FCA Tightens Grip On Principal Firms, SEC & FCA Crackdown On WhatsApp, £4m Fine For Failing To Implement MAR & More | Latest Financial News Roundup
1st March 2023 by Brielle Hewitt
It’s cold, it’s wet, it’s getting near the end of the year, and you’ve got Christmas shopping to think about as well as everything you need to wrap up before 2022 comes to an end… in short, we know you’re busy, so here’s our round-up of everything that’s been happening in recent times in the regulatory world of the financial industry, along with our (opinionated) views.
Enjoy!
1. FCA Issues Section 165 Request For Principal Firms
Between the 8 and 12 December 2022, the FCA issued a mandatory Section 165 data request to all Principal Firms about their Appointed Representatives (ARs). Principal Firms have until 28 February 2023 to respond.
The FCA is asking all Principal Firms to provide the following information about their ARs and introducer ARs (IARs):
- The reasons for any appointments
- The nature of their regulated business
- Whether any unregulated business is conducted and, if so, the nature of this business
- Anticipated revenue
- The nature of financial arrangements between you, as the principal, and your AR(s)
- Complaints information and whether the AR is part of a group
According to the FCA, “the data you submit through this request will inform our supervisory work on principals and ARs across sectors and portfolios.”
If Principal Firms don’t respond to this Section 165 data request, “you won’t comply with our rules and we could take further action. This could include enforcement action against your firm for non-co-operation.”
Fingerprint’s Take
It’s happening! In August 2022, the FCA confirmed that it will enforce new rules for Principals to improve oversight over their Appointed Representatives, and now they’re gathering the data to make sure that all Principals abide by these new rules, or else…
We released an article around these new FCA rules and what this means operationally for Principals moving forwards. Our advice for Principals and Regulatory Hosts? Review your systems and controls properly, and ensure you follow these new FCA rules, because the regulator will be sure to make examples out of those who don’t listen and fail to comply with this data request.
If you need any help understanding the implications around systems and controls with these new rules and what this means for supervising your AR network, then get in touch and we’d be happy to help.
2. Where the United States Goes, the FCA Will Inevitably Follow: Regulatory Action Against the Use of Personal Mobile Devices
Earlier this year in the US, the SEC and CFTC handed out fines of nearly US $2 billion to a few Wall Street giants for failing to maintain and preserve electronic communications. Employees of these firms communicated via WhatsApp and other instant messaging services which was in breach of company policy. These Wall Street firms could not provide copies of these off-channel communications to investigators, which went against SEC policy for accurate recordkeeping.
The influence of actions from the SEC here in the UK have been clear. The FCA are now “actively discussing personal device use with a range of UK authorized firms, not limited to those who may have been subjected to other regulatory enquiries.” The discussions involve many of the same Wall Street giants who were subject to the scrutiny of the SEC and handed the collective US $2 billion fines. The comments by the FCA have sent a clear warning to all firms that they will increase their scrutiny, and requests for communication records covering all channels may become more common.
Fingerprint’s Take
On both sides of the pond, the regulators are taking note of this new working environment we find ourselves in post-COVID. Both the SEC and FCA understand that employees use a range of communication channels at work now, both internally and externally, and that WhatsApp is a common messaging app to use between staff and clients.
We suspect that both regulators are eager to make examples out of firms both big and small to send a message across the industry: Ensure that you have all of your communication channels monitored in line with our policies, or we will find you.
Technology is the answer to monitoring all of your communication channels in line with regulations effectively. Our advice to firms is to invest in the right systems and review your controls NOW, so that you never face the ire of the regulators. And if not? Well, we’ll see what 2023 brings…
3. FCA fines three broker firms £4,775,200 for failures relating to the detection of market abuse
The FCA has fined BGC Brokers LP, GFI Brokers Limited and GFI Securities Limited (together, BGC/GFI) £4,775,200 for failing to have appropriate systems and controls in place to detect market abuse.
BGC/GFI failed to properly implement the Market Abuse Regulation (MAR) trade surveillance requirements, which meant that there was an increased risk that suspicious trading would go undetected. Between July 2016 and January 2018, BGC/GFI’s surveillance processes were deficient and inadequate, and their systems for monitoring market abuse didn’t have proper coverage of all asset classes which are subject to MAR.
Mark Steward, Executive Director of Enforcement and Market oversight, said:
“Oversight of our markets is a regulated partnership between the FCA and market participants and so gaps or holes in a firm’s ability to monitor and detect abusive trading poses direct risks to market integrity. This case is another example of the FCA’s determination to ensure firms prioritise market integrity and the maintenance of high standards of compliance.”
Fingerprint’s Take
The FCA requires communications supervision as a part of MAR, and a key part of their decision against BGC/GFI was the firm’s lack of communications supervision as they highlight in their Final Notice:
“… given that 80% of the business of BGC/GFI was conducted through voice brokerage, communications surveillance was a key control that BGC/GFI should have used to appropriately monitor for market abuse risks. However the communications surveillance undertaken by BGC/GFI had a limited, sample-focused design that was not sufficient to provide adequate monitoring. Furthermore, at BGC, such monitoring did not take place throughout the Relevant Period.”
So firms – be wise about your own processes and procedures in place for communications supervision! A ‘sample-focused’ design was not an adequate control put in place by BGC/GFI to monitor all activity, and the FCA caught on quick. We’ve said it before, we’ll say it again: invest in the right technology to monitor your communications, paired with the right policies, and the FCA will be happy. But cut corners and turn a blind eye, and we might be writing about you in our next news roundup…
4. Fingerprint Lands On The RegTech100 2023 List
Bit of a cheeky one… but we’ve just been selected for the RegTech100 2023 list and we couldn’t resist putting it on here!
Entering its sixth year, the RegTech100 is an annual list that includes 100 of the world’s most innovative RegTech companies. This year’s process to select the 100 most innovative companies has been one of the most competitive yet, with analysts and industry experts having to review a longlist of nearly 1,300 businesses to cut down to 100.
And Fingerprint has made the cut! We’re extremely proud to be considered one of the top 100 RegTech companies in the world with “solutions that every leader in the financial services needs to know about in 2023.”
The RegTech100 list “aims to help senior management and compliance professionals evaluate which solutions have market potential and are most likely to succeed and have a lasting impact on the industry”. Our recognition on the list only speaks to the strength of the FP Supervision platform and our role as a company in shaping the future of compliance, risk management and financial crime prevention.
So if you’re a regulated business looking for a unified solution to monitor your communications compliantly, then who better to chat to than one of the top 100 RegTech businesses in the world? Get in touch and we’d love to help!
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So there you have it! We hope you enjoyed our latest financial industry regulatory news roundup.
As always, keep an eye on our blog for more industry updates and opinion pieces. And on behalf of the whole Fingerprint team, we’d like to wish you a very Happy Holidays and a great end to 2022!
