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What the FCA business plan tells us about enforcement in the forthcoming year

Posted on 17 April 2019

What the FCA business plan tells us about enforcement in the forthcoming year

The FCA has published its business plan for the year 2019/20.  In many respects, themes for 2019/20 are not significantly different than those in the 2018/19.  Like last year’s business plan, enforcement does not feature prominently, however in this article we seek to glean from the business plan areas where the next wave of enforcement cases may emerge.  Set out below are our top 10.

  • The London Capital and Finance plc (LCF) failure has featured heavily in the media with the FCA coming under significant criticism. The business plan reports on the independent investigation which has been ordered into the issues raised by the failure of LCF.  Experience of other independent reviews into regulator failures is that the FCA will want to be ahead of the curve when the final report is published by demonstrating that lessons have been learned and action already taken. One initiative which may have been partly prompted by the LCF failure is that the FCA will publish an annual statement on perimeter issues as part of its annual report.  This report will flag areas of financial activity which have emerged or evolved where there are gaps in protection and where lawmakers may need to act.  In the meantime, we can expect an increase in enforcement activity around so called mini-bonds and other unregulated products.  Whilst LCF was an authorised firm, most issuers of bonds and other unregulated products are not.  Accordingly, we expect enforcement action to be focused on those authorised firms which approve financial promotions for other firms.  Historically there has been little enforcement activity in this area.  This will certainly change.
  • The FCA sees operational resilience being a key cross sector priority. Where firms are the victims of major cyber-attacks which result in detriment to customers then the FCA will open an investigation and take disciplinary action where it considers that the cyber-attack resulted from poor internal controls (like the action taken against Tesco Bank in 2018 for failures in relation to an attack on Tesco debit cards). 
  • The FCA is also concerned about opportunities new technology presents for misuse of data. The FCA reports that it has concerns about transparency and accountability about how firms use customer data (“data ethics”). Although breaches of data protection laws are primarily matters for the ICO, where firms mis-use data in order to disadvantage customers, e.g. through the use of algorithms which result in unfair outcomes for consumers, then the FCA will take the lead role in enforcement action.
  • Financial crime (fraud & scams) and anti-money laundering (AML) remain a priority for the FCA.  See for example the recent fine against Standard Chartered Bank covered elsewhere in this publication, 9 April 2019: FCA fines Standard Chartered Bank £102.2 million for poor AML controls. However, with the FCA reporting last year that there were 78 open investigations into firms and individuals for breach of AML regulations, it may be that the rate of new investigations slows as the FCA seeks to progress existing cases.  Most AML investigations commence on a criminal-civil dual track (see Mark Steward's comments on this covered elsewhere in this publication, Director of Enforcement speech on recent trends).  However as yet the FCA has not laid criminal charges against anyone for breach of money laundering regulations – will this year see the first criminal charges brought?
  • The FCA reports on its role as Office for Professional Body Anti-Money Laundering Supervision (OPBAS) which is a super regulator for legal and accounting AML supervisors.  The FCA has said it will be focused on raising standards of AML supervision across those sectors. 
  • The FCA continues to be focused on its “Scamsmart” publicity campaigns and in light of the LCF scandal, we can expect the FCA to increase early intervention efforts against firms involved, including pension transfers and unauthorised firms conducing regulated activities.  A particular focus will be on authorised investment advisors and managers who direct consumers to fraudulent or high risk unsuitable investments.
  • The FCA reports that that it will carry out diagnostic work in the retail lending sector to understand whether there are business models which rely on revenue from consumers who cannot afford to repay.  Clearly the FCA believes there may be a problem.
  • The FCA remains concerned about unfair pricing and poor value in the insurance distribution chain.  After a number of recent warnings, the FCA is likely to take action against those firms which have little or no regard for the interests of the end-user or fail to manage conflicts of interests when selecting insurance distributors or product providers.
  • In wholesale financial markets the FCA continues to focus on market abuse.  Whilst the FCA will continue to take action against individuals involved in insider trading, there will be continued focus on systems and controls inside wholesale firms, particularly in relation to control of inside information in the “private side” of investment banks and management of  conflicts of interest. 
  • This year (as covered elsewhere in this publication, FCA Publishes finalised SMCR guidance for Solo Regulated Firms on Statements of Responsibility and Management Responsibilities Maps) the FCA will extend the SM&CR to all firms it regulates and Andrew Bailey’s introduction to the Business Plan continues to emphasise firms' culture. For the last two financial years, the number of fines issued against individuals has exceeded those against firms and we continue to expect the FCA to focus on bringing disciplinary action against individuals as well as the firms they work for.
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