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What the FCA's Business Plan Tells Us About Enforcement in the Coming Year

Posted on 30 May 2018

Trends from Suspicious Transaction Reports

On 9 April, the FCA published its Business Plan 2018/19, which sets out its priorities for the coming year. In analysing this, a number of column inches have been devoted to discussing the resource that the FCA is having to devote to EU withdrawal, and what that means in terms of its other projects.

We focus instead in this piece on determining where enforcement might come from. Consistent with its "credible deterrence" agenda being a thing of the past, enforcement is not a concept that is at the forefront of the Business Plan. Nevertheless, reading between the lines, we pick out from amongst the FCA priorities for this year, 10 areas from which we consider we may see enforcement action arising in future:

  • Anti-money laundering is, as always, a key area. The UK has been told that it needs a more comprehensive picture about how capital markets are being used for money laundering. Accordingly, the FCA will undertake a broad range of diagnostic work, including in the e-money sector. Notably, it proposes to carry out a thematic review to increase its understanding and assessment of the harm that is caused by money laundering in capital markets. Thematic reviews often lead to enforcement activity, and we would expect this particularly to be the case as far as AML is concerned.
  • There are no surprises that culture and governance continues to be an FCA priority and our view is that the FCA will continue to look for cases to bring against senior managers. The FCA remains concerned about the potential for harm arising from poor remuneration and incentive arrangements, and enforcement against firms which score poorly in this area are likely.
  • Data security and resilience is a cross sector priority and, given the heightened public interest in this area, we would not be surprised to see enforcement activity in future. The FCA will strengthen its supervisory assessments of the highest impact firms to better understand their current and planned use of technology, resilience to cyber-attacks and staff expertise. Notably, it will also review how governance, strategy, systems architecture, risk management and culture contribute to firms' data security. It will also conduct focussed thematic work with "lower impact" firms, based on harms it has identified in each sector.
  • The FCA has plainly had concerns about outsourcing in certain areas for some period now, and outsourcing has frequently featured in previous enforcement outcomes. During 2018/19, it will increase its understanding of outsourced services and core infrastructure provision across different sectors through several pieces of thematic and firm specific work. This may well be one of the areas where enforcement action could result.
  • Pension transfer advice has been grabbing much attention in recent years. The FCA makes it clear that it will not hesitate to intervene where necessary if it sees evidence of firms providing unsuitable pension transfer advice. We may well see enforcement arising as a consequence of the data the FCA proposes to collect from all firms that have pension transfer permission in order that it can assess practices across the entire market. The FCA will also continue to monitor, quantify and tackle cases of systemic pension mis-selling and fraud. This involves both firms that the FCA authorises and unregulated firms that introduce business to them. 
  • The high cost credit market is a market that the FCA is concerned about – particularly given the FCA's focus on vulnerable customers. It says it wants to send a clear message to firms and consumers that more work is needed in some parts of the market to improve consumer protection. We shall have to see whether that clear message includes by way of enforcement.
  • As regards the wholesale financial markets, the FCA proposes to monitor, detect and investigate potential abuse in them and enforce against unlawful behaviour where appropriate. As trailed a few months back, it will focus its supervision monitoring on the fixed income, commodity and non-standard derivative markets, as these are important parts of the market but which have previously received less focus than equities. It should also be noted that the FCA will be publishing a document to assist firms, entitled "Approach to Market Integrity".
  • The FCA has a number of concerns in the retail lending market, particularly around the quality of debt advice. The FCA is clearly sceptical about the viability of paid for debt advice and debt management business models. This year, it will look at how fee charging and free to customer debt management providers meet their customers' needs. Enforcement may well result, particularly as the FCA's enquiries will involve reviewing customer files and visits to providers to interview staff and assess their processes and how they deal with customers.
  • As regards firms' access to, and use of, credit information, the FCA intends to launch a market study. The FCA will collect evidence to gain a better understanding of the potential for harm in that market and, if necessary, to identify remedies. Credit reference agencies are entirely dependent on the quality of information provided by lenders and other users. Firms that systemically provide poor quality customer data to agencies may well face enforcement and redress.
  • As regards retail investments, the FCA has been trying to mitigate the harm it believes is caused from firms selling CFDs and spread bets to retail consumers. It plans to evaluate how well its interventions have worked and to act where firms fail to meet its expectations. Given the extent of the warnings and guidance already provided to firms, continued non-compliance is likely to be punished.
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