Financial Services - Enforcement News
Welcome to this edition of Enforcement News produced by Baker McKenzie's Financial Services Regulatory Group. This publication provides a non-exhaustive guide to enforcement actions plus speeches, policy & rulemaking over the preceding month.
Enforcement Themes - 2018
Overall 2017 was a quieter year for enforcement (judged by published cases). The FCA imposed 13 fines in 2017 compared to 23 fines in 2016 and 40 in 2015. Whilst we are not likely to see the same volume of cases as in 2016 and 2015, the likelihood is that 2018 will be a busier year.
The first cases under the Senior Managers Regime (SMR) will start to emerge, reinforcing the trend that has seen a 75% increase in investigations into individuals. With the planned expansion of the SMR, the output of these cases will be of interest to the broader FSMA regulated community. Individual responsibility will therefore be a key theme.
Another key theme for 2018 will be MiFID 2. The FCA will be paying close attention to implementation and bedding in of new rules. Enforcement is a risk for firms who are considered non-compliant.
The New Year started with a bang as the FCA announced a fine and prohibition against a former RBS trader, Neil Danziger. Mr Danziger's case related to the Libor investigation and events in the period 2007 - 2010. As this period in history recedes, conduct will no doubt remain an area of enforcement focus for the FCA. The introduction of the SMR will place a spotlight on the behaviour of those at the top of organisations who in the context of the Libor and FX investigations were largely able to escape the clutches of the FCA's Enforcement Department.
Systems & controls
December 2017 saw the imposition of a fine on Bluefin, a large insurance broker. This concerned its failure to implement adequate systems and controls to manage a conflict of interest that arose from its ownership. It held itself out as "truly independent" to customers despite being owned by a large insurer. In effect, it prioritised a culture of increasing business with this shareholder over acting in customers' best interests (e.g. brokers failed to disclose the preference for placing business with its then owner). A high-level conflicts of interest policy proved inadequate to counter the risks posed by its business model.
In December 2017, the FCA also published its first enforcement action under the EU Market Abuse Regulation (MAR), which has had direct effect in the UK since 3 July 2016. This involved a small AIM traded investment company, Tejoori Limited which, misconstruing the legal effect of the commercial arrangements it had entered into, failed to understand both that it was in possession of inside information, and the need to disclose that information as soon as possible. Issuers and advisers should take note that the FCA has given no grace period for companies to comply with MAR, and of the importance of an issuer fully understanding the commercial decisions it enters into and when inside information could arise.
MiFID 2 Enforcement
In a speech on MiFID 2, Megan Butler, FCA Director of Supervision, has referred to the regulator's stance on enforcement action against firms which do not meet all MiFID 2 requirements on 3 January 2018. The FCA has no intention of taking enforcement action "straight away," so there is at least a period of grace, but this is little comfort as there must be evidence (1) of having taken sufficient steps to comply by 3 January, and (2) of having plans in place to complete the process.