On 25 March 2013, the FCA published its first Business Plan. The Business Plan is a rather dense document, setting out in some detail how the FCA intends to operate in the following 12 months.
As regards enforcement, although no particular surprise, it is worth stating that the FCA declares early on that it is committed to a credible deterrence strategy through its enforcement actions. This means that it will use its enforcement powers to take action against firms and individuals who abuse the system and to deter others from doing so. We pick out below some brief highlights that may be particularly interesting to those who are looking at where Enforcement's actions or emphasis may lie in the coming year:
- The FCA has trumpeted its product intervention approach for some time now. It plans to carry out thematic reviews of firms' product governance processes across wholesale and retail markets and says it will take tough action if standards are not adequate. We have commented in the past on how thematic reviews frequently give rise to enforcement action.
- Wealth management has been a focus of the regulator for some period now (see elsewhere in this edition "UBS fined £9.45m for suitability related failings in its sales of an AIG fund", "JP Morgan wealth management division fined £3m for failures in suitability processes"). The FCA says it will remain a focus.
- In 2013/14, the FCA also intends to review the management of conflicts of interest in the asset management sector. This follows on from the FSA findings of an initial review communicated to firms through a "Dear CEO" letter in November 2012.
- When discussing "Product Design and Oversight: Fund fee structure", the FCA says it will undertake a project that will highlight the behaviours and practices of asset management firms in relation to charging structures that harm consumers.
- On "Financial Incentives", the FCA talks of the guidance the FSA published in 2012 on the risks to consumers from financial incentives, after its thematic work showed that most incentive schemes are likely to cause mis-selling and that firms are not managing this properly. The FCA says it will take action against individual firms that are not managing the risks from their incentive schemes.
- In terms of financial promotions, the FCA now of course has enhanced powers. It says it will adopt a more streamlined and robust approach to firms that consistently produce promotions that can mislead, confuse or be unfair to consumers. It says that may involve greater use of supervisory and enforcement powers.
- News seeped out earlier this month of the FCA's investigations in relation to Transition Management (TM). The FCA says in the Business Plan that there is evidence that the level of transparency and market conduct among TM participants is not to the standard it requires. It goes on to say that it will undertake a project to review practices across the main TM industry participants to assess whether customers are being treated fairly.
- Client Assets remains a real focus area for the regulator. The FCA says that its supervisory work shows that a number of firms have inadequate records and ineffective segregation of client assets. Having taken action against a number of firms for client asset failures, the FCA threatens to take tough action and impose fines on those firms that still do not have adequate arrangements in place.
- Market abuse remains a continuing area of focus. Here, key enforcement priorities include: removing from the industry the firms or individuals who do not meet the FCA standards; continuing to pursue aggressively the firms or individuals who abuse UK markets by using its criminal and civil powers. It says that "taking actions against individuals is a key part of our credible deterrence strategy." One particular aspect of the FSA strategy that we have previously seen relates both to Suspicious Transaction reports and Transaction Reporting. The FCA commits to this, saying that it will take action where necessary to ensure that firms and individuals comply with their reporting obligations.
- Although not strictly speaking enforcement, we have previously commented on the FSA approach to firms' authorisations and individual approvals. The approach we have seen the FSA take to these in the last couple of years has been far more robust, with the potential to achieve the same impact as a prohibition. From the Business Plan, it seems this is a continuing focus for the FCA. Interestingly, related to this as regards individuals, the FCA says it wants to ensure that the accountability of Approved Persons are clearly defined by firms and understood by the FCA. The FCA seems to be particularly focussed on SIF accountability. It also says that firms should expect to see increased enforcement action against Approved Persons who breach the FCA rules as a result.