Good FCA News Comes In Threes? What The Latest Headlines Mean For Your Regulated Firm
27th March 2024 by Samuel Rossiter
We’re still in Q1 of 2024 and the FCA have started this year off strong.
Have you been keeping up with the latest news from the regulator?
If not, that’s exactly why we’re here… we’re highlighting three recent pieces of news from the FCA and what this means for you and your firm.
Let’s dive in…
- FCA Plans To Name Firms Under Investigation (27 Feb) – Affects All Regulated Firms
- ‘Dear CEO’ Letter To Annex 1 Firms (5 March) – Affects All Annex 1 Firms With Lessons To Be Learned For All Regulated Firms
- FCA Unveil Business Plan For 2024/25 & Confirms Focus On Appointed Representative Regime (19 March) – Regulatory Hosts & Principal Firms, This One Is For You!
The FCA Plans To Name Firms Under Investigation – 27 Feb
In late February this year, the FCA announced plans to name firms under investigation at an earlier stage “to increase transparency about its enforcement work and to deter wrongdoing.”
These plans include publicly announcing investigations as well as naming the company under investigation and publishing updates.
Historically, the FCA have published very little about its investigations unless they result in penalties, such as fines or criminal charges. But examples of these penalties have been rare. In fact, in 2023, the FCA issued only eight fines in the entire year, which was the lowest number of fines handed out since the regulator was created a decade ago.
Currently, about 65% of the FCA’s investigations close without action according to Steve Smart, co-head of enforcement at the regulator.
“More transparency around our enforcement work at an earlier stage is going to enable firms to start putting their houses in order where they need to at an earlier date than they’re currently able,” Therese Chambers, joint executive director of enforcement and market oversight, told the Financial Times.
Fingerprint’s Take
We at Fingerprint welcome this news with open arms!
In fact, we may have even swayed the regulator to action…
Not to claim credit for it all (but perhaps we are?), but in our first episode of The Compliance Catch-Up which streamed in October 2023, our Founder & CEO James Hogbin talked to Clare Curtis about the difficulties the industry faced when the FCA wouldn’t publish public information around ongoing investigations. This made it hard to understand what areas (such as Diversity & Inclusion, misconduct, etc.) the regulator wanted firms to focus on and improve.
We hope this news of naming firms under investigation leads to an era of greater transparency and accountability for the regulator, and serves as a strong deterrent for financial misconduct and crime.
It also sends a strong message to regulated firms – running compliant operations should always be the number one priority, and firms who believe they can maintain non-compliant operations and ‘get away with it’ will be named and shamed to the wider market.
‘Dear CEO’ Letter To Annex 1 Firms – 5 March
The FCA’s ‘Dear CEO’ letter was addressed to Annex 1 firms around their money laundering controls (or lack of).
Annex 1 firms include some lenders, safe custody providers, money brokers and financial leasing companies, who must be supervised by the FCA for their compliance with money laundering regulations, but who are not directly authorised by the FCA.
The FCA highlighted four common areas of weaknesses in their letter:
- Business Model – discrepancies between a firms’ registered business model and their actual activities
- Risk Assessment – weaknesses in Business Wide Risk Assessments and Customer Risk Assessments
- Due Diligence, Ongoing Monitoring & Policies and Procedures – lack of detail in policies creating ambiguity around actions staff should take
- Governance, Management Information and Training – lack of resources available for tackling Financial Crime, including training
The regulator sets a clear timeline in the letter – 6 months for Annex 1 firms to start improving their AML controls:
“We expect you to complete a gap analysis against each of the common weaknesses we have outlined within six months of receipt of this letter. You should take prompt and reasonable steps to close any gaps identified.”
“In future engagements with your firm we are likely to ask you to provide us with the findings from the gap analysis, evidence of the actions you have taken to address the gaps identifies, and the progress of any remedial work and testing to show that the policies, controls and procedures are effective and working as intended.”
Fingerprint’s Take
The FCA has set a six-month timeline, but what they really want is immediate action. The regulator expects Annex 1 firms to conduct a gap analysis against their common weaknesses and start to address them now, so that in six months the FCA will be able to see the actions taken to close those gaps.
We recommend:
- Reviewing your financial crime controls
- Reviewing your compliance policies and procedures – are they detailed enough? Do they clearly outline what money laundering behaviours you’re looking for and how you are looking for them?
- Ensuring enough resources and budget are allocated to your compliance department and their financial crime controls – a compliance shoestring budget just won’t cut it these days, unfortunately
- Reviewing whether your financial crime controls are scaling as your business grows – do you need to invest in RegTech to assist with this?
- Consulting with a Compliance Consultant if needed
If you work for a regulated firm, these are also great steps to follow when you are conducting a risk assessment across your firm’s activities, which should be done regularly.
You’ll want to think about your communications compliance and whether you are satisfying the FCA’s SYSC 10A requirements as part of your gap analysis. Taking a proactive approach to monitoring your communications is also an effective way of mitigating financial crime and money laundering risks. You can:
- Identify suspicious activity that indicates money laundering
- Monitor customer interactions to identify behaviour or activities that may signal money laundering
- Conduct enhanced communications due diligence on high-risk customers, people or interactions
- Investigate and report on suspicious activity in the event that financial crime is detected, and use communications-based evidence alongside trade reconstruction to report this to the FCA
If you’re interested in seeing how RegTech can help you achieve and evidence communications compliance, then why not spend a quick 30 mins chatting to us?
FCA Unveil Business Plan For 2024/25 & Confirms Focus On Appointed Representative Regime – 19 March
The FCA recently published their Business Plan which details the work the regulator will be doing over the next 12 months to help deliver the commitments in their Strategy.
The regulator highlights 13 public commitments which they will continue to deliver over the upcoming year, which include:
- Reducing and preventing financial crime
- Putting consumers’ needs first
- Strengthening the UK’s position in global wholesale markets
- Preparing financial services for the future
- Dealing with problem firms
- Taking assertive action on market abuse
- Reducing harm from firm failure
- Environmental, social and governance (ESG) priorities
- Shaping digital markets to achieve good outcomes
- Improving redress framework
- Enabling consumers to help themselves
- Minimising the impact of operational disruptions
- Improving oversight of Appointed Representatives
We recommend reading the Business Plan in full which includes a breakdown of how the regulator plans to tackle each area within their 13 public commitments.
We wanted to highlight the FCA’s commitment to improving the Appointed Representative regime, which they include as one of their public commitments this year. The FCA will continue to do work on ensuring that all Principals have improved oversight across their AR network, and will:
- Continue to target our resources through deeper analysis of existing data and using significantly improved data, including from updated Gateway forms, new regulatory returns and a dataset covering all ARs.
- Continue to strengthen our scrutiny and engagement with principal firms as they appoint ARs.
- Continue our assertive supervision of high-risk principals, through our regulatory tools and appropriate enforcement action.
Fingerprint’s Take
We’ve mentioned this in the past, but the FCA is watching all Principal Firms and Regulatory Hosts that work within the Appointed Representative regime very closely.
Another mention of the Appointed Representative regime within their Business Plan for 2024/25 only re-affirms their focus on this area of the industry, and towards ensuring that all Principals and Regulatory Hosts have improved oversight of their AR network.
You can read our article to learn what the regulator’s latest expectations are for Principal Firms & Regulatory Hosts based on their Appointed Representative publication released in late 2023.
We also hosted a Deep Dive Into The AR Regime webinar where we talked about the FCA’s publication with several industry figures and what this means for Principal Firms.
The bottom line? The FCA are not going away. If you work for a Principal or Regulatory Host, then the regulator is looking for evidence that you have systems and controls implemented across your AR network that allow you to oversee their activities.
If you need help demonstrating communications oversight across your AR network, then our RegTech platform – Fingerprint Supervision Oversight – is a fantastic choice. Specifically designed for multi-business monitoring, our solution includes compliance workflows and reporting tools to easily evidence monitoring work to the FCA. Chat to us if we could help your business!
That’s the latest FCA news for now!
We hope you enjoyed our latest regulatory roundup.
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