April Regulatory Update

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Our Regulatory Update is a monthly digest of significant regulatory developments affecting FCA-regulated firms.

FCA changes mortgage advice rules to encourage consumer choice

The FCA has recently published proposals for changes to its mortgage sales requirements which will help to give consumers more choice in how they buy a mortgage.

The proposals are one part of a package of remedies from the Mortgages Market Study, published earlier this year, which aims to encourage innovation and make it easier for customers to find the right mortgage.

The FCA identified a number of ways its advice rules are acting as a barrier to the development of new tools to help customers choose and buy a mortgage.
The FCA is proposing to change its rules to make it clear that tools which allow customers to search and filter available mortgages are not necessarily giving advice. It will also be clearer that some forms of interaction, such as firms helping consumers with their applications, do not require advice.

Where a mortgage adviser recommends a mortgage, which is not the cheapest of those that meet the customer’s needs and circumstances, they will now be required to explain why any cheaper mortgage has not been recommended.
The FCA is also making changes to the standards around execution only policies.

The FCA is consulting on the new rules until 7 July 2019 and will publish its feedback and final rules around the end of the year.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA has stated:

‘The mortgage market is working well for most customers, but we have identified some areas where our rules are acting as a barrier to innovation. The changes we’ve announced today will allow firms to develop products and services which can truly meet the needs of customers.’

FCA begins review of financial advice market

The FCA is reviewing the state of the financial advice market to determine how well it is delivering on consumer outcomes.

The Financial Conduct Authority is requesting feedback on its two major initiatives, the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR), that sought to improve the distribution of retail financial services products.

The review will look at what consumers want from the market and how the market works to deliver this. It will also consider how new market trends and developments might affect the future development of advice and guidance services.

The regulator is seeking initial feedback until 3 June 2019. It will host stakeholder events, collect consumer data and survey a number of firms in the process.

The FCA anticipates its final report will be published in 2020.

FCA fines Standard Chartered Bank £102.2 million for poor AML controls

The FCA has fined Standard Chartered Bank (Standard Chartered) £102,163,200 for Anti-Money Laundering (AML) breaches in two higher risk areas of its business.

The announcement follows FCA investigations into two areas of Standard Chartered’s business identified by the bank as higher risk: its UK Wholesale Bank Correspondent Banking business and its branches in the United Arab Emirates (UAE). The FCA found serious and sustained shortcomings in Standard Chartered’s AML controls relating to customer due diligence and ongoing monitoring. Standard Chartered failed to establish and maintain risk-sensitive policies and procedures and failed to ensure its UAE branches applied UK equivalent AML and counter-terrorist financing controls.

Under the Money Laundering Regulations 2007 (MLRs), which were in force throughout the respective period, Standard Chartered was required to establish and maintain appropriate risk sensitive policies and procedures to reduce the risk it may be used to launder the proceeds of crime, evade financial sanctions or finance terrorism. The MLRs also imposed a duty on Standard Chartered to require its global (non-EEA) branches and subsidiaries to apply policies and procedures in relation to due diligence and ongoing monitoring that are equivalent to those required of Standard Chartered in the UK.

Standard Chartered’s failings occurred in its UK Correspondent Banking business during the period from November 2010 to July 2013 and in its UAE branches during the period from November 2009 to December 2014.

Standard Chartered’s agreement to accept the FCA’s findings meant it qualified for a 30% discount. Otherwise, the FCA would have imposed a financial penalty of £145,947,500.

This is the second largest financial penalty for AML controls failings ever imposed by the FCA. The FCA’s largest AML penalty was £163,076,224, which was issued to Deutsche Bank in 2017.

FCA sets out progress and next steps in promoting innovation in financial services

The UK Financial Conduct Authority (FCA) has released a report on Fintech innovation and progress made in the last few years.

It is widely recognised that the UK is a leading, global Fintech hub. This fact would not exist without the support of regulators and policymakers.

Christopher Woolard, FCA Executive Director for Strategy and Competition, spoke at the 2019 Innovate Finance Global Summit on the impact of the FCA’s work to promote innovation in the interests of consumers and the commitment to take this work further. Read Christopher’s speech.

Approach to Enforcement – published by the FCA 

The FCA has published its Approach to Enforcement, part of the series of documents the FCA committed to publishing in its April 2017 Mission paper. In it, the FCA states that it has not made significant changes but has clarified its approach to investigating individuals.

The Approach to Enforcement document outlines the overriding principle guiding the FCA’s approach to enforcement, which is a commitment to achieve fair and just outcomes in response to misconduct. The FCA states that the purpose of the investigation is to get a full understanding of the facts, but it also states that it will take a strategic approach.

The document also sets out the approach the FCA takes to investigating instances of potential misconduct, the powers available to it in conducting its investigations and the decision-making process surrounding the sanctions and remedies which may be imposed in response to a finding of misconduct, based mostly on the FCA’s Decision Procedure and Penalties Manual.

FCA publish latest issue of Market Watch – its newsletter on market conduct and transaction reporting issues

This issue of Market Watch covers:

  • transaction reporting observations from the FCA. The FCA discusses some of the issues its Markets Reporting Team have found regarding the accuracy and completeness of transaction reporting and instrument reference data. The FCA stresses the importance of market participants maintaining adequate procedures, systems and controls to meet their transaction reporting obligations;
  • telephone recording and retention. The FCA has observed that some firms have not properly ensured that conversations are being recorded, despite having telephone recording systems installed. In some cases, several months passed before firms realised that telephone conversations were not being correctly recorded due to system failings. The FCA reminds firms of the importance of ensuring that they have the systems in place to record telephone conversations and are undertaking the appropriate checks to ensure that calls are consistently recorded; and
  • use of client codes. The FCA has observed some trading venues’ member firms using different ‘short codes’ for the same client over time. The FCA is concerned that, as a result, the use of ‘short codes’ may not be as effective as using ‘long codes’ from a market abuse surveillance perspective. In addition, the FCA has also observed member firms making errors when the short-to-long code mapping is provided to the trading venue. This results in incorrect data being stored by the trading venue, with an adverse impact on their ability to perform market abuse surveillance.

FCA consults on proposed 2019/20 regulatory fees and levies

On 17 April 2019, the FCA published Consultation Paper 19/16: FCA regulated fees and levies: rates proposals 2019/20 (CP19/16). In CP19/16 the FCA consults on its periodic fees for the next financial year (1 April 2019 to 31 March 2020) and any proposed changes to application fees and other fees. The FCA also consults on the Financial Ombudsman Service (FOS) general levy, Money and Pensions Service (MPS), Devolved Authorities (DAs) and illegal money-lending levies for the next financial year.

The Financial Conduct Authority says it will need £558.5m ($730m, €646m) in annual funding for 2019/20, according to a consultation paper released on 17 April. This represents an increase of 2.7% from £543.9m in the previous tax year.

The FCA also provides a fee calculator to enable firms to calculate their periodic fees for the forthcoming year. This will be based on the draft FCA periodic fees and the FOS, MPS, DAs and illegal money lending levy consultative rates in Appendix 1 and 2 of CP19/16.

HM Treasury consults on the implementation of 5MLD

On 15 April 2019, HM Treasury published its consultation on the steps the UK Government proposes to take to meet the UK’s expected obligation to transpose the Fifth Anti-Money Laundering Directive (5MLD) into national law.

In implementing the 5MLD, the UK Government is catering for the scenario where an implementation period is in place after the UK leaves the EU. The UK played a significant role in the negotiation of 5MLD and shares the objectives which it seeks to achieve on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. The government intends that the new provisions will come into force by 10 January 2020, in line with Article 4 of 5MLD.

The FCA Business Plan 2019-20 and the Future of Financial Regulation in the UK

On 17 April, the FCA published its Business Plan for 2019/2020, setting out its key priorities and specific activities for the coming year.

In its 2019/20 business plan the regulator said it had identified strategic challenges in areas where it wanted to anticipate and influence market development: innovation, data and data ethics; demographic change, and the future of regulation.

Reminder: PSD2

Technical standards under PSD2 come into effect on 14th September 2019, with some requirements needing to be met before that date. Firms should be making changes to meet these requirements which are applicable to all payment service providers. Click on the following link to view the reminder from the FCA https://fca.org.uk/sites/default/files/psd2-reminder-infographic.pdf

 

If you have questions about any of the above, please do not hesitate to get in touch via our Get in touch page or by calling 0207 100 4058 today! We would be delighted to help!

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