A round up of the news from the Financial Conduct Authority in November.
Three Individuals Banned from Working in Financial Services for Non-Financial Misconduct
The FCA has prohibited three individuals from working in financial services. This follows findings that the individuals in question are not fit and proper, owing to convictions of serious non-financial indictable offences while working in the financial services industry. In all three cases, the offences were committed whilst the individuals were approved persons.
The first was a financial adviser at an FCA authorized firm and was approved by the regulator to hold various functions at the firm.
In July 2018, the financial adviser was convicted of serious criminal offences involving the making, possession and distribution of indecent images of children.
The second was the sole director and shareholder of an authorized firm with permission to conduct designated investment business as well as insurance distribution.
In September 2018, this individual was convicted of voyeurism, contrary to the Sexual Offences Act 2003.
The third was a director and shareholder of an authorized financial advice firm.
In April 2018, the director was convicted of sexual assault, contrary to the Protection from Harassment Act 1997.
Mark Steward, Executive Director of Enforcement and Market Oversight, said:
“The FCA expects high standards of character, probity and fitness and properness from those who operate in the financial services industry and will take action to ensure these standards are maintained.”
For further information, please click here.
Response to Equivalence Announcement by Treasury
The Treasury has provided some certainty to firms, clients and counterparties by announcing its intention to make equivalence decisions across the following areas where the FCA is the lead regulator:
- EMIR (Article 13) – Intragroup transactions exemption
- UK firms will be able to apply for margining and/or clearing exemption for intragroup transactions where their intragroup counterparty is located in the European Economic Area (“EEA”). However, UK firms should be aware that reciprocity may not be granted to their EEA intragroup counterparties.
- EMIR (Article 2A) – Regulated markets
- UK firms will be able to consider EEA trading venues as regulated markets under Article 2A of UK EMIR. This confirms the classification of derivative transactions on these markets in relation to requirements under EMIR.
- Short Selling Regulation (SSR) (Article 17) – Market making exemption
- EEA firms who have not previously submitted a notification for a market maker exemption under UK SSR can now do so without needing to be a member of a UK trading venue and can, instead, submit a notification to the FCA based on being a member of an EEA trading venue.
- Credit Rating Agencies Regulation (CRAR) (Article 5) – Certification
- EEA credit rating agencies registered with ESMA and whose credit rating activities are not of systemic importance to the financial stability or integrity of UK financial markets may apply for certification with the FCA.
- Benchmarks Regulation (BMR) (Article 30)
- EEA benchmark administrators will be able to access UK markets and UK supervised entities can continue to use their benchmarks on that basis.
Green Horizon Summit: Rising to the Climate Challenge
Nikhil Rathi, CEO of the FCA, gave a speech at an online conference hosted by the City of London. The key points made were:
- Finance has an important role to play in the transition to a greener economy.
- The FCA wants to help market participants manage the risks of moving to a low carbon economy while also benefiting consumers. Therefore, good regulation has a key role to play.
- The FCA wants green and sustainable finance to be at the heart of the continued growth of London as a global financial center.
- A key focus of the FCA is to improve transparency for market participants and consumers. The FCA aims to build trust in sustainable finance products; and ensure that it provides the right regulatory framework to support firms.
- The FCA is introducing rules requiring premium listed companies to make better disclosures about how climate change affects their business from January 1, 2021. These new rules are consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). The Regulator will consult on extending the scope of these rules during the first half of 2021.
- The FCA is consulting in the first half of 2021 on introducing TCFD obligations for asset managers, life insurers and pension providers and aims to bring in these new rules by 2022 for the largest firms.
It therefore appears that the UK will not be implementing the Sustainable Finance Disclosure Regulation (“SFDR”) in 2021 but the UK government has stated its intention to adopt and review the EU taxonomy framework which means that UK firms may have to report in line with this adapted taxonomy in the future.
It should also be noted that UK firms seeking to market into the EU from March 2021 will need to be aware of the disclosure requirements under SFDR and in any event funds are likely to come under pressure by investors to make appropriate disclosures even if these are not legally enforceable.
To read the full article click here.
Response to Chancellor's Statement on Future of UK Financial Services
The HM Treasury published plans outlined by the Chancellor of the Exchequer, Rishi Sunak, on the future of the UK financial services following the UK’s departure from the European Union.
Nikhil Rathi, Chief Executive of the Financial Conduct Authority, responded by saying that Mr. Sunak’s statement “sets out important steps” to ensure that the UK will remain “a global financial center with high regulatory standards”.
Mr. Rathi stated that effective financial regulation leads to “strong trading relationships and open financial markets” which ultimately benefits the economy, investors and consumers.
The FCA will work alongside the Government and the Bank of England to address the measures announced by the Chancellor.
To read more information from the FCA on the equivalence decisions outlined by the Chancellor, please click here.
Nikhil Rathi Discusses the FCA's Pandemic Response and His Vision for the Future
The Chief Executive of the FCA, Nikhil Rathi, has given a podcast interview which can be accessed here. In addition to discussing the response of the FCA to the pandemic, he also talks about the central role of data in the FCA; and the strategic requirement to adapt the regulatory framework in order to support innovative areas of finance, including fintech.
High Court Proceedings Begin Against Unauthorized Collective Investment Schemes
The FCA commenced proceedings against two individuals and one company (the defendants) over alleged links to care home investments in which investors appear to have lost in the region of £30 million.
The action alleges that the defendants operated and promoted collective investment schemes without being appropriately authorized. The High Court proceedings seek injunctions against the defendants and seek a restitution order to return funds to affected consumers. The FCA alleges that misleading statements were made about the financial stability of the schemes and the level of expected returns, which would have only been possible by taking money from later investors to pay earlier investors, making it similar to a Ponzi scheme.
It should be noted that none of the promotional material issued in respect of these schemes had been approved by an authorized person.
Regulated firms should take utmost care when approving financial promotions to ensure that they are not found to be liable for issues with the underlying investments.
Read the full press release here.
Facing the Future - Challenges and Priorities
The FCA Chief Executive Officer, Nikhil Rathi gave an address on the challenges and priorities for the FCA in 2021 and beyond.
Mr. Rathi outlined how the FCA was tackling the immediate geopolitical environment including the Coronavirus pandemic and Brexit. The FCA expects a number of smaller firms to fail in the months ahead, but it was committed to ensuring that the detriment to consumers and the wider financial industry was kept to a minimum.
As for the FCA’s plans for 2021 there will be a focus on maintaining the robustness of the regulatory framework, including finalizing the transition from LIBOR to stronger and better interest rate benchmarks. Mr. Rathi mentioned that the FCA was working on an ambitious transformation program to deliver on the data strategy to harness the power of data and the Women in Finance Charter to improve diversity and inclusion in the FCA.
Should you have any concerns about the current regulatory environment including COVID-19 and Brexit planning, please do not hesitate to reach out to your contact at Duff and Phelps Ltd.
To read the address in full, please click here.
Director of International Discusses End of Brexit Transition Period
Nausicaa Delfas, the Executive Director of International at the Financial Conduct Authority, delivered a speech on Brexit at the UK’s Regulatory Regime for Financial Services Summit.
The main focus of the speech was the steps taken by the UK to prepare for the end of the transition period on December 31, 2020. Ms Delfas discussed the equivalence determinations granted to the EU by HM Treasury, allowing UK firms to continue using EEA products and services. Ms Delfas also discussed the various temporary regimes allowing non-UK firms and fund managers to operate in the UK and the negotiation of almost 80 memoranda of understanding with EU and other global regulators to allow the FCA to continue to supervise cross-border activity.
Ms Delfas highlighted the importance of the UK’s role on the global stage and trade & market access in financial services. Brexit will reset how financial services regulation is made, but the UK will build on its global role outside of the EU and remain committed to remaining one of the most open jurisdictions in the world for financial services trade.
The original speech can be found here.
Compliance and Regulatory Consulting
Local and global compliance expertise for the financial services industry.
Expert compliance support for a variety of firms including hedge funds, private equity firms, wealth managers, corporate finance and broker dealers.
FCA Authorization Application for Financial Services
Comprehensive FCA Authorization support.
Comprehensive compliance and regulatory support for FCA authorized firms.
Senior Managers and Certification Regime (SM&CR) Consulting and Implementation Support
A comprehensive range of support and solutions to all firms and individuals subject to SM&CR.
Comprehensive compliance and regulatory support for EU firms.