Financial Regulation Weekly Bulletin - 9 August 2018

Major UK and European regulatory developments of interest to banks, insurers and reinsurers, asset managers and other market participants Selected Headlines General Global Financial Innovation Network – financial regulators launch consultation 1.1 Brexit Cross-border booking arrangements - FCA publishes ‘Dear CEO’ letter setting out six principles to follow 2.1 The robustness of financial contracts after Brexit - FMLC publishes report 3.1 Banking and Finance Review of the retained provisions of the Consumer Credit Act - FCA publishes discussion paper 5.1 Plaxedes Chickombe and 44 others v The Financial Conduct Authority and Barclays Partner Finance (as Interested Party) – Upper Tribunal case concerning a decision of the FCA to make a validation order in respect of consumer credit agreements entered into through the intermediation of an unauthorised broker 6.1 Securities and Markets Incentives to clear centrally OTC derivatives - FSB, Basel Committee, CPMI and IOSCO consult 7.1 Central clearing interdependencies - FSB, Basel Committee, CPMI and IOSCO publish second report 7.2 Benchmarks Regulation - Commission Implementing Regulations published in the Official Journal 8.1 EMIR - FCA publishes research note on clearing and margining OTC derivatives 10.1 FX Global Code - GFXC publishes review and updated Code 11.1 Asset Management AIFMD - ESMA responds to EIOPA concerning the AIF definition and leverage 12.1 Quick Links Financial Regulation / 9 August 2018 / Issue 974 2 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement Insurance Cyber insurance - EIOPA publishes report calling for deeper understanding in Europe 14.1 Sustainable Insurance Forum - EIOPA joins the forum 14.2 Pension scheme arrangements under EMIR - ESMA publishes updated statement calling for competent authorities not to prioritise their supervisory actions 15.1 Pension costs and transparency - House of Commons Work and Pensions Committee launches inquiry 16.1 Payment Protection Insurance Market Investigation Order 2011 and the IDD - CMA invites comments on proposed consultation 17.1 Financial Crime US sanctions against Iran – updated EU Blocking Statute enters into force 19.1 Enforcement Enforcement Decision Making Committee - Bank of England Policy Statement and updated PRA approach to enforcement 21.1 Alistair Rae Burns v The Financial Conduct Authority – Upper Tribunal case that comments on “silo” management 22.1 General 1. Financial Conduct Authority 1.1 Global Financial Innovation Network – financial regulators launch consultation - August 2018 - The FCA, in collaboration with 11 financial regulators and related organisations, has announced the creation of the Global Financial Innovation Network (GFIN). The group has also published a consultation document on the role of the GFIN and the tools it should use. The group proposes the following functions for the GFIN:  to act as a network of regulators to collaborate, share experience and best practice, and communicate to firms;  to provide a forum for joint policy work; and  to provide firms with an environment in which to trial cross-border solutions (both business to consumer and business to business). This development follows the FCA’s February 2018 consultation on the creation of a ‘global sandbox’. Among other things, the FCA highlighted issues concerning artificial intelligence, distributed ledger technology, data protection, regulation of securities, Initial Coin Offerings, know your customer checks and anti-money laundering. The consultation period closes on 14 October 2018. The consultation document is here. Financial Regulation / 9 August 2018 / Issue 974 3 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The holding page is here. The press release is here. Brexit 2. Financial Conduct Authority 2.1 Cross-border booking arrangements – FCA publishes ‘Dear CEO’ letter setting out six principles to follow - 8 August 2018 - The FCA has published a ‘Dear CEO’ letter from Andrew Bailey, the FCA’s Chief Executive Officer, addressed to firms who are putting in place contingency plans in light of Brexit that will impact current business models, legal entity strategies and booking arrangements. It is specifically addressed to firms expanding their business in Europe. The FCA states that its approach is consistent with that of the PRA. The letter states that the structures firms put in place must enable the FCA to continue to effectively supervise the conduct of UK businesses and must continue to meet threshold conditions. The FCA is open to a broad range of structures and booking models (including back-toback booking and remote booking models), provided that their associated conduct risks are effectively controlled and managed. The letter sets out six principles that these booking models should comply with. For example, firms should set out a clear rationale for the booking model and have their board approve it. The FCA also expects boards and senior managers to ensure effective governance is in place to identify and mitigate the potential harm which could arise from these arrangements. The letter is here. 3. Financial Markets Law Committee 3.1 The robustness of financial contracts after Brexit - FMLC publishes report - August 2018 - The Financial Markets Law Committee (FMLC) has published a report on the continuity of legacy contracts after Brexit. The report considers whether the performance of existing financial contracts would continue after a hard Brexit or whether it would make their performance illegal, impractical or impossible in some way. The report also highlights issues of legal uncertainty, which may arise if there is no clarity as to the UK’s future relationship with the EU. The FMLC examines some of the ways in which these issues might be mitigated, both by firms themselves and through legislative action. The report covers all financial contracts, though it is particularly focused on contracts relating to derivatives dealing and insurance. The report is exclusively concerned with contractual rights, rather than activities performed in connection with a contract. It also focuses on the legal, rather than regulatory or commercial, implications of Brexit on contracts between participants in the UK and EU. The report is here. The holding page is here. Financial Regulation / 9 August 2018 / Issue 974 4 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement Banking and Finance 4. European Central Bank 4.1 Statistics on money markets - ECB consults on amending Regulation - 6 August 2018 - The European Central Bank (ECB) is consulting on proposed amendments to the Money Market Statistical Reporting Regulation (ECB/2014/48) to simplify the reporting scheme and improve the quality of euro money market statistics reported to European System of Central Banks. The consultation period closes on 10 September 2018. The amending Regulation will enter into force 20 days after its publication in the Official Journal of the European Union. The proposed amending Regulation is here. The explanatory memorandum is here. The press release is here. 5. Financial Conduct Authority 5.1 Review of the retained provisions of the Consumer Credit Act - FCA publishes discussion paper - August 2018 - The FCA has published a Discussion Paper DP18/7 entitled ‘Review of the retained provisions of the Consumer Credit Act: Interim report’, which sets out the FCA’s interim views on whether the repeal of the retained provisions of the Consumer Credit Act 1974 (CCA) would adversely affect consumer protection. It also considers whether the retained provisions could be replaced by FCA rules or guidance. Though the discussion paper does not include proposed recommendations to the government, it indicates in broad terms the FCA’s direction of thinking on such recommendations. The FCA will aim to provide sufficient analysis and evidence in its final report to enable the government to take decisions. The discussion paper sets out the FCA’s initial views under three themes: rights and protections; information requirements; and sanctions (including unenforceability). The FCA draws attention to the fact that some CCA provisions extend to regulated mortgages. It summarises the responses to its February 2016 call for input in Annex 3. The FCA plans to hold stakeholder events in September and October 2018. Expressions of interest must be received by 31 August 2018. The FCA also plans to conduct further research. The deadline for comments is 2 November 2018. The review must be completed by 1 April 2019. The discussion paper is here. The webpage is here. Financial Regulation / 9 August 2018 / Issue 974 5 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement 6. Recent cases 6.1 Plaxedes Chickombe and 44 others v The Financial Conduct Authority and Barclays Partner Finance (as Interested Party), [2018] UKUT 0258 (TCC), 1 August 2018 Consumer credit − decision of the FCA to make a validation order in respect of agreements entered into through the intermediation of an unauthorised broker − whether consumer detriment (over and above the mere fact that the broker was unauthorised) was a relevant factor to be taken into account − Upper Tribunal remits decision to make validation order to the FCA for reconsideration − sections 28A and 133 (6) and (6A) FSMA 2000 In relation to a validation order (made under section 28A FSMA 2000 and in respect of consumer credit agreements entered into through the intermediation of an unauthorised broker) the Upper Tribunal:  found that there was evidence of potential consumer detriment, most of which was not taken into account by the FCA in making its decision to issue the validation order (as it was not aware of it at the time);  compared section 28A FSMA 2000 with its predecessor (section 149 Consumer Credit Act 1974) and concluded that consumer detriment (over and above the mere fact that the broker was unauthorised) is a relevant factor to be taken into account in deciding whether to issue a validation order under section 28A (3) FSMA 2000; and  decided that the FCA acted unlawfully in fettering its discretion by the narrow manner in which it took into account evidence of consumer detriment when deciding to issue the validation order, to the extent that the decision was not one that could be reasonably arrived at. The Tribunal, therefore, remitted the matter back to the FCA so that it may reconsider its decision. Judge Timothy Herrington expressed doubt as to whether the Tribunal could set aside a decision remitted back to the FCA for reconsideration. He noted that Parliament had not specifically included this possibility in the relevant statutory power. However, he did not need to decide on this point, as the interested party indicated that it would take no enforcement action until the FCA reconsidered its decision. The decision is here. The holding page is here. See also the Enforcement section for an item on the CMA issuing directions to a bank under the Payment Protection Insurance Market Investigation Order 2011. Securities and Markets 7. Financial Stability Board 7.1 Incentives to clear centrally OTC derivatives - FSB, Basel Committee, CPMI and IOSCO consult - 7 August 2018 - The Financial Stability Board (FSB), the Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructures (CPMI) and the International Organization Financial Regulation / 9 August 2018 / Issue 974 6 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement of Securities Commissions (IOSCO) have published a joint consultation paper on incentives to clear over-the-counter (OTC) derivatives. The consultation is expected to provide a basis for fine-tuning post-crisis reforms. The report suggests that:  the post-crisis capital, margin and clearing reforms, taken together, appear to create an overall incentive (mainly for dealers and larger and more active clients) to centrally clear OTC derivatives;  non-regulatory factors, such as market liquidity, counterparty credit risk management and netting efficiencies, are also important;  some categories of clients have less strong incentives to use central clearing and may have a lower degree of access to central clearing;  the provision of client clearing services is concentrated in a relatively small number of bankaffiliated clearing firms; and  the treatment of initial margin in the leverage ratio can be a disincentive for banks to offer or expand client clearing services. The consultation period closes on 7 September 2018. The final report is expected to be published around the time of the G20 Summit at the end of November 2018. The consultation report is here. The holding page is here. The press release is here. 7.2 Central clearing interdependencies - FSB, Basel Committee, CPMI and IOSCO publish second report - 9 August 2018 - The FSB, the Basel Committee, the CPMI and IOSCO have published a second joint report on the interdependencies between central counterparties (CCPs), their clearing members and financial institutions that are linked to CCPs (such as custodians, settlement banks, credit and liquidity providers and investment counterparties) and the resulting systemic implications. The results are consistent with the findings of the group’s first report in July 2017. The second report notes that:  prefunded financial resources are concentrated in a small number of CCPs;  exposures to CCPs are concentrated among a small number of entities;  the relationships mapped are characterised, to varying degrees, by a core of highly connected CCPs and entities and a periphery of less connected CCPs and entities; Financial Regulation / 9 August 2018 / Issue 974 7 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement  a small number of entities tend to dominate the provision of each of the critical services required by CCPs; and  clearing members and clearing member affiliates are also important providers of other critical services required by CCPs and can maintain several types of relationships with multiple CCPs simultaneously. The analysis is intended to provide useful inputs for designing supervisory stress tests and has informed the policy work as set out in the joint workplan to promote CCP resilience, recovery and resolvability. The report is here. The holding page is here. The press release is here. 8. European Commission 8.1 Benchmarks Regulation - Commission Implementing Regulations published in the Official Journal - 8 August 2018 – Two Commission Implementing Regulations of 8 August 2018 under the Benchmarks Regulation (EU) 2016/1011 have been published in the Official Journal of the European Union:  Commission Implementing Regulation (EU) 2018/1105 – containing implementing technical standards on procedures and forms for the provision of information by competent authorities to ESMA; and  Commission Implementing Regulation (EU) 2018/1106 – containing implementing technical standards on templates for the compliance statement, which must be published and maintained by administrators of significant and non-significant benchmarks. Both enter into force on 29 August 2018 and apply from 29 October 2018. Commission Implementing Regulation (EU) 2018/1105 is here. Commission Implementing Regulation (EU) 2018/1106 is here. 9. European Securities and Markets Authority 9.1 MIFID II/MiFIR - ESMA publishes data for the systematic internaliser calculations for equity, equity-like instruments and bonds - 1 August 2018 - The European Securities and Markets Authority (ESMA) has published data on the total volume and number of transactions executed in the EU in equity, equity-like instruments and bonds between January and June 2018, for the purpose of the systematic internaliser test under MiFID II (2014/65/EU) and MiFIR (600/2014/EU). The press release is here. 9.2 MiFID II/MiFIR - ESMA updates transitional transparency calculations for equity derivatives, equity and equity-like instruments - 6 August 2018 - ESMA has updated its transitional transparency calculations (TTCs) under MiFID II and MiFIR for equity derivatives, equity and equitylike instruments and the tick size band assessment. Financial Regulation / 9 August 2018 / Issue 974 8 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement Trading venues are expected to apply the new results from 13 August 2018. The full list of TTCs can be found here. The FAQs on TTCs are here. The press release is here. 10. Financial Conduct Authority 10.1 EMIR - FCA publishes research note on clearing and margining OTC derivatives - August 2018 - The FCA has published a research note on the impact of central clearing and margin requirements for standardised OTC derivative contracts under the European Market Infrastructure Regulation (EU) 648/2012 (EMIR). The research note finds that:  a clearing exemption for small firms could significantly reduce the burden on them, without comprising EMIR’s overall objectives; and  the phase-ins implementing the initial margin requirements do not result in the intended gradual increase in the number of counterparties subject to the requirements. Instead, there is a sharp increase (by about ten times) in the very last phase-in. The FCA believes that the EMIR review presents an opportunity for similar analysis to be carried out on the wider EU data set. The research note is here. The holding page is here. 11. Global Foreign Exchange Committee 11.1 FX Global Code - GFXC publishes review and updated Code - 6 August 2018 - The Global Foreign Exchange Committee (GFXC) has published a paper entitled ‘The FX Global Code at One Year: A Look Back and a Look Ahead’. The paper reviews developments since the launch of the FX Global Code in May 2017 and the GFXC near-term priorities. The GFXC has also published an updated version of the Code (dated August 2018). Among other things, it has added an illustrative example relating to Principle 11 concerning pre-hedging. The paper is here. The updated Code is here. Minutes of GFXC’s meeting on 27 June 2018 are here. The press release is here. See also the Insurance section below for an item on pension scheme arrangements under EMIR. Financial Regulation / 9 August 2018 / Issue 974 9 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement Asset Management 12. European Securities and Markets Authority 12.1 AIFMD - ESMA responds to EIOPA concerning the AIF definition and leverage - 25 July 2018 - The European Securities and Markets Authority (ESMA) has published a letter to the European Insurance and Occupational Pensions Authority (EIOPA) in response to questions raised by EIOPA concerning the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) on the AIF definition and leverage. The questions were raised in section 11.5.2 of EIOPA’s second set of advice to the European Commission on specific items in the Solvency II Delegated Regulation (EU) 2015/35. The letter is here. The press release is here. 13. Investment Association 13.1 Charity authorised investment fund - IA publishes guide and model trust deed - July 2018 - The Investment Association (IA) has published a basic guide on setting up a charity authorised investment fund (CAIF) and a model trust deed. A CAIF is a fund authorised by the FCA and complying both with the requirements applicable to FCA authorised funds and a UK charity registered with the Charity Commission for England and Wales. The guide is here. The model trust deed is here. Insurance 14. European Insurance and Occupational Pensions Authority 14.1 Cyber insurance - EIOPA publishes report calling for deeper understanding in Europe - 2 August 2018 - EIOPA has published a report entitled ‘Understanding Cyber Insurance - A Structured Dialogue with Insurance Companies’. The report aims to provide insight into the functioning, growth potential, challenges and risks of cyber insurance in Europe. It notes that previously available reports and surveys have tended to concentrate on the US, where the stand-alone cyber insurance market is predominantly located. The report focuses on the need for a deeper understanding of cyber risk in order for the European cyber insurance market to develop, as well as other challenges including the improper treatment of non-affirmative risks and the difficulties in quantifying risks. The report is here. The press release is here. 14.2 Sustainable Insurance Forum - EIOPA joins the forum - 8 August 2018 - EIOPA has become a member of the Sustainable Insurance Forum (SIF), a network of insurance supervisors and regulators from around the world working together on sustainability challenges facing the insurance sector. EIOPA also welcomed the joint SIF and International Association of Insurance Supervisors (IAIS) issues paper on climate change risks published on 31 July 2018, as reported in the previous edition of this Bulletin. Financial Regulation / 9 August 2018 / Issue 974 10 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The press release is here. The issues paper can be found here. 15. European Securities and Markets Authority 15.1 Pension scheme arrangements under EMIR - ESMA publishes updated statement calling for competent authorities not to prioritise their supervisory actions - 8 August 2018 - The European Securities and Markets Authority (ESMA) has published an updated statement on the clearing and trading obligations for pension scheme arrangements (PSAs). The temporary exemption for the PSAs, under the European Markets and Infrastructure Regulation (648/2012/EU) (EMIR), expires on 17 August 2018, which is prior to its proposed extension under the Refit proposals. The updated statement clarifies that ESMA expects competent authorities not to focus their supervisory actions on entities that are expected to be exempted again in a relatively short period of time and to apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in a proportionate manner. Nevertheless, ESMA encourages PSAs to trade on trading venues. The updated statement is here. The press release is here. 16. UK Parliament 16.1 Pension costs and transparency - House of Commons Work and Pensions Committee launches inquiry - 9 August 2018 - The House of Commons Work and Pensions Committee has launched an inquiry into whether the pensions industry provides sufficient transparency to consumers around charges, investment strategy and performance. This follows its recently completed inquiry into pension freedom and choice (culminating in a report dated April 2018) and the FCA’s Consultation Paper CP18/7 entitled ‘Improving the quality of pension transfer advice’ (dated March 2018). The FCA’s policy statement on CP18/7 is expected in autumn 2018. The deadline for written submissions is 3 September 2018. The inquiry webpage is here. The press release is here. 17. Competition and Markets Authority 17.1 Payment Protection Insurance Market Investigation Order 2011 and the IDD - CMA invites comments on proposed consultation - 2 August 2018 - The Competition and Markets Authority (CMA) has published an invitation to comment on its proposal to launch a limited review of certain aspects of the Payment Protection Insurance Market Investigation Order 2011 in response to the introduction of the Insurance Distribution Directive (EU) 2016/97 (IDD). The Order requires payment protection insurance providers to provide policy-holders with policy summaries in a prescribed format, while the IDD requires the provision of an Insurance Product Information Document. The deadline for comments is 23 August 2018. Financial Regulation / 9 August 2018 / Issue 974 11 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The invitation to comment is here. The webpage is here. See also the Asset Management section above for an item on the AIFMD and ESMA responding to EIOPA concerning the AIF definition and leverage. See also the Enforcement section below for an item on the CMA issuing directions to a bank under the Payment Protection Insurance Market Investigation Order 2011. Financial Crime 18. Financial Action Task Force 18.1 Financial flows from human trafficking - FATF publishes report - July 2018 - The Financial Action Task Force (FATF) has published a report entitled ‘Financial Flows from Human Trafficking’. The report is here. The holding page is here. 19. European Commission 19.1 US sanctions against Iran – updated EU Blocking Statute enters into force – 7 August 2018 – Updates to the EU Blocking Statute (Council Regulation (EC) No 2271/96), in the form of (i) Commission Delegated Regulation (EU) 2018/1100 of 6 June 2018 and (ii) Commission Implementing Regulation (EU) 2018/1101 of 3 August 2018 (laying down the criteria for applying for authorisation), and a Guidance Note were published in the Official Journal on 7 August 2018 and came into force on the same day. The EU Blocking Statute aims to counter the effects of US sanctions on EU economic operators engaging in lawful activity with third countries. The update was triggered by the US' unilateral decision on 8 May 2018 to re-impose sanctions against Iran (after wind-down periods of 90 and 180 days, i.e. after 6 August 2018 and 4 November 2018) simultaneously with its withdrawal from the Joint Comprehensive Plan of Action (JCPOA) agreed in 2015. The EU has amended the annex to the EU Blocking Statute by adding a list of extra-territorial US sanctions on Iran. Among other things, the updated EU Blocking Statute allows EU persons affected by the US sanctions to recover damages, nullifies the effect in the EU of any other foreign court rulings based on them and forbids EU persons from complying with the US sanctions unless exceptionally authorised to do so by the European Commission. In a related development, UK Finance published a briefing paper in July 2018 entitled ‘The EU Blocking Regulation – Issues and Considerations for the Financial Services Sector’. Commission Delegated Regulation (EU) 2018/1100 is here. Commission Implementing Regulation (EU) 2018/1101 is here. The EU Blocking Statute is here. Financial Regulation / 9 August 2018 / Issue 974 12 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement A Guidance Note that has also been published in the Official Journal is here. Q&As on the EU Blocking Statute are here. The European Commission press release is here. The UK Finance paper is here. 20. European Central Bank 20.1 Testing financial sector resilience to cyber-attacks - ECB publishes procurement guidelines for TIBER-EU Framework - August 2018 - The European Central Bank (ECB) has published services procurement guidelines in connection with its Threat Intelligence-based Ethical Red Teaming (TIBER-EU) Framework. TIBER-EU is a framework that delivers a controlled, bespoke, intelligenceled red team test of entities’ critical live production systems. Intelligence-led red team tests mimic the tactics, techniques and procedures perceived as posing a genuine cyber threat. To ensure a controlled and safe test, one prescribed control is the use of specialist external threat intelligence and red team providers. The guidelines set out the relevant procurement requirements and standards. The guidelines are here. See also the Insurance section above for an item on EIOPA’s report on cyber Insurance. Enforcement 21. Bank of England 21.1 Enforcement Decision Making Committee - Bank of England Policy Statement and updated PRA approach to enforcement - August 2018 - The Bank of England has published a Policy Statement on its Enforcement Decision Making Committee (EDMC), following its November 2017 consultation. It has also published:  the EDMC’s procedures;  amendments to the statement of policy entitled ‘The Prudential Regulation Authority’s approach to enforcement: statutory statements of policy and procedure’ (dated January 2016);  amendments to the policy statement entitled ‘Statutory statements of procedure with regard to the Bank of England’s supervision of financial market infrastructures’ (dated June 2014); and  details of the members of the EDMC. The EDMC is the Bank’s new decision-making body for contested enforcement cases in the statutory regimes the Bank operates in relation to prudential regulation, financial market infrastructures and resolution. It will also be the decision making committee for certain Scottish and Northern Ireland banknote regime matters pursuant to the Scottish and Northern Ireland Banknote Statement of Penalty Policy in effect from time to time. A decision by the EDMC panel to give a decision notice may, where provided by the relevant legislation, be referred to the Upper Tribunal by the firm or individual in question. Financial Regulation / 9 August 2018 / Issue 974 13 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement Members of the EDMC will be wholly independent of the Bank’s current executive and will not be employees of the Bank. A panel of at least three EDMC members will be convened to hear and resolve each contested enforcement case. In line with the recommendation made by HM Treasury, at least one panel member will be legally qualified (the Panel Lead), who may have a casting vote. EDMC panels will be supported by a lawyer of appropriate seniority from within the Bank’s Legal Directorate who, to the satisfaction of the Panel Lead, has not been involved in, and is sufficiently independent of, the matter under consideration. Where deemed appropriate by the Panel Lead, external legal advisers may also be appointed to support an EDMC panel. The Policy Statement is here. The EDMC’s procedures are here. The updated PRA statement of policy entitled ‘The Prudential Regulation Authority’s approach to enforcement: statutory statements of policy and procedure’ is here. The updated policy statement regarding statutory statements of procedure with regard to the Bank’s supervision of financial market infrastructures is here. The webpage is here. The press release, containing the names of the members of the EDMC, is here. 22. Recent cases 22.1 Alistair Rae Burns v The Financial Conduct Authority, [2018] UKUT 0246 (TCC), 31 July 2018 A firm advising on suitability of transferring pension benefits into a SIPP that invested in alternative assets − whether director failed to take reasonable steps to manage the firm’s business so as to ensure that it complied with relevant requirements and standards of the regulatory system − conflicts of interest − advice model − “silo” management − amount of fine − partial prohibition order The Upper Tribunal has upheld the FCA’s decision to make a partial prohibition order from performing any senior management or significant influence function against Alistair Rae Burns, a director of an independent financial adviser firm, TailorMade Independent Limited (TMI). TMI was involved in advising on the suitability of retail customers making a pension transfer into a selfinvested personal pension (SIPP) that invested in alternative assets. It also directed the FCA to fine Mr Burns £60,000, which is both (i) less than the £116,830 sought by the FCA and (ii) less than the £233,600 contained in the original Decision Notice. In considering the firm’s advice model, the Tribunal criticised the “silo” approach to management by a board of directors of a regulated firm. Financial Regulation / 9 August 2018 / Issue 974 14 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement Conflict of interest issue The Tribunal (consisting of Judge Herrington, Cathy Farquharson and Sue Dale) found that during the period between 22 January 2010 and 20 January 2013, TMI was in breach of Principle 8 and the relevant provisions of SYSC 10.1 in relation to the manner in which it identified and managed a conflict of interest involving Mr Burns. The conflict arose from an undisclosed financial interest which Mr Burns had in the outcome of the firm’s advice, caused by him receiving remuneration from an associated company which acquired the alternative investments. In failing to identify the conflict (which was a matter for which Mr Burns was personally responsible, as it was a conflict that related to him personally), the necessary steps to manage that conflict were not taken. Therefore, Mr Burns failed to take reasonable steps to ensure that TMI complied with the relevant requirements and standards of the regulatory system and so committed a breach of Statement of Principle 7. Advice model issue The Tribunal also found that although the provisions of the FCA’s Perimeter Guidance (PERG) were not clear, COBS 9.2.1 must be construed as requiring a firm which makes a personal recommendation to a retail customer to establish a SIPP to consider whether that recommendation is suitable. This entails establishing not only that a SIPP is a suitable vehicle for the customer in light of his personal circumstances, but also that it is suitable in light of the investments which are proposed to be held within the SIPP, whether or not they are specified investments. This meant that TMI’s advice model was flawed and its personal recommendation process did not comply with the FCA’s relevant regulatory requirements. The Tribunal also found that there were wholly inadequate systems and controls in place surrounding TMI’s advice process. The Tribunal found that, in relation to the establishment of the advice model, the operation of the advice processes and the systems and controls around that model and processes, Mr Burns failed to take reasonable steps to ensure that the business of TMI complied with the relevant requirements and standards of the regulatory system. This amounted to a breach of Statement of Principle 7. However, the Tribunal did not impose a fine in relation to this breach due to the applicable limitation period. Criticisms of the “silo” approach to management In reaching this conclusion, the Tribunal rejected Mr Burns’ argument that he should not be regarded as being personally culpable for these failings, because they had been delegated to another director. The Tribunal said: “284. It was not open to Mr Burns to delegate his responsibility in that manner and therefore satisfy his own individual responsibility as a director. Principle 7 makes it clear that it is incumbent upon any person who accepts the appointment to a significant influence function to take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function complies with the relevant requirements and standards of the regulatory system. As the board of a regulated firm is the governing body responsible for ensuring that the firm does comply with these Financial Regulation / 9 August 2018 / Issue 974 15 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement requirements, there is responsibility on individual directors to take reasonable steps to ensure that these obligations are discharged. 285. That does not mean that it is not permissible for a board to vest prime responsibility for matters such as compliance in one of their number who is more expert than the others on such matters. However, that does not absolve the other members of the board from obtaining a sufficient understanding of the business of the firm which they are ultimately responsible for managing, the key issues that are likely to arise out of its business model, and the manner in which they are being addressed. There is a clear obligation on the part of the board as a whole to provide a challenge to the actions of individual directors performing particular functions and to ensure that there are processes in place whereby they can receive the necessary information to enable them to discharge that function.” The Tribunal also stated at paragraph 294 that: “Had TMI had advice from a competent firm of lawyers that its advice model was compliant, then there would be the case for saying that reasonable steps to ensure compliance with the regulatory system had been taken.” Prohibition order The Tribunal commented that Mr Burns “still seems attracted to the “silo” concept” (paragraph 338). “339. Therefore, we are seriously concerned that Mr Burns shows limited insight into the duties of a director and the board of a regulated firm and has given no serious thought to what he would need to do to address his failings. We therefore have no confidence that he would not make similar mistakes again were he able to exercise senior management functions in a regulated firm in the foreseeable future”. The judgment is here. The holding page is here. A press release by the FCA is here. 23. Competition and Markets Authority 23.1 Payment Protection Insurance Market Investigation Order 2011 - CMA issues directions to a bank - 6 August 2018 – In connection with the right of customers to receive an annual statement setting out the cost of payment protection insurance renewal and a reminder of the right to cancel, the Competition and Markets Authority (CMA) has published directions under the Payment Protection Insurance Market Investigation Order 2011 to Barclays Bank UK PLC, together with a compliance plan, summarising how the actions are to be completed. The directions are here. The compliance plan is here. The holding page is here. Financial Regulation / 9 August 2018 / Issue 974 16 Quick Links Selected Headlines General Brexit Banking and Finance Securities and Markets Asset Management Insurance Financial Crime Enforcement The press release is here. See also the Banking and Finance section above for an item on Plaxedes Chickombe and 44 others v The Financial Conduct Authority and Barclays Partner Finance (as Interested Party), [2018] UKUT 0258 (TCC), which considered the grounds on which the FCA could make a validation order under section 28A FSMA 2000 in respect of consumer credit agreements entered into through the intermediation of an unauthorised broker.