Regulatory Update: UK Edition – September 2021
This edition includes – FCA publishes draft guidance to allow faster removal of regulatory permissions, PRA consultation paper on identification of material risk takers, ESMA consults on proposal for a review of the MiFID II Best Execution Reporting Regime, JMLSG publishes new guidance and Richard Faithfull sentenced to over five years imprisonment for money laundering.
The FCA has published a draft guidance on a new power that allows the regulator to move faster to remove regulatory permissions no longer used by financial services firms.
The new power, granted to the FCA via the Financial Services Act 2021, will streamline and shorten the process of removing firm permissions. The FCA will be able to start the cancellation process as soon as it considers permissions are not being used, by serving 14 days’ notice on a firm. The FCA will then be able to vary or cancel permissions after one month.
The FCA has already undertaken exercises with financial services firms reminding them of their obligation to review regulatory permissions and ensure they are up to date or removed if not needed. Firms that have not used their permissions for 12 months or more are at risk of having them cancelled.
The consultation will run until 29 October 2021.
For guidance in relation to your existing permissions, or if you wish to vary your permissions, CCL has over 30 years of experience in supporting firms in these areas. Please contact us.
The FCA has issued a consumer warning regarding Sentor Solutions Commercial Ltd. The FCA has taken action against the authorised firm to prevent it from carrying out any regulated activity without the FCA’s prior consent.
This warning explains the steps taken to protect consumers and where to find help about any investments made in Texmoore Limited, Fabcourt Developments Limited or interactions with Sentor Solutions.
Sentor Solutions had introduced consumers to Texmoore and Fabcourt when netiher of the firms had been permitted to provide regulated investment services by the FCA. Due to this, Sentor failed to pay due regard to the interests of its customers or treat them fairly.
The FCA has set out its plan to tackle investment harm with a new strategy aimed at giving consumers the confidence to invest and with the aim of fewer people being scammed or persuaded to invest in products too risky for their appetite. The FCA will publish metrics to keep track and assess whether these outcomes are being met.
The FCA’s measures include:
- exploring regulatory changes to provide more help to consumers to invest in straightforward products
- launching a harm campaign to help consumers make better-informed investment decisions and to reduce the number of people investing in inappropriate high-risk investments
- strengthening the Appointed Representatives (AR) regime, with a consultation to be launched later this year to raise the quality of financial advice
- strengthening the financial promotions regime in three areas; the classification of high-risk investments, further segmenting the high-risk market and strengthening the requirements on firms when they approve financial promotions
- reviewing the compensation framework to ensure that it remains proportionate and appropriate, particularly where firms fail leaving behind compensation liabilities for the FSCS to address. This will reduce the cost and impact of poor advice.
For guidance on how this policy direction could impact your firm, please contact us.
In its regulation round-up, the FCA has discussed the delays surrounding Senior Manager Regime (SMR) and Significant Influence Function (SIF) applications. It referenced the previous communication in December 2020 on the large volume of applications received before the extensions of the Senior Managers and Certification Regime (SM&CR).
The FCA has increased resources to address the delays but has received a significantly higher number of applications than expected in Q1 2021. Due to the capacity of resources during COVID-19, applicants may still face delays going forward.
The FCA notes that to help it progress applications as quickly as possible, firms should ensure they:
- ensure the application has been completed in full
- for SMR applications, a Disclosure & Barring Service (DBS) check must be completed before submission
- ensure all appropriate due diligence checks, including regulatory references are conducted before submitting a candidate and the relevant checks are included
- respond promptly and fully if contacted to seek further information about a submitted application.
CCL can assist on the completion of SMF and SIF application for investment firms and ARs. For more information, please contact us. CCL has developed an SM&CR tool within our CORE compliance platform. For a demo of the platform, please contact us.
The PRA has published a consultation paper on proposed changes to the requirements on the identification of material risk takers.
The proposal includes:
- changes to the rulebook on the criteria for identifying material risk takers and relevant definitions
- updates to SS 2/17 to reflect the rule changes and the process for excluding an employee identified solely based on the quantitative criteria
- the revocation of Commission Delegated Regulation (EU) No 604/2014 of 4 March 2014 (2014 Regulatory Technical Standards (2014 RTS)).
The European Commission has adopted the following delegated regulations containing regulatory technical standards relating to prudential requirements for investment firms under the Investment Prudential Firms Regulation.
The delegated regulations are:
- Commission Delegated Regulation (EU) of 24.9.2021 supplementing the IFR with regard to RTS specifying the amount of total margin for the calculation of the K-factor “clear margin given”
- Commission Delegated Regulation (EU) of 24.9.2021 supplementing the IFR with regard to RTS specifying the notion of segregated accounts to ensure client money’s protection in the event of an investment firm’s failure
- Commission Delegated Regulation (EU) of 22.9.2021 supplementing the IFR with regard to RTS specifying the methods for measuring the K-factors referred to in Article 15 of that Regulation.
If the Council of the EU and the European Parliament do not object to the delegated regulations, it will enter into force 20 days after its publication in the Official Journal of the European Union.
For support with your preparation for the IFPR, please contact us.
The European Securities and Markets Authority (ESMA) has issued a consultation paper for investments to the Markets in Financial Instruments Directive II (MiFID II) framework on best execution reports.
The proposal includes a change to the following for firms:
- the reporting requirements, focusing mainly on clarifying the requirements for firms that transmit client orders or decisions to deal to third parties for execution.
Comments are invited by 23 December 2021.
The Joint Money Laundering Steering Group (JMLSG) has published proposed revisions to Part 1 Chapter 5.7 (Monitoring customer activity) of its guidance.
Comments are expected to be received by 30 October.
Richard Faithfull pleaded guilty in April 2021 to the offence of money laundering. Faithfull laundered £2.5 million as part of an organised crime group for longer than 12 months for, at least, seven overseas investment frauds.
Faithfull used his knowledge gained when he worked as an investment advisor within the regulated sector to help the fraudsters continue to defraud victims by making it seem that underlying investments were generating returns.
The individual was sentenced to 5 years and 10 months imprisonment for money laundering and disqualified from acting as a company director for a period of 10 years.
The FCA has prohibited financial advisor, Anthony George, from performing any regulated activity in the financial services industry on the grounds that he is not fit and proper as a result of the individual’s conduct demonstrating a lack of honesty and integrity.
Mr George is the director and owner of 4Life Financial Planning Limited and acts as a financial advisor and mortgage intermediary.
The individual was found to have deliberately submitted false information to HMRC by understating the income in his self-assessment tax returns over a 5-year period. Mr George further concealed this from the FCA and provided them with false information demonstrating a lack of honesty and integrity.
The FCA has published a press release regarding the sentencing of Stephen Allen for forging a trust deed in an attempt to help his client minimise restitution payments owed to victims.
The charge is in relation to proceedings brought by the FCA against Mr Renwick Haddow for operating unauthorised collective investment schemes. The judgement from the proceedings results in Haddow and others being ordered to pay £16.9 million in restitution. Mr Allen subsequently forged a trust deed to hide Mr Haddow’s interest in a London property, knowing the deed would allow the property to avoid being sold for the benefit of victims.
As a result, Mr Allen has been sentenced for 28 months imprisonment and disqualified from being a director for eight years.
The FCA has banned director Jon Frensham from performing any regulated activity.
Mr Frensham, an independent financial advisor and director of Frensham Wealth Limited, was found to lack the integrity to work in financial services.
In 2017, Mr Frensham was convicted of attempting to meet a child following sexual grooming. The offence was committed whilst he was an approved person and whilst on bail for a similar offence.
The regulator also found the individual to have failed in the obligation to be open and transparent with the FCA by failing to disclose details of his arrest.
Barrow & District Credit Union was placed into administration on 16 September 2021 and has stopped trading. James Sleight and Peter Hart of PFK GM have been appointed as administrators.
Barrow & District is a financial co-operative owned by its members and regulated by the PRA and FCA.