CUBE RegNews: 6th September

Greg Kilminster

Greg Kilminster

Head of Product - Content

FCA sharpens focus on fighting financial crime 


In a speech at the Financial Crime Summit in London, Sarah Pritchard, the FCA’s executive director of markets and executive director of international, set out the regulator’s vision for tackling financial crime.  


Pritchard drew a powerful analogy between the Great Fire of London in 1666 and the unchecked spread of financial crime, emphasising the urgency of prevention. She warned that, like the spark in a bakery that destroyed much of London, financial crime can start small but, if not targeted and contained, can quickly grow, undermining the economy, damaging businesses, and eroding trust in the financial system. 


Focusing on outcomes 

The FCA’s three-year strategy, consistent with the UK’s national economic crime plan and fraud strategy, places financial crime as a top priority. Pritchard stressed that an outcomes-focused approach, grounded in data and intelligence sharing, is critical for success. She called for regulators, businesses, and law enforcement to work together, identifying risks early and taking targeted action to prevent harm. 


The importance of data in this battle cannot be overstated. By identifying outliers and poor practices, the FCA seeks to improve the overall resilience of the system. Pritchard outlined the FCA’s role in highlighting what good and poor practices look like, so that firms can better align with the regulator’s expectations. 


Enforcement with rigour 

While prevention is crucial, Pritchard made clear that enforcement remains a vital tool in the FCA’s arsenal. The regulator has stepped up its efforts, charging 21 individuals with financial crime offences in the last financial year – the highest number in a single year. In addition, the FCA has secured three times as many freezing orders as in 2022, freezing more than £21 million in assets under investigation. 


Pritchard also pointed to the FCA’s recent £15 million fine against PwC for failing to alert the regulator to suspected fraudulent activity, emphasising the FCA’s increasingly assertive stance on enforcement. 


However, she added that the FCA does not aim to constantly put out fires. Rather, the goal is to stop financial crime from taking hold in the first place by ensuring that firms have robust systems and controls at the authorisation stage. 


Collaborating across sectors 

Pritchard highlighted the FCA’s efforts to strengthen partnerships across the public and private sectors, reflecting a more integrated approach to tackling financial crime. The FCA’s proactive stance at the gateway is evident in its rigorous authorisation process, where firms must demonstrate robust anti-money laundering (AML) systems. Over the past year, 36% of firms applying for AML registration either withdrew or had their applications rejected – a figure that Pritchard attributed to the FCA’s heightened standards. 


The FCA is also playing a more active role in the wider financial ecosystem. Its collaboration with Big Tech companies has resulted in new policies that ban paid adverts for UK financial services unless approved by FCA-authorised firms. This initiative, alongside actions to remove apps from Apple and Google stores that breach financial promotions rules, has proven effective in curbing scams and illegal financial promotions. 


Innovation and vigilance 

Technological advancements are reshaping the financial crime landscape, and the FCA is adapting its approach accordingly. Pritchard acknowledged that criminals are exploiting new technologies such as AI, and the FCA must stay vigilant to keep pace. Data and technology are at the forefront of the regulator’s efforts to identify illegal financial promotions and scams. 


By scanning around 100,000 websites daily, the FCA has successfully removed or amended 10,000 plus potentially misleading advertisements in 2023 – a 17% increase from the previous year. Pritchard also drew attention to the FCA’s role in leading a tech sprint with regulatory, intelligence, and law enforcement agencies to develop new methods of combating investment fraud. 


The FCA’s creation of a dedicated financial crime function within its Consumer Investments department has bolstered its ability to identify risks early and intervene to prevent harm. This includes unannounced spot checks and interventions such as restricting firms’ permissions or stopping firms from providing financial services. 


System-wide response 

Pritchard was keen to emphasise that financial crime is not solely an issue for the financial sector. It requires a system-wide response involving both public and private sectors. The FCA’s collaboration with the National Crime Agency (NCA) and seven major UK banks, as part of an NCA-led project to combat organised crime, has been a key example of this partnership in action. Through joint data analysis, several new organised crime networks have been identified, contributing vital intelligence to law enforcement investigations. 


Pritchard stressed that this type of collaborative approach, involving the regulator, industry, and law enforcement, is crucial for effective financial crime prevention. The FCA’s work with the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) is another example of how it is using its regulatory powers to drive improvements in the legal and accountancy sectors. 


Progress but challenges remain 

While acknowledging progress, Pritchard cautioned that financial crime remains notoriously difficult to quantify. Nevertheless, recent figures from the Office for National Statistics indicate a 10% reduction in fraud in the past year, including a fall in bank and credit account fraud. Investment fraud victims also grew at a slower rate, with reported losses decreasing by 40% compared to 2022. 


Pritchard concluded by reiterating that the fight against financial crime will remain central to the FCA’s strategy. She called for a continued focus on outcomes, leveraging data to calibrate risks and ensure proportionate responses. 


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FCA releases 2023/2024 annual report  


The Financial Conduct Authority (FCA) has released its 2023/2024 annual highlighting progress made in fulfilling strategic commitments during the period. Alongside the report, the FCA has also published enforcement data for that period. The report focuses on achievements in three main areas: 

  • Reducing and preventing serious harm 
  • Setting and testing higher standards 
  • Promoting competition and driving positive change 


Reducing and preventing serious harm: The FCA has taken action by revoking authorisations for 1,261 firms, which is double the number from the previous period. It has also directly intervened against 34 firms due to serious concerns, marking a 68% increase. The FCA has made significant progress in combating financial crime, resulting in the highest number of financial crime charges in a year and successful prosecutions against fraudsters. Moreover, efforts to detect potential instances of market abuse have been intensified through supervisory visits and interventions aimed at strengthening related controls. 


Setting and testing higher standards: The FCA has enhanced its ability to identify illegal financial promotions and made it mandatory for firms to seek permission to approve financial promotions by unauthorised persons. The FCA is currently reviewing firms’ compliance with rules on promoting high-risk investments to retail clients and has launched the InvestSmart awareness campaign to assist individuals in making better-informed investment decisions. The FCA is also working towards ensuring value for consumers in the cash savings and general insurance sectors by improving market competition and value measures data. Additionally, new rules have been implemented for marketing cryptoassets to consumers, including a 24-hour cooling-off period, and consumer alerts are being issued against firms engaging in the illegal promotion of cryptoassets. The FCA has also introduced measures to enhance trust and transparency in sustainable investment products and is prioritising the mitigation of operational disruptions, particularly cyber threats, within the financial services sector. 


Promoting competition: The report highlights the FCA’s efforts to strengthen the UK’s position in global wholesale markets. It mentions that the FCA has improved authorisation turnaround times and is pursuing a reform agenda to boost wholesale markets. 

 

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PSR releases 2023/2024 annual report  


The Payment Systems Regulator (PSR) has recently published its annual report and accounts for the 2023-24 period, detailing its activities during that time.  


On payment protection: The PSR has released its first set of statistics on APP fraud and expedited its plans to incentivise payment firms to enhance fraud prevention measures and improve outcomes for victims. The PSR has also set deadlines for firms to implement Confirmation of Payee, a name-checking service. 


On innovation: The PSR has taken steps to promote innovation, including the development of variable recurring payments (VRPs). To support the implementation, the PSR established the VRP Working Group in June 2023 as part of the Joint Regulatory Oversight Committee (JROC). Additionally, in collaboration with the Financial Conduct Authority (FCA), the PSR has developed proposals for a ‘Future Entity’ to oversee the establishment of new open banking regulatory standards, with these proposals being published by the JROC for consultation in April 2024. 


On competition: The PSR has achieved significant milestones by publishing interim reports for its two market reviews: one on cross-border interchange fees and the other on scheme and processing fees.  


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

 

ECB provides update on digital euro rulebook workstream  


The European Central Bank (ECB) has given an update on the progress of the working group responsible for developing the rulebook for the digital euro scheme, known as the Rulebook Development Group (RDG). 


Some context  

On October 18, 2023, the Governing Council of the ECB approved a two-year preparation phase for the potential issuance of a digital euro. 

One of the key deliverables during this phase is to create a draft digital euro scheme rulebook. The rulebook is intended to provide a single set of rules, standards and procedures to standardise digital euro payments to ensure a consistent user experience across the euro area. 


Key takeaways  

The RDG's work is focused on two main areas: reviewing the initial version of the rulebook and continuing to develop and expand its sections.  

Since the last update in January 2024, the RDG has: 

  • Set up new workstreams to support its efforts.  
  • Contributed to discussions on aspects relevant to the rulebook, such as the ECB's exploration of the offline capabilities of a digital euro and the technical analysis of multiple digital euro accounts per user.  
  • Examined existing standards that the digital euro could leverage, as well as initiating work on topics like fraud risk management.  


Next steps 

A new progress report on the RDG's work will be shared in the first quarter of 2025. 

 

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FRC publishes thematic reviews on offsetting and IFRS 17 implementation  


The Financial Reporting Council (FRC) has released two thematic reviews examining the quality of UK company reporting. The first review focuses on offsetting in financial statements, while the second looks at IFRS 17 ‘Insurance Contracts’ disclosures. 


Offsetting in financial statements 

The FRC Corporate Reporting Review (CRR) team regularly notices material errors even in straightforward scenarios despite well-established requirements for offsetting. The report provides examples of good practice and disclosures on offsetting, as well as areas where reporting could be improved. 

It is important to note that this report does not cover all aspects of offsetting requirements and should not be solely relied upon as a guide. 


IFRS 17 disclosures 

This report summarises the key findings of the review of disclosures in companies’ first annual reports and accounts following their adoption of IFRS 17. It follows an interim report published in November 2023, which examined IFRS 17 disclosures made in 2023 interim accounts. 

The FRC is generally satisfied with the disclosures and how companies have addressed the areas of improvement identified in the interim report. Although some additional areas for improvement have been identified, the FRC acknowledges that many of the issues identified are commonly raised during routine reviews. 


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