CUBE RegNews: 30th August

Greg Kilminster

Greg Kilminster

Head of Product - Content

FCA Chair outlines path to outcome-focused regulation 


In a speech to the Building Societies Association, Charles Randell, Chair of the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR), discussed the importance of outcome-focused regulation in transforming the UK's financial services landscape. Randell highlighted the cyclical nature of regulatory challenges and the need for decisive action to break the pattern of repeating mistakes. 


The weight of history 

Randell began with a reflection on the long history of financial regulation, noting the enduring cycle of "manias, panics and crashes." He referenced the rise of non-fungible tokens (NFTs) as modern-day tulips, a nod to the infamous 17th-century tulip mania. 


The historical context set the stage for a critical examination of past regulatory approaches. Randell pointed out that despite decades of evolving strategies—principles-based regulation, risk-based regulation, and outcomes-focused regulation—the financial industry has often struggled to achieve the desired outcomes. This, he warned, should serve as a cautionary tale as the FCA embarks on its own transformative journey. 


Revisiting the FSA’s vision 

Randell revisited the ambitions of the Financial Services Authority (FSA), the FCA’s predecessor, which in 2000 set out a vision of an outcome-driven regulatory model. The FSA aimed to assess the effectiveness of its actions through measurable outcomes rather than mere inputs. However, as Randell observed, this vision was never fully realised, as the FSA often defaulted to measuring processes rather than actual results. 


The ongoing challenge of assessing the suitability of financial advice, despite initiatives like the Retail Distribution Review, was cited as an example of the difficulty in implementing truly outcomes-focused regulation. Even two decades later, the FCA continues to grapple with similar issues, particularly in areas like pension transfers, where poor advice often leads to significant consumer harm. 


The importance of transparency and accountability 

A key theme of Randell’s speech was the need for greater transparency and accountability in regulation. He argued that by clearly defining desired outcomes and rigorously measuring performance, the FCA and the firms it regulates can be more effectively held to account. He cited the example of the FCA’s work in the asset management sector, where efforts to increase competition and lower costs have led to tangible benefits for consumers, such as lower fees on actively managed funds. 


Randell emphasised that this approach not only drives better outcomes but also ensures that regulators and firms are called to action when results fall short. He pointed to the FCA’s intervention in the Rent to Own sector, where a price cap resulted in a 19% reduction in prices, as evidence of the positive effect that clear outcome-focused regulation can have. 


The challenges ahead 

Despite these successes, Randell acknowledged the significant barriers that remain to embedding an outcomes-focused approach across all areas of the FCA’s work. He highlighted several challenges, including the difficulty of defining and measuring outcomes in complex markets like unsecured credit, where broader social policies and economic factors play a significant role. 


Another major challenge is the FCA’s reliance on data to inform its regulatory actions. Randell admitted that in many cases, the necessary data is either unavailable or difficult to obtain, particularly in areas outside the FCA’s direct regulatory remit. He stressed the importance of improving the FCA’s data strategy, ensuring that the regulator can act more quickly and effectively to address emerging risks. 


A call for cultural change 

Randell’s speech was not just a call for technical improvements in regulation but also for a deeper cultural shift within both the FCA and the firms it oversees. He urged firms to move beyond a box-ticking approach to compliance and to focus instead on delivering meaningful outcomes for their customers. This, he argued, would require a fundamental change in how firms define success and measure their own performance. 


He also stressed the importance of leadership in driving this cultural change, noting that the FCA’s own governance structures must evolve to ensure that outcomes are at the heart of decision-making processes. This includes setting clear objectives for senior leaders and ensuring that they are held accountable for delivering on them. 


The road ahead 

In conclusion, Randell expressed cautious optimism about the FCA’s ability to achieve its transformative goals. He acknowledged that the path to becoming a truly outcomes-focused regulator is fraught with challenges, but he stressed that the stakes are too high to accept anything less than success. Randell reminded his audience that real change requires not just new actions but a transformation in the underlying culture and mindset. 


Click here to read the full RegInsight on CUBE’s RegPlatform 

 

CFTC fines Nasdaq Futures, Inc. $22 million over incentive programs operation 


The Commodity Futures Trading Commission (CFTC) has imposed a $22 million civil monetary penalty on Nasdaq Futures, Inc. for breaching several designated contract market (DCM) core principles outlined in the Commodity Exchange Act (CEA) and Commission Regulations. 

 

Specifically, the order found that Nasdaq Futures, Inc. failed to properly establish, monitor, or enforce rules related to an incentive program it offered to certain traders. The company also did not fully disclose the details of this incentive program to the CFTC or the public and even made false statements regarding the program. 

 

In a statement, CFTC Director of Enforcement Ian McGinley emphasised that the oversight of CFTC-designated exchanges relies on the provision of accurate information to the CFTC and market participants. He further noted, “Nasdaq Futures, Inc.’s conduct here represents significant violations of both its duty to provide such information and several statutory core principles applicable to CFTC-designated exchanges.” 

 

Click here to read the full RegInsight on CUBE’s RegPlatform 

 

CFTC rewards whistleblower $4 million for uncovering misconduct 

 

The Commodity Futures Trading Commission (CFTC) has rewarded a whistleblower over $4 million for providing crucial information that prompted the Division of Enforcement (DOE) to investigate ongoing misconduct involving complex products and transactions. 

 

According to the announcement, the insider's insights were invaluable, as the violations would have been difficult to uncover without their knowledge. The whistleblower pointed out non-compliance with specific CFTC rules designed to prevent fraudulent, deceptive, and manipulative practices and remained actively involved in the DOE's ongoing investigation. 

 

“The violations would have been difficult to detect without the knowledge of an insider,” said Director of Enforcement Ian McGinley. “The whistleblower’s information played a key role in putting a stop to the misconduct.” 

 

Under the Whistleblower Program, whistleblowers may be eligible to receive between 10 and 30 per cent of the monetary sanctions collected. All whistleblower awards are paid from the CFTC’s Customer Protection Fund and are financed entirely through monetary sanctions paid to the CFTC by violators of the CEA. 

 

Click here to read the full RegInsight on CUBE’s RegPlatform 


Australian Treasury consults on merger notification thresholds 


As a part of the overhaul of Australia's merger regulations, the Australian Treasury (Treasury) has launched a consultation on merger notification thresholds. 


Some context  

The Australian Government announced reforms to the country's merger rules in April 2024 to foster competition, safeguard consumers, and provide more certainty by simplifying the approval process. 

In line with these reforms, the Treasury issued a consultation paper on an exposure draft in July 2024. The exposure draft outlines the structure of the new merger control system, encompassing key elements such as notification rules, timelines, the suspensory rule, tests for competition and substantial public benefit determinations, limited merits review in the Australian Competition Tribunal, and transitional arrangements. In particular, the proposals would mandate businesses to notify acquisitions that meet specific notification thresholds, with substantial penalties for non-compliance. 


Key takeaways  

Under the proposals, thresholds will relate to the monetary value of the proposed transaction and the concentration of the affected market. 


Monetary thresholds: Mergers will trigger mandatory notification requirements if they meet either of the two following monetary thresholds and have a significant connection to Australia: 

  • Combined Australian turnover of the merger parties (including the acquirer group) reaching at least $200 million, with either the Australian turnover being at least $40 million for each of at least two of the merger parties, or the global transaction value being at least $200 million. 
  • The acquirer group's Australian turnover being at least $500 million, with either the Australian turnover being at least $10 million for each of at least two of the merger parties, or the global transaction value being at least $50 million. 


Market concentration thresholds: Mergers will trigger mandatory notification requirements if they meet either of the following market concentration thresholds: 

  • A share of 25 per cent of an affected market, with Australian turnover of at least two of the parties to the acquisition (including the acquirer group) being at least $20 million. 
  • A share of 50 per cent of an affected market, with a lower turnover requirement of $10 million. Mergers meeting the thresholds will be subject to the new merger rules from 1 January 2026, following the passage of legislation. 


Next steps  

The deadline for feedback is 20 September 2024. 

 

Click here to read the full RegInsight on CUBE’s RegPlatform