UK: Weekly Financial Services Regulatory Update - 18.05.12

Consultation papers:

No new developments this week.

Discussion papers:

No new developments this week.

Policy statements:

No new developments this week.

Press releases:

16 May: FSA decides to ban BGC senior executive, Anthony Verrier. The FSA has published a decision notice prohibiting Anthony Verrier from performing regulated activities within the financial services industry. The FSA based its decision on comments made by the High Court in Tullett Prebon plc (and two others) v BGC Brokers LP (and 13 others, including Verrier), [2010] EWHC 484 (QB) indicating that Mr Verrier had participated in an "unlawful means conspiracy" and had been untruthful with the court. Approved persons are required to act with honesty and integrity and the FSA decided that the judge's comments raised serious questions in relation to Mr Verrier's conduct. Mr Verrier has referred the matter to the Upper Tribunal.

For the related decision notice, please see the 'Other FSA Publications' section of this update.

15 May: FSA fines Habib Bank AG Zurich £525,000 and Money Laundering Reporting Officer £17,500 for anti-money laundering control failings.

The FSA has imposed fines of £525,000 and £17,500 on Habib Bank AG Zurich ('Habib') and its money laundering reporting officer, Syed Itrat Hussain, respectively. The FSA has concluded that Habib had exposed itself to an unacceptable risk of money laundering over a three year period due to its failure to have adequate anti-money laundering ('AML') systems and controls in place. In particular, it maintained a high risk country list which failed to include some high risk countries in which it did business but where it had local knowledge. Further, more than half of its deposits come from jurisdictions that have less stringent AML requirements and perceived higher levels of corruption than the UK. Hussain was responsible for overseeing Habib's AML systems and controls but failed to perform this role to an acceptable standard. Both parties settled early and were therefore entitled to 30% discounts on their fines.

For the related final notices, please see the relevant section of this update.


15 May: Solvency II and the London Market. The FSA has published a speech given by Julian Adams, Director of the FSA's Insurance Division, at the Insurance Day Summit. His speech focuses on the steps to be taken towards the implementation of Solvency II and the issues that have so far been faced. In accordance with the agreed timetable, firms will start to make submissions to the FSA this month to approve the models being adopted to implement the new regime. Formal applications will follow once the FSA has assumed its legal powers under Solvency II. Having given a recap of the timetable in place, Adams gives some feedback on issues and queries that have been raised during firms' preparation, highlighting those with specific relevance to the London Market. These include issues relating to methodology, scope of models, aggregation and dependency assumptions, the Use test, model change policies and catastrophe modelling.

Adams has also published a letter with his speech which provides general advice to firms on the issues raised most frequently.

Bulletins and newsletters:

No new developments this week.

Final notices:

18 May: Carousel Finance Limited. The FSA has issued a final notice, dated 18 May 2012, cancelling Carousel Finance Limited's ('Carousel') Part IV permission for its failure to pay fees and levies owed to the FSA in the amount of £2,785, despite repeated requests by the FSA that it does so. Its failure to comply has led the FSA to believe that Carousel does not conduct its business soundly and prudently and that it is not a fit and proper person.

16 May: Fawad Afzal Choudhry. The FSA has issued a final notice, dated 16 May 2012, cancelling Mr Fawad Afzal Choudhry's registration as a small payment institution under the Payment Services Regulations 2009. The reason for this action is that the FSA has concluded that Mr Choudhry failed to notify it of the changed address of his head office which prevents the FSA from regulating his business effectively.

11 May: Stuart Unwin. The FSA has issued a final notice, dated 25 April 2012, prohibiting Stuart Unwin from carrying on any significant influence function, on the basis that he has not met the FSA's minimum competency and capability requirements. Mr Unwin had referred this matter to the Upper Tribunal (Tax and Chancery Chamber) but withdrew his referral following settlement discussions with the FSA and with the tribunal's permission. The FSA has agreed that if Mr Unwin takes steps to remedy his lack of competence and capability it would be "minded to" revoke its prohibition order on Mr Unwin's application.

4 May: Syed Itrat Hussain. The FSA has issued a final notice, dated 4 May 2012, fining Syed Itrat Hussain £17,500 for failing to ensure (as was his responsibility as an approved person) that Habib Bank AG Zurich ('Habib') complied with the FSA's anti-money laundering ('AML') systems and controls requirements. Specifically, Hussain failed to conduct adequate due diligence in relation to Habib's high risk customers, adequately review its AML systems and controls, and establish and carry out adequate assessments of customers' risk. Hussain was entitled to a 30% discount on his fine due to his early settlement.

For the related press release, please see the relevant section of this update.

4 May: Habib Bank AG Zurich. The FSA has issued a final notice, dated 4 May 2012, fining Habib Bank AG Zurich ('Habib') £525,000 for breach of the FSA's Principles for Businesses relating to management and control of its AML systems and controls. Over a three year period, Habib failed to ensure that it had: established an adequate procedure for assessing its customers' AML risk levels, conducted sufficient enhanced due diligence in relation to its higher risk customers, adequately reviewed its AML systems and controls, or revised training to address shortcomings in AML practice (for example). Habib was entitled to a 30% discount on its fine for agreeing to settle early.

For the related press release, please see the relevant section of this update.

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:

17 May: Designation of investment firms. The FSA has published a short paper in collaboration with the Bank of England, outlining how the Prudential Regulation Authority ('PRA') will designate some investment firms for regulation by the PRA. These designated firms will then be dual-regulated by both the PRA and the Financial Conduct Authority ('FCA'). The factors that the PRA will consider when deciding which firms to designate will include the assets of the firm and, where the firm is a member of a group, the assets of other 730K Investment Firms within the group, whether any other members of that group have been designated, and whether the firm's activities have a material impact upon the PRA's ability to advance any of its objectives in relation to other PRA-authorised persons in its group.

17 May: Occasional paper series – measuring the impact of prudential policy on the macroeconomy. This paper explores the trade-off between the greater economic stability associated with Basel III legislation, which requires banks to hold a higher ratio of equity capital to debt funding, and the risk of the increased economic activity which will occur as the banks attempt to mitigate their short-term losses. The paper concludes that overall, the impact to the UK economy of the Basel III package will be positive and provide net benefits of approximately £11.9 billion per annum. It is expected that this benefit will accrue due to the decreased probability the measures create of a systemic risk crisis occurring in which the UK's GDP would be impacted.

16 May: Performance against service standards. The FSA has published its latest performance results against its service standards in relation to authorisation, regulatory decisions, complaints against the FSA, notifications, communications, listing and consumer satisfaction.

16 May: FG12/14 – Transaction reporting of strategy trades. The FSA has published final guidance, dated 16 May 2012, on transaction reporting of strategy trades. This guidance comes as a conclusion of the consultation held by the FSA in January on the issue. The guidance applies to exchange traded strategy trades where two or more legs that are dependent on each other are executed simultaneously. It applies to transaction reports submitted to the FSA. This document sets out the guidance and provides two examples of its application. It will be effective from 15 August 2012.

16 May: Anthony Verrier decision notice. The FSA has published a decision notice, dated 28 March 2012, banning Mr Anthony Verrier, a senior director at BGC Brokers LP from performing regulated activities on the basis that it believes that he is not a fit and proper person. Comments have been made by the High Court and Court of Appeal in relation to Mr Verrier's participation in an "unlawful means conspiracy" and departed from the truth in his testimony "where the truth was inconvenient", which have raised concerns over his honesty, integrity and reputation. Mr Verrier has referred this matter to the Upper Tribunal where both sides will present their cases.

For the related press release, please see the related section of this update.

14 May: Banking applications and variations of permission to add 'Accepting Deposits'. The FSA has updated a webpage providing information on the application process for banking authorisation under the Financial Services and Markets Act 2000 ('FSMA') and applications to vary existing permissions to add 'accepting deposits'. It highlights the importance that the FSA places upon maintaining proportionality within the application process and its intention to continue encouraging new entrants to financial services.

14 May: Guidance on the practice of 'Payment for Order Flow'. The FSA has published final guidance setting out its views about payment for order flow (PFOF) arrangements. The guidance outlines what the practice entails, its advantages and disadvantages, the COBS and SYSC rules that govern it, and provides guidance that intends to ensure consistency when applying the rules. The FSA conducted a consultation in October 2011 on this subject and has created this guidance now due to its concern that the practice may breach rules on conflicts of interest, inducements and best execution.

Alongside this, the FSA has also published a summary of feedback received from its consultation paper.

11 May: Framework Memorandum of Understanding between regulators of multi-disciplinary practices. The FSA has published a framework Memorandum of Understanding which records non-binding arrangements between the parties to it (the 'Regulators'), which are bodies that regulate, inspect, or oversee the carrying on of various activities by individuals and licensed bodies. The memorandum also records a mutual understanding of the public interest in proper co-operation and co-ordination, and provides a framework for co-operation, co-ordination and exchange of information in order to facilitate effective public protection and working relationships. It does not create legal rights or liabilities, but is a statement of intent, comprising principles to which the signatories will adhere so far as they practicably and lawfully can.

UKLA publications:

No new developments this week.

Upper Tribunal (Tax and Chancery Chamber) (formerly Financial Services and Markets Tribunal (FSMT)):

No new developments this week.

Financial Ombudsman Service (FOS):

No new developments this week.

London Stock Exchange (LSE):

18 May: Announcement of preliminary results of London Stock Exchange Group plc for the year ended 31 March 2012. The LSE has published its preliminary results for the year ended 31 March 2012. Overall, the results demonstrate excellent growth and diversification (with growth achieved across all business segments), a strong financial performance and a total income up 21% on the same period last year with revenue up 10%.

11 May: London Stock Exchange Group hosts Pakistan Prime Minister, Yousaf Gillani. The LSE welcomed the Prime Minister of Pakistan, Yousaf Gillani, to an event at its headquarters in London. The event reinforced the strong financial ties between the UK and Pakistan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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