FCA Regulatory Updates: February 2022
The Financial Conduct Authority have published a page setting out a brief summary of their expectations in respect of MLROs and heads of compliance. The page makes clear that as these roles are important both to the firm and the market and are required functions in many firms, those who hold these roles need to have the “necessary skills and knowledge, from training and experience, to be effective”.
The major expectations are clear and helpful for firms considering applicants for these positions, through an explanation of whether the FCA is likely to approve individuals in certain circumstances. In particular the FCA has stated that successful applicants will in most cases have completed relevant training prior to applying, and the regulator is less likely to approve those who intend to complete at a later date. Training should be kept up to date where possible with CPD courses. The FCA’s guidance makes clear that firms should ensure that applicants for these positions have completed relevant training to a high standard, and that training courses with an assessment are better in demonstrating that an individual has gained relevant knowledge.
In terms of experience, the FCA acknowledges that this can come in many forms, but in general applicants do not need to have held head of compliance and MLRO positions before to be successful and may have held more junior positions. Having held a similar position before is no guarantee that an applicant will be approved by the FCA. Successful applicants can come from a range of backgrounds, including law, accountancy, and consultancy. However, where an applicant has only previously worked in a front-line role and has no other training or experience, this is generally insufficient to demonstrate that they have the necessary skills and knowledge to establish and operate a compliance function.
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FCA Guidance for firms seeking to limit liabilities
A guidance consultation published in late January sets out the FCA’s intention to object to proposals in court, should firms seeking to limit their liabilities fail to provide the best possible outcome for customers. The issue has arisen in part from requests for a ‘letter of non-objection’ from the FCA for firm liability management proposals; the FCA confirm they are unlikely to ever issue a letter of non-objection.
The FCA expects to be informed as soon as a firm is considering a scheme of arrangement or any other liability management. The FCA confirm that they will ensure each firm meets regulatory obligations and following an assessment, any concerns will be communicated directly to the firm.
The ultimate aim for the regulator is that the number of proposed compromises that the FCA considers to be inappropriate are reduced. The consultation covers schemes of arrangement, restructuring plans (RPs) and voluntary arrangements (VAs). As part of their supervision, the FCA will consider the compromises proposed to assess whether they are compatible with the Principles, the FCA’s objectives and any relevant rules, to determine whether regulatory action or their participation in the court process is appropriate. Responses should be received by 1 March 2022.
Financial Promotions Rules Strengthened
As part of its Consumer Investments Strategy, the FCA has proposed rules that will mean that firms that approve and communicate financial marketing have relevant expertise and understanding of the investments being offered, and that risk warnings are to be improved, and incentives to invest are banned. Any potential customer of high-risk investments will need to be asked more “robust questions” about their knowledge and investment experience to be able to assess their awareness of the risks.
There will also be restrictions imposed on the marketing of cryptoassets, which will shortly be brought under the FCA’s remit. Once within remit, the FCA plans to categorise some cryptoassets as ‘Restricted Mass Market Investments’ which will limit potential consumers to those who are classed as restricted, high net worth or sophisticated investors. The consultation is open until 23 March 2022, with final rules expected in summer 2022.
International Data Transfer Agreement
The Information Commissioner’s Office has confirmed a new deadline of 21 March 2024 for UK businesses to update existing contracts relating to the transfer of personal data to firms outside of the UK. The deadlines come into force on 21 March 2022.
The Agreement (IDTA) and an addendum to the European Commission’s standard contractual clauses sets out how firms should handle data that is transferred from the UK, and how personal data should be safeguarded, with any transfer arrangements and processing in line with the UK General Data Protection Regulation. The addendum allows firms to add UK compliant clauses alongside EU Standard Contractual Clauses.
Financial Ombudsman Service News
The latest edition of Ombudsman News has been published. The Ombudsman has issued a reminder that there is still time to respond to its consultation on its strategic plans and budget.
The consultation shows that the FOS expects to receive 177,000 complaints during 2022/23 – a slight increase on the previous year. The FOS has conducted research into trends that are likely over the coming 12 months and highlight that the cessation of temporary support measures including furlough and mortgage payment holidays mean that more people will experience financial hardship which in turn will be exacerbated by inflation and energy prices. Increases in fraud and scams, supply chain problems, digital exclusion, and some friction in the digital payment system are also likely to lead to increases in complaints. The FOS also has an eye on the new consumer duty, which it predicts will lead to more complaints against firms.
The FOS has also confirmed that it intends to apply the same case fees to funeral plan providers and intermediaries as apply to other businesses that are subject to their compulsory jurisdiction or their voluntary jurisdiction.
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