Among the revelations in this week's annual report and accounts, published by the British Financial Conduct Authority, are the fact that more that 1,000 financial firms based in the European Economic Area want to use its Temporary Permissions Regime and a record number of unlicensed firms have popped up this year.
As always, the FCA's income is not derived from fines, which go to HM Treasury. Instead, the bulk of its revenue comes from levies (or 'fees' as it disingenuously calls them). One-twentieth of revenue in this latest year came from "a net recovery of scope change costs."
Highlights from 2019/20
In the last year, the FCA, which regulates the conduct of 60,000 firms, has imposed 15 financial penalties totalling more than £224 million; reimbursed victims of push-payment fraud to the tune of £116 million – up 40% from 2018; determined 4,133 cases for new firm authorisation in the last financial year; assessed 824 incident reports (of which 790 were related to cyber or technology); received 1,100 disclosures from informants, covering nearly 3,000 separate allegations; opened 415 preliminary reviews of market abuse; published 715 warnings to consumers about unauthorised firms; and commenced 65 anti-money-laundering investigations that are still underway.
The regulator also claims to have "introduced new rules to help ensure value for money and improve competition for...adults with a private pension."
Relatively new objectives
There is much propaganda and padding in the report, which largely proclaims the FCA's operational (and other) objectives for the year by a pleonastic recapitulation of the regulator's many jobs that it has had for years past. The word 'vulnerable,' however, appears 22 times and describes a genuinely new preoccupation of the regulator's. Its desire to help vulnerable investors does not stop at those at the bottom of the income scale, but instead focuses on their characters as well as their circumstances.
"When consumers are in vulnerable circumstances it may affect the way they engage with financial services. Results from our Financial Lives survey 2020 tell us that one in five (20%) UK adults with an ongoing physical or mental health condition have had problems with debt or their ability to manage money because of their health. One in six (16%) UK adults with low financial capability have fallen into debt and feel it might have been avoidable if they had understood their options better."
In July last year the regulator published some tentavive guidelines for comment by interested parties. It was going to follow this up this year with a second consultative exercise, but the onset of the Coronavirus has delayed it.
New, also, is the regulator's enthusiasm for green finance. It says that its 'key priorities' for next year are:
- to improve climate-related disclosures;
- to force firms to consider material climate-related financial risks and opportunities; and
- to give consumers more access to green financial products and services.
Here and there
The second annual 'perimeter report,' which dwells on the FCA's adventures at the fringes of its regulatory reach, will appear later in the year.
Not all the news in the report is good. David Rundle, counsel at the law firm of WilmerHale, spoke for many when he told Compliance Matters: “The FCA’s annual report reveals that the Enforcement Division has commenced far fewer new investigations than in the previous year and that the overall number of enforcement cases has stabilised and remains unchanged. The division will likely need to initiate a string of fresh investigations arising from the pandemic. Incidents of unauthorised business, reports of which have risen by 11% on last year, are possibly connected with the Covid crisis and could prove to be a focus in the next 12 months."
Investigations of another kind are, however, up in numbers, which may or may not be a good thing. Last year's report, for 2018-19, stated: "The decrease in expenditure on Professional Fees in 2018/19 reflects a lower use of S166 reports this year." This year there has been an uptick.
Section 166 Financial Services and Markets Act 2000, from which the FCA's powers spring, empowers the FCA to foist investigations by consultancy firms or "skilled persons" on recalcitrant firms, paid for by those firms. The "skilled person," according to s166(6)(a), "must be a person appearing to the regulator to have the skills necessary to make a report on the matter concerned." The visiting firm must then produce a "skilled person's report."
In 2018/19, the regulator used its "s166 power" in 34 cases to commission reports (retail banking 8; retail investments 2; investment management 2); in 2 of those it appointed the visiting firm itself. A total of 19 different "skilled persons firms" were appointed to do the reviews. This year, there were 59 reports in total (retail banking 14; retail investments 5; investment management 9). Among other things, they took in financial crime, the adequacy of systems and controls, corporate governance, senior management arrangements, adequacy of advice, complaints handling, client money, client assets and risk management.
It has also transpired that Andrew Bailey, the FCA's outgoing CEO who left in March, was awarded a performance bonus of £68,000 for 2018/19, of which £27,200 (40%) was paid in March 2019. The remaining £40,800 (60%) was held in deferment and due to be paid in April but Bailey, for an undeclared reason, declined to receive the remaining deferred performance bonus of £40,800.
* David Rundle can be reached on + 44 (0)20 7872 or at DAVID.RUNDLE@WILMERHALE.COM