REGULATORY UPDATE
In addition to the Treasury, the FCA is collaborating with other areas of government and stakeholders on the new pro-competitive regime for digital markets. It plans to publish a joint discussion with the Bank of England on artificial intelligence in financial services.
The FCA actions include tackling unreasonable terms and conditions, increasing customer satisfaction levels, combating scams, and cleaning up markets or improving diversity. Some examples of FCA initiatives in this space include its continued examination of asset managers and the value being provided to consumers, especially as this relates to ESG information.
CRYPTOASSETS Thinking about the future inevitably involves contemplating crypto. Despite previous and recent bumps in the road, there seems to be an inevitable rise in cryptoassets. The FCA is working with the government on the approach to regulation of cryptoassets. Nikhil Rathi highlighted at the CISI’s 30th anniversary dinner that there needs to be a boost in the financial education of children (and, no doubt, the majority of existing retail investors) about cryptoassets, not least to cope with the volume of promotions on social media. In a November 2021 statement, the
Advertising Standards Authority (ASA) announced that, in addition to issuing guidance, it would be conducting “proactive monitoring and enforcement” to tackle non-compliant adverts for (unregulated) cryptoassets. The Committee of Advertising
Practice (CAP) has also issued guidance on how the CAP Code (both the general rules and those specific to financial products) applies to adverts for cryptoassets, citing numerous relevant rulings. Even after FCA regulation starts, the
ASA will retain oversight of issues of responsibility across all forms of cryptoasset advertising and non- fungible tokens (which will not be regulated by the FCA). There continues to be grave concern
with cryptocurrency, with the ASA warning many businesses over misleading and socially irresponsible cryptocurrency adverts. On 24 March
CISI.ORG/REVIEW
2022, the ASA issued an enforcement notice instructing over 50 companies to review their adverts to ensure compliance with the CAP Code. The ASA highlighted that they must comply with the rules that adverts are not misleading or socially irresponsible, as well as specific rules relating to financial products. The ASA has confirmed, in an
accompanying press release, that it is committed to clamping down on crypto adverts and it is considered a “red alert” priority issue. If the businesses do not address problem adverts, it has said that it will take targeted enforcement action. This would include reporting non-compliance to the FCA (with whom it consulted in distributing the notice) and Trading Standards.
ENFORCEMENT The Business Plan 2022/2023 reinforces the FCA’s commitment to enforcement action: the regulator states that it aims to be “tougher on firms” and use its “enforcement and intervention powers more actively, pushing the boundaries” where required. The most significant recent example
of tougher FCA enforcement action resulted in NatWest being fined £264.8m in relation to its anti-money laundering failures. NatWest was convicted for three
offences of failing to comply with money laundering regulations. Mrs Justice Cockerill, the sentencing judge at Southwark Crown Court, said: “It must be borne in mind that although in no way complicit in the money laundering which took place, the bank was functionally vital. Without the bank – and without the bank’s failures – the money could not be effectively laundered.” NatWest pleaded guilty at
Westminster Magistrates’ Court on 7 October 2021. This is notable action from the FCA as it is the first time it has pursued criminal charges for money laundering failings. Mark Steward, executive director of
enforcement and market oversight at the FCA, said: “NatWest is responsible for a catalogue of failures in the way it monitored and scrutinised transactions that were self-evidently suspicious. Combined with serious systems
failures, like the treatment of cash deposits as cheques, these failures created an open door for money laundering. Anti-money laundering controls are a vital part of the fight against serious crime, like drug trafficking, and such failures are intolerable ones that let down the whole community, which, in this case, justified the FCA’s first criminal prosecution under the Money Laundering Regulations.” The FCA then followed suit in fining
HSBC Bank £63,946,800 for its anti-money laundering process failings. The decision notice noted that, between March 2010 and March 2018, two of HSBC’s key automated transaction monitoring systems used in monitoring hundreds of millions of transactions a month to identify possible financial crime “were not appropriate or sufficiently risk-sensitive, and HSBC did not ensure the policies that managed and monitored the systems were adequately followed”. Despite being aware of their importance from as early as December 2007, three key components of the automated systems were deficient. The FCA considered the failings
to be particularly serious as they occurred over a long period of time, HSBC was put on notice of the potential weaknesses during the relevant period, and, before and during that period, the FCA issued guidance stressing the importance of maintaining appropriate financial crime controls. However, it recognises HSBC’s commitment to its large-scale global remediation programme. Although there is no formal
explanation as to why similar cases were resolved with different outcomes, the obvious distinguishing fact between this matter and the NatWest criminal prosecution is that the latter resulted in demonstrable money laundering. This is a curious distinction considering the regulations cover systems and controls rather than actual laundering.
DWF, Editors, CISI Regulatory Update
Views expressed in this article are those of the authors alone and do not necessarily represent the views of the CISI.
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