Compliance Digest: 8th December 2023

This is a summary of FCA activity this week and articles from various industry news feeds that are of interest to the advisory sector of the industry.

This week we cover:

How to flex your organisation's power through culture and conduct
Bank of England publishes its Financial Stability Report – December 2023
FT Adviser: Risk that people in vulnerable circumstances could fall through the cracks
B Compliant highlights the salient points of the FCA’s Dear CEO letter of 8 November
FCA sets out new rules to maintain access to cash in an increasingly digital world
HM Treasury announces update to high-risk third country list
FCA regulation on non-financial misconduct
Greater support for people’s financial decisions, under regulator and government proposals

How to flex your organisation's power through culture and conduct

In a speech by Emily Shepperd, FCA Chief Operating Officer and Executive Director of Authorisations, at City & Financial's Culture and Conduct Forum, she highlighted:

As firms look to raise the bar under the Consumer Duty, they need to consider how their own culture can help to drive better outcomes.
New, flexible proposals on D&I will help firms to drive changes that are ultimately beneficial, but it’s important that the purpose of this is understood and that the right policies and procedures are in place to ensure an inclusive culture with the right incentives.
Enabling people to contribute, challenge and add value means listening, looking at processes and making changes to ensure people can perform at their best.

The speech consistently refers to the Consumer Duty and the FCA’s expectations that firms should see review of how they address the four outcomes of the Consumer Duty as part of business as usual. July 2023 was the beginning of the journey not the end of implementation.

Bank of England Financial Stability Report – December 2023

The Financial Stability Report sets out the Bank of England Financial Policy Committee's view on the stability of the UK financial system and what it is doing to remove or reduce any risks to it.

The highlights are:

Risk outlook: conditions remain challenging, given increased geopolitical tensions and uncertainties over growth, inflation and interest rates.
Households and businesses: UK households and businesses continue to face higher borrowing costs, as interest rates are expected to remain higher for longer.
Bank resilience: the UK banking system is strong enough to support households and businesses, even if the economy does worse than expected.
Non-bank finance: risks from non-bank finance remain. These are being tackled in the UK and globally.

Non-technical summary:

Conditions remain challenging, given increased geopolitical tensions and uncertainties over growth, inflation and interest rates.

The outlook for global economic growth remains subdued. A number of risks could weaken growth further, including persistent inflation, higher interest rates, and increased geopolitical tensions.

Currently, financial markets are not expecting further increases in the Bank Rate; although interest rates will likely need to stay high for some time to make sure inflation continues to fall. Interest rates on longer-term government bonds are back to where they were before the global financial crisis. These interest rates act as a benchmark for other types of borrowing. So, when rates on government bonds are higher, it often leads to higher interest rates faced by households and businesses.

The prices of houses and commercial property, such as offices and retail premises, are falling in many countries. However, the results from our 2022/23 stress test on major UK banks suggested that they would be resilient to a global recession, including severe stresses to property prices.

'Risk that people in vulnerable circumstances could fall through the cracks'

In an interview with Riffat Tufail, the head of Phoenix Group's customer vulnerability, has warned there's a risk that people in vulnerable circumstances could fall through the cracks, which is why financial services needs to do more to help Britons. The interview was published in FT Adviser, and can be read here.

B-Compliant highlights the salient points of the FCA’s Dear CEO letter of 8 November

In a blog, B Compliant has highlighted that in its opinion, almost everything the FCA highlighted in the letter of 8 November translates directly to the general advice sector and if you’re an IFA, you should definitely take note of the key learnings, which were:

The FCA is going to be much more focused on the prevention of financial crime.
Tick box compliance is no longer deemed sufficient or acceptable.
Your SMF16/17 must have independence and autonomy.

The Dear CEO letter has a useful graphic on the last page that illustrates the FCA’s expectations about the fight against financial crime and how this translates into the embedding of the Consumer Duty.

FCA sets out new rules to maintain access to cash in an increasingly digital world

In a press release, the FCA has proposed new rules to maintain reasonable access to cash for personal and business customers across the UK. This follows new powers granted to the FCA by the Financial Services and Markets Act 2023.

Under the FCA’s proposals, designated banks and building societies will need to assess gaps in access to cash. These assessments need to take into account local factors such as demographics and transport. Where firms identify gaps, they will need to act to address these needs.

The Consultation Paper CP23/29 and related publications can be accessed here.

HM Treasury announces update to high-risk third country list

In a short Insight article, the consultancy firm, Bovill, has confirmed that Bulgaria, Cameroon, Croatia, Nigeria, South Africa and Vietnam have been added to the list of high-risk countries specified in the UK money laundering regulations. At the same time, Albania, Cayman Islands, Jordan and Panama have been removed. The changes – which have come into effect immediately – mean that you may need to adjust your financial crime processes to remain compliant.

The Treasury Advisory Notice gives further details.

FCA regulation on non-financial misconduct

Hidden away at the back of the FCA’s recent consultation paper on diversity and inclusion in the financial sector are some important proposed new regulatory provisions about how firms should deal with "lapses" in interpersonal behaviour by members of their workforce. FT Adviser has rolled this into a useful summary with 30 minutes CPD attached.

Greater support for people’s financial decisions, under regulator and government proposals

In a press release, the FCA has announced that it and the Government are seeking views, as part of the joint Advice Guidance Boundary Review, on three proposals to help people make more informed investment and pensions decisions, including:  

Further clarifying when firms can give consumers support without giving regulated financial advice.
An innovative new approach allowing firms to provide support tailored to groups of people in similar circumstances.
A new form of simplified advice that makes it easier for firms to provide affordable personal recommendations to clients with more straightforward needs and smaller sums to invest.

Ian Ashleigh