Greg Kilminster
Head of Product - Content
Three charged with fraud in high-risk trading scheme targeting pension savings
The Financial Conduct Authority (FCA) has charged three individuals for their alleged involvement in a fraudulent trading scheme aimed at people's pension savings. Kristofer McGuire, Keith Williamson, and Karla Walker face multiple charges, including fraud by false representation and fraudulent trading, for enticing victims to invest in contracts for difference (CFDs), a high-risk investment product.
CFDs allow investors to speculate on the price movements of assets, but they are known for their high risk. The defendants allegedly convinced victims to use their pensions to invest in CFDs, promising lucrative returns. However, instead of generating profits, the scheme allegedly resulted in significant losses, with victims' pension funds nearly depleted.
The FCA alleges that McGuire, Williamson, and Walker made false statements to trading platforms, claiming their clients were professional investors, when they were not. Williamson and McGuire are further accused of engaging in fraudulent trading strategies to generate excessive commissions at the expense of investors.
The total known loss to victims exceeds £8 million. McGuire also faces additional charges related to making false representations to individual investors to persuade them to invest through him and his firm, K&K Consult Ltd.
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ECB supervision newsletter looks at internal audit
The European Central Bank (ECB) has published its latest Supervision Newsletter which includes an article on the internal audit function of banks.
The article lists examples of good practice in the internal audit function which are summarised below:
- Governance: Regular one-to-one meetings should be held between the audit committee chair and the head of internal audit, with outcomes reported to management. The audit committee should appraise and provide input on the remuneration of the internal audit head. Internal charters shoudl define reporting frequency and content.
- Audit cycle and plan: The audit plan should include provisions for additional resources for unexpected reviews and follow up on supervisory authority findings.
- Stature and follow-up: Audit reports should detail findings and recommendations, with clear deadlines and responsible areas. Delays and high-risk findings should be reported to the audit committee. Extension approvals should be limited, and disagreements should favour internal audit assessments but the disagreement noted in the report.
The article also discusses various aspects of the governance and effectiveness of internal audit functions within banks. It notes the importance of independence and reporting, and that internal audit functions should be independent from audited activities and report to the board or audit committee. ECB reviews over the last few years have established that most banks have appropriate reporting lines, but some lack sufficient oversight from the management body and audit committee.
Additionally, the article highlights the need for comprehensive coverage in internal audit plans, including all bank activities and entities. However, some plans fall short in addressing emerging risks such as climate and environmental factors, and in following up on supervisory findings.
Resource and skill challenges are also noted, with many banks facing staffing shortages and expertise gaps, particularly in areas like IT and cybersecurity. Staffing levels and rotation processes are identified as areas needing improvement.
The article also mentions the importance of an effective internal audit function in providing independent assurance of the bank's internal control environment. While most functions are well-established, issues exist with the comprehensiveness of audit reports, severity ratings of findings, and follow-up processes for recommendations.
Specific recommendations have been issued to address these shortcomings, with ongoing assessments and dialogue by ECB Banking Supervision. A forthcoming guide on governance and risk culture aims to further clarify supervisory expectations in this area.
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ASIC issues guidance on unsolicited financial advice contact
The Australian Securities and Investments Commission (ASIC) has released a new Information Sheet 282 on unsolicited contact leading to financial advice (INFO 282). This information sheet explains how financial services laws apply to unlicensed entities that refer consumers to a third party for financial advice. INFO 282 is also important for Australian financial services (AFS) licensees and financial advisers who receive consumer details through unsolicited or digital contact. The information sheet also contains three example scenarios: Assisting consumers to acquire or dispose of financial products and Influencing consumer behaviour in relation to financial products, but not assisting them to acquire or dispose of financial products and Influencing consumer behaviour in relation to financial products and assisting them to acquire or dispose of financial products.
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PRA issues Dear CEO letter on non-systemic firms’ recovery planning thematic review
The Prudential Regulation Authority (PRA) has issued a Dear CEO letter regarding the findings of the PRA non-systemic firms’ recovery planning thematic review. Over the past eighteen months, the PRA has evaluated the recovery planning capabilities of around 70 non-systemic UK banks and building societies. This letter outlines areas for improvement, planned next steps, and examples of effective practices.
Key takeaways
Although the PRA found that many firms understand the basics of recovery planning, the review identified significant areas for improvement, particularly in the development of recovery scenarios and the calculation of recovery capacity.
The letter provides recommendations on both areas and includes best practice examples in the appendix.
Next steps
Firms are expected to consider these actions and update their recovery plans to meet the expectations outlined in SS9/17. The letter also reminds firms of the upcoming requirements applicable from October 2025, as introduced in policy statement (PS) 5/24 – Solvent exit planning for non-systemic banks and building societies, and expectations set out in supervisory statement (SS) 2/24 – Solvent exit planning for non-systemic banks and building societies.
The PRA will engage collectively with firms and trade associations as appropriate to discuss the findings of this letter in the second half of 2024.
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FCA updates webpage on expectations regarding funds in light of coronavirus pandemic
The Financial Conduct Authority (FCA) has updated its "expectations regarding funds in light of the ongoing coronavirus pandemic (Covid-19)" webpage.
This update specifically focuses on the guidance for virtual general meetings in response to rule amendments outlined in a quarterly consultation paper (CP)23/25. These amendments aimed to provide additional options and clarifications to fund rules, aligning them with modern practices.
One of the proposed amendments aimed to establish explicit rules regarding the conduct of general meetings for unitholders in a virtual or hybrid format, should firms choose to adopt such methods. To allow firms sufficient time to make any necessary adjustments, these rule amendments will only apply to meetings held on or after 3 June 2024. The new rules will replace the existing forbearance, which will be withdrawn as of the same date.
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FINRA May fines summary
FINRA has published its latest disciplinary summary for May 2024 covering a range of enforcement actions. Amongst the firms fined for violations are NewEdge Securities, Inc, GTS Securities LLC, and Osaic Wealth, Inc. The briefing also details the numerous individuals fined or barred by the regulator.
Click here to read the full RegInsight on CUBE’s RegPlatform