This month we bring you news of some current account service data, published recently in the UK as a result of pressure from the Financial Conduct Authority and the Competition and Markets Authority. The FCA has also issued a reminder to payment firms of their obligations to conform to its Strong Customer Authentication initiative.

Strong Customer Authentication

Last month, the regulator announced that it was going to phase its Strong Customer Authentication requirements in. It has now sent a 'Dear CEO' letter to payments and e-commerce companies to remind them of their obligations.

The letter tells firms to liaise with their trade body and UK Finance to ensure that they have a clear and full understanding of the phased implementation plan, which only applies to SCA during card-not-present e-commerce transactions. They must, moreover, 'authenticate' potentially vulnerable customers, especially those with limited digital access. The FCA also advises them to try to ward off fraud in the meantime.

Fines and penalties

The Upper Tribunal, which reviews FCA decisions under a very limited list of circumstances, has published its decision regarding a contested enforcement case involving the former chief operating officer of an investment bank. It upheld the FCA's conclusion that the man lacked the honesty and integrity to hold a regulatable position in financial services.

In this case, the man received a negative report about the investment bank’s culture, which the FCA said that he suppressed. During an earlier hearing he gave the FCA the impression that such a report did not exist and, according to the FCA, made misleading statements to the US Federal Reserve of New York and his professional regulator. However, the Upper Tribunal did not uphold the FCA’s claim that he had deliberately mislead the US regulator.

An extensive investigation by the FCA and the National Crime Agency has led to a man being sentenced to a total of five years and eight months’ imprisonment.

Operation Tabernula, an insider dealing investigation, has now secured the convictions of six people. A businessman, sentenced in his absence after he absconded from justice during a trial in July 2017, has been convicted of money laundering that was related to the insider dealing of two others.

One of these two was the man’s business partner, with whom he ran a luxury watch business. The man set up offshore bank accounts and companies in Panama to conceal the source of his partner’s funds, which came from insider dealing. He is still at large.

CMCs and financial promotions

The FCA has issued a press release outlining the failings that it often detects in claims management companies’ financial promotions since it took over regulation of that line of business on 1st April.

Examples of poor practice include:

• failing to identify themselves as CMCs;
• failing to inform consumers that they could make a claim to a statutory ombudsman or compensation scheme free of charge;
• suggesting that consumers might obtain more favourable results if they use the services of a CMC;
• the use of the phrase ‘no win no fee’ without an explanation of the fee involved; and
• placing important information in the small print or making it difficult to read.

The regulator is once again reminding firms of its financial promotions rules, which it outlined recently in a 'Dear CEO' letter on 4th June. It is also continuing to monitor the financial promotions that CMCs produce and has warned that if firms produce particularly poor financial promotions they are unlikely to meet its threshold conditions for authorisation.

Current account service information published

Under pressure from the FCA and CMA, current account providers are improving the quality of information that they publish about their personal and business current account services. The regulators hope that this will help customers compare accounts and seek help if things go wrong.

The latest data, covering August 2019, has now been published and includes information on:

• account-opening speeds;
• the speed of debit card replacements;
• the number of major operational and security incidents; and
• service quality.

Are you ready for a no-deal Brexit?

The FCA is spending more time preparing for a no-deal Brexit, warning firms that their business might suffer if they are not properly prepared.

The regulator is posting advertisements online to push people towards its Brexit web-pages and telephone line. It believes that its warnings are particularly relevant for:

• a British business doing any business in the European Economic Area;
• a business that 'passports into' the UK and has not applied to the FCA for entry into the Temporary Permissions Regime;
• a business with consumers in the EEA; and
• a business that transfers personal data out of the EEA.

The FCA reiterates that it has measures in place to try to reduce the disruption that the absence of a deal could cause. This includes its Temporary Transitional Powers and Temporary Permissions Regime.

After Brexit, it will no longer be possible for British firms to use 'passports' to do business in the EEA. Its prosperity will then depend on the type of activity, national laws and national regulators. Businesses, it says, ought to make themselves aware of EU countries’ transitional regimes, deadlines and registration requirements.

Finally, the regulator wants firms to think about the regulatory changes that could apply if there is no deal, for example regarding MiFID II transaction reporting.

Corporate culture and UCCAT

The latest FCA "insight article" asks whether financiers can measure the culture of their corporations empirically and has reached some surprising conclusions.

The regulator believes that culture is widely accepted as an integral part of corporate success, but is generally considered very difficult to measure. In this article the FCA’s Alex Chesterfield and the London School of Economics’ Dr Alex Gillespie and Dr Tom Reader present the results of a new research project: the Unobtrusive Corporate Culture Analysis Tool.

The tool analyses publicly available data to build up a picture of a firm’s ‘cultural footprint’ and by unobtrusive and inexpensive methods. Firms can use it to uncover insights about the firm and monitor changes to its culture over time.

The authors examine the impact of this new approach for regulators and legislators, asking whether regulators, or the firms themselves, will take the lead in determining which aspects of culture relate to better performance.

The regulator has also published an update on its "call for input" to do with the wholesale market’s access to, and use of, data.

New appointments at the FCA

Kate Collyer is going to become the FCA’s new chief economist and will lead her department’s research projects and gather evidence of the effect of the FCA’s 'interventions.' She is the chief economist of energy and market frameworks and a director of analysis at the Department of Business, Energy and Industrial Strategy (BEIS).

Marlene Shiels, the chief executive of Capital Credit Union, has been appointed as chair of the Smaller Business Practitioner Panel, taking over from Craig Errington.

Both will take up their positions next month.

Fighting scammers and skimmers!  

Charles Randell, the FCA's chairman, recently delivered a speech at the 37th Cambridge International Symposium on Economic Crime. Here are his main points.

Instances of financial crime have reached epidemic levels, particularly investment fraud. The FCA has to protect consumers and ensure that markets work well. Much of this depends on the system in which it operates, which is why it continues to invest heavily in data analysis IT.

In Randell’s view, there is little moral difference between the ‘skimmers’, those who knowingly engage in exploitative or unscrupulous practice, and financial criminals (scammers).

The FCA’s strategy for tackling investment fraud has three components:

• it must monitor the authorised activities of the firms that it regulates very closely when supervising them;
• it must apprise consumers of the devastating effects of scams; and
• it must shut down unauthorised firms or investment schemes.

For this approach to be effective, Randell thinks, the entire system needs to work together more coherently. He wants the FCA to make the regulatory boundary easier for firms to understand and also wants firms to build financial crime assessments into new products. He also thinks that service providers must play their part by storing personal data securely.

Preparation for nothing

In a speech at Bloomberg in London, FCA chief executive Andrew Bailey updated the audience about the state of Brexit preparations in financial services.

Bailey made the point that the global financial crisis, which he described as being the worst-case scenario actually happening, had convinced the financial services sector of the absolute necessity of preparation. He added that whatever the outcome of Brexit, the British and continental markets would still be closely linked. The FCA, he said, was preparing for British independence without a deal with the EU.

Over the past year, preparations for that eventuality in financial services have advanced substantially. The Bank of England has now said that – as a result of these preparations – the effect of a no-deal no-transition scenario is not going to be as severe as it seemed one year ago.

If there is no deal, said Bailey, the FCA will take on several functions and responsibilities in the UK currently performed by the European Securities and Markets Authority, including:

• credit rating agencies;
• trade repositories; and
• MiFID II.

There are seven remaining issues.

• The Share Trading Obligation (STO).
• The Derivatives Trading Obligation (DTO).
• Clearing.
• Uncleared derivatives.
• Data exchange.
• Progress on contract repapering.
• Retail financial services.

Bailey said that his regulatory body was going to carry on working with firms to make sure that their contingency plans came to fruition.

* Phil Deeks, the technical director at TCC, can be reached on 0203 772 7230 or at hello@tcc.group