Update
This weekly update from Clyde & Co's Financial Services Regulatory Team summarises new developments as reported by the FSA, the UKLA, the Upper Tribunal, the Financial Ombudsman Service and the London Stock Exchange over the past week, with links to the full documents where these are available.
We hope that you will find this update useful. If you have any queries about any of the information in this update or financial services regulatory matters generally, please contact one of the individuals listed in the 'Contacts' section of this publication.
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Consultation papers:
21 December: BoE and FSA consult on statement of policy on PRA powers over unregulated holding companies. The FSA has published a joint consultation paper with the Bank of England (BoE) on a draft policy statement regarding the powers of the PRA over unregulated holding companies. The Financial Services Act 2012 amends FSMA, which will give the PRA a power of direction in respect of certain unregulated parent undertakings that control and exert influence over certain authorised persons. The FSA and the BoE are consulting on a draft version of this statement of policy. The statement includes their views on the PRA's use of this power and a non-exhaustive list of possible scenarios in which the PRA may consider exercising the power, along with possible directions the PRA may make. The PRA intends to approve a final version of the statement of policy on or before the legal cutover date and the deadline for comments is 1 March 2013.
http://www.bankofengland.co.uk/ publications/Documents/other/ pra/21dec12.pdf
21 December: FSA and HM Treasury consult on UK implementation of FICOD I Directive. The FSA has published a joint consultation paper with HM Treasury on the UK's implementation of the FICOD I Directive (CP12/40). FICOD I made technical amendments to FICOD and to other EU banking insurance supervision legislation: the Banking Consolidation Directive (2006/48/EC), the Insurance Groups Directive (98/78/ EC) and the Solvency II Directive (2009/138/EC). CP12/40 sets out proposals for amendments to existing and future FSA prudential rules for banks, building societies, investment firms and insurers necessary to implement FICOD I.
The deadline for responses is 21 March 2013.
http://www.fsa.gov.uk/static/pubs/cp/ cp12-40.pdf
20 December: FSA consults on PRA's approach to enforcement. The FSA has published a consultation paper (CP12/39), jointly produced with the BoE, on the PRA's approach to enforcement. In CP12/39, the FSA and BoE seek comments on draft versions of the PRA's proposed:
- Statement of procedures regarding decisions that create an obligation to give a statutory notice under FSMA
- Statement of policy on the imposition and amount of penalties under FSMA
- Statement of policy on the imposition and period of suspensions or restrictions under FSMA
- Statement of policy on the settlement of cases involving the imposition of financial penalties, suspensions or restrictions
- Statement of policy on the publication of disciplinary and other enforcement actions
- Statement of policy regarding the conduct of certain interviews at the request of overseas regulators
The deadline for responses is 28 February 2013.
http://www.fsa.gov.uk/library/policy/cp/2012/12-39.shtml
19 December: FSA consults on mutuality and with-profits funds. The FSA has published a Consultation Paper on mutuality and with-profits funds (CP12/38) in response to concern from the mutual with-profits sector, which is faced with a decline in new with-profits business. The FSA proposes a change in approach to how its rules on with-profits funds affect with-profits mutuals, explaining that when a proprietary with-profits fund goes into run-off, it does not mean that the firm has to close down as a result. The proposed new approach, outlined in Chapter 2 of CP12/38, would give mutuals the opportunity to achieve a similar outcome using methods that would be considered on a case by case basis. Firms would be able to apply for a modification of the relevant rules under the new section 138A of FSMA. If granted, the modification would effectively focus the regulatory protections in COBS 20 on the with-profits element of the firm's fund only. The deadline for responses is 19 March 2013.
http://www.fsa.gov.uk/library/policy/cp/2012/12-38.shtml
18 December: FSA consults on FCA markets and enforcement powers. The FSA has published a consultation paper on implementing markets powers, decision making procedures and penalties policies deriving from amendments to FSMA to be made by the Financial Services Act 2012 (CP12/37). The consultation paper sets out proposals for parts of the new rule book of the FCA including:
- The Listing Rules sourcebook and the Disclosure and Transparency Rules sourcebook relating to amendments to be made to Part VI of FSMA
- The Recognised Investment Exchanges and Recognised Clearing House sourcebook reflecting the transfer of regulatory responsibility for recognised clearing houses to the Bank of England and additional supervisory powers for the FCA relating to recognised investment exchanges
- The Decision Procedure and Penalties Manual (DEPP) concerning the FCA's new enforcement and decision-making powers including imposing own-initiative requirements, financial promotions, authorisations of dual-regulated firms and publishing information on warning notices
The deadline for responses is 1 February 2013.
http://www.fsa.gov.uk/static/pubs/cp/cp12-37.pdf
Discussion papers:
No new developments this week.
Policy statements:
17 December: FSA policy statement on consumer redress scheme relating to Arch cru fund misselling. The FSA has published a policy statement on a consumer redress scheme relating to unsuitable advice given to certain customers to invest in Arch cru funds (PS12/24). The Policy Statement gives feedback on the consultation paper in April 2012 (CP12/9) and details that the FSA has decided to proceed with the scheme outlined in CP12/9 although it has decided to give consumers the opportunity to opt in to having their sale reviewed, rather than requiring firms to review proactively all sales. The FSA has also changed the start date for the scheme from 1 January 2013 to 1 April 2013. Firms have until 29 April 2013 to:
- Identify all consumers for whom they advised, arranged or managed investments in an Arch cru fund and all cases that fall within the scheme's scope
- Write to all consumers within or outside the scope of the scheme, explaining, as appropriate, that the firm will review its advice if they decide to opt in to the scheme or that the consumer's case falls outside the scheme's scope
Firms should send reminder letters to consumers that do not respond. Consumers have until 22 July 2013 to opt in to the scheme. Firms must contact consumers who have opted in to the scheme with the outcome of their review by 9 December 2013.
http://www.fsa.gov.uk/static/pubs/policy/ps12-24.pdf
Speeches:
No new developments this week.
Bulletins and newsletters:
No new developments this week.
Final notices:
7 January 2013: FSA fines Thomas Wilhelm Reeh. The FSA has published a Final Notice, which imposes a fine of £10,000 on Mr Reech, following a reduction after Mr Reech referred the matter to the Upper Tribunal. Mr Reech's misconduct included pressurising advisers to sell unsuitable PPI and other products and failing to ensure adequate compliance systems were in place. This occurred between September 2006 and November 2007 whilst he was CEO at Black and White Group Limited.
Final Notice: http://www.fsa.gov.uk/static/pubs/final/ thomas-reeh.pdf
7 January 2013: FSA fines Christopher Ollerenshaw. The FSA has published a Final Notice, which imposes a fine of £50,000 on Mr Ollerenshaw and prohibits him from performing any function in relation to a regulated activity. Mr Ollerenshaw's misconduct, which included pressurising advisers to sell unsuitable PPI and other products and failing to ensure adequate compliance systems were in place, occurred between September 2006 and November 2007 whilst he was Chairman at Black and White Group Limited.
Final Notice: http://www.fsa.gov.uk/static/pubs/final/ christopher-ollerenshaw.pdf
4 January: FSA fines The Co-operative Bank Plc for PPI complaints handling failings. The FSA has fined The Co-operative Bank Plc £113,000 for failing to handle PPI complaints fairly. The FSA found that the Co-op had unfairly placed on hold a number of customer's complaints pending the outcome of the British Banker's Association judicial review, despite a letter from the FSA to the industry instructing firms that many claims should be progressed normally during this time. The Co-op said the cases were put on hold as the outcome of the judicial review would have had a bearing on the final decision. However the FSA found that the Co-op's decision not to progress complaints contravened the FSA's January 2011 letter to firms.
Final Notice: http://www.fsa.gov.uk/static/pubs/final/co-op.pdf
Press release: http://www.fsa.gov.uk/library/ communication/pr/2013/001.shtml
20 December: FSA decides to fine and ban Gracechurch Investment's CEO, bans its compliance officer and censures the firm. The FSA has publically censured Gracechurch Investments Ltd for misconduct resulting in client losses of at least £2 million. The FSA found that Gracechurch breached the FSA's Principles for Business 1, 3, 7 and 9, COBS and SYSC, during the period between April 2008 and November 2009. The FSA also cancelled Gracechurch's Part IV permission. In reasons for its decision, the FSA found that Gracechurch had knowingly employed pressure-selling tactics and had knowingly given misleading advice to clients. The FSA would have imposed a financial penalty of £1.5 million due to the extent and seriousness of the breaches, were it not for Gracechurch's financial circumstances.
The FSA also decided to fine Sam Thomas Kenny, the former CEO of Gracechurch, £450,000 and prohibit him from holding a position in the financial services industry. Mr Kenny has referred the matter to the Upper Tribunal. The FSA has also prohibited Carl Peter Davey, former Gracechurch compliance officer, from working in the financial services industry. The FSA concluded that Mr Davey had failed to act with integrity in carrying out his controlled function and failed to ensure that Gracechurch complied with the relevant requirements. The FSA would have imposed a fine of £175,000 on Mr Davey, had it not been likely to cause him serious financial hardship.
Gracechurch Final Notice: http://www.fsa.gov.uk/static/ pubs/final/gracechurch-investments.pdf
Thomas Kenny Decision Notice: http://www.fsa.gov.uk/ static/pubs/decisions/sam-kenny.pdf
Carl Davey Final Notice: http://www.fsa.gov.uk/static/pubs/ final/carl-davey.pdf
19 December: UBS fined £160 million for significant failings in relation to LIBOR and EURIBOR. The FSA has published a Final Notice relating to its fine of UBS of £160 million for misconduct relating to LIBOR and EURIBOR. This is the largest fine ever imposed by the FSA. The breaches by UBS covered a number of issues including:
- UBS's traders routinely making requests to individuals at UBS responsible for determining its LIBOR and EURIBOR submissions to adjust their submissions to benefit the traders' trading positions
- Giving the roles of determining its LIBOR and EURIBOR submissions to traders whose positions made a profit or loss depending on the LIBOR / EURIBOR fixes
- Colluding with interdealer brokers in co-ordinated attempts to influence Japanese Yen (JPY) LIBOR submissions made by other panel banks
- Corrupt brokerage payments were made to reward brokers for their efforts to manipulate the LIBOR submissions of panel banks
- Colluding with individuals at other panel banks to get them to make JPY LIBOR submissions that benefited UBS's trading positions
- Adopting LIBOR submissions directives whose primary purpose was to protect the bank's reputation by avoiding negative media attention about its submissions and speculation about its creditworthiness
The misconduct was extensive and widespread and involved at least 5 individuals including traders, managers and senior managers. UBS qualified for a 20% reduction of the original fine of £200 million.
Press Release: http://www.fsa.gov.uk/library/ communication/pr/2012/116.shtml
Final Notice: http://www.fsa.gov.uk/static/pubs/final/ubs.pdf
18 December: FSA censures Arch Financial Products and bans and fines CEO and senior partner for CF Arch cru funds failings. The FSA has published its Decision Notices (all dated 14 September 2012) which were issued to Arch Financial Products LLP, Robin Farrell (CEO) and Robert Stephan Addison (senior partner and former compliance officer). The FSA found that between July 2006 and March 2009 Arch Financial breached Principles 1, 2, 3 and 8 of the FSA's Principles for Business. It also breached rules relating to conflicts of interest in the Conduct of Business Sourcebook. Among other things, the FSA held that Arch Financial had deficient conflicts management procedures and failed to implement appropriate control structures and compliance arrangements. It also pursued an investment strategy that resulted in significant liquidity risks for the funds and failed to ensure that the funds aimed to provide a prudent spread of risk. The FSA has also decided to fine Mr Farrell and Mr Addison £650,000 and £200,000 respectively. The FSA prohibited Mr Farrell and Mr Addison from performing any function relating to any regulated activity.
Arch Financial: http://www.fsa.gov.uk/static/pubs/ decisions/arch-financial-products.pdf
Robin Farrell: http://www.fsa.gov.uk/static/pubs/decisions/ robin-farrell.pdf
Robert Stephan Addison: http://www.fsa.gov.uk/static/ pubs/decisions/robert-addison.pdf
Application refusals:
No new developments this week.
Approved person refusals:
No new developments this week.
Research publications:
No new developments this week.
Consumer research:
No new developments this week.
Other FSA publications:
9 January: FSA publishes OP43: High-frequency trading and the execution of costs of institutional investors. The FSA has published an occasional paper on high-frequency trading and the execution costs of institutional investors. The paper studied whether high-frequency trading (HFT) increases the costs of institutional investors, and found no evidence that increases in HFT activity have impacted institutional execution costs.
http://www.fsa.gov.uk/static/pubs/occpapers/op43.pdf
8 January: FSA confirms Century Building Society merger with the Scottish Building Society. The FSA has confirmed the proposed transfer of the engagements of the Century Building Society to the Scottish Building Society under sections 94 and 95 of the Building Societies Act 1986.
http://www.fsa.gov.uk/library/communication/pr/2013/002.shtml
3 January: FSA letter to firms' CF10a on unbreakable term deposits. The FSA has updated its client assets webpage to include a link to a letter (dated 30 November 2012) it sent to firms setting out its interim position on the use of unbreakable term deposits and notice accounts for placing client money, before it consults on the issue in 2013. The letter sets out the risks associated with the use of unbreakable client money term deposits. The FSA is concerned that their use prevents investment firms from reacting to market developments. The letter was sent to the CF10a of firms who responded to an August 2012 FSA survey on the use of term deposits for the placement of client money. Firms were required, by 14 December 2012, to review their policies and procedures and confirm whether or not they permit the use of unbreakable client money term deposits. Firms were also asked to provide information to the FSA about their use of these deposits, including whether they were placed at the discretion of the firm or on the instruction or express consent of clients. Firms using such accounts without the instruction or express consent of clients have been instructed to cease doing so and must give notice on all notice accounts. If a firm wishes to continue to use these deposits or accounts it must explain to the FSA why it considers it is appropriate to do so. The FSA will contact firms directly with any further steps to be taken.
http://www.fsa.gov.uk/static/pubs/other/unbreakable-term-deposits.pdf
27 December: FSA extends modification by consent for deposit-takers subject to SCV requirements. The FSA has updated a webpage on its modification by consent of rule 17.2.3(2)(c) of the Compensation sourcebook to announce that it has extended the modification (which expired on 31 December 2012) until 31 December 2015. The modification enables deposit-takers that are subject the FSA Handbook's single customer view (SCV) requirements to exclude accounts that are subject to economic sanctions imposed by a national government or an international body from the SCV.
http://www.fsa.gov.uk/pages/doing/regulated/notify/waiver/consent/comp_17232.shtml
27 December: FSA update on IMAP work. The FSA has updated a webpage on its internal model approval process (IMAP) under the Solvency II Directive. It states that:
- The FSA is continuing its reviews of the first stage which looks at approach and methodology used by firms
- Due to delays in the publication of Omnibus II it has decided to defer the second stage. This means that the second stage of its review is likely to be on a year-end closer to the date of Solvency II implementation
- The FSA will provide an update on the first and second stage in the first quarter of 2013
- Firms will not be required to submit their second stage of the review by their submission slot
http://www.fsa.gov.uk/about/what/international/solvency/ implementation/imap
21 December: FSA modification by consent extends SUP submission period for high earners reports. The FSA has published a webpage announcing a modification by consent to SUP SUP 16.17.4(8)R. This modification extends the submission period for high earners' reports by firms with accounting reference dates in September and October to four months after their accounting reference date. The FSA has also published a related direction.
Webpage: http://www.fsa.gov.uk/doing/regulated/notify/ waiver/consent/sup16_17.shtml
Direction: http://www.fsa.gov.uk/static/notify/waiver/pdf/ direction_sup16.17.4.pdf
21 December: FSA policy update no 154. The FSA has published Policy Development Update no. 154. This update summarised the publications the FSA proposes to publish and indicates any changes to the FSA's publishing schedule as set out in Update no. 153.
http://www.fsa.gov.uk/static/pubs/newsletters/pdu-newsletter-dec12.pdf
20 December: FSA letter and FAQs on transition to the PRA. The FSA has published a letter (dated 17 December 2012) from Andrew Bailey, Managing Director of the FSA's Prudential Business Unit (PBU) to firms that will have the Prudential Regulation Authority (PRA) as its lead supervisor. The letter includes FAQs with how firms should prepare for the transition to the PRA. Points of interest include:
- Details of physical and postal address for the PRA
- Details of existing FSA non-handbook guidance that the PRA will adopt and which will be available on its website
- Confirmation that individual capital guidance and individual liquidity guidance issued by the FSA will continue to apply
- Grandfathering arrangements for existing permissions and waivers will be finalised once secondary legislation made under the Financial Services Act 2012 is published
http://www.fsa.gov.uk/static/pubs/other/letter-pra-transition.pdf
19 December: Announcement of the add-on general insurance study. As part of its developing approach to competition, the FSA is starting a study into general insurance products sold as add-ons. This study will look at whether there are common features of the add-on markets that weaken competition. It will cover the whole of the relevant markets, taking full account of firms' and consumers' behaviour. The FSA aims to complete the assessment by the third quarter of 2013. The study will provide a basis for the FCA to decide whether to intervene to ensure that competition works well for consumers in the markets for add-on sales of general insurance.
http://www.fsa.gov.uk/library/communication/ statements/2012/gi-study
UKLA publications:
No new developments this week.
Upper Tribunal (Tax and Chancery Chamber):
2 January: Upper Tribunal upholds FSA decision to refuse IFA's applications for authorisation and approval. The Upper Tribunal has published its decision in the case of Sidney Cordle and Scott Briscoe Ltd v FSA. The case concerned two Decision Notices issued by the FSA on 20 January 2012, under which the FSA rejected applications made by an IFA, Sidney Cordle for his firm, Scott Briscoe Ltd (SBL), to be authorised to carry on regulated activities and for him to be approved to perform controlled functions. The FSA rejected the applications on the basis that Mr Cordle had failed to disclose an investigation into SBL, and felt that this non-disclosure meant that Mr Cordle had failed to demonstrate the necessary standards of honesty and integrity. The Tribunal upheld this decision.
http://www.tribunals.gov.uk/financeandtax/Documents/ sidney_cordle_v_FSA.pdf
21 December: Upper Tribunal upholds FSA decision to fine sole trader £150,000. The Upper Tribunal has published its decision to uphold the FSA's decision to fine Mr Ainley £150,000 for misconduct in the case of Mark Anthony Financial Management and Mark Anthony Hurst Ainley v FSA. The tribunal confirmed that the level of the fine was appropriate given the financial benefit derived from his misconduct.
http://www.tribunals.gov.uk/financeandtax/Documents/ decisions/Mark-Anthony-Ainley-v-FSA-Penalty.pdf
21 December: Upper Tribunal publishes its decision to increase a fine proposed by the RDC and fine an individual £650,000. The Upper Tribunal has published its decision in the case of Patrick Sejean v FSA. Mr Sejean appealed the RDC's decision which imposed a financial penalty of £550,000, but this was increased to £650,000 by the Tribunal. The increase was due to the seriousness of Mr Sejean's conduct. The Tribunal held that Mr Sejean did not provide sufficient evidence of financial hardship and therefore his fine was not adjusted.
18 December: Upper Tribunal upholds FSA decision to ban managing director of mortgage broker. The Upper Tribunal has published its decision in the case of Michael Lee Thommes v FSA. Mr Thommes, the former managing director of General Finance Centre Ltd, a mortgage broker, referred to the Tribunal a FSA Decision Notice (dated 19 July 2011) making a partial prohibition order against him. The Tribunal upheld the FSA's decision to impose a partial prohibition order for failures to establish adequate systems and controls to prevent financial crime and failing to ensure there were robust compliance procedures in place.
http://www.tribunals.gov.uk/financeandtax/Documents/ decisions/Michael-Thommes-v-FSA.pdf
18 December: Upper Tribunal rejects application for prohibition of publication of FSA decision notices. The Upper Tribunal has published it decision in the case of Arch Financial Products LLP, Robin Farrell and Robert Stephan Addison v FSA. The applicants made an application for the prohibition of the publication of Decision Notices issued against them by the FSA on the basis that they would cause serious harm including reputational damage to Mr Farrell and Mr Addison. This application was dismissed by the Tribunal. Section 391 of FSMA creates a presumption in favour of publication of a Decision Notice which can only be rebutted if cogent evidence of a disproportionate level of damage as a result of publication is produced. The Tribunal found that the effect of publication on the applicants did not meet the requirements of disproportionate damage.
Financial Ombudsman Service (FOS):
No new developments this week.
London Stock Exchange (LSE):
No new developments this week.
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