This weekly update from Clyde & Co's Financial Services Regulatory Team summarises new developments as reported by the FSA, the UKLA, the Upper Tribunal, the Financial Ombudsman Service and the London Stock Exchange over the past week, with links to the full documents where these are available.
We hope that you will find this update useful. If you have any queries about any of the information in this update or financial services regulatory matters generally, please contact one of the individuals listed in the 'Contacts' section of this publication.
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Consultation papers:
25 January: Financial Services Compensation Scheme – management expenses levy limit 2013/2014. The FSA has published a consultation paper (CP13/4) on the Financial Services Compensation Scheme (FSCS) management expenses levy limit (MELL). The FSCS's management expenses are the non-compensation costs that it expects to incur to deliver its functions. The proposal on the FSCS MELL for 2013/14 is £94.4m, consisting of management expenses of £74.4m and a contingency reserve of £20m. The FSA needs to consult on these earlier than usual so that the rules are made by 1 April 2013.
http://www.fsa.gov.uk/static/pubs/cp/ cp13-04.pdf
25 January: Regulatory reform: Handbook transitional arrangements, the appointment of with-profits committee members and certain other Handbook amendments. The FSA has published a consultation paper (CP13/3) on aspects of the changing Handbooks of rules and guidance to reflect the new UK regulatory structure. The new FCA and PRA Handbooks will come into force on 1 April 2013. Secondary legislative measures under the new Financial Services Act 2012 will set out how the current UK regulatory regime will be transitioned to the new regime. CP13/3 consults on the detailed Handbook provisions which are needed to support this legislation and make the transition of rules, guidance and associated processes as smooth as possible. Comments regarding the consultation paper must be made by 25 February 2013.
http://www.fsa.gov.uk/static/pubs/cp/ cp13-03.pdf
22 January: Regulatory fees and levies: The Money Advice Service cost allocation method for 2013/14. The FSA has published a Consultation Paper (CP13/2) on a new proposed method of allocating Money Advice Service (MAS) costs to fee-blocks, with
a view to implementing it for 2013/14, a year earlier than planned. The proposed method aims to create a clearer link between how consumers use the service and which firms pay for it. There are no proposals to change the way the MAS allocate debt advice costs. Comments regarding these proposals must be made by 22 February 2013.
http://www.fsa.gov.uk/static/pubs/cp/cp13-02.pdf
Discussion papers:
No new developments this week.
Policy statements:
No new developments this week.
Press releases:
24 January: FSA and OFT publish guidance for firms designing new payment protection products. The FSA and the OFT have jointly published guidance to help prevent the problems associated with Payment Protection Insurance (PPI) recurring in a new generation of products. In recent years, firms have ceased offering PPI and begun to develop and sell other forms of protection, such as short-term income protection insurance. New products may offer benefits to customers. However, if such products are not designed and sold with consumers' interests in mind, they may pose similar risks to PPI. The FSA's guidance stresses that firms should ensure that product features reflect the needs of the consumers they are targeting and avoid the creation of barriers to comparing, exiting or switching cover.
Press release: http://www.fsa.gov.uk/library/ communication/pr/2013/008.shtml
Guidance FG13/02: http://www.fsa.gov.uk/static/pubs/ guidance/fg13-02.pdf
23 January: FSA appoints two new non-executive directors to the FSCS board. The FSA has appointed two new non-executive directors to the Board of the Financial Services Compensation Scheme (FSCS). Marian Glen, who was General Counsel at Aegon UK plc from 2009 to 2011, and Charles McKenna, who was a corporate partner at Allen and Overy, will take up their positions on 1 February 2013. As well as appointing these two new members to the Board, the FSA also reappointed Alex Kuczynski and Kate Bartlett as Executive Directors for a further term.
http://www.fsa.gov.uk/library/communication/pr/2013/007. shtml
22 January: Five arrested in FSA insider dealing investigation. The FSA, with the assistance of the City of London Police have executed four search warrants in the City of London, Lincolnshire, Leicestershire and North Yorkshire. Five individuals including two men and three women are currently in custody to be questioned in connection with an investigation into Insider Dealing and Market Abuse, a criminal offence that is punishable by a fine or up to seven years imprisonment.
http://www.fsa.gov.uk/library/communication/pr/2013/006. shtml
Speeches:
No new developments this week.
Bulletins and newsletters:
No new developments this week.
Final notices:
24 January: Final Notice: Cheickh Tidiane Diallo. The FSA has published a Final Notice stating that Mr Diallo has engaged in market abuse and prohibiting him from performing any function in relation to a regulated activity on the grounds that he is not a fit and proper person. The FSA would have imposed a financial penalty of £100,000 on Mr Diallo but for evidence that imposing such a penalty would have caused him serious financial hardship. The Final Notice follows a decision by the Tribunal released on 28 September 2012.
http://www.fsa.gov.uk/static/pubs/final/cheickh-diallo.pdf
24 January: Final Notice: Patrick Sejean. The FSA has published a Final Notice which, prohibits Mr Sejean from performing any function in relation to a regulated activity on the grounds that he is not a fit and proper person, and imposes a financial penalty of £650,000 for engaging in market abuse. The Final Notice follows a decision by the Tribunal released on 28 September 2012.
http://www.fsa.gov.uk/static/pubs/final/patrick-sejean.pdf
24 January: Final Notice: Stefan Chaligné. The FSA has published a Final Notice which prohibits Mr Chaligné from performing any function in relation to a regulated activity and imposes a fine for engaging in market abuse. The fine consists of a €362,950 disgorgement of benefit and an additional penalty of £900,000. The Final Notice follows a decision by the Tribunal released on 28 September 2012.
http://www.fsa.gov.uk/static/pubs/final/stefan-chaligne.pdf
Application refusals:
No new developments this week.
Approved person refusals:
No new developments this week.
Research publications:
No new developments this week.
Consumer research:
No new developments this week.
Other FSA publications:
25 January: FSA statement on Basel III rules on capital requirements for exposures to CCPs. In July 2012 the Basel Committee on Banking Supervision (BCBS) agreed a revised Regulatory rules text on the capital requirements for bank exposures to central counterparties. These rules set out the capital treatment for bank exposures to qualifying central counterparties (QCCP). The FSA is working towards implementing the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMIs). While the FSA reserves the right to declare a specific CCP as non-qualifying, currently all recognised clearing houses based in the UK and prudentially supervised by the FSA may be treated as QCCPs for a transitional period that, unless extended, expires on 31 December 2013.
CCPs in the UK are subject to the Regulation on OTC Derivatives, central counterparties and trade repositories (EMIR). The FSA's supervision is currently focused on preparing domestic CCPs to meet the requirements of EMIR, and we anticipate that UK CCPs will apply for authorisation under EMIR during 2013. From 1 April 2013, responsibility for the supervision of CCPs will pass to the Bank of England.
http://www.fsa.gov.uk/portal/site/fsa
25 January: Policy development update (issue 155). The FSA has issued a policy development update that outlines recent publications, Handbook-related developments and an updated timetable for forthcoming publications.
http://www.fsa.gov.uk/static/pubs/handbook/pdu-newsletter-jan13.pdf
24 January: Financial Services Act 2012 (Commencement No 1) Order 2013 published. This order brings certain provisions of the Financial Services Act 2012 into force on certain dates for all, or for specified, purposes. Parts 1 to 3 set out those provisions that came into force on 24 January 2013 and Part 4 brings certain provisions into force on 19 February 2013.
http://www.legislation.gov.uk/uksi/2013/113/pdfs/ uksi_20130113_en.pdf
22 January: Update on how FSA online systems will work under the new FCA. The FSA has published an update stating that the FCA will continue to use FSA systems, such as Gabriel, and that the way they are used, including reference numbers and logins, will not change. The contact centre telephone number will also remain the same. The FSA intends to publish further information on the individual system pages over the next few months.
http://www.fsa.gov.uk/smallfirms/resources/regulation_ roundup/index.shtml
21 January: Explanatory notes to the Financial Services Act 2012. The Government has issued explanatory notes to assist in the understanding of the Financial Services Act 2012 which received Royal Assent on 19 December 2012.
http://www.legislation.gov.uk/ukpga/2012/21/pdfs/ ukpgaen_20120021_en.pdf
UKLA publications:
No new developments this week.
Upper Tribunal (Tax and Chancery Chamber):
25 January: Upper Tribunal Decision in 7722656 Canada Inc (Swift Trade Inc) and Peter Beck (Third Party) v The Financial Service Authority. On 1 June 2011, Swift Trade and Mr Beck referred a Decision Notice issued by the RDC, which imposed a financial penalty of £8m for market abuse (a breach of s.118 of FSMA), to the Upper Tribunal. The FSA's case was that between 1 January 2007 and 4 January 2008 Swift Trade systematically and deliberately engaged in a form of manipulative trading known as "layering", in relation to shares traded on the London Stock Exchange (LSE). Swift Trade's case was that: the FSA did not have jurisdiction over it; the actions of dealers associated with Swift Trade (the Dealers) did not fall within s. 118 because the relevant trades were in derivatives rather than securities; trades on the LSE were undertaken by Merrill Lynch or Penson Financial Services Ltd and not Swift Trade; the activity complained about was not manipulative; the relevant trades were not abusive within the meaning of s. 118; the Dealers were independent of Swift Trade; Swift Trade had the benefit of the defence in s.123(2) (the statutory defence that the individual did not amount to market abuse and they took all reasonable steps to prevent it); and finally that the FSA's actions were inappropriate in light of Swift Trade's settlement with the Ontario Securities Commission (OSC).
The Tribunal unanimously upheld the RDC's decision, finding that it had jurisdiction over Swift Trade, whose conduct fell within s.118 and was deliberate, manipulative market abuse designed to deceive other market users. The OSC Settlement Agreement was of no consequence. The Tribunal upheld the fine of £8m against Swift Trade.
Financial Ombudsman Service (FOS):
No new developments this week.
London Stock Exchange (LSE):
No new developments this week.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
