FCA fines banks over AML and arrears failings

The middle period of June saw the Financial Conduct Authority impose two significant fines on two different banks.

Firstly, a large retail banking group was fined £64,046,800 for failing to treat customers in arrears fairly. As a result of its failings, the group has also been forced to pay around £300 million in redress to around 526,000 disadvantaged customers.

The failings persisted for an extended period between April 2011 and December 2015. Throughout this period, call handlers at the banking group consistently failed to gather adequate information to assess customers’ circumstances and their ability to afford certain levels of payment. The FCA was also concerned that often inexperienced call handlers were signing off payment arrangements without requiring sign off from supervisors.

A skilled person appointed by the FCA to review the banking group’s mortgage arrears handling processes looked at a sample of 100 customer files and identified that there was unfair treatment in 38% of them.

The banking group also failed to maintain adequate records, and, in many cases, its staff could not correctly recognise customer complaints and respond to these appropriately.

Mark Steward, the FCA’s executive director of enforcement and market oversight, said:

“Banks are required to treat customers fairly, even when those customers are in financial difficulties or are having trouble meeting their obligations.

“By not sufficiently understanding their customers’ circumstances the banks risked treating unfairly more than a quarter of a million customers in mortgage arrears.”

A spokesperson for the banking group said:

“We have since taken significant steps to enhance how we support mortgage customers experiencing financial difficulty, including investing in colleague training and procedures.”

Later in the month, the London Branch of a retail bank active in continental Europe was fined £37,805,400 for having inadequate anti-money laundering systems and controls. Again, the failings persisted for a long period, in this case between October 2012 and September 2017.

The FCA says it made the bank aware of its concerns on three occasions during this period, but that the bank failed to take appropriate action. About poor AML and arrears handling.

As a result, by March 1 2017, the due diligence checks on 1,772 clients were overdue, but many of these clients were still able to continue to do business with the bank’s London branch. The bank’s automated system that it used to flag potential money-laundering was missing some 40 high-risk countries and 1,100 high-risk clients.

The FCA enforcement investigation certainly prompted the bank to take action in one sense – in mid-2016, its Financial Crime Team in Compliance consisted of just three full-time employees, but two years later, staffing levels in this business area had risen to 42!

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article.


FCA appoints Stock Exchange boss as CEO

Nikhil Rathi has been announced as the new permanent chief executive of the Financial Conduct Authority, in succession to Andrew Bailey, who left the regulator in March to become Governor of the Bank of England. Mr Rathi is currently the CEO of London Stock Exchange plc.

Mr Rathi is expected to take up his post at the FCA sometime in the autumn, with Christopher Woolard continuing as interim CEO until then, before he is then expected to leave the FCA. In seven years at the FCA in senior roles, such as director of strategy and competition, Mr Woolard became the regulator’s self-styled ‘consumer champion’, but media reports suggested Chancellor Rishi Sunak MP was looking for a different skillset from the next FCA boss. It has been suggested that Mr Rathi has been preferred to Mr Woolard, reported to have been his principal rival for the permanent position, for two main reasons:

  • The Government was looking for someone who could spearhead genuine change at the FCA, as the regulator seeks to make better use of data to change the way it regulates firms
  • A candidate who was better placed to lead cooperation with international regulators in the post-Brexit world was preferred

At 40 years of age, Mr Rathi becomes the FCA’s youngest CEO and its first from a BAME background.

He has experience of the workings of the FCA having served on its Practitioner Panel and chaired its Markets Practitioner Panel. He has also worked as Director of International Development at the Stock Exchange; Director, Financial Services Group at HM Treasury; head of the Treasury’s financial stability unit during the 2008 financial crisis; and as private secretary to prime ministers Tony Blair and Gordon Brown.

Mr Rathi will not receive any bonuses or benefits in the FCA role other than his basic salary and his pension.

Mr Rathi becomes CEO at a critical time, with the economy in dire straits in the midst of the Covid-19 slump. The exact nature of the way UK firms will trade with their European counterparts in the future remains very uncertain, and there has been much criticism of late of the apparent limits of FCA regulation, and the issues on which it has chosen not to intervene, with prominent news stories surrounding a min-bond firm and a well-known fund manager.

Mr Rathi said:

“I am honoured to be appointed Chief Executive of the Financial Conduct Authority. I look forward to building on the strong legacy of Andrew Bailey and the exceptional leadership of Christopher Woolard and the FCA Executive team during the crisis. FCA colleagues can be very proud of their achievements in supporting consumers and the economy in all parts of the UK in recent months.

“In the years ahead, we will create together an even more diverse organisation, /supporting the recovery with a special focus on vulnerable consumers, embracing new technology, playing our part in tackling climate change, enforcing high standards and ensuring the UK is a thought leader in international regulatory discussions.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article


FCA announces new measures to protect borrowers affected by Covid

The Financial Conduct Authority has asked providers of credit cards, store cards, catalogue credit, overdrafts and personal loans to provide additional assistance to customers whose ability to make repayments has been affected by the coronavirus pandemic.

The ongoing health emergency has led to an improvement in their financial situation for many – perhaps their incomes have remained the same while they work from home, while their expenditure in areas such as travel and social has fallen significantly.

On the other hand, many other people have seen their financial situation deteriorate. They may have already been laid off or seen their incomes reduced while on furlough, or they may be newly self-employed and unable to access the Self-Employed Income Support Scheme to compensate for lost earnings. Others may be expecting imminent redundancy, perhaps because the Government has still not explicitly confirmed when their business sector can re-open.

Anyone adversely affected by coronavirus now has until October 31 2020 to request either a £500 interest-free overdraft or a three-month payment freeze.

For customers who have already received forbearance from their credit provider, the FCA says that they should resume repayments if they are able to do so, but that many others will require additional assistance.

When customers come to the end of a previously agreed payment freeze period, firms should contact their customers to find out if they can resume payments, and if so, agree on a plan on how the missed payments could be repaid. If the customer is still unable to make any form of repayment, they should be offered a further payment deferral. If they are able to make reduced payments, the firm must ensure that they only repay what they can afford.

For customers who already have an arranged overdraft, they can request up to £500 interest-free for a further three months. If a customer requires an overdraft of greater than £500, providers should also consider providing further support in the form of lower interest rates on the additional borrowing.

As with previous FCA interventions in this area, any forbearance granted to a customer affected by Covid-19 must not have a negative impact on their credit file, and firms are responsible for ensuring that this does not occur.

Firms will also need to consider whether it is appropriate to refer customers to providers of free debt advice and other money guidance services.

Christopher Woolard, Interim Chief Executive at the FCA, said:

“We have been working closely with other authorities, lenders and debt charities to support consumers in the current emergency. The proposals we’ve announced today would provide an expected minimum level of financial support for consumers who remain in, or enter, temporary financial difficulty due to coronavirus. Where consumers can afford to make payments, it is in their best long-term interest to do so, but for those who need help, it will be there.”

The FCA will announce details of additional support for motor finance, high-cost short-term credit, rent-to-own, pawnbroking and buy-now-pay-later customers in the near future.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article.


FCA chief discusses emergency regulation and learning from the coronavirus crisis in the regulator’s latest podcast

For interim chief executive Christopher Woolard, it’s been something of a baptism of fire. Andrew Bailey has departed to become the new Governor of the Bank of England, leaving Mr Woolard to take over the Financial Conduct Authority’s top job just before lockdown came into effect.

In the latest FCA podcast, Mr Woolard focuses on changes to the regulatory environment caused by Covid-19, and how the FCA and firms might learn from the unprecedented and unexpected changes that have taken place.

One of the FCA chief’s key messages is that firms must ensure they continue to provide high-quality customer service. This overriding requirement applies even though some staff may be absent from work, while others have been instructed to work from home.

Mr Woolard said that the steps the FCA had taken to respond to the crisis generally fell into one of three categories:

  • Measures to ensure support is provided to customers, such as interest-free overdrafts and payment freezes on loan repayments
  • Interventions to ensure the financial markets continue to operate effectively
  • Attempts to obtain judicial rulings on Business Interruption Insurance policies, and to what extent these provide cover for firms during a pandemic

Mr Woolard revealed that 1.7 million people have applied for a mortgage payment holiday since the new FCA measures were announced and that some banks and building societies have received requests from one in five of their mortgage customers. He estimates that 40% of these 1.7 million people are still experiencing financial difficulty as a result of coronavirus.

He added that customers should resume repayments, at some level, where they were able to do so, but also recognised that some people were experiencing real hardship, especially where their finances were already in a poor state prior to the pandemic.

Turning to the changes at the FCA caused by Covid-19, Mr Woolard said most of his staff had been working at home for the last 10 weeks, and that the FCA had postponed around two-thirds of the work it was planning to do. He stressed, however, that supervision and enforcement activities continue to be carried out.

The FCA chief highlighted that coronavirus may have made some consumers more susceptible to scams. For example, if an individual sees the value of their pension pot fall dramatically as share prices fall, they may be more willing to accept a tempting offer of switching it for supposed higher returns.

In the final section of the podcast, Mr Woolard explained some of the changes he wanted to see at the FCA. Many of these relate in some way to technological advances:

  • Understanding changes in firms’ business models and how these could both benefits customers and give rise to additional risks
  • How the regulator can use ‘Big Data’ to more effectively supervise firms (Lexico.com defines Big Data as “extremely large data sets that may be analysed computationally to reveal patterns, trends, and associations, especially relating to human behaviour and interactions”)
  • Reviewing the data the FCA collects from firms via regulatory returns and how this might need to change

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article



FCA reveals concerns over equity release advice standards

Equity release is something of a growing market and many older people are attracted by the idea of releasing equity from their home to give them a substantial sum of money, whilst also not being required to make any repayments.

However, given the numbers of people wanting to take out this form of mortgage, the Financial Conduct Authority has been monitoring the advice standards of firms active in this area. The regulator says it has five principal areas of concern:

  • Firms’ cases files not evidencing that equity release is suitable for the customer, for example, traditional mortgages may be more suitable in some cases
  • Firms not doing more to challenge customers over what may be inadvisable reasons to release equity. Consumers may contact advisers assuming that a lifetime mortgage is a right solution for them, but advisers must still ensure that this really is the case
  • Firms failing to take into account all appropriate customer circumstances when giving advice
  • Firms failing to fully explain to customers the costs of compounding interest over a long period of time. This means that equity release can be an expensive way to meet a short-term borrowing need. It also means that customers who have the means to pay a fee upfront should do so, with the FCA commenting on one case where the fee effectively increased by a factor of 25 after the interest on the fee accumulated over a long period
  • Firms not making it clear just how significant the costs of exiting an equity release contract can be. Some customers may seek to do this if their financial circumstances change at a later date, such as if they wished to downsize to a new property

The FCA notes that older customers are often also vulnerable customers, and so it is vital that firms treat equity release customers fairly. An equity release contract is a lifetime product, so any advice firms give will have an impact on the customer’s finances throughout the rest of their life.

In certain circumstances, equity release can be appropriate as a method of consolidating debts. However, where customers have surplus income that they could use to repay their debts, this may be preferable to consolidating via an equity release plan where a significant amount of interest might accumulate prior to the end of the term. The FCA says that too many firms are assuming consolidation is always an appropriate course of action.

The FCA’s Executive Director of Supervision, Retail and Authorisations, Jonathan Davidson, said:

“Deciding to enter into a lifetime mortgage is a big decision with a big financial impact for consumers.  In many instances it makes sense but whether it does or not depends on personal circumstances and how they might change.

“It is therefore critical that advice offered to consumers looking at lifetime mortgages is suitable for their personal circumstances.  It is clear from our review that advice being offered to such consumers, including some vulnerable consumers, is still not up to scratch.

“All firms offering these products should read our review and take action to make sure consumers are receiving advice tailored to their personal circumstances.

“We’ve continued to engage with firms where we had concerns and, as part of our ongoing supervision of Mortgage Intermediaries, we will be carrying out more detailed follow-up work into the suitability of advice in the lifetime mortgage market.

“If in doubt as to whether a lifetime mortgage makes sense for you as a consumer, you should explore your personal circumstance fully with your advisers or with independent sources such as the Money and Pensions Service.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article.


FCA gives CPD leeway to advisers and other employees

The working arrangements of many firms have altered due to the coronavirus pandemic. The Financial Conduct Authority has stressed that, during the period of disruption, firms still have an obligation to ensure relevant individuals remain competent to carry out their duties.

However, the FCA has acknowledged that it may be more difficult for employees to complete Continuing Professional Development (CPD) during the health crisis. Face-to-face seminars and training sessions have, of course, all but ceased entirely.

Where possible, employees who need to carry out CPD should examine what development activities are still available from the likes of the Accredited Bodies and professional qualifications providers. For example, many online training courses and other resources are still available.

The FCA also stresses that employees who have been furloughed will still need to demonstrate their competence in returning to work, and encourages firms to support furloughed staff by providing them with materials to complete their CPD. Firms should also ensure that anyone who is working from home knows where they can access relevant CPD.

The FCA recognises that there may be “exceptional circumstances” that prevent an employee from completing the prescribed minimum amount of CPD. Retail investment advisers are required to complete 35 hours of CPD each year, while certain employees in the insurance distribution sector need to complete 15 hours.

As well as an individual is unable to access appropriate CPD, the FCA recognises that there are two other scenarios in which an employee might be excused from the requirement to complete their usual amount of CPD. These are:

  • Where the individual’s role within the firm requires them to devote extra time to deal with the consequences of the pandemic. For example, they may now need to provide additional support to affected customers and/or may need to spend more time managing risks that relate to Covid-19
  • Where the individual has additional family responsibilities as a result of coronavirus, such as having to provide additional care for a relative

These scenarios cover the situation where an individual continues to report for work. The FCA already has a rule allowing firms to suspend CPD requirements for those on long-term sick leave.

Where an employee is unable to complete the prescribed amount of CPD, the FCA will allow individuals to defer some of their CPD until the next year. This would mean that, if an adviser could only complete 30 hours of CPD in the current 12-month period, they could compensate for this by completing 40 hours in the following 12-month period.

This special dispensation can be used by employees of any firm whose ‘CPD year’ is scheduled to end prior to April 1 2021.

Where a firm allows an employee to defer some of their CPD, there is no requirement to inform the FCA. However, firms are still expected to document internally why they have allowed the deferral to take place, together with details of how much CPD is to be deferred. In the case of financial advisers, this information will also need to be provided to the Accredited Body that will certify that the adviser remains competent.

The FCA says:

“We expect individuals to stay up to date with our Covid-19 regulatory requirements, which could count towards CPD as relevant. Firms should also look into other available online equivalents to training courses or other ways for their staff to get the necessary CPD. Firms should take these other options into account as part of their decision to carry over CPD hours.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article.


StepChange expects ‘personal debt tsunami’

Debt advice charity StepChange is warning of a £6 billion ‘personal debt tsunami’ which can all be linked directly to the coronavirus pandemic. StepChange believes that 4.6 million UK households – around one-sixth of the total number of households – will experience severe debt problems as a result of Covid-19.

For some people, coronavirus has improved their financial situation – perhaps they might now be working from home and their income is unaffected, while their expenditure on travel, socialising and luxury spending has fallen dramatically.

Others have not been so fortunate – they might have lost their jobs or might be furloughed and receiving reduced income, or they might be newly self-employed and so don’t have recourse to the Self-Employed Income Support Scheme.

The FCA has taken unprecedented action by instructing lenders in almost every sector to grant payment holidays to affected borrowers.

StepChange’s survey suggests that, by late May 2020, each affected person had accumulated an additional £2,073 of debt on average – £1,076 in the form of arrears and £997 in new debt. These figures are expected to rise further as the health crisis continues.

It believes that, since the Covid lockdown was imposed, 1.2 million people have fallen behind on their utility bills, 820,000 people have fallen into arrears on council tax and an additional 590,000 are experiencing rent arrears. 4.2 million people have taken on some form of borrowing in order to meet expenses during this period. It adds that 70% of those affected were not in financial difficulty prior to lockdown.

StepChange also says that the debt ‘tsunami’ will hinder the UK’s economic recovery after an eye-watering drop in GDP of minus 20.4% was announced for April.

StepChange CEO Phil Andrew said:

“We were already dealing with a debt crisis, but Covid has so far added another four million people and counting to the number who are going to need help finding their way back to financial health. With £6 billion of additional household debt directly attributable to the effects of the pandemic, this is a problem that isn’t going to solve itself.

“Cost might be seen as a barrier to the recommendations we outline. However, the costs of not intervening would ultimately be higher. The misery, damage and economic drag that will inevitably follow the pandemic can and should be mitigated through public policy, and the approaches we suggest are the biggest game-changers.”

Debt advice charities are expecting demand for their services to double before the end of 2020.

The Government is to provide £37.8 million of additional funding for debt advice in England, with an additional £5.9 million to be provided to the devolved administrations in Northern Ireland, Scotland and Wales. The bad news for firms is that they will be expected to meet £14.2 million of this via an increase to the financial services (debt advice) levy they pay to the Financial Conduct Authority.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article.



Guarantor lender reported to be facing a compensation bill of at least £35 million, following FCA investigation

Shortly after the news that one of the UK’s major non-mainstream lenders was under investigation by the Financial Conduct Authority, the lender themselves announced that the investigation could lead to it being forced to pay at least £35 million in compensation.

It is understood that the FCA has instructed the firm to process its backlog of complaints as a priority. The firm currently estimates the cost of providing redress to customers whose complaints need to be upheld as £35 million, but also warns that its total compensation bill “could be materially higher”.

The firm’s chairman will step down in the near future, a potential buyer has pulled out and the firm has indicated it is not in a position to pay a dividend to its shareholders this year.

It has been reported that the FCA is investigating the lender over its creditworthiness and affordability checks. For many of the UK’s lenders recently, it has been a case of: if the FCA doesn’t get you, the Financial Ombudsman Service will.

Some lenders do not conduct a detailed analysis of applicants’ expenditure in each area of spending. Instead, many firms use an estimate of living expenses, obtained from the Office for National Statistics. This ONS figure is merely the average expenditure that would be expected from someone living in the UK with the profile of the applicant in question. Recent FOS judgements clearly show that the independent complaints body does not agree that using ONS data to estimate expenditure is appropriate.

In most of its recent adjudications on guarantor and instalment loans, FOS has concluded that the firm should have conducted a detailed expenditure analysis and verified any expenditure data supplied by the customers by asking to see their bank statements. FOS often decide bank statements are a necessary component of ‘proportionate checks’ even when the loan amount is as low as £1,000 and/or the loan term is as short as 12 months.

Many firms also specialise in lending to consumers with an impaired credit profile, and FOS often concludes that this is another reason not to use ONS data to estimate expenses, as an applicant with a poor credit history is unlikely to be a typical ‘average’ person.

Guarantor lenders’ business models work on the basis that they lend to applicants who would not have been accepted for a loan had they not been supported by a suitable guarantor. However, it is clear that FOS does not believe that this means the checks carried out on the applicant can be any less rigorous than would have been the case had they applied for a non-guarantor loan.

Finally, in some recent adjudications, FOS has been applying a very strict interpretation of CONC 5.2A.36 in the FCA Handbook. This rule reads:

“A firm must not accept an application for credit under a regulated credit agreement where the firm knows or has reasonable cause to suspect that the customer has not been truthful in completing the application in relation to information relevant to the creditworthiness assessment.”

For example, FOS has upheld recent complaints, using this rule as its justification, where the customer’s income on their payslips was lower than they had stated in their application. FOS did not believe it was enough for the firm simply to say that it used the lower of the two-income figures in its affordability calculation.

Similarly, FOS has also upheld recent complaints on this basis where the monthly mortgage payment given by the customer in their application was lower than the payment stated in a bank statement or credit report. FOS doesn’t appear to be accepting the argument that the figure supplied by the customer could have been their personal contribution to the mortgage payment.

The FOS uphold rate for guarantor loan complaints in the 2019/20 financial year was 89%, increasing almost threefold from the previous year’s 32%.

Ombudsman decision where FOS ruled it wasn’t appropriate to use national average figures to estimate expenditure.

Ombudsman decision where FOS decided the firm hadn’t fully considered the applicant’s adverse credit history.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article.

Contact Scott Robert directly for further advice and information.


Credit union report shows impact of coronavirus on household finances 

Credit reference agency TransUnion is currently publishing weekly Financial Hardship Reports, showing the impact coronavirus is having on household finances in various regions of the world.

TransUnion says that:

“The COVID-19 pandemic is creating a new reality as its impact has stretched to consumers of all generations and income levels”, and that:

“The current global COVID-19 pandemic is creating major economic and financial distress for consumers across the globe. Many jobs in the UK economy are already being impacted or at risk due to drastic demand shifts.”

The UK reported an eye-watering drop in GDP of minus 20.4% in April, and many analysts predict that the UK economy will be the worst affected global economy, given that its Covid outbreak is one of the most severe and it’s economy relies heavily on the service sector.

The latest available UK report from TransUnion, at the time of writing, included data collected in the week commencing May 25. The proportion of UK households reporting a negative impact on their finances caused by the pandemic now stands at 61%, up from 53% on May 5. 73% of under-45s are reporting a negative financial impact, up from 62% on May 5.

Of those who haven’t suffered a negative impact so far, almost half say that it is possible their finances will be impacted in the future as the crisis continues.

(All subsequent figures relate only to those who have said their finances have been negatively impacted)

Almost three-quarters (72%) are worried about their ability to pay bills. This figure has risen from 60% in the space of one month. In the Greater London area, where living costs are often higher, 75% are concerned about this, up from 65%.

When asked to name the reasons for the negative impact, 43% of respondents said their working hours had reduced. 11% said they had already lost their job as a result of the crisis, and 12% said they were self-employed and that their business had “dried up”. 22% said they had been affected because their partner’s income had reduced through reduced working hours or redundancy.

Amongst affected consumers, their average budget shortfall was £527.60. 41% are concerned that they may not be able to pay their utility bills, 34% are worried about credit card repayments and 32% say they will struggle to make their rental payments.

More than half (51%) say they have cut back on discretionary spending since the start of the health crisis, almost one-third (32%) have cancelled subscriptions or memberships and almost one-quarter (24%) have reduced the amount they are saving for retirement.

Although the FCA has taken unprecedented action by instructing lenders in almost every sector to grant payment holidays to affected borrowers, a high proportion of people said they had not contacted any lenders to discuss payment options. This applies to 43% of Gen Z, 38% of millennials, 56% of Gen X and 65% of baby boomers.

Gen Z is generally considered to be adults who are currently aged 22 or under, millennials are those aged 23 to 38, Gen X is the 39 to 54 age group and baby boomers are aged 55 to 73.

One last concerning statistic is that more than one-quarter (27%) of impacted households believe they have been subject to a potential fraud attempt since the Covid saga commenced.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article.




FCA director speaks about the regulator’s Covid response

On June 4, Megan Butler – the Financial Conduct Authority’s Executive Director of Supervision (Investment, Wholesale and Specialist) – addressed the online Virtual Festival, hosted by the Personal Investment Management & Financial Advice Association.

Ms Butler said that the FCA’s main areas of supervisory focus during the coronavirus pandemic are operational resilience, financial resilience and integrity.

The FCA director said that, in general, the financial industry had responded well to the challenges posed by Covid-19. Consumer access to services had been maintained, and for most firms, their business continuity arrangements appear to be effective.

Ms Butler briefly mentioned the measures the FCA has introduced to protect borrowers, such as requiring lenders to provide payment holidays. Then she moved on to cover the regulator’s resilience requirements for firms in more depth.

The FCA’s expectations of firms regarding operational resilience include:

  • Firms must identify what their most important business services are
  • Firms must consider how much disruption they can reasonably tolerate for each important business service
  • Firms must ensure they are able to remain within their impact tolerances during severe but plausible scenarios
  • Firms should assess their continuity arrangements for important business services to identify vulnerabilities in their operational resilience and make changes where necessary

Next, she said that the FCA will be sending a financial resilience survey to firms, to allow the regulator to understand the effect coronavirus is having on firms’ financial resilience. Ms Butler conceded that some firms may exit the market altogether because of Covid-19 pressures, and said that, in these circumstances, all parties must seek to minimise any delay in the return of client money and custody assets.

The FCA director suggested that financial pressures could result in harm to customers if firms “cut corners on governance or their systems and controls”. The volatility in share prices could lead to more customers making complaints, saying they were not made aware of the risks associated with their investments.

On the subject of integrity, Ms Butler mentioned three practices which were causing concern to the FCA, and which could become more prevalent given the economic pressures caused by the health emergency. These are:

  • Phoenixing – attempting to avoid liabilities to customers by closing down the firm and starting a new one
  • Life Boating – setting up a new entity and applying for authorisation before complaints and liabilities at the original firm have crystallised
  • Leaving an advisory role and setting up a claims management company to handle mis-selling complaints about the advice that they had given in the past

The FCA director said that all of these practices would be considered to constitute a breach of the fitness and propriety requirements.

Ms Butler then observed that coronavirus had led to some firms offering mental health counselling services to advisers in another firm, and she said that, if firms offered this service, they would not be considered to have breached FCA rules on inducements.

Finally, she looked to the future of regulation, saying:

“We will capture the lessons from this emergency about delivering quickly. But we also need to look at our entire system, from the data and intelligence we collect, how we decide which firms and individuals to allow to operate and how we supervise them, to how we ensure that unacceptable firms and individuals are stopped and removed from the regulated sector as quickly as possible.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article


Posts navigation