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What Can We Expect From the New Head of the FCA?

What Can we Expect From the New Head of the FCA?

Chancellor Rishi Sunak overlooks Chris Woolard and chooses Nikhil Rathi to take the FCA forward into the post COVID-19 world.

There’s a new face at the FCA, but it’s not the man most expected. After a relatively positive stint as interim Chief Executive, Chris Woolard had been favourite to take the role on permanently. However, the decision to shun him in favour of Nikhil Rathi, boss of the London Stock Exchange, could have a number of implications for the future direction of the regulatory watchdog.

Woolard shunned

Woolard had been busy during his time as interim boss. He took on insurers who attempted to shirk responsibility for business interruption cover, he brought in his own QCs and hired law firm Herbert Smith Freehills to help the regulator deal with legal complexities and launched an inquiry into sub-prime lender, Amigo.

However, there is a sense that the FCA needs to be shaken up after the Woodford savings crisis, its failure to pre-empt the London Capital & Finance mini bonds scandal and the slowness of its response to malpractice in the investment sector.

Rathi, by contrast, is an outsider to the FCA and may bring a much needed freshness to the role while his track record of working in the Treasury may also have played a role in Sunak’s decision. Certainly his time at the Treasury may well help him to handle some of the upcoming challenges such as Brexit, although others may fear it makes him a little too close to Government.

The coming years will bring a number of challenges which could create friction between the FCA and Government. Rathi will do well to ensure he is seen to keep his employers at arm’s length and avoid any implication of political influence.

What to expect

As he takes his role, Rathi arrives at a pivotal time. The COVID-19 crisis has placed an enormous pressure on the FCA in maintaining its operations. It has already had to reset its priorities to ensure it can maintain the right focus despite the restrictions of the pandemic.

The financial world faces winds of change in the shape of new technology, climate change and a desire for greater accountability and better conduct. Each of these issues were front and centre of his attention as he set out his goals for the future.

The regulator also is fighting for its reputation. It has faced considerable criticism over the past few years and, like other regulatory watchdogs around the world, is under pressure to improve oversight and accelerate the conduct of cases. Rathi will need to hit the ground running and show that he can steer the regulator through the choppy waters which are on the way.

What Can We Learn From the Commerzbank Fine? - Waymark Tech Blog

What Can We Learn From the Commerzbank Fine?

The Watchdog’s second biggest fine for failing to have proper financial controls in place should serve as a warning to the rest of the sector.

The FCA has made anti money laundering one of its key focuses for 2020 and this month it showed it means business with a £37, 805,400.00 fine to Commerzbank London for failing to implement proper controls over a five year period. It’s the second biggest fine of its kind and offers some key lessons for the wider sector.

Listen to the regulator


The scale of the fine is partly down to the fact that the Bank was aware of the problem, had been warned by the regulator but failed to take action. The FCA said it had warned Commerzbank on three separate occasions about the risk of financial crime going undetected but had “failed to take reasonable and effective steps to fix them.”

Maintaining due diligence


The regulator found that the bank failed to undertake effective due diligence checks on clients. As of March 1st 2017, checks were overdue on 1,772 customers. In the meantime, many of these customers were able to continue doing business with their London branch through their Exceptional Control Scheme which the FCA argues got out of hand.

The rules apply to you


AML requirements have toughened up in recent years, and regulators have very publicly stated this is a priority. However, many financial institutions, for one reason or another, haven’t fully understood the implications of the changes or that these rules apply to them. With the EU’s sixth anti money laundering directive coming into force in December, firms will have to continually update and review their measures to maintain compliance.

Getting the technology right


Companies are increasingly leaning on automated compliance monitoring systems. However, these are only effective if functioning properly. The FCA noted a failure to address known weaknesses with the automated tool for monitoring money laundering risks. In 2015, the bank noticed that 40 high risk countries were missing from its tool and 1,110 high risk clients had not been added.

Enhanced due diligence


Companies will be coming under increasing pressure to ensure their due diligence processes are as good as they possibly can be. This means enhanced ongoing monitoring of any situation which by its nature presents a high risk of money laundering or terrorist financing and maintaining up to date data and documentation.

Prompt action


One area where the bank performed well was in promptly agreeing to resolve the issue. The FCA says that the lender agreed to make changes at an early stage of the investigation, earning itself a considerable reduction of the fine. Without these changes, the FCA says the fine would have been £50 million.

Cooperation is seen in a positive light by the regulator. They are looking to use fines to encourage change rather than as a blunt tool of punishment. Those firms that can demonstrate an understanding of the problem and a willingness to change, will receive kinder treatment.

Most importantly, this fine, coming quickly on the heels of Standard Charter’s £1.1bn fine for violating sanctions and anti money laundering rules, shows regulators are upping their games. The UK is continuing to align itself with the more aggressive approach taken towards anti money laundering within the EU in recent years. Although we do not know how closely the UK will continue to be aligned with the EU after Brexit, their actions do nothing to suggest their approach will weaken.

FCA Warns Banks on Customer Communications - Waymark Tech Blog

FCA Warns Banks on Customer Communications

The COVID-19 crisis has created numerous challenges for the financial sector, but one which often goes unseen is the logistical challenge of maintaining communication with customers. With lockdown in place it is difficult for banks to maintain the speed and efficiency of paper based communications. However, the FCA has reminded the sector of its obligation to do everything it can to comply with communication obligations.

Back in March, the regulator warned financial advice companies not to work in the office, and to avoid face to face contact with clients. Alternative arrangements were to be made online, but this left a gaping hole for those customers who, for one reason or another, were unable to access online services. Maintaining a business as usual service for these clients is proving to be a major problem.

In its recent guidance, the FCA is keen to ensure that despite these problems, offline clients are protected as much as possible.

Notifying the FCA of issues

While the regulator still expects firms to try and comply with paper-based requirements, it acknowledges this may not be possible in every case. There will be flexibility with timescales and they will be more understanding. However, they do expect firms to demonstrate what steps they have taken to minimise the impact as far as possible and to notify them of any problems they expect to encounter by emailing firm.queries@fca.org.uk

For example, a firm would need to collect and send out paper documents as often as possible ensuring that while the service might be slower than normal, offline customers do not miss out. Funds should be returned to clients as quickly as possible if a delay means they cannot proceed with the transaction.

Clear communication

At times of uncertainty, transparency becomes even more important than usual. Firms will be required to provide regular updates about how they intend to treat incoming and outgoing post. Customers should be updated on evolving market conditions and shown how they can check their statements if they arrive late.

Face to face alternatives

Face to face meetings for issues such as suitability assessments may not always be possible. However, the FCA has urged companies to investigate alternative options such as phone conversations or online due diligence checks. Firms should send out the results of any assessment either online or through other means.

The FCA has experienced plenty of problems of its own. Back in April, it admitted it could be many months before it is able to address its key regulatory priorities. It is making its own adjustments and has said it may have to redraw its business plan to take into account the evolving situation.

Maintaining business continuity is an issue for all businesses. While online technology, makes it possible to deliver more services remotely, it is the small minority who can’t access the internet who are at risk of being disadvantaged. Inevitably, these people are more likely to be older or more vulnerable and will be even more adversely affected by delays to their services. The FCA, then, is striking a balance between being understanding for customers but keeping up the pressure to protect those clients who may suffer.

Coronavirus Gives SM&CR its First Real Test - Waymark Tech Blog

Coronavirus Gives SM&CR its First Real Test

COVID-19 is proving to be the first real test of financial regulations introduced since 2008 with the Senior Managers and Certification Regime in the front line.

Speaking to the Financial Times, the FCA’s interim Chief Executive, Christopher Woolard has suggested that the Senior Managers Regime could give the regulator more weapons in ensuring corporations continue to behave ethically throughout the crisis.

Although he admitted that the FCA had little power to take action against those lenders who did not treat customers fairly, he suggested the regime did give the regulator an option to ensure fair treatment of lenders.

These rules allow regulators to take action against senior managers based on their conduct, including fair treatment of customers. With all commercial lending being unregulated, this will be the only weapon the regulator has to put pressure on banks.

However, since its introduction, the FCA has been criticised for taking relatively little action. After three years, it was only in August 2019 that it secured its first conviction when Barclays Chief Executive Jes Staley was jointly fined £642,000 by the FCA and PRA for his response to an anonymous whistleblower letter.

Since then, the regime has been extended from the banking sector and across all authorised firms, but its impact is still one which exists in the fears and imaginations of senior managers rather than in actuality. However, this crisis could be an opportunity for SM&CR to play a significant role.

Since the outbreak of COVID-19, there have been a number of complaints about how banks have been treating their customers, especially in the way the Government-backed loan scheme has been rolled out. The Federation of Small Businesses has been among those raising concerns about how the loan scheme is being implemented.

Although pace has picked up, approval rates are lower than with commercial lending despite the number of companies facing difficulties. The FSB has called for reassurances from the regulator that the banks are not putting profits before people.

The FCA has written to the banks reminding them of their responsibility to treat borrowers fairly at this stressful time, but beyond that it has relatively few direct powers. SM&CR could offer an alternative approach, and Woolard admitted this period would prove to be a test of the scheme.

Nonetheless, the difficulty they’ve experienced in securing convictions so far suggests they might face an uphill battle. The problem for the regulation is that it can be difficult to attribute the action of a company to a single individual. The burden of proof lies with the FCA and, in many cases, this is proving too high a hurdle to clear.

So far, then, SM&CR has been used as an abstract threat – a tool to place more pressure on individual managers to take greater responsibility for good conduct. Whether this will be enough remains to be seen.

COVID-19 is the first period of great stress for the financial sector. It is at these moments that corporate responsibility and regulation comes under pressure. It’s also at moments like these that the cracks show and problems in the existing system are there for all too see. This in itself could serve as a warning to any corporates who do not heed the FCA’s letter and treat customers fairly.

Even though the regulator’s powers may be limited at present, if they are not satisfied by the actions of lenders during this time, they will be more likely to step up their oversight.

This could come in the form of enhanced regulation and stricter rules in the future.

Protecting Pensions From COVID-19 - Waymark Tech Blog

Protecting Pensions From COVID-19

With stock markets tumbling in the wake of the COVID-19 pandemic, pensions are suffering and customers are anxious. Recent trends have seen people demanding more complex products and a greater control over how their pensions are invested. While this has been popular, and has helped people create more tailored portfolios, it can also create problems given the market volatility caused by the virus.

Regulators’ focus will be on ensuring customers receive the best possible support in making appropriate investment decisions. Investment products should be appropriate for individual needs and marketed in a fair way which is not misleading. Firms will be encouraged to help customers find products that meet their needs as well as provide access to clear information in “plain English” explaining their options.

The FCA is also reiterating the need for higher standards of governance and control to protect customers, while ensuring everything is done with consumer interests at heart.

Avoiding Scams

Unfortunately, the crisis also increases customers’ vulnerability to scams or making bad investment decisions. Before the crisis, pensions were benefiting from a boom in investment markets. However, COVID-19 has sent markets around the world into turmoil. Many people will have seen their investment pots shrink considerably in just a few weeks. Understandably, they may be stressed or anxious, both of which make them more vulnerable to making rushed decisions and falling victim to scams.

In the wake of COVID-19 there has been a surge of cyber scams focusing on the current situation and the FCA is working to reduce people’s risk of harm.

“Fraudsters will exploit the coronavirus to prey on anxiety and fear of savers and investors, especially those who may be vulnerable. That’s why we’re urging anyone who is thinking about transferring their pension to check who they are dealing with and only use firms authorised by the FCA.”

Mark Steward, FCA Director of Enforcement

They advise customers to reject all unsolicited offers and be wary of any offers appearing to have high return rates. At times of stress, customers may be more likely to jump on anything that could be a potential “life raft”. Their defences are down, making them targets for unscrupulous operators.

At this time, high quality advice will be at a premium and firms must be aware that their own customers may be more at risk from scams, especially those claiming to be from their pension providers.

Information is vital. The FCA has proposed to launch a consumer harm campaign to help people make better investment decisions and avoid failing into some of the traps fraudsters have set up for them.

In the long term, pensions will recover, but that’s scant consolation for those relying on their pension incomes now. Nerves are jangling and people will need support to minimise the harm they and their pension pots face from the crisis.

The FCA has issued guidance for pension providers and DB transfer advisers as the coronavirus pandemic develops. They are working with industry to ensure the market can deliver fair outcomes for consumers. They also set out how firms can, and should, support consumers that seek access to their pension savings during the current pandemic.  

Read the full guidance here: https://www.fca.org.uk/firms/pensions-and-retirement-income-our-guidance-firms

Financial Conduct Authority Updates Action on Coronavirus - Waymark Tech Blog

Financial Conduct Authority Updates Action on Coronavirus

As the UK goes into lockdown the FCA continues to update its guidance and work out how it can support the financial sector and those who rely on it through what is now undeniably, an unprecedented crisis. With questions about trading practices, vulnerable customers and reporting, the FCA has issued a series of statements over the past few weeks outlining its expectations.

Short selling

The FCA has not followed the examples of other countries such as Italy and Spain in banning short selling. Both countries have banned the practice in order to counter market volatility as the virus spreads across the world. Experts in the US have also argued strongly against short selling. However, the FCA claimed there was no evidence that it was behind the recent turmoil in the market. Indeed, they said short selling remains a useful tool in investment strategy, allowing companies to manage risks by taking long and short positions.

Vulnerable clients

Its work on vulnerable clients has been shelved as it postpones all non-essential work in the face of the pandemic. Publication of its guidance on vulnerable customers will be placed on the back burner for the time being.

However, the FCA has stepped up pressure to prevent repossessions in the fallout of the crisis. The regulator’s guidance says lenders should offer a three-month payment holiday in the face of the spreading pandemic. It should be granted where homeowners are experiencing payment difficulties because of COVID-19. This can apply where a customer first asks for leniency or if a lender feels they qualify for a break. The Government has said there is no expectation under its guidance for a lender to fully investigate the circumstances surrounding a request for a payment holiday.

“We are making it clear that no responsible lender should be considering repossession as an appropriate measure at this time.”

Christopher woolard, interim chief executive of the fca

Delayed disclosure

The FCA has urged companies to delay publication of their preliminary results for at least two weeks.

“The unprecedented events of the last couple of weeks mean that the basis on which companies are reporting and planning is changing rapidly.”

Financial conduct authority

Companies, it said, should give due consideration to the impact of the virus and that the events of the last couple of weeks meant that time tables set before the virus would mean there would be little time to achieve this.

It says it is in talks with the audit regulator, the Financial Reporting Council (FRC) and the Bank of England’s Prudential Regulation Authority (PRA) about a package of measures to ensure companies take time to prepare appropriate disclosures. The FRC, for its part, has also asked companies to delay disclosing financial reports rather than produce substandard audits.

This is uncharted territory for the entire sector. The FCA’s role in this is to reduce turmoil as much as possible and put pressure on companies to maintain sustainable and responsible policies which do not cause additional stress and anxiety to their customers.

How to grab SMCR with both hands - Waymark Tech blog post

How to Grab SMCR With Both Hands

On this blog it often feels like we’re calling out examples of bad practice. So, it makes a refreshing change to highlight a company which is getting it right. With firms still getting to grips with the Senior Managers and Certification Regime, insurance provider GRP, is among the first to truly embrace it.

They announced this month that they have linked SM&CR compliance with people management practices to embed the rules into company culture. By bringing the two together, they say that the regulations can achieve their goal of genuinely transforming culture.

The Senior Managers and Certification Regime was originally introduced in 2016 and extended to solo regulated firms in December 2019. Its aim is simple; to encourage senior managers to take more personal accountability for their business actions and to improve corporate culture.

Like many regulations though, firms will be tempted to see this as a box ticking issue for the compliance department, and nothing else. What GRP is doing, is linking SM&CR to its recruitment practices.

They’ve introduced software with a standalone module which deals solely with SMCR compliance. It allows the firm to allocate responsibilities to managers, show where these responsibilities have been accepted as well as show evidence. It creates an audit trail for regulators and makes it easier for them to stay on top of their data requirements.

It shows the benefit of moving away from old Excel-based HR management towards high tech solutions which include compliance at their core. It allows the company greater oversight and to show that it is not only complying with the letter of the law but also the spirit.

This offers all sorts of benefits…

Firstly it reduces the administrative burden of compliance, but it also instills confidence in employees. One of the biggest fears is that SM&CR will cripple decision making. Managers may be terrified of taking any decision for fear they may be held personally accountable if it goes wrong.

By maintaining a clear audit trail it is easier to show not only who holds which responsibility, but also that each individual did everything they could to carry out their responsibilities. This reduces the fear factor and makes it much easier to satisfy regulators if they do come knocking.

Moreover, measures like this demonstrate that the company is taking its obligations seriously and regulators love this. The FCA has said it will be assessing the culture within a company as a sign of likely non-compliance.

So, from PR, risk, financial and regulatory aspects, SMCR can become an opportunity rather than a burden. It helps businesses go above – as well as beyond the requirements – which has additional benefits to their bottom line performance.

As with any regulation, different companies will take a different approach, but those who are more proactive stand to prosper.

Five Lessons - Waymark Tech Blog

Five Lessons From SMCR

The Senior Managers and Certification Regime (SMCR) is finally upon us. After years of preparation, the FCA has finally rolled it out to virtually all regulated firms in the UK. Anyone performing a role designated by the FCA as a senior manager position will now be given designated responsibilities for which they are personally responsible.

With the rules now fully implemented, what can we learn from the FCA’s statements and investigations so far?

Convictions are difficult

Despite a number of investigations using SMCR powers, there has only been one high profile conviction when Jes Staley was fined more than £642,000 for failing to act with due skill, care and diligence in his response to a whistleblower in 2016. In a large firm, it is proving difficult to conclusively prove that one person should be held accountable for wrongdoing. The burden of proof is on the FCA which makes it difficult to secure a conviction but…

… Convictions may be higher for smaller businesses

With SMCR now extended to solo-regulated firms, that conviction rate could climb. While it can be impossible to prove personal responsibility in a large corporation it will be much easier in a smaller firm.

Firms should be proactive against non-financial misconduct

Non-financial misconduct will form part of the FCA’s assessment about who is a fit and proper person. In a Dear CEO letter Johnathan Davidson, Executive Director of Supervision, retail and authorisation wrote: “Following recent, publicised incidents of non-financial misconduct in the wholesale general insurance sector, I am writing to set out our clear expectation that you should be proactive in tackling such issues.” The FCA says it expects firms to identify what drives bad misconduct and, ‘modify those drivers’ to improve conduct.

Governance, governance, governance

As another Dear CEO letter highlights, this time from Marc Teasdale, the FCA is disappointed about standards of governance:

“Overall standards of governance, particularly at the level of the regulated entity, generally fall below our expectations. Funds offered to retail investors in the UK do not consistently deliver good value, frequently due to failure to identify and manage conflicts of interest,” he wrote.

A key issue, according to Teasdale, is liquidity management in open-ended funds. Liquidity, he said, should remain the responsibility of the asset manager even if outsourced to a third-party provider. While it is possible to delegate control, it is not possible to delegate responsibility.

SMCR is an opportunity

Much depends on how companies choose to perceive SMCR. Some will see it as simply being a compliance project, another box to be ticked in order to satisfy the regulators. However, it helps businesses get their governance in order. It includes all the things that companies should be doing in any case and helps companies highlight risk. Those who see this as a positive element of strategy are likely to see real benefits.

Smaller businesses are still getting to grips with SMCR. There may be bumps along the way, but every investigation, enforcement action and statement from the FCA contains lessons for the wider sector.

FCA Issues First Fine Against Claims Management Firm - Waymark Tech Blog

FCA Issues First Fine Against Claims Management Firm

The FCA has issued its first fine against a claims management company since it took over regulation of the sector eight months ago. It’s a finding which should signal the need for financial institutions to maintain the highest standards of transparency when communicating to customers.

Essex-based Professional Personal Claims (PPC) was fined £70,000 by the regulator for misleading branding and for submitting inaccurate or misleading claims to banks.

The FCA also believed that the firm was attempting to give customers the impression that they were making claims direct to those banks, when this of course, was not the case. PPC operated websites with the logos of five banks which contained their domains. The FCA said that this muddied the water of what customers might expect.

Customers could easily have been confused that the claims were being submitted directly to the banks rather than through a claims management firm in return for a fee.

“PPC’s misleading website and marketing material suggested PPC was associated with the five banks when this was not the case,” said Mark Steward, Executive Director of Enforcement. “Claims management firms must ensure their advertising is accurate. Not only in terms of what they say about themselves and their services but also in terms of what is represented.”

A lack of detail

The second charge is arguably just as damaging. People use claims management firms because they either don’t want the hassle of making the claim themselves or they aren’t confident they will fill out the forms correctly.

However, according to the FCA, PPC submitted claim forms to the banks which were either misleading or contained the wrong information.

The claims had already been made by the former regulator before the FCA took over, which had received 14 complaints about the company. PPC had originally challenged the finding in court, before withdrawing their claim in September leaving the FCA to adjudicate the penalty.

What can we learn?

This fine comes at a difficult time for claims management firms. The end of the PPI deadline leaves many people wondering what the future will bring for them. The FCA has only around 350 firms registering with them, compared to 700 during the height of the claims process.

The reputation of the sector is also extremely shaky. It has been blamed for misleading customers and also creating a compensation culture which has cost the banks billions.

If claims management firms are to go forward, the FCA, has served notice that it expects it to adhere to the highest standards of accountability and transparency. Advertising must be scrupulously accurate, communication must be clear and they will need to ensure all documentation is accurate, complete and correct. That might be something of an adjustment to a sector which has often thrived on ambiguity.

Before the deadline, the FCA had launched a high-profile marketing campaign to inform people about their rights and ensure they understood that they could make the claim themselves without using a claims firm.

Going forward they will have to ensure they are whiter than white, being clear about what they offer, how much they charge and that they are not affiliated with any bank or financial institution.

Why You Should See Diversity as a Regulatory Issue - Waymark Tech

Why You Should See Diversity as a Regulatory Issue

Fresh data released by the FCA shows suggests the world of finance is still looking pretty male dominated. However, this is more than just an issue of equality, it could also be one of regulation.

The report in general makes for sober reading. Despite a lot of positive noise, senior jobs in finance are as male now as they were 15 years ago. The proportion of women in approved persons roles in the financial sector is 17% which is more or less the same as in 2005.

The picture is far from uniform. Smaller firms, it found, were less likely to have women in top roles than larger organisations. Major firms have seen a significant rise in the number of women in top jobs. Back in 2005 these firms were markedly less gender diverse than the industry average, but in 2019 they appear slightly above the industry average.

The conversation around gender diversity is also changing. Slowly but surely firms are beginning to realise that greater diversity is a benefit to the business rather than an ethical consideration.

Even so, this rise comes from a pretty low base and suggests that all the rhetoric surrounding diversity has not had the impact many might have expected.

A regulatory issue

Diversity is a regulatory issue for firms. Back in 2018 Christopher Woolard, Chief Executive of the FCA, pointed out that a firm’s approach to diversity and inclusion reveals a lot about their culture. Further more, he said, “the way firms handle non-financial misconduct, including allegations of sexual misconduct, is potentially relevant to our assessment of that firm, in the same way that their handling of insider dealing, market manipulation or any other misconduct is.”

In other words, the FCA believes a lack of gender diversity could be an indicator towards poor corporate behaviour.

Investors share this attitude with a move towards gender lens investment which examines a firm’s potential exposure to gender risk. A less diverse firm, one might assume, would be more likely to suffer from poor culture and may be open to a number of regulatory and PR issues which could impact financial return.

How firms should act

The lesson is the diversity is easy to talk about, but not quite as simple to achieve. However, some firms have managed it better than others. For those who have not, the message is clear: they should see this as a regulatory issue rather than just one of morality. Regulators see gender diversity as an important part of establishing the kind of positive culture they have been looking for.

So what can firms do?

The first is to be transparent about how you are performing on diversity. It should be a part of reports as much as other financial data.

The second is to make a clear commitment such as by joining the Treasuries Women in Finance initiative. The FCA’s report demonstrated that those firms which had done so were above the curve in terms of how many women make it into their top teams.

Thirdly it’s a case of education. The world of finance still suffers from a male dominated reputation, headlines such as the President’s Club still give the perception of an environment which is hostile to women. Changing this environment will encourage more women to choose finance and make their way up hierarchies.

There has already been plenty of reports showing the business case for diversity, but what’s becoming clear is that it’s also an issue of compliance. Having more women in top teams is not just about fairness, or about business performance; it’s also about reducing regulatory risk.

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