Greg Kilminster
Head of Product - Content
FCA responds to the Complaints Commissioner’s Final Report into Premier FX Limited
The Financial Conduct Authority (FCA) has addressed concerns and recommendations stemming from the 2018 collapse of Premier FX Limited, a currency exchange firm that left many customers facing financial losses.
Apology, but no new compensation
The FCA has acknowledged its shortcomings in overseeing Premier FX has but stopped short of providing additional compensation beyond what has already been offered for delays in handling complaints. The regulator maintains that an apology is the most appropriate remedy in this case, despite a recommendation from the Financial Regulators Complaints Commissioner for further financial relief.
FCA action and recovery efforts
The response emphasises the FCA’s efforts to address the fallout from Premier FX’s collapse. Over 12,000 hours were dedicated to successful enforcement investigations, resulting in the reimbursement of all accepted claims from 167 customers. Barclays, the firm’s bank, also voluntarily contributed £10,076,943.75 to the recovery efforts.
Lessons learnt and future commitments
While acknowledging room for improvement in its regulatory practices, the FCA maintains that an alternative approach might not have prevented losses or expedited fund recovery. However, the regulator reiterates its commitment to learning from the incident and implementing changes to prevent similar situations. This includes a more assertive approach to authorising and supervising payment firms.
Direct communication and register enhancements
The FCA plans to directly communicate with complainants by the end of January 2024, outlining the steps taken to strengthen regulatory processes and improve the Financial Services Register’s (Register) clarity and user-friendliness.
Responses to specific recommendations
The Complaints Commissioner made several recommendations which the FCA responds to as follows.
Hyperlinking handbook glossary terms: Rejected due to concerns about overwhelming consumers with technical language. Instead the focus will be on improving the Register’s clarity.
Ex-gratia compensation: Rejected due to cost concerns, legal complexities, and Premier FX’s unauthorised activities. An apology and payment for complaint handling delays are deemed the most appropriate remedy.
Changes to the Register: The response highlights recent improvements and commitment to ongoing enhancements, including considering a new Register architecture for better user experience.
Consumer verification: Acknowledged and stated that changes have already been made to direct consumers to relevant resources for available protections.
The FCA’s response to the Premier FX collapse is likely to fuel ongoing debate about consumer protection and regulatory responsibility in the financial sector. While some may find the apology insufficient, the focus on learning from the incident and enhancing future regulatory practices offers a path towards improved protection for consumers.
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ECB report on managing climate risk
The European Central Bank (ECB) and the European Systemic Risk Board (ESRB) have published a new report: Towards macroprudential frameworks for managing climate risk, which sets out detailed frameworks for addressing risk to the financial system.
The report outlines three comprehensive frameworks, each addressing key aspects of the complex relationship between climate change and the stability of the financial system.
1. Risk surveillance framework: The first framework focuses on risk surveillance, aiming to provide a robust system for monitoring climate risks to financial stability. The proposed indicators cover both transition and physical risks, recognising the increasing salience of climate shocks. By incorporating indicators that assess exposures of entities in the European Union (EU) to these shocks and considering the intersection of climate risk and financial vulnerability, the framework provides a holistic view. This surveillance approach is adaptive, scalable, and flexible, allowing for ongoing improvements in the measurement and modeling of climate-related risks.
2. Macroprudential policy framework: The second framework delves into macroprudential policy options, again stressing the need for a holistic approach that combines microprudential and macroprudential perspectives. This strategy is evidence-based, acknowledging advances in measuring and modeling climate-related risks. It suggests a gradual, targeted, and scalable approach, with a focus on banks given their pivotal role in the EU’s financing landscape. The report highlights the potential application of tools such as the systemic risk buffer (SyRB) and borrower-based measures (BBMs) to address concentration vulnerabilities and ensure a smooth transition.
3. Broader risks from nature degradation: The third framework explores the broader risks arising from nature degradation, recognising the intricate relationship between climate change and nature. It conceptualises nature-related risks, considering both the physical and transition aspects. The report identifies economic sectors directly exposed to nature degradation, such as agriculture and mining, and emphasises the potential impact on water-dependent sectors. The findings underscore the interconnectedness between nature degradation and financial stability, emphasising the need for forward-looking risk assessments to address potential consequences.
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AUSTRAC announces 2024 priorities
Australian anti-money laundering and counter-terrorism financing (AML/CTF) regulator AUSTRAC has announced its priorities for 2024. The AUSTRAC Regulatory Priorities report report outlines four key areas.
Money laundering and terrorism-financing (ML/TF) risk
The need to understand, mitigate and manage ML/TF risk is the cornerstone of the AML/CTF framework. AUSTRAC’s regulatory activities educate businesses on risks and assess the design and effectiveness of their ML/TF risk assessments.
AML/CTF programs
Reporting entities must have an effective AML/CTF program that sets out how they will comply with the AML/CTF Act and AML/CTF Rules. This program also details how businesses will identify, manage and mitigate the risks of their products and services being used for money laundering and terrorism financing.
Reporting
Accurate, timely and high quality reporting to AUSTRAC is critical. International funds transfer instructions (IFTI), threshold transaction reports (TTR) and suspicious matter reports (SMR) are fundamental sources of information for AUSTRAC’s intelligence activities and the work of our partner agencies.
High-risk sectors The banking, gambling and remittance sectors are ongoing focus areas for our regulatory work. AUSTRAC’s published sector-based risk assessments, financial intelligence, law enforcement and regulatory activity continue to highlight that these sectors are exposed to significant and varied criminal threats and have widespread vulnerabilities due to their customer base, the products and services they provide, the significant use of cash and the scale of their operations.
The report also notes the following sectors will see increased regulatory activity.
- Digital currency exchanges (DCEs).
- Payment platforms.
- Bullion.
- Non-bank lenders and financiers.
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CP28/23: PRA proposes changes to leverage ratio treatment of omnibus account reserves
The Prudential Regulation Authority (PRA) has released consultation paper (CP)28/23, which proposes changes to the leverage ratio treatment of omnibus account reserves and minor amendments to the leverage ratio framework.
The main proposal is to exclude reserves held on omnibus accounts from the leverage ratio, with specific conditions, and to add related material to supervisory statement (SS) 45/15 – The UK leverage ratio framework.
In particular, the PRA proposes explicitly capturing omnibus account reserves under the central bank claims exclusion. Safeguards are also introduced to ensure that only omnibus account reserves that pose no greater risk than reserves held under traditional arrangements qualify for the central bank claim exclusion.
The proposed implementation date for these changes is Q2 of 2024. The consultation is open until 8 April 2024.
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ASIC takes action against Northern Trust for alleged greenwashing
The Australian Securities and Investments Commission (ASIC) has taken action against Northern Trust Asset Management Australia Pty Ltd (Northern Trust) for allegedly making false and misleading statements about applying a carbon emissions exclusion screen. This is the latest effort by ASIC to combat greenwashing with two infringement notices requiring Northern Trust to pay $29,820 to comply.
ASIC was concerned that investors may have been misled by statements that certain energy companies would be excluded when they were not. It was discovered that the exclusions and screenings were outsourced to a third-party company without significant oversight by Northern Trust. In ASIC’s press release, deputy chair Sarah Court emphasised that effective oversight of third parties is essential to avoid misleading investors.
Sustainable finance is a key topic in ASIC’s supervision and enforcement framework, and the regulator has issued several infringement notices in response to concerns about alleged greenwashing. There are currently three greenwashing/ESG civil penalty cases before the Federal Court against Mercer Super, Vanguard Investments Australia, and Active Super.
It is worth noting that ASIC has made information sheet 271 (INFO 271) available to support firms in avoiding greenwashing when offering or promoting sustainability-related or ethical products and investments.
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BoE publishes annual supervision report
The Bank of England has published its annual report on supervision of the financial market infrastructure firms (FMIs) such as payment systems, central securities depositories (CSDs)and central counterparties (CCPs).
The report examines the main areas of supervisory and policy focus over the last 12 months, including:
- Protecting and enhancing UK financial stability through financially resilient financial market infrastructure firms (FMIs).
- Ensuring FMIs are operationally resilient and can manage outages.
- Enabling safe and resilient innovation in payments, settlement and clearing.
The report also outlines some of the priorities for the Bank’s supervision of the FMI sector into 2024 including the following.
- Delivering robust, risk‑based supervision of FMIs and enhancing the supervisory approach – focusing on delivering against the bank’s new objectives (introduced as a result of the Financial Services and Markets Act 2023); using rulemaking powers to strengthen the supervisory framework and developing work on the Senior Managers and Certification Regime (SM&CR) for CCPs and CSDs and continuing to ensure the safe functioning and resilience of FMIs by monitoring ongoing risks to financial stability.
- Enhancing FMI operational resilience – implementing new standards for operational resilience and finalising the bank’s policy to critical third parties.
- Enhancing FMI financial resilience, recovery and resolution – conducting regular stress test exercises; working on enhancing CCP financial resilience, recovery and resolution and strengthening the resolution toolkit for FMIs.
- Facilitating safe innovation in payments, settlement and clearing – by working with the FCA to open the Digital Securities Sandbox for applications; implementing international standards within a domestic regime for systemic payment systems using stablecoins and developing domestic policy regarding widening the payments perimeter.
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PS23/4: PSR announces new measures to prevent push payment scams
The Payment Systems Regulator (PSR) has issued a policy statement (PS) 23/4 which introduces a set of measures to prevent push payment (APP) scams. The aim of these measures is to provide a high level of protection to consumers, especially those who lose large sums of money to APP scams, while also ensuring that customers continue to be cautious when making payments.
In June 2023, the PSR had previously published a policy statement (PS) 23/3, which introduced a new reimbursement requirement within Faster Payments to improve fraud prevention and focus firms’ efforts on protecting customers.
In this new PS, the PSR is setting out the final detailed parameters of the reimbursement requirement policy. These parameters include:
- Clarifying the consumer standard of caution exception, which narrows the consideration of gross negligence to four specific circumstances. This exception does not apply to vulnerable consumers.
- Allowing sending payment service providers (PSPs) to apply an excess up to £100 to a claim under this policy, except for claims made by vulnerable consumers.
- Setting the maximum level of mandatory reimbursement at £415,000. This level applies to all consumers.
These requirements will be applicable from 7 October 2024.
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MSRB compliance update
The Municipal Securities Rulemaking Board (MSRB) has updated its Compliance Corner for Winter 2023. The update includes the following:
- A request for market participants and the public to provide feedback on the impact of municipal market regulation on small firms operating in the municipal securities market. The deadline for responses is 26 February 2024.
- Proposed filed amendments to MSRB Rule G-12 on uniform practice to promote the completion of allocations, confirmations, and affirmations by the end of trade date for municipal securities transactions between brokers, dealers and municipal securities dealers and their institutional customers to facilitate the move to a settlement cycle of one business day.
- Key compliance dates for dealers and municipal advisors to note.
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