Regulatory Update: UK Edition – March 2021

The FCA has launched a campaign to encourage individuals working in financial services to report potential wrongdoing to the FCA. As part of the campaign, the FCA has published materials for firms to share with employees and reminds them of the confidentiality processes in place.

The FCA also reminds firms that culture and governance remain a key priority. The whistleblowing rules require firms to have effective arrangements in place, as well as the appointment of a whistleblowing champion to ensure senior management oversight of the integrity, independence and effectiveness of the firm’s arrangements.

For guidance and advice on the whistleblowing systems and controls, please contact us.

The FCA has published its feedback to CP19/32 and final rules on building operational resilience. Operational disruptions may have many causes, including system failure, people, processes, or matters outside of a firm’s control, such as the pandemic. The FCA sets out changes to enhance a firm’s resilience and proposes to apply these changes in a proportionate manner, reflecting the impact on consumers and market integrity if a firm’s services are disrupted. The statement released addresses the feedback received by:

• Clarifying how the FCA’s rules fit with the domestic and international landscape and other FCA initiatives such as the treatment of vulnerable customers
• Setting out how the FCA will support firms to implement the rules
• Including more examples of how different types of firms may apply the rules

For guidance and advice on operational resilience, please contact us.

The FCA has published a feedback statement on its call for input in December 2019 exploring the opportunities and risks from open finance. The feedback statement sets out responses in the following areas:

• Maximising the potential of open banking
• key themes and issues for open finance, including its risks and benefits, feasibility and cost, the necessary regulatory framework, common standards and infrastructure
• draft principles for open finance
• the FCA’s role and next steps

The FCA will continue to work with the Government and industry stakeholders to identify the industry roadmaps needed to support the legislation.

The FCA has published a policy statement summarising its proposal to increase the number of firms required to submit an annual financial crime report (“REP CRIM”). The FCA proposes to increase the number of firms required to submit a REP-CRIM report from 2,500 to 7,000.

The statement proposes additional firms and cryptoasset businesses are to be brought in under the report based on business activities and money laundering risks. Firms who fall under the new scope will therefore be required to submit the return when it is due.

To discuss the requirements of the REP CRIM report, including how to complete this return, please contact us.

The PRA has published a supervisory statement setting out its expectations of how PRA regulated firms should comply with the requirement and expectation in relation to outsourcing and third party risk management.

The statement aims to complement the requirements and expectations of operational resilience and implement the European Banking Authority’s (“EBA”) guideline on outsourcing arrangements.

The European Markets and Securities Authority (“ESMA”) has updated its Q&As on the Markets in Financial Instruments Directive/Regulation (“MiFID II”/ “MiFIR”) investor protection and intermediaries topic. The update brings new clarifications to the application of inducements under MiFID II and the consideration of when an inducement can be considered as designed to enhance the quality of the relevant service to a client.

The Financial Action Task Force (“FATF”) has launched a consultation to help both public and private sectors implement the new requirements to identify, assess, understand and mitigate proliferation financing risk. The FATF seeks to consult with the private sector stakeholders before finalising the guidance.

The areas of focus as set out by the FATF include:

• Does the guidance provide sufficient clarity in distinguishing the mandatory requirements of the updated FATF Standards on proliferation financing risk assessment and mitigation, and additional measures that may support the implementation of these new requirements?
• The consideration of whether the risk indicators are relevant, useful and sufficient for understanding the risk of potential breach against the FATF’s recommendation. The consultation further invites feedback on whether any other indicators can be added to the section.
• Does the risk mitigation section of the guidance provide sufficient clarity on how financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) can address the risk of potential breach, non-implementation and evasion of targeted financial sanctions? What specific risk mitigation measures do you take to address such risks?
• Does the guidance set clear expectations for financial institutions and DNFBPs in case of high-risk and low-risk customers and business relationships, including likely impact on de-risking and financial inclusion?

The FATF and Egmont Group have published a joint report on trade-based money laundering risk indicators. The report provides practical examples of risk indicators determined through sampling data from research. The indicators are split up into four categories to help identify potential instances of suspicious activities in international trade transactions. The four categories are:

• Structural risk indicators
• Trade activity risk indicators
• Trade document and commodity risk indicators
• Account and transaction activity risk indicators

The report should be used to train and support firms and individuals to identify and escalate potential suspicious trade activity.

For guidance and advice on money laundering systems and controls, please contact us.

The FCA has fined Mr Adrian Geoffrey Horn, a former market making trader at Stifel Nicolaus Europe Limited, £52,500 for market abuse and prohibited him from performing any functions in relation to regulated activity.

The FCA investigated Mr Horn and found he had engaged in market abuse by executing trades himself in the share McKay Securities Plc. The individual committed ‘wash trading’ by intentionally placing buy orders in McKay shares against his existing sell orders and vice versa.

Mr Horn cooperated with the FCA and made significant admissions in early interviews. As a result, his penalty was reduced by 25% in addition to a 30% settlement discount.

The FCA has published an article providing an update to its ongoing criminal cases. The article sets out the following cases:

• an insider dealing prosecution in Northamptonshire which is expected to go into hearing on 10 September 2021
• an insider dealing and fraud case, involving brothers who are to be charged with 6 offences of insider dealing and 3 offences of fraud by false misrepresentation

The FCA has published a decision notice in respect of Jon Frensham, an independent adviser and sole director of Frensham Wealth Limited. The FCA considers Mr Frensham to not be fit and proper and has decided to withdraw his approval to perform his current senior management functions in order to prohibit him from performing any functions in relation to regulated activity. The individual has referred the notice to the Upper Tribunal.

The FCA’s consideration is a result of Mr Frensham’s conviction of attempting to meet a child following sexual grooming in March 2017. The offence was committed whilst he was an Approved Person. Given the nature of the offence, the FCA considers that Mr Frensham lacks the necessary integrity and reputation to perform any function to carry out regulated activity. As a result, he poses a risk to consumers and the confidence in the financial system.

The action of the decision notice will have no effect pending the determination of the case by the Tribunal.

For guidance and advice in relation to financial and non-financial misconduct and proportionate systems and controls, please contact us.

The High Court has delivered a summary judgement ruling that 24HR Training Academy Limited contravened the Financial Services and Markets Act 2000 (“FSMA”) by providing unauthorised investment advice to consumers via WhatsApp messages.

Mohammad Fuaath Haja Maideen Maricar, who runs 24HR, was ordered to pay restitution in excess of £530,000. The recovered funds will be distributed to 24HR’s customers.