FCA

The FCA Fines RBS £5.6 Million for Serious Transaction Reporting Failings

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On July 24, the FCA published the final notice that it issued to The Royal Bank of Scotland plc and The Royal Bank of Scotland N.V. (together, RBS) on July 16.  Many of the problems at RBS detailed in the Notice arose as a result of significant system challenges posed by the takeover of ABN Amro Bank N.V. by The Royal Bank of Scotland plc.

RBS agreed to settle with the FCA at an early stage in their investigation and so qualified for a 30% reduction in the financial penalty imposed on them, from £8,029,100 to £5,620,300.  The FCA found that:

  • Between November 5, 2007 and February 1, 2013 (the Relevant Period), RBS failed to accurately report approximately 44.8 million transactions; and
  • Between November 5, 2007 and February 1, 2012, RBS failed entirely to report approximately 804,000 transactions that it executed.

This represents a failure in relation to 37% of transactions reportable by RBS during the Relevant Period.  The FCA regarded these failures by RBS to be particularly serious because (i) the FCA has provided significant guidance to firms on how to report and check those reports; and (ii) during the Relevant Period the FCA published a number of enforcement actions taken in relation to similar failings by other firms.  Final Notice.  Press Release.

FCA Fines J.P. Morgan Over £3.076M Over Systems and Control Failings

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On May 23, the new UK conduct regulator, the Financial Conduct Authority (FCA), fined J.P. Morgan for failings in its wealth management business that persisted for two years until 2012.  Specifically, the bank failed to retain and update information on client objectives and risk tolerance.

The investigation, which originally began under the FSA, found that there had been a serious risk of inappropriate investments being made on behalf of clients, as there had been no systems in place to monitor whether appropriate advice had been given.  However, the investigation was unable to find any actual detriment to clients.

The fine levied reflects a 30% discount for cooperation and early settlement by J.P. Morgan.  FCA Notice.

FCA Urges Firms to Update Status Disclosures to Reflect Creation of the FCA and PRA

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On May 1, the FCA published a press release stating that it expects firms to review their regulatory status disclosures as a priority and ensure that they are up to date and accurate following the creation of the FCA and PRA and the renaming of the public Financial Services register. The FCA has stated that it recognises that there are exceptional circumstances where it may not have been possible to make all the required disclosure updates immediately upon the relevant change. However, the FSA, except for where transitional provisions are available, requires firms to be able to demonstrate that they intend to make the necessary updates at the earliest opportunity.

FCA and PRA Publish Respective Approaches to Regulatory Failure

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On April 19, the FCA and PRA (who together have taken over the powers of the FSA) published their respective approaches to investigating and reporting on regulatory failure, as required under the Financial Services Act 2012 (FS Act).

Part 5 of the FS Act outlines the tests for determining when each regulator must carry out an investigation into possible regulatory failure and provide reports of its findings and recommendations to HM Treasury.  The tests are different for each regulator and will relate to their respective statutory objectives.  The FCA and PRA statements of policy satisfy the FS Act which requires each regulator to explain how it will meet its statutory requirement to investigate possible occurrences of regulatory failure and to produce a report.  PRA Approach.  FCA Approach.

FCA Publishes Occasional Papers on Behavioural Economics Exploring How People Make Financial Decisions

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In his first speech as CEO of the FCA, Martin Wheatley vowed to crack down on unsuitable financial products by using elements of behavioural economics to better understand investor decisions.

The FCA is interested in behavioural economics to help the regulator understand the mistakes consumers make, how firms respond to these mistakes, how this affects competition and what interventions the FCA might consider.  The FCA published a research paper on how it intends to implement behavioural economics in its work.

RBS to Face FCA Investigation into IT Failures

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The FCA announced that it will conduct a formal investigation into the IT malfunction at RBS last summer, which left 17 million of its customers unable to access their accounts for up to three weeks.  The investigation could result in enforcement action being taken against RBS.

Because of the public interest in the matter, the financial regulator took the unusual step of publicly announcing its investigation, as is allowed in “exceptional” circumstances in the FCA Handbook.

Consultation on Temporary Product Intervention Rules

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On December 3, the FSA published a consultation paper detailing proposals relating to the new Financial Conduct Authority’s (FCA) power to ban financial products without consultation in certain circumstances. Such temporary product intervention powers cannot last longer than 12 months, during which time the FCA may either consult on a permanent remedy or find an alternative resolution to the issue.  The policy statement will set out the FCA’s policy and is not intended to constitute new rules.  
The consultation sets out a number of circumstances where such powers may be invoked, including:

  •   where there is a risk of mis-selling, particularly in the case of complex and niche products;
  •   where the product itself is flawed; and
  •  where certain non-essential features of the product are seen to cause problems for consumers.

Comments are invited on the consultation until 4 February 2013.  It is intended that a final policy statement on the use of this new power will be in place by the ‘legal cutover’ date of 1 April 2013 on which the new regulatory regime is anticipated to come into force.

Wheatley Review Discussion Paper Outlines Initial Thoughts on LIBOR Reform

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On August 10, HM Treasury published a discussion paper outlining initial thinking on the review of the London Interbank Offered Rate (LIBOR) being undertaken by Martin Wheatley, Chief Executive-designate of the Financial Conduct Authority (FCA). Discussion Paper. 

The Discussion Paper states that the review of LIBOR will consider and consult on two options:

  • Strengthening LIBOR. The issues identified could be tackled through significant reform of the existing system. Preserving the LIBOR system would limit the costs of transferring existing contracts, whilst reforms could address failings in the system.
  • Finding an alternative to LIBOR. If the problems with LIBOR cannot be resolved, new benchmarks could be recommended to replace some or all of LIBOR’s role in financial markets.

Comments on the discussion paper are requested by September 7 with Mr. Wheatley aiming to present his findings and recommendations by the end of September. 

Q&As Published on FSA’s Transition to the FCA

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On July 31, the FSA published a set of questions and answers on the transition to the new Financial Conduct Authority (“FCA”). Q&As.

The Q&As confirmed that:

  • Firms will not need to reapply for authorisation under the new regime.
  • There were be a six month transition period following confirmation of the new disclosure wording concerning firms’ regulatory status.
  • There will be little change to existing financial crime oversight and the approach to allocating fees.
  • The FCA will retain the FSA’s online notifications and applications and online regulatory reporting systems.
  • The FSA plans to publish an FCA approach document in October.