phase of its ScamSmart Investment campaign. The aim of the campaign is to warn consumers of the increased threat of clone investment fraud, alerting them to the key warning signs and driving investors to the FCA’s warning list of firms to avoid and the FCA register of authorised firms. The FCA has also recently issued a Call for Input on the consumer investment market, asking for comments on how consumer protection can be improved, responses are currently under review and the FCA has already acted to ban the mass-marketing of speculative illiquid securities (including speculative mini-bonds) to retail investors. 

2. Supreme Court judgement in FCA's business interruption insurance test case

The Supreme Court has delivered its judgement in the FCA’s business interruption (‘BI’) test case and has allowed the FCA’s appeal on behalf of policyholders. The ruling completes the legal process for impacted policies and means that many policyholders will have their claims for Covid-19 related business interruption losses paid. The judgement will bring an end to legal arguments under 14 types of policy issued by six insurers, and a number of similar policies in the wider market which will now lead to claims being successful. Sheldon Mills, Executive Director of Consumers and Competition at the FCA said:
‘Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders’.
The FCA will work with insurers to ensure that they move quickly to pay claims that the judgement says should be paid, making interim payments wherever possible. Insurers are expected to communicate directly and quickly with policy holders who have made claims, that are affected by the judgement, to explain the next steps. Each policy will need to be considered against the judgement to work out what it means for that policy. The Supreme Court’s judgement will be distilled into a set of declarations and the FCA and Defendants insurers are working as quickly as possible with the Supreme Court to enable it to issue its declarations. 
Policyholders with questions should approach their broker, advisers or insurer and those who remain unhappy following their insurers assessment of their claim may be able to refer their claim to the Financial Ombudsman Service. Additionally, the FCA confirmed it will publish a set of Q&As to assist policyholders and their advisers in understanding the test case. The FCA will also publish a list of BI policy types that potentially respond to the pandemic based on data that will be gathered from insurers. The FCA will continue to update its dedicated Business Interruption Insurance webpage.

3. Transition away from LIBOR

The transition away from LIBOR is approaching the end after many years of preparation. The LIBOR administrator, ICE Benchmark Administration, is consulting on ceasing publication of all sterling LIBOR settings at the end of 2021, leaving only one year for firms to remove their remaining reliance on these benchmarks. LIBOR has been established in the financial system for several years, used to calculate interest in everything from corporate borrowing and intra-group transfers to complex derivatives. It is also utilised in accounting practices, system infrastructure and other supporting functions. However, by the end of 2021, all of these will need to be prepared to use alternative reference rates, such as SONIA. 
Both the Bank of England and the FCA have set out expectations for regulated firms to remove all reliance on LIBOR in all new business and in legacy contracts, where feasible. In support of this, the Working Group on Sterling Risk-Free Reference Rates (The Working Group) has published an update to its priorities and roadmap for the final year of the transition. This will help businesses finish the planning the steps they will need to take in the coming months. The Working Group’s top priority is for markets and users to be fully prepared for the end of sterling LIBOR by the end of 2021 and has suggested that from the end of March 2021, sterling LIBOR is no longer used in any new lending or other cash products that mature after the end of 2021. In addition, the Working Group also suggested that firms no longer initiate new linear derivatives linked to sterling LIBOR after the end of March 2021, other than for risk management of existing positions or where they mature before the end of 2021. 
The Working Group, the Bank of England and the FCA have confirmed that they anticipate that in the near future the large majority of sterling markets will be based on SONIA compounded in arrears, to provide the most robust foundation for the overall market structure. However, in certain parts of the markets, participants may need to access alternative rates. In this context, the Working Group welcomes the development of term SONIA reference rates (TSRRs) which are beginning to be made available by various providers. Alongside this, the Working Group has engaged closely with the FICC Markets Standards Board (FMSB) to support development of a market standard for appropriately limited use of TSRRs, consistent with the Working Group’s objectives and existing recommendations on use cases of benchmark rates.
The Bank of England and the FCA will continue to work closely with firms to ensure a smooth transition. Edwin Schooling Latter, Director of Markets and Wholesale Policy at the FCA, commented: 
'The end-game for LIBOR is now increasingly clear. Firms should now have everything they need to shift new business to SONIA and to complete their plans for transition of legacy exposures. There is no longer any reason for delay.'

Other Publications

Consultation Papers

CP21/1: Restricting CMC charges for financial services and products claims. The FCA has published proposals to introduce a price cap on the fees claims management companies (CMCs) charge their customers in relation to claims for financial products and services. With some consumers currently paying fees of more than 40% of the redress they receive, the proposed cap restricts this and would mean CMCs won’t be able to charge more than 15-30% depending on the amount of redress a consumer is due. The proposed change could see some consumers saving several thousand pounds on the fees they pay to CMCs. The consultation is open until 21 April 2021 and a policy statement is expected to be published in Autumn 2021. If a fee cap is confirmed the FCA will monitor its effects on the CMC market and its consumers.

CP21/2: Financial Services Compensation Scheme – Management Expenses Levy Limit 2021/22. The FCA and PRA are consulting on proposals for the annual Management Expenses Levy Limit (MELL) for the Financial Services Compensation Scheme (FSCS) for the financial year 2021/22.

Corporate Updates

The FCA has issued its response to key comments from the Independent Small Business Practitioner Panel annual report for 2019/2020, which includes feedback on Coronavirus and the future of regulation, amongst other subjects. Similar responses were issued for the annual reports of the Independent Market Practitioner PanelFinancial Services Consumer Panel and Independent Practitioner Panel.

FCA Press Releases and Statements

The FCA announced that half of reporting firms have now moved to its new data collection platform. These firms who have previously submitted their regulatory reporting on Gabriel are now using RegData. Firms that are still using Gabriel should ensure they’ve registered for RegData, as more firms will continue to move across to the new platform over the coming months. Additional information is available for firms on the FCA’s dedicated RegData webpage.
The FCA has warned consumers of the risk of investments advertising high returns based on cryptoassets as investments of this nature generally involve taking very high risks with investor’s money and consumers who invest should be prepared to lose all of their money. As with all high-risk, speculative investments, consumers should make sure that they understand what they are investing in, the risks, and any regulatory protections that may apply. It is unlikely that consumers who invest in cryptoasset-related investments will have access to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS), if something goes wrong. Consumers can find out more about which cryptoasset activities the FCA regulates in PS19/22: Guidance on Cryptoassets. Firms that offer such products should ensure they comply with all relevant regulatory requirements and are authorised by the FCA where required. Since 10 January 2021, all UK cryptoasset firms must be registered with the FCA under regulations to tackle money laundering and operating without a registration is a criminal offence.
Enforcement Actions and Prosecutions 

Insider dealer, Walid Choucair has been ordered to pay £3.9m in a confiscation order made by Her Honour Judge Korner at Southwark Crown Court in a case brought forward by the FCA. In addition, the Court ordered Choucair to pay £403,552 in prosecution costs to the FCA. In June 2019, Choucair was sentenced to 3 years’ imprisonment in respect of five offences of insider dealing alongside Fabiana Abdel-Malek, taking place in 2013-14. The amount of the confiscation order takes into account the amount of profit in the sum of approximately £1.4m made by Choucair from the five insider dealing charges together with profits arising from other trading carried out by him which the Court is permitted to assume also represents proceeds of crime. Mark Steward, Executive Director of Enforcement and Market Oversight, said:
‘This confiscation order means Mr Choucair will have to surrender significant illegal trading profits following his convictions for insider dealing. Today’s order demonstrates that insider dealing does not pay.’
Mr Choucair is required to pay the confiscation order by 1 March 2021. If he fails to do so he will need to serve 5 years in default of payment. 

Other industry news:


Andrew Bailey, former Chief Executive of the FCA, is expected to appear in front of MPs to answer questions on the London Capital & Finance scandal that unfolded under his supervision. It is thought that Bailey will be summoned before the Treasury committee to discuss the FCA’s handling of the mini-bond fallout. This comes after a long-awaited independent investigation into the regulator’s supervision of London Capital & Finance, under Bailey’s leadership. The investigation was led by Dame Elizabeth Gloster and it found that the FCA had failed to sufficiently regulate the company and that there were significant gaps and weaknesses in its policies and practices. HM Treasury initially requested the independent investigation in May 2019 however, it has faced a number of obstacles along the way including the delayed disclosure of documents to the investigation by the FCA. The investigation concluded that bondholders were “entitled to expect and receive more protection from the regulation regime in relation to an FCA authorised firm than that which, in fact, was delivered by the FCA”. The FCA has apologised for its actions and chairman, Charles Randell admitted that there were a “number of things’ that it could have done better in its supervision of the company.

Coronavirus - industry updates 

The FCA published the results of its coronavirus financial resilience surveys. The FCA has been monitoring the economic effects of ongoing lockdowns and restrictions throughout the coronavirus pandemic. The regulator sent the surveys to 23,000 solo-regulated firms to understand the real-time effect the pandemic is having on the finances of the firms the FCA prudentially regulates. Sheldon Mills, Executive Director of Consumers and Competition said:
‘We are in an unprecedented – and rapidly evolving – situation. This survey is one of the ways we are continuing to monitor the potential impact of coronavirus on firms. A market downturn driven by the pandemic risks significant numbers of firms failing. At end of October, we’ve identified there are 4,000 financial services firms with low financial resilience and at heightened risk of failure, though many will be able to bolster their resilience as and when economic conditions improve. These are predominantly small and medium sized firms and approximately 30% have the potential to cause harm in failure’.
The survey found that between February and May/June 2020, firms across the sectors experienced significant change in their total amount of liquidity. This was defined as cash, committed facilities and other high-quality liquid assets. Firms were asked if they expected coronavirus to have a negative impact on their net income and 59% of respondents had said that they did. Of these, 72% expected the impact to be between 1% and 25% and 3% expected the impact to be 76%+ within three months of the survey being taken. The survey is one of four ways the FCA is monitoring firms and caution should be taken about using its data to make predictions. Additionally, this survey was taken before the expansion of the UK government’s furlough scheme, vaccine developments and the announcement of new rules and restrictions. The FCA will repeat the survey as the situation develops.
Nearly four in ten firms within the retail investments industry have furloughed staff during the coronavirus crisis, according to new data from the FCA, but overall firms have remained profitable. Figures published by the FCA revealed that 37% of firms in the retail investment sector had used the governments Job Retention Scheme, while 15% had received a government backed loan. Retail investment firms were among the highest users of the furlough scheme within financial services. The FCA’s data also showed that 87% of firms within the sector reported being ‘profitable’ in the latest data group compared to 85.6% in February 2020. 

It is understood that the FCA is also in the process of repeating the survey in February 2021 for firms that received this originally during 2020. 


On 1st January 2021, several Memoranda of Understanding (MoUs) came into effect between the FCA and European authorities, covering cooperation and exchange of information. 

The MoUs are:
  1. multilateral MoU with EU and EEA National Competent Authorities (NCAs) covering supervisory cooperation, enforcement and information sharing relating to, among others, market surveillance, investment services and asset management activities.
  2. An MoU with the European Securities and Markets Authority (ESMA) covering supervision of credit rating agencies and trade repositories.
  3. multilateral MoU with EU and EEA NCAs covering supervisory cooperation, enforcement and information exchange between UK and EU/EEA national supervisors in the field of insurance regulation and supervision.
  4. An MoU with the European Insurance and Occupational Pensions Authority (EIOPA) covering information exchange and mutual assistance between the UK authorities and EIOPA in the field of insurance regulation and supervision.
  5. MoU with the European Banking Authority (EBA) covering information exchange and mutual assistance between the UK authorities and the EBA in the field of banking.
  6. Individual MoUs with EU and EEA NCAs covering supervisory cooperation and information-sharing arrangements in the field of banking. These can be found on the Prudential Regulation Authority (PRA) website
As referred to originally in December’s newsletter, the FCA has now cleared up confusion regarding post-Brexit EU funds compensation. In an update on its website the FCA confirmed that investors in retail funds operated or managed by UK firms from the UK will still be covered by FSCS and ombudsman services but investors in retail funds operated/managed by EEA firms do not have access to FSCS and the ombudsman service for claims or complaints relating to management of the fund unless the fund is a UK authorised fund or the firm is doing the activity from the UK.

Scams, fraud and warnings

There have been reports of fake text messages claiming to be from HMRC offering a tax rebate just weeks before the HMRC self-assessment submission deadline. Many of the recipients of such text messages have taken to social media to warn potential victims of the scam. Online accountants, The Accountancy Partnership urged first-time business owners to be cautious of any communications claiming to be from HMRC ahead of the self-assessment deadline on January 31st
The FCA has confirmed that more funds are essential to run wide-reaching campaigns to raise awareness about pension fraud and the impact it has on victims. Mark Steward, executive director of Enforcement and Market Oversight at the FCA attended a Work and Pensions committee hearing on pension scams and explained that while scam campaigns had been a success so far, a lack of funds and resources was preventing further progress. Graeme Biggar, director general of the National Economic Crime Centre agreed with Steward and told the committee that although fraud makes up about a third of all reported crime, there are currently fewer than 1 per cent of police officers dedicated to investigating fraud. Bigger added that dedicating a sufficient amount of police officers to go after every fraudster would never be an option so the focus needs to be on protecting savers and preventing them from being scammed in the first place. More than £30m has been reportedly lost to pension scams since 2017, according to complaints filed with Action Fraud however, this figure is thought to be much higher as savers often fail to identify the signs of a scam and are unaware of how much is in their pension pot.
The FCA has warned advisers against using Whatsapp and other social media channels after a surge in remote working. The regulator said that it has acted against firms and individuals for misconduct which involved using the platforms to arrange deals and provide investment advice. The increased number of people working from home has heightened the risk of misconduct and the use of unmonitored or encrypted communication apps to share sensitive work information presents a significant compliance risk. The FCA expects firms to have a “rigorous monitoring regime” wherever “in-scope activities” might be conducted outside of a controlled office environment. The FCA also warned that using channels such as Whatsapp would make it harder for firms to effectively monitor communications and said where these types of apps were used for activities on business devices they must be “recorded and auditable”.

Pensions & SIPPs

The FCA has published its Defined Benefit Advice Assessment Tool (DBAAT). The DBAAT is designed to assess advice given before October 2020 and an updated tool that incorporated rule changes that came into force on 1 October 2020 will be published in coming months. The tool sets out the key areas of consideration when checking the suitability of advice and disclosure, thereby allowing firms to understand what is expected. The FCA’s aim is to make the tool widely available as part of its work to improve the suitability of DB transfer advice. 
Legal & General has introduced a service that will support people in tracking down lost or forgotten pension pots as well as consolidating them. The tracing service will use basic details to search a vast database of providers to locate pensions and present them on a dashboard. The service has a one-off fee of £100. After using the service, there will be an option to receive guidance or speak to a financial adviser, do nothing or to consolidate their pensions into one Legal & General retirement product. Those who decide to consolidate within six months of using the service will be refunded the £100 fee. This service comes at a time where data from the Association of British Insurers shows that there are 1.6m pension pots unclaimed, worth £19.4bn.
An advice firm has been ordered to compensate a client after their pension pot was raided by “malign” fraudulent activity. In July 2018, a fraudster impersonated the client and sent a request to transfer £35,000 from her pension pot and claimed the funds were needed while travelling in Australia due to a problem with her bank account and she was unable to access her money until she visited a branch. The firm then gave instructions to the Sipp provider to execute trades to deliver sufficient liquidity to transfer the £35,000 from her pension pot. Due to tax implications, £21,000 was sent to the client’s bank account. The fraudster then proceeded to impersonate the firm and send an email to the client advising there had been an issue and the transfer was a mistake, the client the returned the funds to an account using details provided by the fraudster. The fraudster then attempted to transfer further funds however, the firm and its client had uncovered what was going on and after contacting Action Fraud and the police, the client was able to recover £15,360 from her bank, leaving her Sipp short by £7,740. The client complained to the Financial Ombudsman Service however, the firm disputed this complaint arguing that the client had sent the funds to the fraudster and that the email communications had come from the email address they had on file for the client. The Ombudsman made it clear that both parties had been victims of a ‘sophisticated’ case of fraud and ordered the firm to reimburse the clients pension by nearly £8,000, cover any missed investment returns and to pay £250 for the trouble and upset caused.

HMRC & Tax

Brewin Dolphin has been reprimanded by the Financial Ombudsman Service after its advice to invest in a pension led to an unexpected tax bill for its client. The client was advised to deposit funds into a self-invested personal pension but was ultimately left with a £60,000 tax liability after triggering the money purchase annual allowance. Brewin Dolphin had recommended that the client invest his £160k funds into a Sipp on the basis that he had not contributed to a pension in the past three years and so had built up his annual allowance. However, in February 2019 the client was informed by his accountant that he had incurred a tax liability of approximately £60k because he had taken a withdrawal from a personal pension in 2015, which had triggered the MPAA. The Financial Ombudsman found that it was ultimately down to Brewin Dolphin to fully establish what other pensions the client had, or had crystallised, over the relevant period, to establish whether he could use these annual allowances and the firm was ordered to cover the additional tax bill and any changes that have occurred. 
HMRC will accept Covid as an excuse for the late return of personal tax annual self-assessments. HMRC has confirmed that if a taxpayer has a genuine reason as to why they were unable to file their tax return by the January 31st deadline due to Covid, they will be able to appeal a late filing penalty as long as the returns are submitted no later than 28 February. Taxpayers are encouraged to file on time even if they are unable to pay their tax immediately and support is in place for those who may struggle to pay with customers able to spread their payment liabilities of up to £30,000 over 12 months. HMRC has stressed that while Covid may be used as a reasonable excuse, each appeal will be reviewed on a case-by-case basis. HMRC has also confirmed that this relates to the filing of the tax return, not the payment of the tax liability itself which should still take place by 31 January.

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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