REGULATORY UPDATE
scams. It is also collating liquidity data to monitor risks of firm failure, while taking advantage of the vast amount of data available and using it for analytics, which undoubtedly will drive strategy going forwards. Additionally, the FCA has, in
conjunction with the Bank of England and the PRA, proposed enhanced powers to strengthen the resilience of critical third parties. The proposals, which are now included in the Bill, include a framework to identify potential critical third parties, implement minimum resilience standards for them, and develop tools to test the services provided. Finally, the FCA, along with the PRA
and Bank of England, is seeking feedback on the potential benefits and risks related to the use of artificial intelligence (AI) in financial services. It is looking into how the current regulatory framework applies to AI and whether additional clarification of existing regulation may be helpful. It will be interesting to see how the FCA approaches AI in the future and whether it will factor it into its new results-based approach to regulation.
GO LONG! The Bill will bring to life recommendations by the Treasury Committee. These recommendations centre on the desire for financial services regulation, in particular from the FCA and PRA, to have as their secondary objective the goal of promoting long-term economic growth. Desperation for international competitiveness should not be allowed to weaken the UK’s high regulatory standards. Regulators everywhere will
be glad that clause 24 of the Bill includes this objective, to see the government protecting high regulatory standards and approaching regulation through a long-term lens.
REGULATORY CONSISTENCY As well as the big picture developments, the FCA has introduced a number of consultation papers and policy papers relating to investment business consistent with overall strategic objectives.
EQUITY MARKETS The FCA wants to improve how equity markets operate, by amending provisions that impose compliance and costs without demonstrable benefits. In CP22/12, it has proposed reforms which would “lower the cost of reporting for firms, improve post-trade transparency” and remove restrictions which limit “the ability of UK trading venues to compete with other markets”. The FCA is focusing long term on financial resilience.
consumers’ risk appetite is well matched to the product profiles for direct offer financial promotions. Firms must also be clearer on risks to consumers along the journey, work on client categorisation, and review appropriateness tests. ‘Refer a friend’ bonuses and other inducements to invest are now banned. This will also be reflected in the Bill.
// THE FCA IS USING SOCIAL MEDIA AND ONLINE INFORMATION TO SPOT POTENTIALS FOR HARM //
FINANCIAL PROMOTIONS In accordance with its consumer investment strategy, the FCA has reformed high risk investment promotion through PS22/10. With increased online marketing of these investments, the FCA is concerned customers are not appreciating the specific risks of products, and instead are just ‘clicking through’ and accessing investments without much pause. Better checks may now need to be carried out to ensure that retail
Compliance Forum: The fraud landscape in an uncertain world, and what to do about it Panelists discuss fraud trends and practical takeaways.
cisi.org/fraud- landscape
APPOINTED REPRESENTATIVES (ARs) Policy Statement 22/11 focuses on the AR regime and implements new rules for principal firms. The FCA has identified a need for clearer rules to mitigate the risk of ARs mis-selling or misleading consumers, in part through inadequate oversight by their principals. Therefore, the new rules increase the onus of principals for appropriate supervision of their ARs. These rules
include ensuring adequate systems, controls, and resources are in place, assessing and monitoring risks ARs pose in a similar way as principals do for their own business, reviewing ARs’ activities annually, having clear criteria for when to terminate an AR relationship, and notifying the FCA of upcoming AR appointments 30 calendar days before they take effect. This requirement for prior
notification is perhaps most significant because it is a step towards the FCA looking more at the AR’s approval substantively, rather than relying mostly on the principal to conduct all relevant assessments of suitability and due diligence.
CONSUMER ADVERTISING Consistent with the forthcoming ‘consumer understanding’ outcome under Consumer Duty, as well as financial promotion reforms, the FCA is also focusing on how firms communicate. CP22/20 on sustainability disclosure requirements (SDRs) and investment labels highlights the FCA’s concerns that firms are ‘greenwashing’ their products, which may be eroding trust in the market for
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