- FCA Policy Development Update
- Remuneration: Assistance in Relation to the High Earners Report
- “Accountability, from Debate to Reality”
- FSMA – UK Branches, Relevant Authorised Persons
- FCA Forms Relating to Senior Managers and Certification Regimes
- Risks to Customers from Performance Management at Firms
- Financial Benchmarks Oversight and Controls
- “Wholesale Markets and Risk: FEMR and beyond”
- FCA Handbook Notice
FCA Policy Development Update
The Financial Conduct Authority has published its most recent policy development update, which contains a timetable of the following upcoming publications:
- A consultation paper on “Implementation of UCITS V”, due Q3 2015;
- A policy statement to CP15/16, “Changes to the Approved Persons Regime for Solvency II firms”, due date to be confirmed;
- A policy statement to CP15/15, “Changes to the Approved Persons Regime for insurers not subject to Solvency II”, due date to be confirmed;
- A policy statement to CP15/10, “Strengthening accountability in banking: UK branches of foreign banks”, due date to be confirmed;
- A policy statement to CP15/9, “Strengthening accountability in banking: a new regulatory framework for individuals”, due date to be confirmed;
- A policy statement to CP14/31, “Strengthening accountability in banking: forms, consequential and transitional aspects”, due date to be confirmed;
- A consultation paper on “Fair, reasonable and non-discriminatory access to regulated benchmarks”, due summer 2015;
- A consultation paper on “Review of the FCA’s Pension and Retirement Rules and Future Work Plan”, due September 2015;
- A consultation paper on the “Implementation of Market Abuse Regulation”, due October 2015; and
- A policy statement to CP15/1, “FCA Competition concurrency Guidance and Handbook amendments”, due date to be confirmed.
The update mentions also the publications that have been issued since the last edition, namely:
- CP15/21 Reform of the legacy Credit Unions Sourcebook
- CP15/20 Investing in authorised funds through nominees
- CP15/19 Quarterly Consultation Paper No. 9
- PS15/16 Strengthening the Alignment of Risk and Reward: New Remuneration Rules
- PS15/15 FCA regulated fees and levies
- PS15/14 Restrictions on the retail distribution of regulatory capital instruments
- PS15/13 Guaranteed Asset Protection insurance: competition remedy
- PS15/12 Proposed changes to our pension transfer rules, feedback on CP15/7 and final rules
- PS15/11 Buy-to-let mortgages – implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules.
- GC15/4 Proposed guidance on the FCA’s registration function under the Co-operative and Community Benefit Societies Act 2014.
Remuneration: Assistance in Relation to the High Earners Report
The Prudential Regulation Authority (PRA) has published instructions to aid the completion of the High Earners Report, which is required under PRA rules.
All firms subject to the Capital Requirements Regulation (CRR) must submit a High Earners Report annually, within four months after its accounting date, providing aggregated anonymised data on all employees in the group of high earners from:
i. all institutions (banks, building societies, PRA-designated investment firms, IFPRU-investment firms) at the highest level of consolidation;
ii. EEA branches of institutions that have their head office in a third country; and
iii. firms that are referred to in (b) and (c) of Article 4(2) of the CRR – i.e. BIPRU firms, exempt CAD firms, local firms, and another firms that are not credit institutions or investment firms – but only where they are included in the scope of consolidation of an institution for which data regarding high earners are collected, where a ‘high earner’ is an employee receiving total annual remuneration of €1 million or more (excluding subsidiaries and branches established outside the European Economic Area);
The PRA’s Remuneration Rules set out the standards that banks, building societies and PRA-designated investment firms are required to meet when setting pay and bonus awards for their staff. In conjunction with details as regards the information to be obtained, specific backend information on data fields, and definitions of key terms, the instructions published aim to ensure that firms’ remuneration practices are consistent with effective risk management.
“Accountability, from Debate to Reality”
In a speech by Martin Wheatley, then CEO of the FCA, delivered at the City & Financial conference on 14th July, he spoke about the new banking accountability framework, provided a quick overview of the building blocks of that new regime, and discussed how the FCA believes the regime should be implemented.
Key Topics Discussed
Mr Wheatley noted that as the final rules on the new framework have recently been published, the industry’s focus must shift from policy debate to practical implementation. Some of the topics raised include:
Timetable – in light of some firms’ worries regarding the timetable for applying the new regime, Mr Wheatley noted that the alterations to be made should work with the grain of firms’ own thinking and chime with general principles of good governance. He announced that they will also go “hand-in-hand” with the clarity of reporting lines and responsibilities, performance management that ensures staff are properly equipped for their roles, and training that helps all staff to understand what is expected of them. The overall aim is to see standards of individual conduct rise across firms at all levels, and the regime is designed to be inherently proportionate, fitting with the realities of running complex financial services firm.
Identification of Senior Managers – senior management responsibilities will need to be allocated by firms in simple stages:
1. For a group, this starts with identifying which entities are caught and how they are linked together. Then, one must think about what each individual entity does (i.e. what activities they perform and how significant they are);
2. Firms then must identify individuals holding Senior Management Functions. These are the ‘Senior Managers’, and will include people such as the chief executive and executive directors. A series of responsibilities should then be allocated to each of these individuals;
3. Firms must consider whether any gaps exist - they ought to ask themselves “is there anything/anyone missing?”; and
4. Ultimately, firms should then record the resulting allocation of who is doing what. These records will be shared with each individual, and an overall map for the firm or group as a whole should be drawn up.
Proportionality – The FCA expects only the most senior individuals to be captured by the new senior managers regime, recognising that those at the top are the people with ultimate accountability. Therefore, the regulator will challenge firms that put forward too many of these individuals or people who they deem too junior. The regulator’s tailored approach to smaller firms makes it more simple and less burdensome for them, and non-executive directors with no specific roles on the board have been removed from the scope of the regime altogether.
FSMA – UK Branches, Relevant Authorised Persons
The draft statutory instrument published by the UK Government provides that authorised persons falling within the following two categories of non-UK institution are ‘relevant authorised persons’ for the purposes of Part 5 of FSMA:
1. those non-UK institutions which are credit institutions that have a branch in the UK , are authorised to accept deposits in the UK, and are not insurers; and
2. those non-UK institutions which are investment firms that have a branch in the UK, are authorised to deal in investments as principal in the UK, are regulated by the PRA in relation to that activity, and are not insurers.
The impact on businesses is that UK branches of foreign institutions will incur costs in setting up and operating the systems necessary to comply with new requirements in Part 5 of FSMA.
The PRA and FCA will need to make rules in order to apply detailed implementing measures, and they have the authority to publish appropriate guidance on their rules and other matters. An Impact Assessment has also been published alongside the draft statutory instrument.
FCA Forms Relating to Senior Managers and Certification Regimes
The regulator has published electronic versions of the various forms relating to notifications to be made to the FCA in connection with the introduction of the new Senior Managers and Certification Regimes (SM&CR).
The SM&CR concentrates on individuals who hold key roles or have overall responsibility for whole areas of pertinent firms. Preparations for the new regime will entail assigning and mapping out responsibilities, and preparing Statements of Responsibilities for individuals carrying out Senior Management Functions.
The Certification Regime applies to other staff who could pose a risk of significant harm to the firm or any of its customers (staff who, for instance, give investment advice or administer benchmarks). Firms’ preparations will need to include putting in place procedures for assessing for themselves the fitness and propriety of staff, for which they will be accountable to the regulators.
Also provided alongside the electronic versions of the forms are amendments and deletions of existing Handbook forms, due to take effect next year, and further information regarding the final rules can be found in “CP15/22 Strengthening accountability in banking: Final rules and consultation on extending the Certification Regime to wholesale market activities”.
Risks to Customers from Performance Management at Firms
The FCA has published its finalised guidance on risks to customers from inappropriate performance management at firms (FG15/10). Alongside this paper the FCA has issued a summary of the feedback it received to its earlier consultation.
In broad terms, performance management can be an effective tool in encouraging staff to develop and improve, and making sure that customers acquire the services and products they require.
Where incentives are misaligned, however, or poor performance management practices exist, these can lead to undue pressure on staff to sell products, which can result in mis-selling. Inappropriate performance management can lead to an excessive emphasis on sales results, and this type of pressure may be hidden, meaning that the reality of daily life for some employees can be very different from the tone set by senior staff or Boards.
The FCA’s focus is on how inappropriate practices present risks for consumers. Although the regulator is not mandated to prescribe how firms manage the performance of their staff, it does expect firms to adhere to Principle 3 and the pertinent SYSC rules when considering the risks arising from performance management approaches, and also to have a mitigation strategy in place to manage the risk of mis-selling.
The FCA is keen to work with the industry on this matter, with this report setting out the findings from the regulator’s work, highlighting areas of good and poor practice, and including guidance to assist firms in complying with existing rules and principles.
This report is aimed at all firms in retail financial services, include smaller firms, with staff who deal directly with retail customers, and some small and medium-sized enterprise (SME) customers where relevant.
Financial Benchmarks Oversight and Controls
The FCA has published the conclusions of its thematic review of oversight and controls of financial benchmarks, highlighting its key messages to the industry and providing examples of good and poor practice it saw at the sample of banks and broking firms assessed.
The regulator found that despite some progress being made on improving the oversight and controls around benchmarks, the application of the lessons learned from the LIBOR, Forex, and Gold cases to other benchmarks had been uneven across the industry and often lacked the urgency required given the severity of recent failings. Moreover, it was found that firms were failing to identify a wide enough scope of benchmark activities by interpreting the IOSCO definition too narrowly, and a number of firms had failed to make sufficient efforts to properly identify the conflicts of interest that could arise from their business and benchmark activities.
Following the review, the FCA has stated that firms must:
- Continue to strengthen governance and oversight of benchmark activity;
- Continue to identify and manage conflicts of interest;
- Fully identify their benchmark activities across all business areas;
- Establish oversight and controls for any in-house benchmarks where they have not done so; and
- Implement appropriate training programmes.
This report is relevant to users of benchmarks but especially firms engaging in activities related to benchmarks, such as benchmark submitters, administrators, and data providers.
“Wholesale Markets and Risk: FEMR and beyond”
On 24th July Tracey McDermott, current director of supervision, investment, wholesale and specialists at the FCA, delivered a speech at the British Bankers’ Association in London titled “Wholesale Markets and Risk: FEMR and beyond”.
Key Topics Discussed
In her speech three core areas are discussed:
A. How the regulator needs to work with the industry on solutions to rebuild reputation and embed cultural change
Ms McDermott employs an analogy comparing the attributes of a good regulator to those of a good referee – both should be “constantly on the pitch, keeping up with what is going on, respected, firm, consistent and fair – and tough when required – but not interrupting the flow unnecessarily and being largely invisible to the spectators most of the time”.
This is what the FCA aspires to be, although achieving this requires not just clear rules but also a basic buy in to following those rules.
B. How the regulator gets firms to ask themselves some hard questions about how they identify and manage conduct risk
The Authority poses five conduct questions, seen as a mechanism for helping firms ask themselves the hard questions that are needed and to give them a sense of what ‘good’ looks like. These are as follows:
1. “How do you identify conduct risks inherent within your business?”
2. “Who is responsible for managing the conduct of your business?”
3. “What support mechanisms do you have to enable people to improve the conduct of their business or function?”
4. “How do the board and executive committees gain oversight of the conduct of your organisation?”
5. “Does the firm have any perverse incentives or other activities that may undermine any strategies put in place to answer the first four questions?”
C. How the FCA creates a system in which individuals, as well as firms, can be held accountable for their actions
Individual responsibility for behaviour was notably lacking during the financial crisis and beyond. The SM&CR should reintroduce and reinforce professional accountability to the industry, which should help not just the rebuilding of the industry’s reputation but it also makes commercial sense.
It is increasingly evident that culture and conduct are two sides of the same coin, with good conduct relying on cultural change and unable to happen without it.
Senior leaders have responsibility for espousing correct culture and behaviours, and while the regulator has seen encouraging signs and commitments on this front it needs to be about changing outcomes.
In all, wholesale markets are of huge importance to the UK economy and they need to work well for everyone. They can only do so if everyone working in them feels responsible for their own behaviours and, importantly, the consequences of that behaviour for everyone else.
FCA Handbook Notice
The FCA has published handbook notice No.23 which sets out changes made by the FCA to the Handbook. The instruments include, inter alia:
• Individual Accountability Instrument 2015 (partially having effect from 13th July 2015 and 7th March 2016, with the remainder of the provisions coming into force on 7th March 2017).
- This implements the new senior managers regime, the certification regime, and the conduct following recommendations from the Parliamentary Commission on Banking Standards (PCBS) and the Financial Services (Banking Reform) Act 2013.
• Fees (Consumer Buy-to-Let) Instrument 2015 (introduced partially on 20th July 2015 with remainder on 1st April 2016)
- This sets the application fees for applicants to undertake ‘consumer buy-to-let’ related activities in 2015/16, and puts in place a framework for FCA and ombudsman service periodic fees and levies for 2016/17.
- Alternative Dispute Resolution (ADR) Directive Supplementary Instrument 2015 (that came into force on 9th July 2015)
- This makes minor changes to the handbook to ensure consistency with the ADR Directive, as consulted on by the Financial Ombudsman Service.
• Periodic Fees (2015/2016) and Other Fees Instrument 2015 (which came into force on 19th June 2015)
- This sets the 2015/16 fees and levies rates for the FCA, the Financial Ombudsman Service, the Money Advice Services and the pensions guidance levy, and establishes the framework for raising the pensions guidance providers levy, setting the amount payable by each designated pensions guidance provider in 2015/16.
- Martin Wheatley Stands Down as FCA Chief Executive
- FCA Annual Report 2014/15
Martin Wheatley Stands Down as FCA Chief Executive
On 17th July an FCA press release revealed that the regulator’s Chief Executive, Martin Wheatley, was to stand down from his position with effect from 12th September 2015.
Chairman of the FCA, John Griffiths-Jones, announced that taking over as Acting Chief Executive from 12th September 2015 will be Tracey McDermott, a current Executive Board Member and director of supervision – investment, wholesale & specialists at the regulator since April 2015.
FCA Annual Report 2014/15
The FCA has published its Annual Report and Accounts for the 2014/15 year, outlining the regulator’s progressions over the financial year and how it delivered against its statutory objectives and priorities from its 2014/15 business plan. It shows “a significant range of activity that lays the foundations for a positive future for UK financial services and their customers”.
Since the start of the financial year the FCA has taken on a number of new, high profile, responsibilities, each bearing significant long-term impacts on the future shape and direction of the UK’s financial services sector. These include the regulation of consumer credit firms, working towards the implementation the Parliamentary Commissions on Banking Standards’ (PCBS) recommendations, and the enforcement of the new Senior Managers and Certification Regime. Other notable work carried out over the last year include:
- Preparing for the operational launch of the Payment Systems Regulator and competition concurrency;
- Launching “Project Innovate” to help bring new and innovative financial products and services to the market; and
- FCA market studies, including cash savings, retirement income, and a review of competition in the wholesale sector.
The FCA’s Annual Public Meeting was held on 22nd July 2015, where members of the public were given the opportunity to ask questions about the Annual Report.
- ESMA Q&As
- Remuneration Guidelines
- Q&As on Transparency Reporting
- ESMA Advice on Non-EU Passports, National Private Placement Regimes
On 21st July ESMA published updated questions and answers on the application of AIFMD, touching upon reporting to national authorities and the calculation of the total value of assets under management (AUM).
The purpose of this document is to promote common supervisory approaches and practices in the application of the AIFMD and its implementing measures, and is aimed at competent authorities under AIFMD to ensure that their supervisory activities and actions are converging along the lines of the responses adopted by ESMA. However, the answers are intended also to help AIFMs by providing clarity as to the content of the AIFMD rules, rather than creating an extra layer of requirements.
ESMA has published the consultation paper “Guidelines on sound remuneration policies under the UCITS V Directive and AIFMD” in an effort to ensure a convergent application of the remuneration provisions, and to provide guidance on issues such as governance of remuneration, proportionality, disclosure, and requirements regarding risk alignment and disclosure under UVITS V.
The Draft Guidelines
The draft Guidelines are based on those already issued on remuneration under AIFMD, as the UCITS V remuneration principles broadly reflect those under the AIFMD. In developing these guidelines, ESMA co-operated with the European Banking Authority with the objective of aligning guidance on remuneration policies across financial sectors.
The key elements of the guidelines include:
- Management companies as part of a group – in a group context, non-UCITS sectoral prudential supervisors of group entities may deem certain staff of the UCITS management company which is part of that group to be identified staff for the purpose of their sectoral remuneration rules;
- Definition of performance fees – setting out a common definition based on the IOSCO final report on elements of international regulatory standards on fees and expenses of investment funds;
- Application of different sectoral rules – including proposals on how different rules, such as those set out in the AIFMD and in the CRD IV, should apply where employees or other categories of personnel perform services subject to different sectoral remuneration principles;
- Application of the rules to delegates – outlining proposals to prevent management companies sidestepping the remuneration rules through the outsourcing of activities to external service providers; and
- Payment in instruments – providing guidance on how to comply with the rules on the payment of variable remuneration in instruments under the UCITS Directive.
ESMA will consider the feedback received to the consultation and will aim to finalise and publish the UCITS Remuneration Guidelines and a final report by Q1 2016, ahead of the transposition deadline for the UCITS V Directive on 18th March 2016.
Q&As on Transparency Reporting
The FCA has published a series of questions and answers which aim to enable AIFMS to submit accurate transparency reports under AIFMD and save them time in doing so. In particular the publication:
- Highlights aspects of AIFMD transparency reporting where questions have been misinterpreted by some AIFMs;
- Identifies where AIFMs have provided inconsistent responses to connected questions; and
- Provides further information on the general use and functionality of GABRIEL.
The FCA does not attempt to highlight or resolve all aspects of AIFMD transparency reporting which may give rise to misinterpretations or inconsistencies. Nevertheless the regulator anticipates that the information it provides will help improve the accuracy, consistency, and completeness of transparency information that it collects from AIFMs and lessen the need for reports to be amended and resubmitted.
The information provided is relevant for:
- Full-scope UK AIFMs, small authorised UK AIFMs, and small registered UK AIFMs; and
- Above-threshold non-EEA AIFMS and small non-EEA AIFMs marketing in the UK under the UK National Private Placement Regime.
ESMA Advice on Non-EU Passports, National Private Placement Regimes
On 30th July, ESMA released advice as regards the application of the AIFMD passport to non-EU AIFMs and AIFs, in addition to its opinion on the functioning of the passport for EU AIFMs and the national private placement regimes (NPPRs). The advice and opinion, as required under AIFMD, is next to be considered by the European Commission, Parliament, and Council.
ESMA’s advice concerning the extension of the passport to non-EU AIFMs and AIFs, currently subject to NPPRs, was founded on the assessment of 6 jurisdictions: Guernsey, Hong Kong, Jersey, Singapore, Switzerland, and the US. ESMA concluded that:
- No obstacles exist to the extension of the passport to Guernsey and Jersey;
- Switzerland will remove any remaining obstacles with the enactment of pending legislation; and
- No conclusion was reached on the other three jurisdictions due to concerns related to competition, regulatory issues, and a lack of sufficient evidence to properly assess the relevant criteria.
Given the short time period that has elapsed since the implementation of AIFMD in Member States, a definitive assessment of their functioning is difficult and ESMA would, thus, recommend preparing a further opinion after a longer period.
- FCA Minutes of Meeting on Implementation
- Authorisation, Passporting, Third Country Firm Registration, and Cooperation between Competent Authorities
- Assessment of Knowledge and Competence
FCA Minutes of Meeting on Implementation
On 10th August the FCA published minutes from its most recent MiFID II Implementation Roundtable on 17th July, during which it delivered an update on the implementing measures of the new Directive and confirmed that the European Commission expects to adopt MiFID II delegated acts after the summer.
Concerns of Trade Association Members
Previously the FCA had issued a request for trade associations to detail the foremost concerns of their members. The issues raised fell into four distinct categories:
1. Policy Concerns – A number of issues were raised pertaining to where Europe and the FCA might end up in relation to issues covered by the delegated acts and technical standards on the one hand, and the Authority’s Discussion Paper on the other.
2. Technical Challenges – Issues raised by the trade associations’ responses expressed concern as regards the nature and scale of the systems changes necessary to implement various requirements. These include those pertaining to best execution disclosures, position and transaction reporting, costs and charges for disclosure, and inducement restrictions on research.
3. Uncertainty over key processes – Some identified issues implied that firms were finding planning difficult as they did not know when or how equivalence determinations would be made, how the process for applying for exemptions from position limits would work, and how commercial businesses would work through the process of applying for authorisation if that turned out to be necessary.
4. Interpretation – There were concerns regarding the lack of certainty about what the legislation necessitated in certain areas, such as the quoting obligations under the non-equity systematic internaliser regime, the boundaries between Organised Trading Facilities (OTFs) and Multilateral Trading Facilities (MTFs), and aspects of the suitability regime in particular.
The various concerns have been shared with policy experts around the FCA and, despite acknowledging that they cannot achieve the impossible, the regulator reiterated that firms need to plan effectively for implementation given the nature of concerns expressed.
There was an appreciation that transitioning from MiFID to MiFID II may give rise to some difficulties, and both the FCA and ESMA recognise that guidance would be required on top of legislation in order to assist firms in the process.
The next MiFID II conference is due to take place on 19th October and intends to focus on the implementation of markets and wholesale issues, with communication on retail issues taking place through other means.
Authorisation, Passporting, Third Country Firm Registration, and Cooperation between Competent Authorities
29th June saw ESMA release its final report on the amended MiFID II draft technical standards as regards passporting, authorisation, registration of third country firms, and cooperation between competent authorities. These focal points are discussed in detail in the report and summarised below:
MiFID II requires that an investment firm obtains authorisation from its Home Member State before being allowed to provide investment or ancillary services. ESMA should be informed of the authorisation subsequently, and the Home Member State should also make this information available to the general public.
A passporting procedure is required if an investment firm already registered in one EU Member State seeks to provide investment services in another. The firm must deliver to its national competent authority a programme of operations, setting out the investment services and/or activities, in addition to any other ancillary services, which it endeavours to provide in that Member State, and must disclose whether it intends to do so through the use of tied agents. The national competent authorities of both Member States must then communicate this information with each other.
Third Country Firms Access Regime
Not touched upon in the previous regime, MiFID II states that an investment firm from a third country deemed equivalent will be required to submit an application to ESMA in order to be granted access to EU markets. These firms must also establish a branch in an EU Member State, and obtain authorisation from the pertinent National Competent Authority (NCA) if it wishes to provide services to retail clients within the EU. Only after authorisation from both ESMA and the relevant NCA has been obtained can the third country firm begin to provide services across EU Member States through the branch.
Cooperation between Competent Authorities
Article 80 of MiFID II sets out a framework for cooperation between the EU’s competent authorities for supervisory activities, on-site verifications or investigations, and Article 80(3) mandates ESMA to develop draft regulatory standards to specify the information to be exchanged between competent authorities when cooperating in the aforementioned. ESMA has drafted these, believing that the information to be exchanged should be of sufficient scope and nature to allow competent authorities to discharge their supervisory duties and functions effectively.
Assessment of Knowledge and Competence
On 22nd July ESMA published responses received to its consultation on the draft guidelines specifying the criteria for the assessment of knowledge and competence of natural persons in investment firms providing advice or information about financial instruments, investment services, or ancillary services to clients, as required by Article 25(9) of MiFID II.
- AML/CTF Rules for Investment-Based Crowdfunding Platforms
- Money Laundering and Terrorist Financing Risks associated with Gold
AML/CTF Rules for Investment-Based Crowdfunding Platforms
ESMA has publicised questions and answers intended to endorse the sound, effective, and consistent application of rules concerning anti-money laundering and the battling of terrorist financing (AML/CTF) to investment-based crowdfunding platforms. Targeted at NCAs, the Q&As endeavour to assist in ensuring that the employed supervisory methodology is effective and considers the attributes of, and the risks associated with, the different facets of investment-based crowdfunding platforms.
The three questions answered are as follows:
1) What are the risks in relation to terrorist financing and money-laundering related to investment-based crowdfunding?
Investment-based crowdfunding carries a risk of misuse for terrorist financing, in particular where limited or no due diligence is performed on project owners and their projects. Money laundering is also an inherent threat as these platforms can be used, for example, to disguise the illicit origin of funds, where investments are made in projects which do not successfully meet their fundraising target, with a view to these funds being returned to the investor, or indeed by collusion between project owner and investors with a view to laundering money. Both of these risks can be mitigated by the application of rigorous due diligence checks, on both project and project owner, to flag situations where these risks are high.
2) Is the risk profile of the platform affected by whether it is regulated under MiFID or not?
The business models and activities of platforms operating inside or outside MiFID are often similar and so the potential for terrorist financing and money laundering through platforms does not depend on whether they are inside or outside MiFID. There is therefore no basis in terms of level of risk for a less rigorous treatment of platforms operating outside MiFID in relation to anti-money laundering and terrorist financing.
3) How should investment-based crowdfunding be treated under the Third Anti-Money Laundering Directive?
Investment-based crowdfunding platforms operating under MiFID II are automatically subject to the AML/CTF rules under the Third Anti-Money Laundering Directive, including the responsibility for undertaking customer due diligence checks.
The regulatory status of investment–based crowdfunding platforms differ however – some fall within the exemption provided in Article 3 of MiFID where they may be regulated under particular national regimes, and others are not caught by MiFID’s scope. ESMA intends to clarify the status of other platforms by analysing the potential risks and issues arising in different cases and their treatment under applicable EU rules.
Money Laundering and Terrorist Financing Risks Associated with Gold
The Financial Action Task Force’s (FATF) report provides 25 case studies and a number of red flag indicators to raise awareness of the vulnerabilities of gold and the gold market from an anti-money laundering and terrorist financing perspective. Its key findings intend to promote effective mitigation and preventative measures, whilst encouraging additional work in areas requiring further investigation.
The report finds that gold is an extremely attractive vehicle for money laundering, providing a mechanism for organised crime groups to transform illegitimate cash into a stable, anonymous, convertible and easily exchangeable asset to realise or reinvest the profits of their criminal activities.
Being highly lucrative, the gold market also presents proceed-generating opportunities for criminals at each stage, from mining to retailing. Therefore, understanding the various stages of the gold market ‘continuum’ and the types of offending that can occur in each stage is critical in identifying money laundering and terrorist financing risks emanating from this industry.
The report identifies that further research is necessary to establish the impact of regulation on detecting and discouraging criminal activities in the gold market, and the potential links between this market and terrorist financing.
- Referral Criteria for FCA Enforcement Investigations
Referral Criteria for FCA Enforcement Investigations
In December 2014 HM Treasury published a review for the enforcement decision-making process at the FCA and PRA. As a result of that review, the FCA committed to publishing updated referral criteria and to set out more clearly the process by which decisions to refer cases to enforcement are made.
The FCA’s Approach
When deliberating whether or not to investigate, the FCA considers three overarching questions:
1. Is an enforcement investigation likely to further the FCA’s aims and statutory objectives (namely protecting consumers, enhancing market integrity, and promoting competition)?
2. What is the strength of the evidence and is an enforcement investigation likely to be proportionate?
3. What purpose or goal would be served if the FCA were to take enforcement action in this case?
The FCA has also set out more detail about how it decides on which regulatory response is best suited to a case, which involves assessing whether a referral for an enforcement investigation is appropriate before a final decision is made by relevant senior staff.
It is stressed by the regulator that the opening of an investigation does not mean that it has decided that a breach has been committed, or that it has decided what type of enforcement action to take, if any, should it be the case that there has been a breach.