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The Financial Conduct Authority (FCA) – an update

 

15 July 2013

Contributed by Calum Burnett and Sarah Hitchins

On 1 April 2013, the UK’s Financial Services Authority (the FSA) was split into three separate entities: the FCA, the Prudential Regulation Authority and the Financial Policy Committee. During the first three months of its existence, the FCA has been keen to emphasise its status as a new regulator. In a speech given on 18 June 2013, Tracy McDermott (Director of Enforcement and Financial Crime at the FCA) set out the FCA’s approach to date and what its focus will be going forward:

–– Market abuse and insider trading: The FCA intends to continue the work undertaken by its predecessor, the FSA, in relation to taking enforcement action against firms and individuals for market abuse and bringing criminal prosecutions against those suspected of insider trading.

–– Controls relating to financial crime: In line with the FSA’s agenda to focus on root causes of regulatory issues, the FCA will continue to pay attention to and, where appropriate, take enforcement action in respect of firms’ controls relating to financial crime.

–– Lessons learnt from LIBOR: In her speech, Tracy McDermott identified key themes that have arisen as a result of the work of the FSA and the FCA in relation to LIBOR: managing conflicts of interest, culture, good governance procedures and risk assessment and monitoring. She noted that these themes constitute “wider messages” that all firms should be considering.

–– Senior management: The FCA’s focus on the importance of culture and good governance is likely to mean that the role and performance of senior management will remain a key priority for the FCA.

–– Retail consumer issues: In addition to continuing its focus on retail consumer issues such as complaints handling and mis-selling, the FCA intends to take a thematic approach, and focus its supervisory and enforcement powers on specific types of products which are sold and promoted by firms. There have also been clear indications by the FCA that it intends to look more closely at product design, as well as the sales process, and that it will also act against wholesale market conduct, which ultimately adversely affects retail consumers.

–– Protection of client money and assets: Firms’ arrangements in relation to client money and client assets, already an area of significant focus, is an area that is likely to face even greater regulatory scrutiny in the future. Although the concept of “credible deterrence” was conceived by the FSA, it is clear that the FCA intends to continue to adopt and enhance this approach going forward. As a result, it is likely that we will not only see the FCA’s enforcement agenda build momentum but that we will also see the FCA’s Enforcement Division intervene in supervisory matters at a much earlier stage.

 

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