At the time of writing, it is uncertain whether or not, and on what timetable, the UK will leave the EU. Until Brexit takes effect, EU law continues to apply to UK firms. The FCA stated on 24 June 2016 that ‘firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect’.
Currently, the UK is seeking a free trade deal that makes unique provision for the financial services market between the UK and the EU. However, it remains to be seen whether this type of agreement will be agreed and if so, what shape the bespoke financial services provisions will take. There has been speculation that there will be ‘equivalence’ between the UK and EU markets in respect of financial services, which would allow access to markets by treating the UK’s regulatory system as equivalent to that of the EU, but no concrete agreement has as yet been reached.
Additionally, the FCA has confirmed that it has agreed memoranda of understanding (MoUs) with the European Securities and Marketing Authority and EU regulators in the event of a no-deal Brexit. The MoUs will facilitate supervisory cooperation, enforcement and exchange between the FCA and the national competent authorities of EU countries in the event of the UK leaving the EU without agreeing to an exit agreement. While it may be the case that much regulation of EU-origin continues in place for the purposes of continuity and reciprocity, the extent to which domestic rules and regulation will be amended after Brexit is currently unclear.
Furthermore, the FCA has introduced the Temporary Permissions Regime (TPR), which enables those firms that currently rely on EU passports to perform regulated activities in the UK to continue to do so for up to three years after Brexit while preparing an application for full UK authorisation. Firms that benefit from the TPR will be deemed to possess the equivalent permissions required in order to perform those activities within the UK. FCA-regulated firms that enter the TPR will be given a ‘landing slot’ of three months, during which they will be able to submit an application for full UK authorisation. If they do not within the landing slot, they will no longer be able to benefit from the TPR.
Focus on individual accountability
As explained above, there is an increasing regulatory focus on individual accountability with the Yates Memo in the US and the SM&CR in the UK. The regulators’ intention is to drive up standards of individual behaviour in financial services at all levels and to make it significantly easier for the regulators to hold senior managers to account for failures within their firms.
In May 2018, the FCA and the PRA published their joint decision in the first case brought under the SM&CR. The regulators fined the chief executive of Barclays Group (Mr James Staley) £642,430 for failing to act with due skill, care and diligence in relation to a whistleblowing report received by the bank in June 2016. The case demonstrates the high standard of conduct expected of senior managers and in particular, individuals carrying out chief executive functions.
We expect to see an increasing number of fines issued to senior managers over the next few years.
Market abuse and capital market disclosure issues are currently high on the FCA’s enforcement agenda.
In December 2017, the FCA issued a fine to Tejoori Limited for failing to inform the market of inside information in breach of MAR. This is the first fine the FCA has imposed on a company listed on the Alternative Investment Market for breaching MAR in connection with late disclosure.
Insider dealing is also a key enforcement priority for the FCA and it has been particularly focused on securing criminal convictions against individuals involved in insider dealing rings. In December 2018, the FCA published new guidance on financial crime systems and controls relating to insider dealing and market manipulation. This includes guidance on: governance, risk assessment, policies and procedures, and ongoing monitoring. The FCA will expect firms to review the guidance and to make any appropriate enhancements to their systems and controls infrastructure.
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