06 April 2016 - Post by:Sarah Hitchins
Yesterday, the UK Financial Conduct Authority (FCA) published its Business Plan for 2016/17. The Business Plan sets out a roadmap for the FCA’s principal areas of focus over the coming year. Overall, there was considerably less focus on enforcement action in this year’s Business Plan (perhaps a sign of a changed attitude on the part of the FCA?). Nonetheless, buried in the Business Plan’s 52 pages are several important messages for litigators, compliance officers and those involved in managing and conducting investigations:
Financial crime continues to secure its spot as one of the FCA’s seven key areas of forward-looking focus. High on the FCA’s agenda for financial crime is:
- Rolling out its new Financial Crime Annual Data Return (our summary of this development is available here).
- Making the most of intelligence gathered from whistleblowers in relation to financial crime.
- Making sure that banks take a proportionate and effective response to derisking (which is perhaps easier said than done). The FCA is currently undertaking a derisking impact assessment, and will publish the results of this assessment later this year.
The FCA also makes express reference its appetite for enforcement action against and/or imposing business restrictions on firms found to have weak anti-money laundering controls.
#2: Innovation and technology
The FCA describes technology as ‘rapidly driving the transformation of the financial services sector’. However, the FCA remains cautious. It notes the risks that technological advances expose firms to – for example, operational resilience, cyber crime and the protection of information. The FCA emphasised that firms need to focus on both infrastructure and culture to ensure that new technology benefits both consumers and markets. This echoes the sentiment of communications published by the Treasury Select Committee earlier this year.
As we predicted in a post published late last year, the risks posed by technological advances – specifically cyber security and crime – may be the next big enforcement challenge for the FCA. So watch this space.
In what is perhaps a nod to the FCA’s high-profile decision to drop its banking culture thematic review, the importance of good culture is a message that the FCA seems keen to emphasise in its Business Plan. So much so that the word ‘culture’ appears no less than 50 times in the Business Plan.
What the FCA proposes to do in lieu of its banking culture thematic review remains slightly unclear. However, it looks like the FCA will continue to engage in dialogue with firms individually, as opposed to proposing another broad review.
The FCA looks set to continue its strong focus on individual accountability and specifically on senior management in financial institutions. The FCA’s efforts on this front will be assisted by the new Senior Managers and Certification Regime, which came into force on 7 March 2016.
The FCA has confirmed that it intends to extend the scope of the Senior Managers and Certification Regime to other firms (including asset managers, hedge funds and broker-dealers) in 2018. The FCA has also hinted that it intends to start consulting on its proposals for this extension this year.
The FCA also reiterated its commitment to revisiting its parked proposals relating to regulatory references for Senior Managers and Certified Persons (see here) and ensuring that firms’ remuneration and incentive arrangements promote the ‘right’ culture and good risk management.
The implementation of the Market Abuse Regulation (MAR) is on the horizon. Although heralded to ‘strengthen the existing UK market abuse framework’, it remains to be seen whether MAR will increase the FCA’s (quite low) number of successful market abuse outcomes (see here) and/or whether market abuse cases will continue to become more complex and timing consuming to identify, investigate and conclude (as the FCA’s board minutes from last summer indicated is currently the case).
For asset managers, the FCA has announced that it will publish an interim report relating to its Asset Management Market Study this summer, with a final report to follow in early 2017. For more information about the market study, click here.
Conflicts of interest is another familiar topic that makes a reappearance in this year’s Business Plan. The FCA still considers that conflicts of interest are driving risks in wholesale banking through a number of avenues, and this has been reflected in some of the enforcement cases concluded against asset managers and banks over the past year or so. The FCA made it clear that it continues to work to ensure that firms ‘implement robust strategies’ to manage conflicts of interest. However, it is unlikely that we have seen the last of conflicts of interest from an enforcement perspective.
The FCA has not forgotten about retail consumers in its Business Plan. The fair treatment of customers and ensuring effective competition for customers remain high priorities for the FCA. Particular areas of focus that the FCA has highlighted in the Business Plan include pensions, financial advice and how banks handle their existing customers.
The FCA also had a (very) few words to say about Brexit in its Business Plan. The FCA’s immediate concerns regarding Brexit appear to relate to potential increased market volatility. It appears that longer term consequences of the UK leaving the EU are still under consideration.
Allen & Overy’s series of briefings on the potential consequences of Brexit can be found here.