This week in regulation


The speed read:

  • Six found guilty in relation to boiler room scam
  • Making it easier to compare bank accounts
  • Individual sentenced for failing to pay confiscation order
  • Consultation on transitioning to SM&CR
  • Proposed new rules to help credit card customers in persistent debt
  • Investment firm fined for failing to disclose insider information
  • Market watch newsletter

Six found guilty of operating boiler room scam

Three individuals have been found guilty of operating a series of boiler room scams which led to the loss of more than £2.7m of investors’ funds. They will be sentenced at a later date, with confiscation proceedings to follow.

The first defendant was found guilty of one count of conspiracy to defraud, one count of fraud by abuse of permission and one count of intending to pervert the course of justice. They also pleaded guilty to four counts of communicating an invitation to engage in investment activity. Defendant two was also found guilty of one count of conspiracy to defraud and charged with three counts of communicating an invitation to engage in investment activity, one of which they were acquitted of.

The third individual was found guilty of entering into, or becoming concerned with, a money laundering arrangement and one count of intending to pervert the course of justice.


Making it easier to compare bank accounts

The FCA has published final rules requiring providers of personal current accounts (PCAs) and business current accounts (BCAs) to make service information about their accounts available to customers. These rules are expected to contribute to the FCA’s objective of promoting effective competition in the interests of customers by enabling them to make informed comparisons.

Under the new rules, firms are required to publish information about the following aspects of their service:

  • The account opening process, including timescales;
  • The time taken to replace lost, stolen or cancelled cards;
  • How and when support services can be accessed;
  • The number of major operational and security incidents reported to the FCA, broken down by channel.

Firms are also required to publish:

  • Service metrics around the time elapsed between a customer’s application and receipt of the service;
  • Information around how and when customers can carry out every day banking services and the levels of support available.

The regulator’s consultation (CP17/24) also included the proposal to require firms to publish metrics relating to powers of attorney. Following feedback, the FCA has agreed not to go ahead with this proposal. Instead, UK Finance and the Building Societies Association (BSA) are to develop a voluntary industry agreement to publish information around the services offered to potentially vulnerable customers, including around powers of attorney.

These rules will apply to firms with more than 70,000 PCAs or 15,000 BCAs, starting from Q2 2018, except for the publishing of metrics around account opening and card replacement, which will be deferred by six months to enable firms to implement appropriate systems for data collection. Publication of these metrics is due within six weeks following the end of the quarter.


Individual sentenced for failing to pay confiscation order

An individual has been sentenced to 400 days imprisonment for failing to pay a Confiscation Order for the sum of £136,238 made in January 2017. To date, just £20,869.08 has been repaid of this sum.

This sentence is on top of the term of five and a half year’s imprisonment for his crimes and the defendant will still be liable for remainder of the Confiscation Order and the interest accrued.

The individual was convicted following one of the FCA’s largest investigations into unauthorised activity, Operation Cotton, for his part in an unauthorised collective investment scheme (UCIS).


Consulting on transitioning to the senior managers regime

The FCA has published three consultation papers containing proposals around transitioning to the Senior Managers and Certification Regime (SM&CR). These papers outline the FCA’s proportionate approach for different types of firms and a consultation to extend the ‘Duty of Responsibility’ to insurers and solo-regulated firms.

These consultations follow previous proposals around how the FCA will apply the regime to the rest of the industry, this latest set of proposals are now concerned with achieving the smooth transition to the new regime.


FCA Solo-Regulated Firms and Individuals (CP17-40)

The FCA is proposing to automatically convert the majority of the Approved Persons within Core and Limited Scope firms to the corresponding Senior Management Functions. Enhanced firms will be required to submit a conversion notification (Form K), Statements of Responsibilities and Responsibilities Maps to the regulator.

The certification rules will be introduced gradually, with firms having 12 months from the implementation date to complete their first assessment of fitness and propriety of staff which fall into this category. However, those members of staff will be expected to comply with the Conduct Rules from the first day of the regime.

For all other staff subject to the Conduct Rules, firms will have 12 months to apply them to ensure firms have adequate time to deliver appropriate training to affected individuals.


Insurers (CP17-41)

The FCA is proposing different approaches depending on whether the insurer is subject to Solvency II, a large Non-Directive firm or a small Non-Directive firm.

Under the proposals, individuals at Small Non-Directive firms, small run-off firms and Insurance Special Purpose Vehicles (ISPVs) will be automatically converted to the corresponding Senior Management Functions (SMF).

Senior Managers at Solvency II firms and Large Non-Directive firms will be converted to the appropriate SMF once the firm has submitted a Form K conversion notification and supporting documents.

The FCA intends to introduce the Certification Regime and Conduct Rules as described above, but has also said that firms will not be required to obtain regulatory references for employees who will be performing the same role after the regime commences.


Duty of Responsibility for Insurers and Solo-Regulated Firms

The Duty of Responsibility enables the FCA take enforcement action against a Senior Manager when:

  • The firm has breached a regulatory requirement, and;
  • The senior manager in question was responsible for that aspect of the firm at the time of the breach, and;
  • The senior manager didn’t take reasonable steps to prevent the breach occurring or continuing.

In these cases, the burden of proof lies with the FCA. The Decision Procedure and Penalties Manual (DEPP) already contains guidance on the circumstances in which the FCA will apply the duty of responsibility and relevant considerations, now the FCA is seeking industry views on whether changes are required to this guidance in order to extend the duty of responsibility to insurers and solo-regulated firms.


FCA issues revised consultation to assist consumers with persistent credit card debt

Following an initial consultation in April 2017 (CP17/10) to address persistent credit card debt, the FCA has published a further consultation with amended proposals and revisions to its cost benefit analysis (CBA).

CP17/10 proposed:

  • To formally define persistent debt as situations where customers pay more in interest, fees and charges than they have paid of the debt over an 18 month period;
  • Firms to prompt customers to change their repayment behaviour after 18 months and outline the potential consequences of not doing so;
  • Firms issue a further reminder at 27-28 months if the customer looks likely to still be in persistent debt at 36 months;
  • Require further intervention at 36 months;
  • Firms to evaluate the risk of customers being in financial difficulties and take appropriate steps to support them.

Feedback to CP17/10 showed widespread industry support for the regulator’s proposals and objective of reducing persistent credit card debt. However, some concerns were raised and the FCA has made a number of changes to its proposals as a result:

  • Clarified its guidance that the rules don’t specify the language to be used in firms’ communications to customers in persistent debt;
  • Replaced the requirement for firms to warn customers that their card suspension may be reported to credit reference agencies (CRAs) with the provision that firms must make customers aware of the potential implications of low repayments;
  • Allow firms to provide customers with contact details of one or more authorised person/s with permission for debt counselling, as long as this is consistent with the firm’s wider regulatory obligations;
  • Enabled firms to offer a repayment period of longer than 3-4 years in exceptional circumstances;
  • The FCA has increased the implementation period to six months to allow firms to amend their contracts, policies and processes.

The consultation paper also includes a revised cost analysis which includes additional information and data omitted from previous calculations. The consultation process runs for six weeks and the FCA anticipates publishing final rules in Q1 2018.


Investment firm fined for failing to disclose insider information

The FCA has fined an AIM investment company £70,000 for failing to disclose insider information to the market as part of its obligation under Article 17(1) of the Market Abuse Regulation (MAR).

The firm in question failed to notify the market about a share purchase agreement (SPA) relating to the compulsory purchase of its shareholding in a firm by another buyer. This amounted to insider information and the firm’s failure to disclose it in a timely manner mislead the market.

This is the first time the FCA has fined an AIM company for late disclosure since the introduction of MAR in July 2016.


FCA publishes newsletter on market conduct and transaction reporting issues

The FCA has published the latest edition of its Market Watch newsletter, highlighting the latest market conduct and transaction reporting issues. This issue includes:

  • A reminder that transaction reporting at block or allocation level must report its immediate counterparty or client, not looking either forwards or backwards;
  • Confirmation of the applicable legislation which will apply to transaction reporting, record keeping and clock synchronisation. This legislation replaces the existing MiFID 1, SUP 17 and the Transaction Reporting User Pack (TRUP) from 3rd January 2018;
  • An outline of the relevant forms available to Data Reporting Service Providers (DRSPs);
  • A reminder that firms are obliged to submit transaction reports no later than close of play the following working day (T+1). For trades dated 2nd January and submitted on the 3rd, firms must check that the ARM will submit the MiFID I transaction report to the regulator. If not, firms need to make alternative arrangements. This also applies to any amendments or cancellations made to MiFID I transaction reports between  3rd – 12th January.

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