FSA and Regulatory News
General
- Firms are not to use the current troubled environment as an excuse to distract from compliance activities and equally the regulator must ‘stay on the beat’.
- Rules are changing to address the ‘needs of the day’. There will have to be more rules but still a focus on principle based regulation – just more drilling down and more supervision.
- Business models are going to be under scrutiny and there will be an increasing number of FSA visits to firms. The relationship between firms and the regulator will have to be closer with the FSA taking action if they think business models are unsustainable.
- The recent MarketWatch bulletin stressed that compliance should not just take a box ticking approach but must be risk based and focused.
- Compliance officers need authority as they must be taken seriously by the business. John Tattersall, Chairman of PwC, thinks Compliance Officers should have more interaction with the business.
Monitoring/ Market Abuse
- Ben Hur, Compliance Officer & MLRO at NIBC recently commented on the need for a risk based and robust approach to monitoring, including an initiative to monitor phone calls (mobiles and blackberries also), emails and external mail.
- There is a focus on monitoring and prevention of market abuse as well as reporting of suspicious activity.
- Controls over insider information must be strengthened. Weaknesses include: insiders on deals, ease of access to sensitive information, insufficient training.
- Detailed reviews of systems and controls should be undertaken with a focus on good training. Firms in all areas of financial services must ensure that risks to their business are regularly re-assessed to avoid AML.
- Firms must keep on top of the risk of market abuse, especially firms handling inside information. 300 suspicious transaction reports were received last year and the quality and quantity has improved over time and has led to enforcement action.
- Up the stakes to prevent those who may risk committing market abuse – they will get a criminal conviction.
- Firms need to demonstrate to the FSA that measures are in place to prevent and detect market abuse, based on a strategic assessment of risks and market abuse in the business and illustrating what has been done to offset them.
Other
- The Financial Services and Markets Act (FSMA) sets out 4 objectives: maintain confidence in the UK financial system; promote public understanding of the financial system; secure the appropriate degree of protection for consumers and help reduce the scope of financial crime. In order to achieve this there are 3 strategic aims of the FSA: promote orderly and fair markets; help retail customers achieve a fair deal; improve business capability and effectiveness.
- Despite difficult economic and financial conditions, firms must continue to focus on COB requirements, in particular TCF, tackle market abuse and other areas of financial crime. Quality of advice must also be high. By the end of 2008, firms must be able to demonstrate that they are consistently treating their customers fairly. Ultimately, retail consumers’ needs must be satisfied.
- Capital adequacy and stress testing will be very important. All firms are being asked to revise the ICAAP by the end of the year and update the risks outlined as ICAAP formalises risks and puts them into a proper structure.
- Firms must look to strengthen risk management processes in order to deal with economic and financial shocks. Firms should focus on stress testing work where they consider sufficiently stressful scenarios. The recent market conditions have highlighted the importance of robust business plans which can deal with the financial crisis.
- One big project in 2009 will be on CDS – Credit Default Swaps. Hedge funds are still a challenge to the regulator as there are concerns over internal controls. Chris Rexworthy who helped set-up the FSA hedge fund team believes the FSA now understands the industry better. The hedge fund team has grown and is more experienced now.
- Scenario based training will become a focus.
- The FSA wants to ensure that it has the right people in place to successfully deliver regulatory strategy and principles based regulation. They want to attract, motivate and develop talented individuals to deliver objectives as well as build a reputation as an employer of choice.
