June 2022 Newsletter
Regulator Watch
Ben Mason, CEO, My Compliance Centre
We like to keep an eye on our primary regulators and what they are up to and, of course, My Compliance Centre’s automated data feed and Regulatory Change Management (RCM) module make this easy to do.
In summary, regulator activity, if measured purely by the volume of documents released, has reduced from the equivalent period last year but is 10% higher than Q1 2022. This is across the eight regulators we track and for the documents in our scope. The FCA remains the highest producer (74 documents), with ESMA 2nd and the PRA has doubled its output to 20 documents in the quarter compared to Q1.
Several themes continue to stand out
Most obviously, the FCA. There is a clear trend towards a reduction in Consultations and an increase in Guidance. So far this year we have seen just nine consultations of which only a couple might be called “real consultations”, i.e. proposals for genuine changes to policy and rules. By way of comparison, in 2015 the number was 49 for the full year (i.e. >2.5 times the rate). However, we have seen a significant increase in Guidance; 20 this quarter if you include Consumer Guidance. In 2015 there was just four in the same period.
What does that all mean?
I think it is clear: the FCA knows what it thinks, and broadly it thinks that the existing rules need applying more robustly rather than needing to consult on new rules. This is alongside its ongoing rhetoric on Consumer Protection and the numerous measures it is taking along those lines.
The FCA has been working against phoenixing for many years and this has recently been expanded to Claims Management firms, one the most recent industries to be brought into mainstream financial services regulation. For much of the industry, Claims Management will seem a long way away from mainstream financial services, but, as an industry, I suspect the 500+ regulated Claims Management firms have now been regulated long enough to work out what they have got themselves into!
I am always supportive of the regulators’ attempts to simplify compliance. So, the PRA’s attempts to simplify prudential requirements for the firms it supervises is admirable – it’s “strong and simple framework”. I just get the feeling that the process they have to go through to implement a new supervisory framework might mean it takes some time to achieve. Furthermore, it may only end up applying to a few firms once the complexity criteria are applied. This at a time when, conversely, the investment sector is experiencing much more complexity of prudential regulation under the new IFPR.
The mysterious case of crypto regulation, or lack of it, continues to grab the headlines. Despite the UK not having a proper crypto regulatory framework, the FCA continues to warn consumers about the dangers of crypto and has approved just six more firms this entire year. These are registered (not authorised) under the AML regulations. For those not in the know, the authorities are using AML regulation as a blunt tool to curb the activities of crypto firms despite a proper regulatory framework for crypto looking like an absolute necessity. (If it looks like a security and people trade it like a security… maybe simply regulate it like a security?) The UK’s position looks increasingly untenable given that the EBA and ESMA appear to be close to finalising their MiCA regulations.
And now for the juicy bit…
While the FCA has fined several firms in the last quarter, two significant fines in relation to financial crime control failings have come through in recent days. These are very strong markers being put down by the FCA. I would suggest that all MLROs (and Chairs of Risk Committees and Compliance Consultants) in the UK read every single word of the FCA’s Decision Notice regarding AML failings at Ghana International Bank. The FCA, very helpfully, goes through the failings in the bank’s documentation, in detail, in a 69-page notice document. This is extremely useful for anyone else involved in high-risk payments and banking services, AML control frameworks generally, and might possibly help others avoid the small matter of a £8.3m fine! (Reduced to £5.8m for early settlement).
Similarly, JLT’s fine of £11.2m (reduced to £7.8m) for ABC breaches is a salutary lesson for anyone conducting overseas business in high-risk jurisdictions. That looks particularly painful on top of action already taken by the US authorities.
Other enforcement action in the quarter included a fine for a guarantor lender despite being in administration and patently unable to pay it, a refusal to a compliance consultant’s application for authorisation and a number of censures in the pensions sector. The biggest fine (£13m reduced to £9.1m) for GAM was just the most recent of many for mismanagement of conflicts in the asset management industry.
Away from MiCA, nothing from the European regulators caught my eye this quarter. The diet from Europe has been the usual and expected supply of guidance on various aspects of financial crime, existing rules and the Ukrainian war.