Compliance Digest - 9th February 2024
This is a summary of some of the regulatory issues that have come from the FCA, PRA, and my various news feeds this week.
Shifting the dial on financial crime requires a collective push
Eversheds Sutherland UK Consumer Duty podcast series: Fair Value
Higher fines and early settlement – the future of UK PRA Enforcement?
EU markets watchdog doubts that 'impact' funds live up to their name
TheCityUK's proposal to the Financial Conduct Authority on allowing optionality for investment research payments
Government publishes its response to the AI Regulation White Paper.
Shifting the dial on financial crime requires a collective push
The FCA has published a blog to support the publication of its strategy for reducing and preventing financial crime. There is no doubt that alongside the Consumer Duty, preventing financial crime will be a major focus for the FCA in 2024. The regulator is looking for collaboration in four key areas to ‘shift the dial’ in reducing and preventing financial crime, these are:
Data and Technology
Is transforming fraud and money-laundering detection, but cyber fraud, cyber-attacks and identity fraud are increasing in scale, sophistication, and effectiveness as the use of AI grows. Firms should be bolder and more collaborative in how they engage with new technologies to keep up with emerging risks.
Collaboration
Economic Crime Plan 2 recognises improved information sharing and collaboration as key factors in reducing financial crime. Criminals will always move around to find and exploit the weakest firms and sectors, so sharing data and intelligence is a vital tool in staying one step ahead. In particular, technology companies and social media platforms need to do more to clamp down on organic content promoting scams.
Awareness
Despite several successful consumer awareness campaigns, consumers are still seen as the ‘weak link’ in the chain by fraudsters, with Authorised Push Payment (APP) fraud continuing to increase in the first half of 2023. Further collective work is needed to improve consumer awareness as fraudsters use increasingly sophisticated methods to deceive victims.
Metrics
We all need to know if our work is having an impact. We have a robust outcomes and metrics framework in place to measure the effectiveness of our financial crime work, it helps us to learn by doing, to know where to focus resources and to share what’s worked well with others. Firms need robust metrics too, to measure their own effectiveness, increasing transparency and giving consumers and other stakeholders greater confidence in the anti-fraud efforts of the financial services industry.
Eversheds Sutherland UK Consumer Duty podcast series: Fair Value
In a very useful podcast, Eversheds Sutherland focuses on the fair value outcome of the consumer duty. 15 minutes CPD to boot.
Higher fines and early settlement – the future of UK PRA Enforcement?
As the Bank of England finalises its new Approach to Enforcement, Herbert Smith Freehills has taken a closer look at the implications for PRA enforcement cases and the answers to some important questions about the changes around the way firms and individuals under investigation will be able to seek to settle cases early and access larger discounts. The changes also include a new starting point for penalty calculations, which have led to concerns about higher fines for ‘certain firms’.
Last summer, the Bank of England consulted on changes to its enforcement policy. The objective was to enhance the clarity, transparency, and accessibility of enforcement policies, and expedite information gathering in investigations.
EU markets watchdog doubts that 'impact' funds live up to their name
Reuters reports that the European Union's securities watchdog has questioned whether 187 investment funds across the EU that claim to have a real-life beneficial "impact" on the environment or society actually deliver on their promises to investors.
So-called impact investing is part of the wider environmental, social and governance (ESG) sphere, offering sustainable projects that promise a tangible real-world impact to improve the environment or society.
TheCityUK's proposal to the Financial Conduct Authority on allowing optionality for investment research payments
Among the changes brought about by RDR was the removal of bundled investment research. Firms were required to pay for their investment research rather than as part of a bundled service. TheCityUK, an industry-led body representing UK-based financial and related professional services, has proposed to the FCA the reintroduction of optionality for investment research payment. Removal of the restriction on combining the cost of research with execution charges will allow firms to choose how they pay for research. This initiative, stemming from the Investment Research Review led by Rachel Kent, is geared towards enhancing the UK’s attractiveness as a premier listing destination. The Chancellor’s 2023 Mansion House speech signalled the government’s acceptance of these proposals, highlighting the critical role of investment research in boosting investor confidence and greater market liquidity. The paper itself can be read here.
Government publishes its response to the AI regulation white paper
Law firm, Womble Bond Dickinson has summarised the Government’s response to the AI Regulation White Paper consultation. The full Government response can be read here
Ian Ashleigh
