FCA

HUD and Justice Department Sign Interagency Memorandum on Enforcement of False Claims Act

 

On October 28, the U.S. Department of Housing and Urban Development (HUD) and U.S. Department of Justice (DOJ) issued a Memorandum of Understanding (MOU) between the two agencies that provides prudential guidance on the appropriate use of the False Claims Act (FCA) for violations by Federal Housing Administration (FHA) lenders. The MOU aims to bring greater clarity to regulatory expectations within the FHA program and ease banks’ worries about facing future penalties for mortgage-lending errors. HUD expects that FHA requirements will be enforced primarily through HUD’s administrative proceedings, but the MOU specifically addresses how HUD and the DOJ will consult with each other regarding the use of the FCA in connection with defects on mortgage loans insured by the FHA. In addition to the MOU, the FHA is simplifying certain certifications that lenders make in connection with the FHA program to better track statutory requirements and address materiality and culpability considerations. HUD Release. DOJ Release.

FCA Updates Paper on Price Discrimination in Cash Savings Market

 

On May 14, the Financial Conduct Authority (FCA) updated its webpage on its July 2018 discussion paper on price discrimination in the cash savings market (DP18/6).

The FCA states that it is considering the responses to the discussion paper in the context of its broader work on assessing the role and impact of Open Finance and the role of a duty of care in its future approach to regulation, as outlined in its 2019/20 business plan.

In DP18/6, the FCA set out a range of options to address issues faced by longstanding customers in the easy-access cash savings market and stated that it would publish a feedback statement in early 2019. It now intends to publish a consultation paper or feedback statement in the second half of 2019, which will outline the feedback received to the discussion paper and its next steps.

FCA Publishes Findings of Its Multi-Firm Review into MiFID II Costs and Charges Disclosures

 

The FCA has published a new webpage setting out the key findings of its multi-firm supervisory review of MiFID II costs and charges disclosure.

The review examined disclosures on firms’ websites and their communications to retail clients. The review involved a sample of 50 firms, identified from a number of MiFID investment firms operating in the retail investments sector, whose costs and charges disclosures did not appear to fully comply with the disclosure requirements introduced under the MiFID II Directive (2014/65/EU).

The review’s findings suggest that whilst improving over 2018, overall, the industry has been slow to comply with the updated costs and disclosure requirements.

The webpage includes sections on:

  • Information on the interaction between the costs and charges disclosure requirements in the MiFID II Directive, the PRIIPs Regulation ((EU) 1286/2014) and the UCITS Directive (2009/65/EC).
  • Areas of improvement, detailing examples of practices the FCA expects firms to address.
  • Examples of good practice, detailing examples of compliance that go beyond the requirements for transparency of costs and charges.
  • Suggested next steps for firms to take.

UK and US Authorities Release Statement on Post-Brexit Continuity of Derivatives Trading and Clearing

 

On February 25, the Bank of England (BoE), the Financial Conduct Authority (FCA) and the US Commodity Futures Trading Commission (CFTC) published a joint statement detailing the measures that will be taken to ensure the continuity of UK-US derivatives trading and clearing activities after Brexit.

The measures address:

UK equivalence for the US: UK authorities have confirmed that US trading venues, firms and central counterparties (CCPs) will be able to continue providing services in the UK. The basis on which these trading venues, firms and CCPs currently provide services in the EU and to EU firms is as a result of various decisions taken by the European Commission in declaring the CFTC regulatory framework equivalent.

Continued supervisory co-operation: The FCA and CFTC will update their memorandums of understanding (MoUs) covering certain firms in the derivatives and the alternative investment fund industry. The BoE and CFTC will update their MoU covering clearing activity, in connection with the UK’s forthcoming recognition of CFTC-registered CCPs.

Extension of existing CFTC relief and comparability for the UK: The CFTC intends that existing regulatory relief granted by the CFTC to EU firms, including UK firms, will be extended to UK firms when the UK leaves the EU.

FCA and Changes to Rules of Pension Transfer Advice

In June 2017, the Financial Conduct Authority (“FCA“) proposed to make changes to the rules on advice relating to transfers from defined benefit schemes to defined contribution schemes along with a consultation paper with further suggested changes. On October 4, the results of this consultation and the final rules were published.

Further changes it had initially suggested were that advisers were to have the same qualifications as investment advisers and a potential ban on charging on a contingent basis. This change, where advisers are only paid where the client acts on the advice, was suggested out of fear its continued use would result in ‘potential harm to consumers’.

Although the final policy published last week did take forward most of the proposals from the consultation, banning contingent charging was not one of them. Responses to this suggestion were ‘polarised’ and concerns surrounded the impact this would have on the availability of advice in the future.

The initial suggestion was in response to a number of instances of poor advice which seemed to correlate with instances of contingent pricing. The evidence however is that ‘contingent charging is a complex area’ and that it ‘does not show that contingent charging is the main driver of poor outcomes’.

The FCA’s Executive Director of Strategy and Competition expects the interventions to ‘improve the quality of advice which will help reduce the number of complaints against advisory firms’.

FCA Releases Statement on Speculative Investments

 

Following the publication of product intervention measures by ESMA in relation to contracts for difference (“CFDs“) earlier this year, the Financial Conduct Authority (“FCA“) has provided a statement in relation to high risk investments and retail clients.

The FCA noted in its statement that it would work with European regulators (including ESMA) to observe the alternative speculative product market, in particular where retail clients are involved, in order to ensure ESMA’s measures are not being avoided by replacing CFDs with other similar products.

The FCA stated that firms “should pay particular attention to the leverage made available to retail clients and consider whether the product is offered on terms that act in the best interests of the client”.

The full statement is available here.

New FCA Web Page on Cyber Resilience

 

On May 18, 2017, the FCA published a new Web page on cyber resilience.

The FCA notes that cyber risks pose a threat to all financial services firms. Firms should be aware of the threat, able to defend themselves effectively, and respond proportionately to cyber events.

The FCA’s goal is to help firms become more resilient to cyberattacks while ensuring that consumers are protected and market integrity is upheld. To achieve this, firms of all sizes should:

  • Develop a “security culture” from the board down to every employee.
  • Be able to identify, prioritize and protect their information assets (that is, hardware, software and people).
  • Detect breaches.
  • Respond to and recover from incidents.
  • Constantly evolve to meet new threats.

Under Principle 11 of the FCA’s Principles for Businesses, firms must report material cyber incidents. A firm may consider an incident to be material if it:

  • Results in significant loss of data or the availability or control of the firm’s IT systems.
  • Impacts a large number of victims.
  • Results in unauthorized access to, or malicious software present on, the firm’s information and communication systems.

These requirements will be updated in line with any future regulations.

Where a firm considers an incident to be material for Principle 11 purposes, it should report this to the FCA and other relevant authorities, including the PRA if the firm is dual-regulated, and to the Information Commissioner’s Office (ICO) if the incident is a data breach.

The FCA states that cybersecurity is a shared responsibility. It takes a cooperative approach to address the threat, working with government and other regulators, nationally and internationally. The Web page contains a link to the National Cyber Security Centre (NCSC) website, together with links to relevant FCA publications.

Agencies Finalize Rule Exempting Certain Commercial and Financial End Users from Initial and Variation Margin Requirements

On August 1, 2016, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency and the Farm Credit Administration announced a final rule that contains certain exemptions for “certain commercial and financial end users from margin requirements for certain swaps not cleared through a clearinghouse.”  The rule implemented without any changes the interim final rule from November 2015. Press Release. Press Release. Press Release. Press Release.

FCA Issues Consultation Paper on Proposed Changes to the Senior Managers and Certification Regime

The FCA has launched a consultation paper setting out a number of technical rule changes to the Senior Managers and Certification Regime (SM&CR). The changes are being made as a result of HM Treasury’s announcement in October 2015 that it would be amending the current SM&CR legislation as it applies to the banking sector. This included the repeal of section 64B(5) of the Financial Services and Markets Act 2000 (FSMA), which required firms to report to the FCA known and suspected breaches of the FCA Rules of Conduct, before the SM&CR regime enters into force on 7 March 2016.

The FCA proposes to remove references to notifications of known and suspected rule breaches in the associated forms, thereby streamlining reporting requirements so that the forms only require firms to inform the FCA of disciplinary action taken against staff as a result of a breach of one or more Rules of Conduct. The pre-existing obligation to report material breaches will, however, remain in place.

The Consultation Paper sets out how the FCA intends to implement the consequential changes to rules and forms that will be required prior to commencement of the regime, as well as examining the likely impact the changes will have on the industry and on consumers.