FCA’s 2020/2021 Annual Report Round-up | Fingerprint

23rd July 2021 by Brielle Hewitt

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Tough times make strong people, as the saying goes, and between Brexit and the pandemic times have been very tough. However, as we start to settle into a new normal, you can expect to see those who have adapted to the tough times looking stronger and more resilient than ever.

That was our main takeaway as we read the FCA’s latest annual report, in which it signalled an increased appetite to go after financial crime and once again warned firms to get their internal systems up to scratch.

Anyone who has been following the regulator’s releases since the start of the pandemic will know it has been calling on firms to make sure their surveillance systems have been calibrated to take account of the changing risks. Indeed, in May of last year the FCA called on firms to “modify their surveillance systems to ensure they remain adequately and appropriately calibrated” and “ensure their approach is tailored to the risks they are exposed to”.

This latest report, however, provides the clearest signal yet that the regulator has learned from the difficulties of recent times and is now prepared to pursue misconduct in the market with increased vigour and improved systems.

The notable passage for us comes on page 50 of the report, where the regulator outlines its goal of upholding clean markets that makes abuse difficult. It notes that it has been engaging with firms on how they run their own surveillance systems, as well as developing its own alerts, ensuring that it “could more effectively detect potential market abuse”.

This brings to mind something James Ritchie said in our piece on the hidden costs of non-compliance in which he warned of the dangers of getting into an ‘unhedged risk position’, where the FCA enforcement team contacts a firm after identifying potential misconduct that the firm itself has missed.

Ignorance is no defence in such situations, and having inadequate systems simply leaves firms at risk of looking both negligent and non-compliant.

What’s more, the FCA seems to have an increased willingness to crack down on potential misconduct. It increased the number of consumer alerts issued by 80% in 2020/21 compared with the previous year and mentions a willingness to take ‘proactive enforcement action’ where necessary in its drive for clean markets.

It’s not hard to see why. The regulator cites a ‘significant increase’ in the number of firms and individuals who appeared to be carrying out regulated business without authorisation, and its market cleanliness statistics show a clear increase in potential insider dealing – 21.9% of takeover events in 2020, from 17.5% in 2019 and around 10% in 2018. Abnormal trading volume was also up at 8% compared with 6.4% in previous years. Neither of these is concrete proof of misconduct, but they are certainly enough to draw the regulator’s attention.

The huge expansion in the number of communications channels brought about by remote working has also increased risk, but as we saw in the City of London Regtech Report, many still feel that adoption levels for the technology that can help firms navigate these challenges remain too low.

Of course, a lack of adoption might signal a lack of knowledge about the regulatory requirement to put monitoring systems in place. Worse, it might point to a cynical belief that the FCA is too occupied with other things to pursue enforcement, hence the lower levels of fines in recent years. However, it would be foolish to ignore the regulator’s increased capabilities for detecting abuse, not to mention the drastic increase in the number of consumer alerts.

Firms cannot afford to sit on their hands. The initial shock of the pandemic has passed, and Brexit is no longer the great unknown it once was. Those that fail to get their house in order now will only have themselves to blame.

Luckily, technology makes it easier than ever to meet your obligations in a cheap, effective, and privacy-sensitive way. Fingerprint’s exception-driven solution can not only drastically reduce your compliance team’s workload but provides full visibility on who has investigated particular communications making your process respectful of PII legislation and can even be used to create training assets for your staff. If you would like to know more about how we can help, please contact Sean Morgan: sean@fingerprint-supervision.com or call +44 (0)203 011 4152

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