FCA Fines and Penalties
FCA issues statement of objection to four asset management firms
The FCA has issued a statement of objection to four asset management firms as the regulator believes they may have broken UK competition law.
A statement of objection outlines how the FCA believes the firms have broken the relevant legislation and the action it proposes, as well as providing the firms in question with the opportunity to respond, either by writing or orally.
The FCA believes that three of the four firms in question shared or accepted information relating to the price of shares in relation to one IPO and a placing in 2015. The regulator also believes that two of the firms shared information regarding the price they were willing to pay for shares in relation to another IPO.
These are provisional findings and the FCA will consider the firms’ responses before making a final decision. This is the first case the FCA has brought using its competition enforcement powers.
Regulator commences civil proceedings in relation to misleading statements on pension investments
The FCA has begun civil proceedings against two firms and three individuals for making allegedly misleading statements on pension investments.
The firms in question provided a pension report service, which was advertised as a service which summarised consumer’s pension information and objectives to help them make decisions about what to do with their pensions. As part of that service the firms promoted self-invested personal pensions (SIPPs) and alternative investments including tree plantations.
The FCA alleges that the company breaches s19 FSMA: carrying out regulated activities in the UK without FCA authorisation or exemption, s21 FSMA: communicating financial promotions without authorisation or approval, s397 FSMA and s89 Financial Services Act: making misleading statements. The regulator also alleges that the three individuals where knowingly involved in the breaches of one, or both, of the companies. This case is at an early stage and no court date has been set, but the FCA is seeking restitution orders in favour of those consumers affected.
Individual charged with perverting the course of justice
An individual, alleged by the FCA to have embarked on a course of conduct which had a tendency to pervert the course of public justice between 1st April 2016 and 28th September 2016, has appeared in court charged with perverting the course of justice. This relates to a restraint order issued on 2nd April 2012 and a confiscation order made against the individual on 12th February 2016. The case has been referred to the Inner London Crown Court.
Four found guilty in relation to £1.4million investment scheme
In criminal proceedings brought by the FCA, two individuals have been found guilty of offences relating to the operation of an investment scheme in which more than 300 investors lost a total of just over £1.4 million. Two further defendants pleaded guilty to offences relating to the scheme at an earlier hearing. The four individuals will be sentenced between 19th and 20th December.
Between February 2009 and early 2014 the defendants engaged in the systematic and prolonged misleading of investors, by phone, in person and via written statements and promotional material relating to the value and performance of the scheme.
[Speech] The future of regulation and competition in retail banking
Christopher Woolard, FCA Director of Strategy and Competition, recently gave a speech examining what could be on the horizon for the retail banking industry in the wake of the implementation of the second Payment Services Directive (PSD2) and open banking.
Both PDS2 and Open Banking aim to enhance consumer protection, offer new and convenient ways for consumers to manage their money and to enhance competition in retail banking.
This final aim is of particular interest to the regulator because, although the way customers interact with banks has changed dramatically with technology, retail banking business models have remained relatively static. The ‘opening up’ of data will create greater opportunities for new market entrants and incumbents.
Through its strategic review of retail banking business models, launched in May, the FCA is looking to gain a thorough understanding of banks’ revenue streams, how these differ between firms and how they may change or develop in line with future advances. Industry participants may ask why the FCA is opting to this now, in the face of so much other change, but Christopher Woolard argues that there will never be a perfect time. If the FCA wants to understand the impact of economic, technological, social and regulatory change on the industry, arguably the best time to investigate it is when those changes are imminent.
There’s also the risk that innovation could leave some customers, particularly vulnerable customers, behind. So, the FCA expects firms to have plans in place to mitigate this risk and assist vulnerable customers.
Mr Woolard rounded off his speech by outlining the FCA’s ambitions for the retail banking market. Its vision is one of sustainability, safety and effective competition which works in the interests of its customers. Technology has the potential to create tangible value for customers, but also to inflict very real harm, so it’s important that firms don’t use technology for technology’s sake.
FCA publishes final summary of independent review into a bank’s treatment of SME customers
The FCA has published the final summary of the independent review into the treatment of SME customers referred to the restructuring function of a large, UK bank. This summary follows the interim summary of the S166 report which found that, while a number of poor practices were uncovered, there was no evidence of the bank artificially engineering the transfer of SMEs to the restructuring function.
The interim summary was submitted to the Specialist Advisers, appointed by the Treasury Committee, to determine whether the interim summary was a fair and accurate reflection of the findings of the Skilled Person’s Report.
The Specialist Advisers recommended a number of changes, which have been incorporated into the final summary. The FCA has also written to the Treasury Committee in response to a number of questions raised. This letter and the final summary contain information not previously included in the interim summary. The regulator is continuing to investigate the points raised within the skilled person’s report to determine whether any further action is necessary.
FCA puts spotlight on consumers’ experiences of unauthorised lending
The FCA has released a research report outlining consumers’ experiences with unauthorised lenders. Although illegal money lending (IML) doesn’t come under the regulatory regime, it can impact the legitimate market and the FCA does take action against unauthorised activities where it uncovers them.
ILM can be difficult to quantify, because the practice is often hidden and the consequences for both lenders and borrowers can be severe. As part of its research into the issue, the FCA held eight roundtables with individuals from organisations who deal with customers with experience of unauthorised lenders.
- IML is more likely to be found in economically deprived areas, but the research found evidence that all consumer groups and ages can be affected. The common factor in all cases is that borrowers have an urgent need for money due to a payment shortfall;
- The Illegal Money Lending Team’s (IMLT) statistics showed that those with physical and mental disabilities are highly represented amongst the ILM borrowers they encountered;
- There were many examples of unauthorised lending within ethnic and migrant groups, with these practices being less visible, or well understood by the FCA’s partners;
- Lending can take many forms, including ‘parallel lending’, which takes place alongside regulated lending;
- Lenders may use paperwork from authorised lenders to make the practice appear legitimate. This often doesn’t come to light until the customer goes to a debt advisor;
- There is evidence of consumers being coerced into illegal activity as a result of running up debts with IMLs and IMLT research found that 5% of victims reported feeling suicidal as a result of their involvement with loan sharks;
- Lending takes many forms, including workplace lending, ‘renting’ and the rise of landlord lenders;
- Lenders primarily rely on word of mouth within their communities or on social media sites such as Facebook. There has been examples of lenders advertising on sites such as Craigslist and Gumtree, but most lenders stayed out of the public domain.
In its conclusion the FCA said it doesn’t believe that there is strong evidence to suggest that illegal money lending has increased as a result of the high-cost short-term credit (HCSTC) price cap. The regulator’s analysis at the time of consultation highlighted that less than 5% of declined applicants would consider turning to illegal sources, which is in line with previous analysis.
FCA reviews wholesale banks’ compliance functions
At the beginning of 2017, the FCA send a questionnaire to 22 wholesale banks to discover more about their compliance function, any changes that have occurred over recent years and if any challenges remain. It has published a note summarising its findings.
The questions covered the following areas:
- Role and structure;
- Strategy and planning;
- Compliance monitoring;
- Support and challenge;
The key themes arising from the responses included:
- The compliance function is moving towards a pure, independent second line of defence, which has gained a higher profile within firms, including compliance representatives at board level and elevated reporting lines;
- Organisational change is likely in the medium-term as firms look to clarify the boundaries between the first and second lines of defence and define the responsibilities of the compliance function;
- Compliance mandates vary between firms but are generally static;
- Compliance functions have grown and firms are now relying more on technology to fulfil their obligations. This requires a new skill set and level of understanding in order to effectively challenge front-line activities;
- There is a higher demand for compliance personnel, which has led to staff shortages and instances of staff moving roles without necessarily gaining the right level of expertise.
The FCA believes that compliance functions need to ensure that they are balancing the dual roles of advising the front line and providing challenge. The regulator also notes that while technology can bring about greater efficiencies, firms must also be mindful of the risks, particularly around data security, resilience and personnel.
The FCA is not requesting firms take any specific action in response to this publication, but has included a list of questions senior managers may wish to consider as the compliance function develops.
FCA and Bank of England launch the next phase of LIBOR transition
Following the announcement that panel banks had agreed to voluntarily support LIBOR until 2012 while the industry transitions to SONIA, the FCA and Bank of England have launched the next phase of its transitional arrangements.
From January 2018, the market-led Working Group on Sterling Risk-Free Rates will have broader mandate to drive the transition to SONIA and help establish it as the primary sterling interest rate benchmark by the end of 2021.
In order to successfully transition away from LIBOR, wider engagement is needed from market participants. Therefore, Working Group participation will be widened and a consultation on the development of term SONIA reference rates will be published in H1 2018.
PPI response update
The FCA has published its PPI campaign response data for 29th August – 5th November, showing the number of visitors to its website, social media communications and calls into its helpline.
The PPI campaign generated:
- 13,394 calls to the helpline;
- 682 emails;
- 2,274 web chat conversations;
- 7,025 social media comments.
The regulator will be publishing an interim report on the performance of the campaign and PPI supervision strategy in autumn 2018, with a final report due at the end of 2019.