Regulatory Spotlight: December 2018

In the usual pre-Christmas flurry there have been a number of regulatory developments to put on your radar. Here's our monthly selection of interesting publications and changes.

Operational resilience was the theme of 2018 so in many ways it was appropriate that the year ends with a report on the subject. The themes arising from a cross-sector survey of almost 300 firms across 2017 and 2018 have been published, which gives useful insight into the foundations for the FCA's concerns.

Responses highlight weaknesses in 3 key areas: 

• people;
• management of third parties management; and 
• protecting key assets. 

The FCA reiterates that firms have an obligation under Principle 11, to report major technology outages and cyber-attacks to the FCA, particularly in light of its findings regarding under reporting.

Following on from their call to firms to prepare for a no-deal Brexit, the FCA has highlighted four key areas for firms to consider when making preparations:

•  contract continuity-  firms operating within the EEA under a passport will need to consider how they will continue to fulfil their obligations to customers under existing contracts after Brexit;

•  execution of firms’ contingency plans- it is important for firms to consider their client’s best interest when making and executing their plans;

• customer communications- firms should consider what communications need to made to customers to explain the effect Brexit might have on them and the services they receive; and

• data sharing- where personal data is transferred between the UK and EEA firms would need to consider how they will continue to do so in a compliant manner. It may be crucial for firms to review recent government guidance on data protection in the event that there is no deal.

The European Commission requested views on draft legislation aimed at finalising rules on a simplified prospectus for investors and companies. The draft regulation states that the minimum information should be included:

• in the registration document and securities notes for the specified types of securities; and

• additional information is to be provided within the prospectus where specified securities are issues, including where the issuer has made a significant financial commitment or has a complex financial history.

Draft regulation also includes information on the format of the prospectus, the information categories and details about the prospectus summary and criteria for the approval of information contained in the document.

• Social media: The FCA published an Occasional Paper of advertising on social media. In this paper the regulator considers rules around standalone compliance of adverts which include the design and timing of risk warnings. It highlighted the importance of well-paced risk warnings and found that detailed risk warnings were effective in increasing understanding.

• Suspicious Activity Reports: Britain's crime fighting authorities, including the National Crime Agency (NCA) have received more reports on suspicious financial activity than in previous years. The NCA received 463,938 SARs between April 2017 and March 2018, a 9.6% increase on the 12 months from September 2017 when there were 423,304. It was noted that investigations are being impeded because of 'low quality' SARs submitted to the NCA. 

• Patient Capital, pensions The FCA is looking to remove potential barriers to retail investors. It has published a consultation paper on proposed rules which will enable retail investors to invest patient capital through unit-linked funds.  A discussion paper was also published and this considers how UK authorised funds can be used to invest in patient capital. The FCA will consider responses and consult with industry stakeholders to determine whether changes need to be made.

• Financial Crime Guide: The FCA has updated the Financial Crime Guide for firms in line with recent regulatory changes and has included an additional chapter on insider dealing an market manipulation and other amendments reflecting recent regulatory changes. 

Any questions?

We are constantly keeping up-to-date with the regulatory changes within the financial services industry. If you need assistance to keep up with these regulatory changes please feel free to contact the team.