HMT to retain Temporary Transitional Powers for UK Regulators for two years from 1 January 2021

It was confirmed yesterday by HM Treasury (HMT) in a statement to Parliament that it will retain the UK regulators’ “Temporary Transitional Power” (TTP), which was introduced as part of the UK Government’s no-deal contingency planning legislation, and shift its application such that it is available for use by the regulators for a period of two years from the end of the Transition Period.

HMT’s statement reminded Parliament that:

  • while, in general, the same laws and rules [as apply presently in relation to financial services] will apply at the end of the Transition Period, HMT recognises it will be important, irrespective of the agreement that is reached between the EU and UK, for the regulators to have the flexibility to smooth any adjustments to the UK’s regulatory regime for financial services at the end of the Transition Period; and
  • the purpose of the TTP is to allow the Bank of England (BoE), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) to phase in changes to UK regulatory requirements so that firms can adjust to the UK’s post-Transition Period regime in an orderly way, in line with the objectives already set by Parliament.

While this outcome is in line with market expectations, it is nonetheless reassuring for UK firms and other market participants to have confirmation, at a time of particular uncertainty, that the UK regulators will retain this flexibility for the medium term. There is no indication of any extension to the separate Temporary Permissions Regime (TPR) for EU financial institutions currently passported in/into the UK.

Clive Cunningham

Clive Cunningham
Partner, London
+44 20 7466 2278

Katherine Dillon

Katherine Dillon
Of Counsel, London
+44 20 7466 2522

Patricia Horton

Patricia Horton
Professional Support Lawyer, London
+44 20 7466 2789

PRA and FCA publish guidance on key workers in financial services

On 19 March, the UK Government published guidance requesting that schools and other educational institutions provide limited care for children whose parents have roles that are critical to the COVID-19 response. This includes parents working in certain financial services roles that are essential to the functioning of the economy (referred to as “key financial workers” or “KFWs“).

The PRA and FCA and have now published their own guidance on this topic setting out the steps that firms should take in relation to identifying KFWs.

Identifying KFWs

  • A KFW is any individual who fulfils a role which is necessary for the firm to continue to provide (i) essential daily financial services to consumers, or (ii) ensure the continued functioning of markets.  The guidance provides a list of example KFWs (PRA) (FCA).
  • KFWs could work for any categorisation of financial institution (e.g. dual or solo regulated, payment service providers, market infrastructure providers).
  • Firms are best placed to identify their KFWs; they should start by identifying the firm’s activities, services or operations which are essential to services in the real economy or financial stability and then identify the individuals essential to support those functions.
  • The PRA/FCA expects that most firms will have a limited number of KFWs.

Outsourced functions

  • When considering KFWs, firms should also identify any critical outsource partners that are essential to the continued provision of services, even if these are not financial services firms.

 Process

  • The PRA/FCA recommends that the Chief Executive Officer Senior Management Function (SMF1) (or, if not applicable, an equivalent senior member of the management team) is accountable for ensuring an adequate process so that only roles meeting the KFW definition are designated.
  • Firms should consider issuing letters to all individuals identified as KFWs as evidence of their status.

Our general briefing on COVID-19 – Key Issues for Employers is available here.

 

Clive Cunningham

Clive Cunningham
Partner, London
+44 20 7466 2278

Mark Staley

Mark Staley
Senior Associate, London
+44 20 7466 7621

Patricia Horton

Patricia Horton
Professional Support Lawyer, London
+44 20 7466 2789

Approval of UK’s fifth DPA concludes SFO investigation into Serco companies

On 4 July 2019, Mr Justice William Davis approved a Deferred Prosecution Agreement (“DPA“) agreed between the Serious Fraud Office (“SFO“) and Serco Geografix Ltd (“SGL“), a wholly-owned subsidiary of outsourcing company Serco Group plc (“Serco Group“). SGL has agreed to pay £22.9 million, comprising a financial penalty of £19.2m and the full amount of the SFO’s investigative costs of £3.7m. This is in addition to the £12.8m in compensation Serco paid to the Ministry of Justice as part of a £70m civil settlement in 2013.

Following the introduction of DPAs in the UK in 2014 and the conclusion of the first DPA with the SFO in November 2015, the Serco DPA is the fifth and latest in a growing body of DPA case-law and confirms the importance placed by the SFO on the use of DPAs in tackling financial crime.

In this briefing, we provide some background on DPAs generally, an overview of the Serco DPA and discuss some of the emerging themes relating to DPAs and the SFO’s approach to enforcement.

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Anti-money laundering regulatory round-up

Author: Susannah Cogman

Late 2018 and early 2019 saw a flurry of regulatory developments and proposals relating to anti-money laundering. We have reported on these in brief in our regular corporate crime updates, but for those who have been – for example – too immersed in Brexit to read the underlying documents in detail, we have taken this opportunity to bring together an overview of, and commentary on, a number of recent anti-money laundering/counter-terrorist financing (“AML/CTF”) developments. In particular, we discuss in this briefing:

  • the FCA’s report on data submitted in the first annual financial crime data return;
  • recent developments in the EU’s list of high risk third countries;
  • amendments to compliance requirements in respect of anonymous safety deposit boxes;
  • the FCA’s thematic review on money laundering risks in the e-money sector;
  • a Decision Notice issued by the FCA to a CEO for failings in his oversight of his bank’s AML systems and inadequate supervision of the MLRO to whom he had delegated relevant responsibilities;
  • proposals relating to money laundering supervision in the EU;
  • the FATF’s Mutual Evaluation Review of the UK;
  • FATF guidance on a risk-based approach to the securities sector;
  • other FATF developments of interest, in particular in relation to virtual assets;
  • reform of the UK Suspicious Activity Reporting regime;
  • a recent RUSI paper on the scale of money laundering in the UK;
  • AML-related amendments to the Financial Crime Guide (FC), following consultation GC 18/1; and
  • an overview of the current position regarding AML compliance post-Brexit, in the event of a no-deal exit.

Please click here to read our full briefing.

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OFSI imposes its first monetary penalty — Raphaels Bank sanctions breach

Authors: Daniel Hudson, Partner, London and Daniel Hyde, Associate (Australia), London

On 25 February 2019, the UK Government’s Office of Financial Sanctions Implementation (“OFSI”) published a notification of its first imposition of a monetary penalty under new powers afforded to it under the Policing and Crime Act 2017 (“the Act”). The £5,000 penalty was imposed on Raphaels Bank for dealing, without a licence, with funds belonging to a designated person in breach of EU financial sanctions in relation to Egypt. The penalty amount represents a 50 per cent reduction of the baseline penalty amount initially assessed by OFSI as a result of Raphaels Bank’s voluntary disclosure of the breach and subsequent cooperation.

The notification is brief, seemingly because OFSI is making ongoing enquiries in connection with other aspects of the breach unconnected with Raphaels Bank. However, it is apparent that OFSI determined the penalty amount in accordance with its case assessment process set out in its monetary penalty guidance (“Guidance”), which makes this case a useful, albeit currently limited, illustration of its application of that process.

In this briefing, we discuss the significance of the first monetary penalty imposed by OFSI, particularly:

  • the reduction to the final penalty amount as a result of Raphaels Bank’s disclosure and co-operation;
  • the low-value of the breach;
  • the current brevity of the notification;
  • possible public interest considerations behind the penalty; and
  • the two procedural rights of review available under section 147 of the Act.

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Brexit Outline Political Declaration: Initial indicators for the financial services industry

Yesterday’s announcements on the terms agreed for the UK’s withdrawal from the EU say relatively little about the future framework for cross-border trade in goods or services.  More detail is expected on this next week.

The draft withdrawal agreement provides that a transition period will continue until 31 December 2020. Although this was provisionally agreed in March 2018, yesterday’s statements make this a more likely reality. Continue reading

HM Treasury and Financial Regulators’ updates on Brexit preparation

Almost a year after it was introduced, a key piece of UK domestic Brexit legislation has now been passed.  The European Union (Withdrawal) Act 2018 (EUWA), which aims to provide a functioning statute book on the day the UK leaves the EU, completed its difficult passage through the UK Parliament and passed into law on 26 June 2018. Please refer to our briefing, “The UK’s new legal order post-Brexit: A new class of UK law” for a summary of the EUWA.

Following the passing of the EUWA, HM Treasury, the Bank of England, FCA and the Payment Services Regulator (PSR) have each published statements on their approaches to their role in preparing for Brexit, a summary of which is set out here.