A View From The Shard - A compliance round-up from Protiviti

A view from The Shard - A compliance round-up from Protiviti
A View From The Shard - A compliance round-up from Protiviti

Your UK regulatory compliance news roundup (July 2019)


In this edition we highlight the continued need for strong risk management, healthy culture and effective governance to underpin the conduct and oversight of the financial services industry. As a first, the FCA has recognised historically voluntary codes for the FX market and the money markets, providing greater certainty that observing these codes means a person subject to the SM&CR is meeting their obligations to observe ‘proper standards of market conduct’. The European Central Bank (“ECB”) is also focussing on the need for a permanent mindset change to ensure that behaviours are in line with the values of the organisation. Much has been made by the rise of digital and the importance of innovation. There are huge benefits for those who are able to overcome the challenges and risks. Regulators continue to balance advocating for change and intervention. This month they have shown they are not shying away from restricting how products are designed and sold with action being taken on Buy Now Pay Later products (last month it was authorised and unauthorised overdrafts) as well as the sale of CFDs and CFD-like options to retail consumers. We also highlight some of the evolving UK regulators’ policy and supervisory approaches to products such as cryptoassets and strong customer authentication for online payments.

What We Are Also Reading


We also include speeches relating to how the insurance market operates in terms of culture and diversity of its senior management to minimise ‘group think’ and how it is responding to the loyalty penalty – by which the FCA means the unfair treatment of existing customers. With 5MLD on its way, it seems further change is yet to come with the Law Commission suggesting an overhaul to the SARS regime – its recommendations are not binding but may provide the basis for further change in due course.

These issues and developments resonate with our client interaction emphasising that there are strong internal and external headwinds and opportunities, perhaps a perfect storm (globalisation, digitalisation, regulation, cyber-security and evolving business models). We would welcome the opportunity to discuss these with you and how we can help you to address them, find more information here.

Digital & Innovation 

Regulator steps up scrutiny of FinTech banks

Banking applications from fintechs appear to be falling under greater scrutiny, as regulators act on concerns about risk management. According to data from Fscom, the PRA approved four applications for banking licences in the past year, down from 14 in the previous year, despite the number of applications remaining constant.

FCA publishes its first annual report on the perimeter

The report, which will be published yearly, sets out: what the FCA does and does not regulate; what challenges the perimeter presents and the actions the FCA is taking to overcome them; what this means for consumers; whether there are any issues with the perimeter which might require legislative or other changes.

Chancellor announces review of UK regulatory framework and payments landscape in 2019 Mansion House speech

Philip Hammond, Chancellor of the Exchequer, announced in his Mansion House speech that HM Treasury will be leading a review of the payments landscape, to make sure that regulation and infrastructure keeps pace with new payments models and the development of FinTech.

FCA response to European Banking Authority’s Opinion on Strong Customer Authentication

The European Banking Authority (EBA) published an Opinion (link is external) on Strong Customer Authentication (SCA) under the revised Payment Services Directive (PSD2). The Opinion is the EBA’s response to key industry questions about which authentication factors comply with the requirements for SCA. In response to concerns about industry’s preparedness and ability to comply with the requirements for SCA, this Opinion allows the FCA to give some firms extra time to implement SCA.

Conduct & Governance

Statements of good practice in wholesale markets

The FCA has confirmed that it is recognising voluntary market codes of best practice for foreign exchange and money markets (deposit, repo and securities lending markets). In addition the FICC Markets Standards Board (FMSB) published for consultation a draft statement of good practice on conflicts of interest. The FMSB sets out eight good practice statements that are intended to provide guidance for FICC market participants covering conflicts of interest between any of: client, firm and employee. The consultation ends on 6 September 2019.

Two found guilty of insider dealing

Fabiana Abdel-Malek and Walid Choucair were each sentenced to 3 years’ imprisonment in respect of five offences of insider dealing following an eleven week trial brought by the Financial Conduct Authority.

FCA extends deadline for submitting form for notification of changes to firm classification under SM&CR for FCA solo-regulated firms

The FCA updated its webpage on the senior managers and certification regime (SM&CR) for FCA solo-regulated firms to provide an update on timings for submitting Form O (notification of change to firm classification under the SM&CR). Firms can opt-up from the core to the enhanced regime, or limited scope firms can opt-up to the core or the enhanced regime, by submitting a Form O.). The FCA has updated the webpage to change the deadline for submitting Form O from 9 September 2019 to 24 November 2019. It has also added a statement that firms that decide to opt up to the enhanced regime must ensure they are ready to meet all the relevant requirements, including submitting a Form K (conversion notification), statement of responsibilities and a management responsibilities map by 24 November 2019.

FCA statement on the Opinion of ESMA on our final rules for CFDs and CFD-like options

ESMA published an Opinion (link is external) concluding that overall the FCA's proposed national measures are justified and proportionate, with the exception for its decision to: (i) Not apply its sales and distribution restrictions to CFD-like option providers authorised in other EEA Member States other than a UK branch or tied agent; and (ii) Setting leverage limits for CFDs referencing certain government bonds to 30:1 (compared to 5:1 under ESMA’s measures).

FCA proposes ban on sale of crypto-derivatives to retail consumers 

The FCA considers crypto-derivatives are ill-suited to retail consumers who cannot reliably assess the value and risks of derivatives or ETNs that reference certain cryptoassets (crypto-derivatives).

FCA confirms permanent restrictions on the sale of CFDs and CFD-like options to retail consumers 

The rules address harm to retail consumers by making the European Securities and Market Authority’s (ESMA’s) temporary restrictions of contracts for difference (CFDs) sold to retail clients permanent.

FCA publishes Decision Notices concerning Cathay International Holdings Limited, its CEO and Finance Director

The FCA has imposed a penalty of £411,000 on Cathay International Holdings Limited (Cathay) for breaches of listing principles and disclosure and transparency rules (DTR). The company did not forecast and monitor how its financial performance was against market expectation and therefore was in breach of listing principle 1, which required the firm to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations.

FCA publishes final rules on Buy Now Pay Later products

The Financial Conduct Authority (FCA) confirmed it will introduce new rules in the Buy Now Pay Later (BNPL) market, saving consumers around £40-60 million a year. The changes, which include banning firms from charging backdated interest on money that has been repaid by the consumer during the BNPL offer period, will be in force by 12 November 2019.

PRA Dear CEO letter on its review of fast-growing deposit-taking firms

The Prudential Regulation Authority ("PRA") published a Dear CEO letter that communicates the findings of its review of fast-growing deposit-taking firms. It has undertaken a review of 20 non-systemic deposit-taking firms with different business models and activities, most of which exhibit faster asset growth than the market as a whole. The letter highlights PRA expectations on risk management and control applicable to all firms. For example, stress testing: all firms should demonstrate effective engagement and challenge by senior management and boards, with stress testing integrated into the busines. Firms should ensure risk concentration is taken into account in their provisioning and stress models.

ECB speech on importance of culture and governance for good banking 

The ECB chair reiterates the continual need for improvements in banking culture and governance. Whilst Mr Enri conceded that there had been some progress in recent years around governance, conduct and culture, further efforts were still needed to achieve a permanent change in the mindset. In particular the front office was the area where greatest efforts needed to be focussed and this is where there was the continuous conflict with declared values and meeting quantitative targets. Banks could also still make a number of improvements in their compliance processes especially those on a global level

FCA fines Bank of Scotland for failing to report suspicions of fraud at HBOS Reading 

The Financial Conduct Authority (FCA) has fined Bank of Scotland (BOS) £45,500,000 for failures to disclose information about its suspicions that fraud may have occurred at the Reading-based Impaired Assets (IAR) team. BOS management failed to alert the regulator and the police about suspicions of fraud at its Reading branch when those suspicions first became apparent.

Bank of England calls ‘last orders’ on Libor benchmark

The Bank of England has told banks it will intensify scrutiny of their plans to switch away from the discredited Libor benchmark, sticking to the plan that the rate will be retired at the end of 2021.

David Ramsden, the BoE’s deputy governor for markets and banking, said in a speech that it was “last orders” for the interest rate and that banks must stop adding to their post-2021 Libor exposures. By some measures, he added, the task is on a bigger scale than preparing for Brexit.

A changing landscape: the FCA’s strategic priorities for the pensions sector

Speech by Edwin Schooling Latter, Director of Markets and Wholesale Policy at the FCA, delivered at Pensions and Benefits UK 2019. Highlights of the speech were:

  • There has been significant growth in the pensions market subject to FCA regulation.
  • Current priorities for FCA work on pensions include supervision and policy in relation to transfers out of defined benefit pensions, improving options and outcomes for customers entering “drawdown”, and countering pension scams.
  • Strategic priorities for the years ahead are value for money and making consumer engagement easier.

Anti-Money Laundering

Transposing the Fifth Money Laundering Directive

ICAEW has responded to HM Treasury’s consultation on the transposition of the Fifth Money Laundering Directive (5MLD).

The 5MLD makes amendments to the 4MLD on the prevention of the use of the financial system for the purposes of money laundering and terrorist financing. These amendments and new provisions will further strengthen transparency and the existing preventative framework, whilst ensuring the UK adheres to international standards set by the Financial Action Task Force.

Law Commission report on the SARs regime

The Law Commission published its final report entitled AML: the SARS Regime. The report looked at the current flaws in the making of suspicious activity reports (SARs). The final report makes 19 recommendations including: Retention of the consent regime, subject to amendments to improve effectiveness; Statutory guidance on a number of key legislative concepts underpinning the reporting regime to assist with compliance, such as: suspicion, appropriate consent and what may amount to a reasonable excuse; An exemption from the disclosure offences to allow ringfencing of suspected criminal property by a credit or financial institution. This would allow transactions in the course of the business to continue, provided the property is identified and protected and the transaction is carried out with the intention of preserving criminal property. Statutory guidance on the ringfencing provision should also be provided; A standardised form for the submission of SARs.

The government must next consider this report and decide whether to accept any, some or all of the recommendations.


ABI speech on key strategic issues facing insurance and long-term savings sector

Huw Evans, ABI Director General, outlined some of the key strategic issues facing the insurance and long-term savings sector. Mr Evans notes that key decisions ahead at the UK and EU levels will shape the sector's long-term competitiveness and determine the extent to which it can shape the wider economic response to macroeconomic challenges. Topics covered in the speech include: Loyalty penalty (fair treatment of existing customers); Pricing and Big Data; Climate change; and Solvency II review.

BoE speech on diversity across financial services sector and in London Market and PRA's role as regulator

Anna Sweeney, BoE Director, Insurance Supervision, spoke on making impactful change on diversity across the financial services sector as a whole and in the London Market, commenting on why and how the PRA has set expectations around diversity for the firms it regulates. In particular: how "group think" impacts the quality of decision-making; PRA requirements to have in place a policy to promote diversity among its board and to consider a broad range of qualities and competencies when recruiting new members (and aligned with banks who have had the same requirements since 2014); the potential implications if proven of press reports concerning allegations of sexual harassment and bullying in the London Market especially where they speak to personal integrity, and how they impact the PRA's view of the fitness and properness of individuals under the senior managers and certification regime (SM&CR); and the culture of an organisation to support the ability of staff to speak up when things go wrong.

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Bernadine Reese
Bernadine Reese
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Stuart Campbell
Stuart Campbell