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Published 16 mayo 2019
The Financial Conduct Authority (FCA) has recently published its 2019/2020 Business Plan outlining its key priorities and planned activities for the year ahead. Its overarching theme is to ensure that its financial regulation is effective and that it provides a “dynamic, agile and efficient environment” for UK consumers and markets at a time of Brexit-related uncertainty.
In this article we focus on two cross-sector priorities which are of particular interest.
Financial crime and anti-money laundering (AML) continue to be key priorities for the FCA this year, reiterating concerns and building on action statements from previous years.
This year’s ambitiously stated aim is to “stop the UK financial sector being used to facilitate financial crime”. The business plan sets out the FCA’s key priorities in this area and the actions being taken to achieve them.
(i) Sharing intelligence
Intelligence-sharing in the context of combating financial crime has been at the forefront of a number of government reforms and initiatives. It has been specifically encouraged in the regulated sector via the Criminal Finances Act 2017, which introduced new provisions allowing banks and other businesses to share information with each other on a voluntary basis in relation to a suspicion that a person is engaged in money laundering (among other financial crimes).
The FCA have stated they will continue to work closely with the government as well as UK and international agencies in an effort to strengthen their understanding of both old and new threats. This includes participating in the recently established National Economic Crime Centre (NECC), a cross-governmental agency bringing together representatives from the FCA, National Crime Agency, HMRC, Serious Fraud Office and other regulatory bodies in an effort to combat economic crime.
The FCA will also be contributing to the Government’s Suspicious Activity Reports (SARs) reform programme to develop a more practical and efficient reporting regime, and supporting the establishment of a UK bank account register.
(ii) Using technology
The FCA recognises the continuing and increasing need to use innovative technologies to strengthen defences against money laundering and other financial crime, and this year’s business plan speaks of the FCA’s aim “to become a catalyst for industry-led initiatives to ‘design out’ fraud”.
Its involvement includes supporting the work of technology-led initiatives such as RegTech and Innovate, as well as hosting an international “TechSprint” to develop technology-based ideas to address and combat AML and financial crime.
(iii) Developing sector-specific understanding and safeguards
AML was the subject of a separate FCA Annual Report 2017/18, which recognised the difficulties in improving the UK’s defences against money laundering.
This year’s business plan declares the FCA will be “more intrusive” in its assessment of the effectiveness of firms’ AML systems and controls. It is also considering whether to extend financial crime data return to more firms. At present, firms subject to the Money Laundering Regulations 2017 (including all deposit takers but excluding all other firms with a revenue of less than £5m) must complete the return.
The FCA will also continue working with the recently established Office for Professional Body Anti-Money Laundering Supervision (OPBAS) in their assessment of professional body supervisors’ (PBSs) AML strategies.
Separately, the FCA is also focused on market abuse risks within M&A businesses and corporate broking functions. It aims to ensure that firms respond appropriately to the 2018 update to the FCA’s Financial Crime Guide for Firms on the risks of insider dealing and market manipulation. Fixed income markets will be a particular focus in that regard.
The FCA is also developing new monitoring and detection tools which focus on: “(1) delayed disclosure and misleading statements by issuers, (2) secondary market behaviour including cross market manipulation, abuse in fixed income marked and equity insider dealing”. The FCA has restated its commitment to pursue enforcement action where investigations and reviews indicate market abuse has taken place.
(iv) Action points for firms
The focus of this year’s business plan has been emphasised by a recent speech by Mark Steward, the Director of Enforcement and Market Oversight at the FCA, in which he declared that it is time the FCA “gave effect to the full intention of the Money-Laundering Regulations which provides for criminal prosecutions.”
Although he clarified that criminal prosecutions will be limited to “egregious circumstances”, his concern that the FCA may become a “white elephant” is a strong signal that it intends to exercise its powers to their fullest extent when necessary.
Firms and individuals should be prepared for greater scrutiny from the regulator and would be well advised to revisit their compliance systems and controls to ensure they are up to date with regulations as well as any standards set by professional bodies.
Further, firms may wish to ensure MAR dealing and risk policies are properly understood and a responsible culture is evident. Self-reporting suspicious activity and suspected wrongdoing and co-operating with the regulator are going to be key aspects of managing outcomes where market abuse occurs.
The second cross-sector priority highlighted in the FCA’s 2019/20 Business Plan is that of the culture and governance of firms; an area which is undoubtedly in the forefront of the FCA’s mind following the high-profile collapse of London Capital & Finance (LCF) earlier this year, and the accusations that, on this occasion, the FCA was “too slow to protect consumers”1.
The Business Plan has taken a three pronged approach to culture and governance: (1) creating and maintaining a “healthy” culture (2) looking at remuneration practices for individuals and (3) extending the Senior Managers and Certification Regime (SM&CR).
(i) Creating a Healthy Culture
The Business Plan highlights the importance of a healthy culture within regulated firms, with the aim of reducing harm to consumers and to the market. This approach represents a step change from last year’s Business Plan in which the FCA shared its expectations regarding “effective” cultures, rather than the enforcement of “healthy” ones.
To implement this, the FCA has proposed setting up a working group to develop a clear understanding of what a healthy culture looks like, and the role of “purpose” in it. The outcomes will be shared at its second Transforming Culture conference in March 2020.
Continuing the theme of creating a healthy culture, the FCA has identified remuneration practices as a key priority. The FCA aims to “ensure that approaches to rewarding and incentivising all staff reinforce healthy cultures and do not drive behaviours that would lead to harm to consumers or markets.”
The Business Plan indicates that the FCA will take a broader view of the role that bonuses play in driving behaviours of individuals and particularly, will seek to identify whether firms’ arrangements encourage staff to act in ways that could harm consumers or markets. (iii) Extending the Senior Managers and Certification Regime
The FCA is also seeking to focus more on individual accountability by extending the SM&CR to all regulated firms, rather than just banks and insurers. In their business plan, the FCA make clear that rule changes alone will not be sufficient to change conduct, and that those in financial services must embrace the principles of responsibility and accountability of their own accord by adhering to, at least, the minimum standards of behaviour expected.
In keeping with the theme of creating a healthy culture, on this point, the FCA states it is “interested in promoting healthy cultures where the driving purpose leads people to take personal responsibility for consumer and market outcomes, to do the right thing competently and to speak up and to listen to others.” (iv) Action points for firms
The FCA is clear in its message that it is determined to promote cultural change amongst firms and will continue to gather information to assist it in doing so. However, “cultures” can be very difficult to change, and whilst the SM&CR will directly impact those brought under its remit in terms of accountability, it may require the FCA to make some examples of behaviour it will not tolerate to make people sit up and listen.
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