FCA Business Plan 2015/16: Key messages for litigators and compliance officers
On 24 March 2015, the FCA published its Business Plan for 2015/16. The purpose of the Business Plan is to set out the key areas of focus for the FCA during the forthcoming financial year.
The Business Plan sets out a number of issues that may be of interest to litigators and compliance officers working in financial institutions. Set out below is a summary of these issues, as well as an indication of the possible litigation and regulatory risks that they pose.
The FCA has previously emphasised the importance of firms embedding positive cultural changes and "setting the right tone from the top". This topic featured prominently throughout the FCA's Business Plan which noted the various ways in which the FCA expects firms to reinforce standards of culture to their employees, including, for example: remuneration, hiring processes, performance management, promotions and whistleblowing.
On a positive note, the FCA acknowledged that firms have made improvements in relation to their cultures. Nonetheless, the FCA noted in the Business Plan that there is still more work to be done in this area, perhaps in part due to the number of enforcement cases published over the past year which have featured comments about firms' cultures and values.
The FCA has also announced that it is proposing to undertake a new thematic review on whether culture change programmes in retail and wholesale banks are driving the right behaviour, with a particular focus on remuneration, appraisals and promotion decisions, as well as how concerns are reported on. If the FCA identifies deficiencies in a firm's culture during this thematic review then it may use this as a basis for launching an enforcement action.
High on the FCA's agenda for the next financial year is the introduction of the new Senior Managers and Certification Regime, as well as the new Code of Conduct. This is due to come into force from 6 March 2016.
In addition, in the Business Plan the FCA notes the 49% increase in the number of whistleblowing disclosures that have been made to it over the past year, as well as the quality of the information it has received from whistleblowers. Unsurprisingly the FCA is keen to maximise whistleblowers as a potential source of information which may assist with its enforcement and market surveillance activities. To this end, the FCA is consulting on a range of new requirements relating to whistleblowing arrangements in financial institutions.
The way in which firms remunerate and incentivise their employees is also set to remain another key focus for the FCA for the next financial year and is closely linked to the FCA's continued focus on culture. We have observed the FCA (and the PRA) becoming increasingly interested and involved in firms' remuneration decisions, especially where individuals may be the subjects of or witnesses in ongoing enforcement investigations.
Conflicts of interest
The FCA has described conflicts of interest in its Business Plan for 2015/16 as being "at the root of many conduct risks across markets" particularly in wholesale markets. Conflicts of interest have also been a focus in a number of FCA enforcement cases that have been concluded over the past year. The FCA has highlighted a number of key areas where it believes that conflicts of interest may arise, including, for example, information asymmetries between firms and their clients, the agent/principal relationship and firms' management of large "back books". The FCA is also intending on conducting a variety of thematic reviews which relate to management of conflicts of interest during the next year.
The importance of firms having systems and controls in place to prevent financial crime was listed in the FCA's Business Plan for 2015/16 as a "new" forward-looking area of focus for the coming year. The FCA is proposing to focus on controls designed to prevent money laundering, bribery and corruption, as well as "cyber-crime".
The FCA has noted that some firms' approach to reducing the risk of financial crime in their organisations has been to move away from providing services to certain groups of customers or business sectors.
In recognition of its new competition powers that take effect on 1 April 2015, the FCA described this approach in the Business Plan as being potentially anti-competitive and a way in which legitimate customers may be impeded from accessing financial services. The FCA has indicated that it is concerned by firms' approaches in this area and that it intends to work with the PRA and the Financial Stability Board, as well as regulators in other countries, to take action to address its concerns.
As a result, firms will need to ensure that they have robust systems and controls to prevent financial crime that strike an appropriate balance between preventing financial crime whilst still satisfying the FCA's expectations that firms do not simply move away from providing services to certain higher risk categories of customers or businesses. This may be a challenging balance for firms to achieve in practice.
Increased focus on certain markets
In the 2015/16 Business Plan, the FCA states its intention to focus on specific markets, namely wholesale banking, investment and wealth management and retail banking and investments. The FCA intends to undertake more in-depth pieces of work in relation to these markets. Given that the FCA is intending to focus its resources on these markets, there is a risk that this will give rise to an increased appetite on the part of the FCA to take enforcement action in relation to them.
Potential changes to the FCA's enforcement processes
At the end of 2014, HM Treasury published its final report and recommendations relating to the FCA and PRA enforcement decision-making processes. We anticipate that the FCA and the PRA will consult on possible changes to their enforcement decision-making processes during the course of this year. In addition, the FCA is due to consult on proposed changes to its penalties calculation policy.