Eva Dauberton
News Editor
FCA Director discusses approach to enforcement
Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the Financial Conduct Authority (FCA), recently spoke at the Association for Financial Markets in Europe (AFME) annual European Compliance and Legal Conference. During her speech, she discussed the FCA’s evolving approach to enforcement and addressed the feedback on proposals in consultation paper (CP) 24/2 on the publication of enforcement investigations.
Addressing feedback to CP24/2
Chambers reiterated the aim of the proposals, including the need to address discrepancies where another UK regulator can announce an investigation, but the FCA cannot, referring to the recent PWC investigation announced by the FRC two years before the FCA was able to do so.
She emphasised that the FCA won’t rush into any decisions and addressed the following comments:
- Wide criteria definition: Regarding the feedback that the criteria consulted on were too high level and lacked specificity, Chambers clarified that the FCA plans to intensify engagement and, later this autumn, provide greater detail on how the proposals could work in practice. This will be done through publishing case studies and more information on the number of cases that might be affected.
- Insufficient time to make representations: Regarding the concern that firms would not have sufficient time to make representations. Chambers stated that the FCA will respond to the feedback received. She emphasised that allowing firms time to provide their views on whether, what, and when the FCA announces will be a crucial part of any proposal the FCA takes forward.
Evolving approach to enforcement
- Focus on financial crime: Chambers highlighted that financial crime remains a focus of the FCA’s current strategy and will continue to be a significant pillar in their upcoming strategy, due in 2025.
- Collaboration with industry and other regulators: Chambers emphasised collaboration as an important aspect of the FCA’s approach to enforcement. Chambers stressed banks’ vital role in detecting money laundering, supporting the FCA in taking early action. She also mentioned the FCA’s relationships with other regulators, citing recent collaboration with the French regulator, the AMF, in censuring asset manager H2O LLP and successful cooperation with the PRA in fining Citigroup.
- Growing role of data and technology: Chambers mentioned the FCA’s increasing capabilities in this area. She stated that the FCA’s approach will become more data-driven and technology-driven in the future, and encouraged firms to collaborate with them in this regard.
- Increasing investigation pace: Chambers noted that the deterrent effect of enforcement actions is greater when they occur closer in time to the misconduct. She highlighted the FCA’s progress in reducing investigation time, with 24 outcomes in 2024, compared to 26 for the entirety of 2023.
- Streamlining caseload: Chambers mentioned that the FCA is focusing on investigations that are better aligned with their strategic priorities. They are consciously identifying cases where there may be conduct creating the greatest risk of harm and where an investigation is likely to have the most significant deterrent effect. While the FCA may open fewer investigations, they expect to see a greater number of outcomes and a greater impact from their enforcement activities.
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CP24/20: FCA proposes changes to the safeguarding regime for payments and e-money firms
The Financial Conduct Authority (FCA) has issued a consultation paper (CP) 24/20 proposing changes to the safeguarding regime for payments and e-money firms.
Some context
Currently, payment institutions, e-money institutions, and credit unions that issue e-money (collectively Payments Firms) are required to protect funds received for making payments or in exchange for e-money issued. However, poor implementation of the regulatory framework, the Payment Services Regulations 2017 (PSRs) and the E-Money Regulations 2011 (EMRs) has led to inadequate practices across the industry. This CP puts forward proposals to address these deficiencies.
Key takeaways
The FCA is proposing to introduce additional rules and guidance on safeguarding obligations in two stages: interim rules and end-state proposals.
- Interim rules: The interim rules will supplement the safeguarding requirements in the Payment Services Regulations 2017 (PSRs) and E-Money Regulations 2011 (EMRs). These interim rules aim to support a higher level of compliance with existing requirements, enhance reporting and monitoring requirements to identify shortfalls in relevant funds and improve supervisory oversight.
- End-state proposals: The end-state proposals will replace the safeguarding requirements of the EMRs and PSRs with a ‘CASS’ style regime, where relevant funds and assets are held in trust for consumers. This second stage will address any remaining shortcomings of the current regime when the safeguarding requirements in the PSRs and EMRs are revoked by the Financial Services and Markets Act 2023.
- Implementation: The FCA plans to give firms a sufficient amount of time to make the necessary arrangements. This will include a six-month period for the interim rules and a twelve-month period for the end-state rules, considering that Payments Firms may need to make more significant changes to comply with the latter.
Next steps
The deadline for feedback is 17 December 2024. The FCA intends to publish final interim rules, along with a policy statement, within the first six months of 2025.
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FCA releases Primary Market Bulletin 51
The Financial Conduct Authority (FCA) has released Primary Market Bulletin (PMB) 51, which focuses on updates to the Knowledge Base in relation to the new UK listing regime (UKLR). This bulletin includes feedback from related consultation in PMB 48 and final guidance (FG) 24/4.
Some context
The Knowledge Base is the FCA’s repository of non-handbook commentary with formal FCA guidance status. It consists of short procedural and technical notes published in PDF format and organised by topic.
In PMB 48, published in April 2024, the FCA sought feedback on proposed changes to the technical notes to reflect the changes in the Listing Regime, including aspects of the sponsor regime.
Key takeaways
Key points from PMB 51 include:
- Consultation feedback and changes to the Knowledge Base: The FCA outlines updates to the guidance and considers feedback received on other topics related to the new UKLR and the primary markets effectiveness work.
- Consultations deadlines reminders: The FCA reminds firms of the response deadline of 27 September 2024 for CP24/17, which proposes changes to the requirements for submitting regulated information to the National Storage Mechanism (NSM). They also highlight the deadline of 1 November 2024 to respond to the Financial Reporting Council (FRC)’s Discussion Paper (DP) on the future of digital reporting.
Next steps
The FCA is adopting a phased approach to consulting on corresponding changes to the guidance in the Knowledge Base due to the numerous changes in the final UKLR following the CP23/31 consultation. This means that further consultations on amendments to existing technical and procedural notes are now taking place after the implementation of the new UKLR.
Until these updates are made, the FCA expects firms and other market participants to interpret references to the previous Listing Rules purposefully, considering the provisions of the UKLR that have already come into force.
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Off-channel communications: Canadian Imperial Bank of Commerce hit with $42 million in fines
The Commodity Futures Trading Commission (CFTC) has issued yet another order linked to off-channel communications, this time against Canadian Imperial Bank of Commerce (CIBC), a swap dealer.The CFTC has ordered CIBC to pay a $30 million civil monetary penalty, cease and desist from further violations of recordkeeping and supervision requirements, and engage in specific remedial undertakings.
Concurrently, the Securities and Exchange Commission (SEC) has imposed a civil monetary penalty of $12 million on the firm. This penalty is part of a larger sweep that has resulted in a total of $88,225,000 in penalties against 12 different firms.
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ASIC investigation leads to AU$5 million fine for Macquarie Bank
After an investigation by the Australian Securities and Investments Commission (ASIC), the Markets Disciplinary Panel (MDP) has imposed a record-breaking fine of AU$4.995 million on Macquarie Bank Limited (Macquarie). The fine was levied because Macquarie failed to prevent suspicious orders from being placed on the electricity futures market. This penalty is the highest ever imposed by the MDP.
ASIC Chair Joe Longo stated, “Macquarie is the largest market participant in energy derivatives and, as a gatekeeper, it must ensure that suspicious orders are not allowed on our markets.”
Some context
The order states that Macquarie violated market integrity rules on 50 occasions between January and September 2022. During this period, the bank permitted three clients to place suspicious orders. These orders showed characteristics suggesting an intention to “mark the close.” This means that each order was placed within the last minute of market close, manipulating the daily settlement price in favour of the client’s existing interest in that contract.
The MDP concluded that Macquarie should have suspected that each of the 50 orders was submitted with the intention of creating a false or misleading appearance in the market.
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Vanguard Investments Australia fined AU$12.9 million for greenwashing
The Australian Securities and Investments Commission (ASIC) has announced that Vanguard Investments Australia has been ordered by the Australian Federal Court to pay a record penalty of AU$12.9 million for greenwashing.
ASIC Deputy Chair Sarah Court said, "This is an important decision and the penalty imposed is the highest yet for greenwashing conduct." She added, "The size of the penalty should send a strong deterrent message to others in the market to carefully review any sustainable investment claims."
Some context
According to the judgment, Vanguard contravened the laws by making false or misleading statements about their Ethically Conscious Global Aggregate Bond Index Fund (Hedged) (Ethically Conscious Fund) in various public disclosures.
Vanguard falsely represented that the Ethically Conscious Fund provided an ethical investment opportunity by tracking an index that underwent research and screening against relevant ESG criteria. They also claimed that securities violating these criteria were excluded from both the index and the Ethically Conscious Fund. However, these representations were found to be false and liable to mislead the public.
The research and screening process for the index and the Ethically Conscious Fund had significant limitations, and a considerable portion of securities included in both were not researched or screened against applicable ESG criteria.
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MAS consults on insurers’ recovery and resolution planning guidelines
The Monetary Authority of Singapore (MAS) has released a consultation paper on new guidelines for MAS Notice 134 on recovery and resolution planning. The deadline for feedback is 25 October 2024.
MAS Notice 134 was updated in June 2024 to include notified Designated Financial Holding Companies (Licensed Insurers) within its scope.
The updated notice and the guidelines consulted on will take effect on 1 January 2025.
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Record number of whistleblower awards issued by CFTC in a single day
The Commodity Futures Trading Commission (CFTC) has recently granted awards totalling around $4.5 million to whistleblowers who provided vital information leading to successful enforcement actions. The four orders granting awards, involving a total of seven whistleblowers, represent the highest number of awards issued by the CFTC in a single day.
One of the orders involved a whistleblower who, in their capacity as an employee with compliance/internal audit responsibilities, initially reported violations internally and then, after no meaningful remedial action was taken, waited at least 120 days before contacting the CFTC. This is the second award related to the CFTC’s 120-day safe harbour provision for such employees, following the first award earlier this year.
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