28th July 2021
Effecta Compliance, a regulatory consultancy firm for the Financial Services sector, has provided below a round-up of key regulatory focus areas for Financial Services businesses.
Use it or lose it!
New powers in the Financial Services Bill means the Financial Conduct Authority (FCA) is able to act quicker where it considers firms are no longer carrying out some, or all, of its regulated activities. Whilst the FCA has always had the power to remove activities, with these new powers the FCA has made this an area of focus, with several firms being contacted to justify the need to have certain activities on their license. According to the FCA, outdated or incorrect permissions can mislead consumers about the level of protection offered or give credibility to unregulated activities.
The FCA have started contacting firms and giving them 14 days to provide a written response. If the firm does not respond, the FCA will publish a public notice explaining that it appears the firm is not carrying on a regulated activity, and the FCA then has the ability to cancel the firm’s permissions after one month.
Firms must act now to review existing permissions and make any necessary changes. It should be noted that the FCA has the power to cancel a firm’s Part 4A permission if it has not carried on a regulated activity for at least 12 months.
Change of control: it’s more than just a standard notification
The FCA recently released a final notice opposing the Change in Control (CiC) and therefore acquisition of Kimberly Forex UK Limited, and the details within this notice were a good reminder that the CiC process is more than just a standard notification. The CiC process requires the FCA to review and approve the CiC in advance of it happening, even if this is purely a change of intermediary companies for tax or other purposes. Most importantly, failure to request FCA approval prior to executing the CiC is a criminal offence.
Part XII of the Financial Services and Markets Act 2000 states that controllers are required to seek approval from the FCA, via a S178 Notice, before gaining or increasing control over a firm, even if the ultimate controller remains the same. The relevant bands in which change of control requires approval are set out in the Controller Quick Reference Guide for Case Officers. Changes within these bands do not require notification to the FCA but decreasing control does.
Market abuse: COVID-19 and beyond
Over the last 18 months the FCA has clearly set out its expectations in relation to systems and controls to be employed when it comes to identifying and reporting on potential market abuse. These include maintaining appropriate records of interactions with market participants and assessing whether any of those interactions have disclosed inside information, and if it has, a firm’s obligations around this. Monitoring all forms of communication, as well as the transactions themselves, is vitally important in identifying market abuse, and while in the past smaller firms may have relied upon individuals manually monitoring this area, automated systems will be seen as an essential tool in the future.
Furthermore, the FCA has previously discussed the role of a gatekeeper in controlling the receipt and internal dissemination of market soundings; if you haven’t identified this person, now is a good time. Personal account dealing is also something to be kept in check, including assessing how conflicts of interest and the risk of market abuse are managed, and remember to update your market abuse risk assessment, something the FCA keenly reviews.
Should you wish to discuss any of the above, please do not hesitate to contact Clare Curtis, Chief Executive Officer at Effecta Compliance.