UK: FCA Director Megan Butler Discusses Sexual Harassment In The Context Of SM&CR (Investment Management Brief: 1 November 2018)

Last Updated: 2 November 2018
Article by David Heffron, Gayle Bowen, Elizabeth Budd, Ian Warner and David Young


FCA Director Megan Butler discusses sexual harassment in the context of SM&CR

Megan Butler, FCA Executive Director of Supervision – Investment, Wholesale and Specialists has written a letter [28.09.2018] to the Women and Equalities Committee. The letter followed the Committee's report on sexual harassment in the workplace, and reiterated the FCA's view that sexual harassment is misconduct and confirmed that it falls within the scope of the FCA's SM&CR framework. The Director appeared before the Committee earlier this year.

The Director noted that the FCA would "consider if an individual has had a criminal conviction, sanctions for discrimination, harassment or sexual misconduct" when assessing whether a Senior Manager or certified staff member is "fit and proper", for the purpose of both SM&CR and "approved person" applications.

In the Director's view, non-financial misconduct such as sexual harassment can amount to a breach of the FCA's conduct rules, particularly the requirements to act with integrity. Where such misconduct has occurred, the Director emphasised the requirement to alert the FCA under Principle 11 (as reinforced by Senior Manager Conduct Rule 4), as well as the importance of maintaining internal whistleblowing and complaints processes.

In closing, the Director noted that the FCA would continue to pay attention to how firms handle personal misconduct, including allegations of sexual misconduct, with the roll-out of the SM&CR regime being one way in which the FCA will achieve this.

FCA publishes Feedback Statement on Digital Regulatory Reporting

The FCA has published a response [17.10.2018] to its "Call for Input on Digital Regulatory Reporting (DRR)". The Call for Input was published in February 2018 and sought feedback on a 'proof of concept' developed at a TechSprint with the Bank of England in November 2017. The FCA considered that DRR could make it easier for firms to meet their regulatory reporting requirements. It therefore sought feedback on the technical aspects of the DRR concept, how it could be improved and whether there were broader issues associated with the implementation of DRR.

The Feedback Statement outlines that most respondents agreed "there are significant potential benefits to be gained by the introduction of DRR", both in terms of efficiencies and consistency of information received by the FCA. However, there are concerns that rolling out the DRR would involve effort and costs that would not be outweighed by the perceived benefits. The FCA noted that if it decides to proceed with implementing a DRR regime, it would continue to consult with industry to minimise any disproportionate costs to business.

The Feedback Statement also outlines issues relating to how a DRR regime could apply to existing rules and whether there are any barriers to implementation in this regard, as well as the appropriate role for the regulators in DRR regimes.

Separately, responses to the Call for Input influenced the design of the current pilots of the DRR, a 6-month trial with the Bank of England and various organisations which began in June 2018. Read more on the Call for Input and the FCA's pilots for DRR in our earlier updates. It is intended that the responses to the Call for Input will be tested during the pilot, including whether technical improvements can be made and what standards and data formats are most appropriate.

The FCA will now await the technical paper to be published by pilot participants, which is expected in Q1 2019. The FCA will use this feedback, as well as the responses to the Call for Input and the Feedback Statement to evaluate whether, and how, a DRR framework should be implemented.

The FCA press release on the Call for Input can be found here.

FCA confirms plans to extend access to the Financial Ombudsman Service to SMEs

The FCA has published near-final rules [16.10.2018] to allow small and medium-sized enterprises (SMEs) access to the Financial Ombudsman Service (FOS). In order to access the FOS, SMEs must meet the following criteria:

  • an annual turnover below £6.5m; and
  • have fewer than 50 employees or an annual balance sheet below £5m.

Andrew Bailey, Chief Executive of the FCA said that "it is vitally important for SMEs to have a mechanism to resolve disputes and we are clear the Financial Ombudsman Service is the right route for this" and that the FCA "will work closely with [the FOS] to ensure that they are ready, so that SMEs are able to benefit from the new rules as soon as they come into force".

The near-final rules will encourage the FOS to take practical steps to extend their remit. It is expected that the FCA will publish final rules later this year, which will come into force on 1 April 2019.

Joint pensions strategy published by the FCA and TPR

The FCA and TPR have published a joint regulatory strategy [18.10.2018] to regulate the pensions and retirement income sector.

This regulatory strategy aims to address fundamental changes in the pension sector and has identified two key areas to address. The first is a strategic review of consumer pensions and an in-depth look at consumer tools for decision making surrounding pensions. The second is to ensure that pension scheme members are getting value for money.

The regulators have already worked together on a campaign to tackle pension scams [14/08.2018]. Christopher Woolard, FCA's Executive Director of Strategy and Competition, said that the two regulators have worked closely to "produce a co-ordinated and cohesive strategy that will produce positive results for people in or approaching retirement". Lesley Titcomb, Chief Executive of the TPR, highlighted that the "goal is to ensure the people who run workplace pensions meet our expectations so that members can have confidence their savings are protected".

FCA's regulation round-up for October 2018

The FCA has published its Regulation round-up for October 2018 [18.10.2018].

In his introduction, Christopher Woolard, Executive Director of Strategy and Competition, discusses the FCA's new Pensions Strategy with the Pensions Regulator, which aims "to tackle the risk of people having inadequate retirement incomes" as well as addressing the FCA's approach to the pensions sector. The Pensions Strategy sits alongside other work that the FCA is carrying out in this sector, including new rules and guidance recently published by the FCA on improving the quality of pension transfer advice.

The Regulation round-up also includes:

  • a reminder that the FCA is seeking feedback until 7 December 2018 on its two recent Brexit "no-deal" consultation papers [read our recent update on these consultations here];
  • an overview of the FCA's Feedback Statement on Digital Regulatory Reporting [see more on this above];
  • a reference to the FCA's discussion paper on climate change and green finance [see more on this below]; and
  • a reminder that the FCA's consultation on its proposed guidance on the Senior Managers and Certification Regime closes on 10 December 2018 [read our recent update here].

The FCA's developing approach to climate change and green finance

Christopher Woolard, Executive Director of Strategy and Competition has delivered a speech at the FCA's Innovating for a Greener Great Britain event held in London [19.10.2018]. The event posed an opportunity for firms seeking to provide innovative financial products and services in green finance and ethical investing. Similar themes were addressed at the Green Finance Summit held earlier this year, which you can read about in an earlier edition of the IMB here.

The Director's speech and the Innovate event followed the publication of the FCA's discussion paper on "Climate change and green finance" (DP18/8) [15.10.2018]. Acknowledging that the financial services market "could be transformed both by climate change itself and the transition to a low carbon economy", the FCA has set out how this might affect its work.

In particular, the discussion paper considers:

  • how climate change could impact the FCA's long and short-term objectives, particularly in relation to the FCA's overarching strategic objective to ensure markets function well and its operational objectives of protecting consumers, improving market integrity and advancing competition;
  • the opportunities and risks that the transition to a low-carbon economy presents for the UK's financial services markets, such as the growing demand for "green finance" products such as green bonds; and
  • the specific action the FCA is going to take in this area in the near future, including in relation to innovation, as well as disclosure and reporting requirements.

The FCA is seeking feedback on these areas by 31 January 2019. In the meantime, the FCA and PRA will be establishing a Climate Financial Risk Forum to enhance the "UK financial system's resilience to climate change".

The Director concluded his overview of the discussion paper by reminding his audience that the FCA wants "to ensure that firms not only respond to the challenges climate change poses, but also make the most of the opportunities it presents".

The CMA publishes updates to working paper, response hearing summaries and notice of confidentiality ring

The updates are part of an investigation by the Competition and Markets Authority (CMA) into the acquisition and supply of investment consultancy (IC) and fiduciary management (FM) services in the UK. The CMA webpage on the investment consultants market investigation has been updated accordingly.

Working paper

The CMA has published [25.10.2018] an updated working paper on the investment consultants market investigation. This is in response to feedback received on previously published data. The CMA expects to publish its final decision in December 2018, which will take into consideration the evidence obtained, responses to the provisional decision report consultation and other submissions.

Confidentiality ring

The CMA has published [25.10.2018] a final notice of its intention to operate a confidentiality ring.

The CMA has received the following data to be disclosed:

  • Analysis on the characteristics of IC/FM clients and the services they purchase from IC/FM providers;
  • Analysis on the characteristics of IC/FM clients' investments with asset management firms; and
  • The annual Greenwich Quality Index (GQI) rating of investment consultancy firms.

The confidentiality ring will operate from 9.30am on 29.10.2018 until 5pm on 05.11.2018 and access will be granted to approved external legal and/or economic advisers, which will be limited in number (decided by the CMA and based on the number of expressions of interest received). Those allowed access to the confidentiality ring must sign undertakings before it is granted.

Response hearing summaries

Finally, The CMA has published [25.10.2018] 12 response hearing summaries. These include: Aon, Barnett Waddingham, Bfinance, Cardano, Charles Stanley, Investment Association, LCP, Mercer, River and Mercantile, Russell Investments, XPS and WTW.

FCA publishes a new approach to competition

The FCA has published [19.10.2018] an Approach to Competition and feedback statement. This is part of the FCA's Mission to enhance competition in the UK financial markets. The FCA's press release on its approach to competition can be found here.

FCA publishes an evaluation paper on the impact of benchmarks

The FCA has published [22.10.2018] an evaluation paper on the Benchmarks (Amendment) Instrument 2015. This legislation brought seven benchmarks into the FCA's regulatory and supervisory regime. This evaluation paper is in line with the FCA's 2017 Mission.


Central Bank takes a collaborative approach to innovation*

On 22 October 2018, Gerry Cross, Director of Policy and Risk at the Central Bank of Ireland, gave a speech to an audience of innovation stakeholders on the Central Bank's Innovation Hub. The Hub was launched in April this year to encourage collaboration between individuals, firms and the Central Bank on innovation and FinTech matters. It also provides regulators with an opportunity to gain early knowledge and insight into potential new opportunities and concerns.

Source: Central Bank of Ireland, 22 October 2018

Central Bank conference: culture and diversity*

Delegates at a recent Central Bank event at Trinity College heard from several guest speakers including:

  • Central Bank Deputy Governor, Ed Sibley, who gave a speech on corporate governance issues in Ireland. Mr Sibley focused much of his speech on the importance of cultural change within financial services in Ireland and the impact that this will have on Irish consumers. He also highlighted the Central Bank's work to improve diversity among senior management roles. It has urged Ireland's five largest retail banks to submit an outcome focused diversity strategy and implementation plan by 30 November 2018 as part of its Behaviour and Culture review; and
  • Director General, Derville Rowland, who shared the outcomes of the Central Bank's report on current cultures and behaviours and associated risks within retail banks.

Source: Central Bank of Ireland, 25 October 2018

Ireland an important centre for securities*

Director of Securities and Markets Supervision, Colm Kincaid, recently commented on the supervision of conduct in the funds market. Mr Kincaid highlighted the importance of Ireland as a jurisdiction for securities, and in particular, the leading role it has taken in developing a regulatory framework for Exchange Traded Funds (ETFs). He also spoke of the Bank's plans for financial regulation, notably, its intention to focus on "closet indexing" or "index hugging" as well as its recent work to grant 568 fund authorisations during the first half of 2018 alone in light of Brexit.

Source: Central Bank of Ireland, 24 October 2018

* Contains Irish Public Sector Information licensed under a Creative Commons Attribution 4.0 International (CC BY 4.0) licence. For further information please click here.


ESMA publishes NSA contact points for MiFID II communications

The European Securities and Markets Authority (ESMA) has published a list of the contact points of national supervisory authorities (NSAs) for communication in the MiFID II framework on supervisory cooperation, authorisation, acquisitions and passporting.

The published list provides information on contact points to "facilitate communication on the topics of":

  • cooperation and exchange of information between NCAs;
  • consultation of other competent authorities prior to the authorisation of an investment firm;
  • consultation process between relevant competent authorities in relation to proposed acquisition of a qualifying holding in an investment firm; and
  • passporting of Investment services.

Information from the NCAs will be set out in Annex 1 of the document, which will be updated by ESMA to reflect any changes and will be communicated to all NCAs. NCAs are advised they should report any changes to the details in the Annex to ESMA "in a timely manner".

ECON publishes updates to draft reports on the Commission's proposals on cross-border distribution of collective investment funds

The Committee on Economic and Monetary Affairs of the European Parliament (ECON) has published updates to draft reports on the Commission's proposals on cross-border distribution of collective investment funds.

The reports, prepared by Wolf Klinz MEP, can be found in the links below.

  • the Draft report PE627.813v01-00 on the proposal for a regulation of the European Parliament and of the Council on facilitating cross-border distribution of collective investment funds and amending Regulations (EU) No 345/2013 and (EU) No 346/2013
  • the Draft report PE627.812v01-00 on the proposal for a directive of the European Parliament and of the Council amending Directive 2009/65/EC of the European Parliament and of the Council and Directive 2011/61/EU of the European Parliament and of the Council with regard to cross-border distribution of collective investment funds


Bank of England and PRA publish consultation on EU withdrawal

The Bank of England has published [25.10.2018] an update to its supervisory and regulatory approach in relation to financial services legislation under the European Union (Withdrawal) Act. The package of communications sets out:

  • changes to rules and binding technical standards arising from EU withdrawal ; and
  • further guidance for authorisation for incoming EEA firms and non-UK FMIs (including the temporary permissions and recognition regimes).

The Bank of England's press release (including links to the communications) can be found here.

John Glen sets out the government's views on ESG disclosures and the newly proposed regulation

Economic secretary to the Treasury, John Glen MP, has written [25.10.2018] to the chair of the House of Lords European Committee, outlining the position of the government on environmental, social and governance (ESG) disclosures.

Glen asserted that the government supports improving ESG disclosures and "are not opposed to a new Regulation if that is the best method through which we can achieve best practice across industry for the benefit of investors".

Glen also questioned whether the EU's approach to the ESG proposal would have "consequences for the UK as a third country" and made further comments on how the UK's position on this might change after Brexit.

The letter concluded with a statement that the UK government are "confident on our ability to negotiate a bilateral future economic and regulatory arrangement in financial services...whilst respecting the autonomy of the UK and EU's legislative process".

Andrew Bailey gives speech on FCA's preparations for Brexit

Andrew Bailey, CEO of the FCA, has delivered a speech [25.10.2018] at the City Banquet, Mansion House in London.

Before covering the FCA's Brexit planning, post-transition future and the importance of free trade, Bailey reassured the audience that the speech did not "count as entertainment for the purposes of MiFID II". Bailey further commented on a few complaints he has received on MiFID II relating to "a critical decline in the quality of sandwiches served at City events" and "a troubling rise in golf handicaps".

Technical notices for no deal Brexit

The government has issued the fourth tranche of technical notices on a no deal Brexit in the collection: How to prepare if the UK leaves the EU with no deal [12.10.2018]. The notices cover issues including "providing services", "structuring your business" and "consumer rights" in the event of a no deal Brexit.

Bank of England to provide analysis on different Brexit scenarios

Mark Carney, Governor of the Bank of England, confirmed that "the Bank will provide an analysis of how the EU Withdrawal Agreement will affect our ability to deliver our statutory remits for monetary and financial stability, including in a 'no deal no transition' scenario" in a letter to the Treasury Committee [16.10.2018]. This was in response to a request from Treasury Committee chair, Nicky Morgan MP to the Bank of England, FCA and the Treasury for "an analysis of the impact of the Brexit Withdrawal Agreement and future framework, once it has been negotiated".

This section of the Investment Management Brief contains Parliamentary information licensed under the Open Parliament Licence v3.0.

New Regulations published on Regulators' powers following Brexit

The Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 (the Regulations) have been enacted by the Treasury under the European Union (Withdrawal) Act 2018 (the Withdrawal Act) [25.10.2018]. The Regulations delegate some of the Treasury's powers under the Withdrawal Act to the FCA, PRA, Bank of England and Payment Services Regulator in order to "address failures of retained EU law to operate effectively and other deficiencies arising from the withdrawal of the United Kingdom from the European Union."

HM Treasury publishes draft Brexit SIs and updates

HM Treasury has published [31.10.2018] updates to a number of draft Brexit statutory instruments, including:

HM Treasury has also published updates to the Long-term Investments Funds (Amendment) (EU Exit) Regulations 2018 explanatory information and the Trade Repositories (Amendment and Transitional Provision) (EU exit) Regulations 2018 explanatory memorandum.


Read our article "FCA will back whistleblowers in sexual harassment cases" on Out-law, here.

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