In this blog post, we round-up forthcoming developments in the UK and at EU and International levels in financial services regulation for June 2019.
Authors: Jenny Stainsby, Jon Ford and Cheryl Jones
The FCA has published its Feedback Statement on ‘A duty of care and potential alternative approaches’ (FS19/2). This contains a summary of responses to its Discussion Paper on this subject which was published in July 2018 (DP18/5). For more information on the Discussion Paper, see our briefing here.
In the Feedback Statement, the FCA does not put forward any specific options for change but confirms that the “quality of responses received have given us a strong foundation on which to advance our consideration of the issues”.
So where does this take us and what can we expect next?
Welcome to the Winter 2019 edition of our corporate crime update – our round up of developments in relation to corruption, money laundering, fraud, sanctions and related matters. Our update now covers a number of jurisdictions.
For the full update on each jurisdiction, please click on the name of the jurisdiction below. Below we provide a brief overview of what is covered in each update.
Authors: Sarah Thomas, Cat Dankos and Hywel Jenkins
At the end of January, the UK Financial Conduct Authority (FCA) issued a further consultation paper (CP19/4, the CP) on the Senior Managers and Certification Regime (SMCR). Responses to the CP are requested by 23 April 2019. Alongside other minor proposed changes which seek to “optimise” the SMCR, the key proposals are:
- For all firms (banks, insurers, and all solo regulated firms), the legal function will not need to have a SMF Manager responsible for it.
- Responsibility still has to be allocated to someone, but that individual does not need to be a SMF Manager.
- The FCA expects the Head of Legal to be a certified function and that the conduct rules will apply to all legal staff.
- Banks and insurers need to think about whether to change their SMF Manager allocations in light of this confirmation (as well as statements of responsibility and responsibilities map), and how to depict the position of the legal function on their responsibilities map.
- For all firms (banks, insurers and solo regulated firms) the certification regime definition of the ‘client dealing’ function has been clarified (with a narrowing effect). It will exclude individuals who have no scope to exercise discretion.
- Insurers and banks may wish to cross-check their existing pool of client dealing staff against the proposed new definition in readiness for the final rules.
- For solo regulated firms, the FCA has expanded the scope of the forthcoming Enhanced regime to cover more intermediaries.
- For limited scope solo regulated firms, Manager Conduct Rule 4 (SC4) will be amended to cover non-approved executive directors.
On 1 February 2019, the Securities and Futures Commission (SFC) announced significant changes to its licensing forms and processes (Licensing Reforms). Included in these changes was the long-awaited arrival in Hong Kong of measures intended to stop the “rolling” of “bad apples” within the financial industry by requiring licensed corporations and registered institutions to provide the SFC with more information about the circumstances under which their employees depart.
In addition to these reforms targeting “bad apples”, the Licensing Reforms also include:
- sweeping changes to the SFC’s licensing forms. These changes include streamlining and consolidating the forms, as well as reforms which will mean that applicants must now provide the SFC with significantly more granular information regarding matters relevant to fitness and properness; and
- a thorough refresh of the SFC’s Licensing Handbook, which now includes key aspects of the licensing-related guidance issued by the SFC since the publication of the previous Licensing Handbook in April 2017.
The new licensing forms can be used from 11 February 2019. However, the SFC will accept current standard forms during a two-month transition period, before the new forms become compulsory from 11 April 2019.
We have been following these developments for some time and were part of the informal consultation held by the SFC in late 2018. We will be holding a seminar in Hong Kong to share our insights on how these developments will impact licensed corporations in Hong Kong and form part of broader conduct and culture-focused reforms across the Asia-Pacific region. Read our full client briefing and register for the seminar here.
The Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Hayne Report) was released to the public on 4 February 2019. The Federal Government has agreed to take action on all 76 recommendations contained in the Hayne Report, and in a number of areas has indicated it intends to go further, including conducting an immediate review of financial counselling services. Herbert Smith Freehills have prepared a briefing paper which identifies the following key themes and reforms contained within the Hayne Report:
- Governance overhaul – Boards will need to exercise greater scrutiny over their governance systems, policies and procedures;
- Conflicts – a number of the changes proposed are designed to alter the objective from one of ‘managing’ to one of ‘eliminating’ conflicts of interest;
- Individual accountability – the proposed changes to remuneration and accountability regimes are significant, with individuals to be held to account more than ever before for the adequacy of complex systems, policies and procedures;
- Principles not prescription – the Hayne Report observes that prescriptive laws which are vast and complex may be less effective than statements of broad matters of principle, suggesting that now may be an apt time to revisit the current approach to regulation of the provision of financial services within Australia;
- Enforcement revolution – above all, the Hayne Report recommends greater personal accountability coupled with stronger regulators with an incentive to investigate and hold wrongdoers to account, making for an ‘enforcement revolution’. Organisations which do not proactively seek to identify and address inadequacies in their systems will likely find themselves redirecting resources toward activities which will do little to enhance their reputations or shareholder wealth.
The briefing paper considers in detail the key changes recommended in the Hayne Report and what these changes will mean for businesses and the Australian financial services landscape.
It is anticipated that in around mid-2019, the Insurance Authority (IA) will take over the regulation of insurance intermediaries from the three self-regulatory organisations (SROs). In preparation for the commencement of the new regime, the IA has launched several public consultations on guidelines and rules. For our full briefing on these developments, please click here.
The extraordinary returns generated by cryptocurrencies have led to a frenzy of investment activity and interest from investors. Several new crypto hedge funds have emerged, and cryptocurrency is fast establishing itself as a mainstream asset class.
However, numerous operational and regulatory concerns remain. While regulators are increasing oversight, established players and startups are moving to address the current gaps in infrastructure, control and compliance.
Read our latest article for Regulation Asia to learn more about overcoming the challenges to make the most of the opportunities of this new asset class.
Welcome to the September 2016 edition of our corporate crime update – our round up of developments in relation to corruption, money laundering, fraud, sanctions and related matters. Our update now covers a number of jurisdictions. For the full update on each jurisdiction, please click on the name of the jurisdiction below. Below we provide a brief overview of what is covered in each update.