FCA Regulatory Update: January 2022
The Financial Conduct Authority has published a synopsis of the highlights of its new approach in 2022. Linking a number of consultations, operations and actions to each of its three objectives, the review lists several aspects of the new approach that it suggests has helped it to meet the objectives and have resulted in clear benefits to the industry and in reduced consumer harm.
In protecting consumers, the FCA argues that the InvestSmart campaign – which includes releases on TikTok and Instagram – provides clarity for consumers, particularly younger ones, who will then be able to make better informed investment choices. The Regulator also notes that scam alerts – including its first jingle – and contact centre efforts have prevented around £4m being lost to scams. The use of social media to engage and protect the public is part of the FCA’s ‘innovative’ approach, and the regulator counts working with Google to ensure any financial advertisers is authorised by the FCA as one of its successes in this area.
The Regulator says that its first ever criminal prosecution, faster decision-making processes and more robust application of standards when authorising firms have supported the objective to ‘enhance the integrity of the UK’s financial system’. A re-evaluation of the use of data means the FCA thinks it will be able to collect better data and use this to more speedily identify risks to consumers and markets.
Guidance on the fair treatment of vulnerable customers
The FCA has published a retrospective impact assessment of the Guidance that was brought in in late February 2021. The assessment acknowledges that costs to firms will vary significantly due to the fact that the Guidance applies to all firms and the business type, size and operating markets will have a significant impact, but estimates average one-off costs from £3200 for the smallest firms, to £3.3m for the largest firms, with ongoing costs ranging from £2400 to £2.4m per year respectively.
These costs include carrying out research into the needs of vulnerable customers, adapting training, holding focus groups or conducting other reviews into understanding how products meet consumer needs, adapting customer service processes to allow staff to respond flexibly, reviewing language in key documents, and conducting monitoring and evaluation exercises.
The FCA acknowledges that quantifying the benefits to firms and consumers is very difficult, but it suggests that future benefits could include improvements in customer trust, increase in staff morale and retention, time saved due to better quality transactions and interactions with customers and an increase in customer loyalty. Finally, the FCA concludes that the costs are proportionate to the expected benefits, with around 53% of UK adults demonstrating one or more characteristics of vulnerability in October 2020.
FCA fines HSBC for failings in its anti-money laundering processes
On 17th December 2021, the FCA fined HSBC just under £64m for weaknesses in its transaction monitoring systems over 8 years from March 2010. The figure includes a 30% discount for early settlement; the fine would otherwise have been just over £91m.
Under rules in SYSC, firms are required to have systems and controls in place to mitigate the risk that they might be used to commit financial crime, and to monitor transactions to ensure they are consistent with the firm’s knowledge of the customer and risk profile. The Money Laundering Regulations 2007 applied at the time, and they required the firm to use appropriate and risk sensitive policies and procedures relating to the monitoring of business relationships to prevent money laundering and terrorist financing.
The issues identified by the FCA included the bank failing to consider whether the scenarios used to identify indicators of money laundering or terrorist financing covered relevant risks until 2014, failure to carry out timely risk assessments for new scenarios after 2016, failing to test and update parameters in the systems that were used to detect potentially suspicious activity, and failure to check the accuracy and completeness of the data they used in monitoring systems.
HSBCs policies required the bank to maintain robust scenario coverage, thresholds and data, it failed to do so in practice. HSBC did identify deficiencies in 2010 and did attempt remediation, however, the serious weaknesses in the monitoring systems remained throughout the eight years in question.
New Information Commissioner begins term
John Edwards took over from Elizabeth Denham on 4 January 2022. In 2022, the ICO will be involved with proposed reforms to the Data Protection Act, and will focus on intra-regulatory links and strengthening cross-border regulatory co-operation.
A current consultation, open until 24 March 2022, invites views on how the ICO regulates the laws it monitors and enforces, including the Regulatory Action Policy – which sets out the ICOs general approach and covers all 11 pieces of legislation the ICO is responsible for – and the Statutory Guidance on the ICOs PECR Powers.
AML and Financial Crime training course
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