FCA Updates & Developments

The FCA and the Securities and Futures Commission (SFC) have entered into a Memorandum of Understanding (MoU) on mutual recognition of funds. This will allow eligible Hong Kong public funds and UK retail funds to be distributed in each other’s market through a streamlined process.

The FCA has published a consultation (GC18/04), in light of the extension of the Senior Managers & Certification Regime (SM&CR), regarding a proposed guidance on statements of responsibilities and responsibilities maps.

The deadline for comments is 10 December 2018.

For support and advice on implementing an SM&CR solution that works for your business, please contact us for more information.

Climate change is one of the major risks that have impact on the markets and institutions regulated by the FCA. The FCA’s discussion paper aims to consider the physical risks of climate change, international and domestic political commitments on climate change, and the subsequent response of corporations, capital markets and investor demand, that have started to cause changes in the financial services sector.

The FCA invites views and feedback on four areas:

  1. Climate change and pensions
  2. Competition and market growth for green finance
  3. Adequate disclosure to investors of financial impacts of climate change
  4. Introduction of a new requirement for reporting publicly on a firm’s management on climate risk.

Deadline for responses is 31 January 2019.

PRA Updates & Developments

The PRA has updated Supervisory Statement 32/15 to reflect amendments to the reporting requirements for FSA076 and FSA077, removing references to reporting on an ad-hoc or case by case basis.

In addition to the amendment above, the publication of SS32/15 includes the introduction to data item PRA111 for stress testing data in relation to a firm’s Internal Capital Adequacy Assessment Process (ICAAP) and a reduction in the frequency of certain reporting data items in the PRA Rulebook.

This statement is applicable to banks, building societies and PRA designated investment firms.

The PRA has published a consultation paper setting out its proposals to amend various PRA forms relating to applications and notifications for regulatory transactions. The proposal would see changes made to the following areas of the Rulebook:

  • Passporting
  • Change in control
  • Insurance special purpose vehicles
  • Notifications

The PRA has published a consultation paper on delaying the termination of existing ‘daily flows’ and enhanced mismatch’ liquidity reports (FSA047 and FSA048) for a limited period. The proposed change is to mitigate risks to the supervision of liquidity in the initial period following the introduction of the PRA110 report on 1 July 2019.

The consultation deadline was on Monday 12 November 2018.

EU Regulatory Updates

The European Securities and Markets Authority (ESMA) has updated the following Questions and Answers (Q&As) relating to:

As of 2 October 2018, ESMA is further extending the prohibition on the marketing, distribution or sale of binary options to retail clients for 3 more months. The previous measures can be found in the June edition of CCL’s regulatory update.

ESMA has, upon review, decided to withdraw its guidelines on systems and controls in an automated trading environment for trading platforms, investment firms and competent authorities. ESMA finds the guideline’s subject matter to be successfully and fully incorporated into MiFID II and its implementing measures.

Financial Crime

The Council of the EU has adopted a new anti-money laundering directive which introduces new criminal law provisions to disrupt and block access by criminals to financial resources.

The new rules include:

  • Minimum rules on the definition of criminal offences and sanctions relating to money laundering
  • Possibility of holding legal entities liable for certain money laundering activities
  • Removing obstacles to cross-border judicial and police cooperation

Member States will have up to 24 months to transpose the directive into national law once it has been published in the EU Official Journal (OJ).

As a result of the statements published by the Financial Action Task Force (FATF) on jurisdictions with strategic deficiencies, HM Treasury has published an updated advisory notice on anti-money laundering and counter-terrorist financing controls in higher risk jurisdictions.

The Treasury advises firms to consider the following:

  • DPRK as high risk and apply counter measures and enhanced due diligence measures
  • Iran as high risk and apply enhanced due diligence measures
  • Take appropriate actions to minimise the associated risks, which may include enhanced due diligence measures in high risk situations for the following jurisdictions:
    • The Bahamas
    • Botswana
    • Ethiopia
    • Ghana
    • Pakistan
    • Serbia
    • Sri Lanka
    • Syria
    • Trinidad and Tobago
    • Tunisia
    • Yemen
Enforcement Action

The FCA has fined Tesco Personal Finance PLC (Tesco Bank) for failing to exercise due skill, care and diligence in protecting its personal current account holders against a cyber-attack which took place in November 2016.

The FCA imposed the fine to reflect its zero tolerance for banks that fail to protect the customers from foreseeable risks. In this instance, Tesco Bank had failed to address a very specific warning until after the attack happened.

Tesco Bank cooperated with the FCA on a high level: it developed a programme to fully compensate customers, as well as stopping a significant number of unauthorised transactions. The FCA granted a 30% mitigation in this instance. The Bank also agreed to settle early which qualified it for a 30% discount. If not for the mitigation and discount, the penalty imposed would have been £33,562,400. The amount imposed currently is £16,400,000.

The FCA has published a decision notice against Linear Investments Limited for failing to take reasonable care to organise and control its affairs responsibly and effectively to ensure the detection and subsequent reporting of potential instances of market abuse.

The firm had failed to increase its oversight when its business model changed and did not provide adequate monitoring. It mistakenly believed it could rely on post-trade surveillance undertaken by brokers through which it executed transactions.

Linear Investments Limited agrees with the facts and liability associated with the case but contests the level of penalty set out by the FCA, the amount of which is £409,300 with the 30% discount.

The FCA has fined Liberty Mutual Insurance Europe SE for failures in its oversight of insurance claims and complaints handling processes administered through a third party. Liberty Mutual Insurance Europe SE had provided mobile phone insurance to retail customers through a third party, where the third party handled all administrative functions including claims and complaints handling.

Liberty Mutual Insurance Europe SE should have been responsible to ensure that claims and complaints were handled fairly and to have in place systems and controls for oversight of the third party, but the FCA found that the they did not fulfil this responsibility. Due to the lack of oversight, claims and complaints were unfairly declined or not investigated adequately.

The Firm was fined £5,280,800 when it settled early and qualified for a 30% discount.

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