December 8, 2023 by Clare Curtis

Long Term Asset Funds (LTAFs): FCA Review

The Financial Conduct Authority (FCA) has published its findings after calling for views regarding their proposed new rules, enabling a wider range of retail investors and pension schemes to access LTAFs whilst ensuring all relevant firms have a complete understanding of the potential risks involved.

The regulator also enquired as to whether to withdraw the Financial Services Compensation Scheme (FSCS) cover for regulated activities relating to LTAFs, which after consideration they decided against.

Speech Regarding Consumer Duty

A speech delivered by the director of Cross-Cutting Policy for the FCA, Nisha Arora, included findings of good practice re-Consumer Duty, three months on from its implementation but iterated that it is not a ‘Once and Done’ exercise.

She stressed the importance of firms ensuring they continue to learn and improve dynamically and to also be certain that they can evidence this in their annual board report.

She also pointed out that firms with closed products and services must check they will be ready to meet the 31/07/2024 implementation deadline.

Consumer Duty continues to be amongst the FCA’s top priorities.

Anti-Fraud Controls & Complaint Handling

The FCA has published a paper highlighting major issues they have discovered whilst reviewing anti-fraud controls and complaint handling with a particular focus on Authorised Push Payments (APPs).

The review studied how firms mitigate the risks of APP fraud and the more general aspects of fraud throughout.  The review includes examples of good practice and several instances of areas for enhancement.

The regulator expects all Payment Service Providers (PSPs) to employ regular evaluation of their systems and controls relating to anti-fraud. Within a firms approach to identifying the fraud risks they and their customers could encounter, they should utilise an unceasing development of their defences and should perpetually ensure that their control frameworks are fit for purpose.

As per Consumer Duty, firms must set their customers’ needs as a priority over profit, delivering invariably good outcomes for them.

Dear ‘CEO’ Letter

The FCA has sent out blanket letters to all CEOs of Wealth Management & Stockbroking firms stating their expectations from them, including issues such as financial crime and how the regulator wants firms to be happy with their mitigation of this and the all-encompassing Consumer Duty. We will have a more in-depth article regarding the letter shortly.

Relevant Points From Latest Fca Board Meeting 28/09/2023

During the most recent FCA board meeting, it was discussed that they expect their;

  • Policy and Rules Committee executive to carry out its work on ‘Smarter Regulatory Framework’ to a sensible and measured timetable in order to demonstrate correct long-term decisions.
  • It was noted by the CEO that the FCA has succeeded in achieving its ‘Gender Target’ for its senior leadership team of 50% (Note here the FCAs focus, and level of importance given to diversity awareness)
  • The decision was reached not to exclude the Financial Services Compensation Scheme cover for regulated activities related to Long Term Asset Funds.

Internal Audits

The FCA has issued a statement stipulating that firms dealing in Crypto-Assets must make provisions for Independent Internal Audits (IIAs). This latest requirement is intended to ensure full compliance with Anti Money Laundering and Counter Terror Financing (AML/CTF), with this action also acting as a reminder to all regulated firms about the importance of and focus on this extremely salient issue.

The regulator stresses the necessity of the audit being independent and wholly separate from all other operations. This will assist in evaluating risk-assessments and reinforcing compliance company wide, by making all persons concerned aware of any short-falls that may need addressing.

Financial Conduct Authority Censure NMC Health

The FCA have censured NMC Health PLC (in administration) for market abuse in the shape of misleading the market about its debt. NMC, based in the UAE, published several financial statements which included appreciably inaccurate and misleading information regarding its debt position.

NMC had been utilising dual sets of accounting records and ended up downplaying its debts by a whopping $4 billion.

Once the company had gone into administration, it was evidently clear NMC had painted an inaccurate picture of its financial position. This was discovered in an investigation by the FCA in co-operation with NMCs administrators and international partners.

The FCA have handed down a censure to NMS as opposed to a financial penalty so as to retain any funds to as high a level to help re-imburse the company’s creditors.

Call For Input: Asymetry Between Big Tech & Financial Services Firms.

The FCA have issued a ‘Call for Input’ regarding if and how the data symmetry between Big Tech and Financial Services firms may impact on how effectively competition evolves in Financial Services markets.

The regulator is seeking to investigate whether this influence could result in Big Tech Companies securing ingrained market power in the Financial Services sector. On the flip side, the FCA want to discover if and what any potential benefits could be gotten from greater use of Big Tech firms’ customer data.

The FCA is seeking feedback on these issues by 22/01/2024, with the goal of publishing the outcome by Q2 2024.

FCAs Final Report On Investment Firms Prudential Regime (IFPR) Implementation Observations.

The FCA have published their concluding report on their multi-firm review into firms’ Internal Capital Adequacy and Risk Assessment (ICARA) process and reporting requirements within the IFPR.

The regulator foresees that the IFPR will streamline and simplify the Prudential Regulations for the circa 3500 MiFID Investment Firms that are prudentially regulated.

The report indicates a majority of firms worked well with the process and displayed they were capable of making the transition to the fresh regulations. However, areas for improvement were identified. Among these it was viewed that refinements could be made in:

  • Group ICARA processes.
  • Internal Intervention markers.
  • Wind Down Assessments.
  • Liquidity Assessments.
  • Operational Risk Assessments.
  • Regulatory Data Submissions.

The FCA is clear that when they issue rules and guidance they expect these to be followed and those who do not will face the consequences.  Certain firms have taken a relaxed attitude to some of the key FCA regulatory requirements and this attitude will simply not be tolerated any more.  The FCA is starting to show its teeth in this respect.

The regulator insists that firms must act immediately and contemplate the findings and assure themselves and the FCA that they are in line with the rules and mitigating any harm from their operations.