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.
Consultation papers:
29 November: Regulatory reform FCA Handbook: FSA consults on FCA supervision and threshold conditions, and statement on FCA's new power of direction over qualifying parent undertakings.
The FSA has published a consultation paper (CP12/34) on updates to the FCA Handbook. The proposals set out:
- The FCA's new supervisory model in a revised version of chapter 1 of the Supervision Manual (SUP)
- Amendments to chapter 7 of SUP covering when the FCA will exercise its own initiative powers to vary or impose requirements or limitations on firm's permissions
- Amendments to the Threshold Conditions sourcebook to reflect the new FCA threshold conditions to be introduced by the Financial Services Bill
The consultation paper also seeks comments on a draft version of the FCA's statement of policy on its approach to its powers of direction over certain unregulated holding companies, as required by the Bill. The deadline for comments is 29 January 2013 and the FSA hopes the proposals will be in place for when the new regulators acquire their legal powers in 2013.
http://www.fsa.gov.uk/library/policy/cp/2012/12-34.shtml
Discussion papers:
No new developments this week.
Policy statements:
No new developments this week.
Press releases:
26 November: FSA publically censures Capita Financial Managers Ltd for CF Arch cru funds failings.
The FSA has published the Final Notice it issued to Capita Financial Managers Ltd (Capita) (dated 13 November) alongside a press release publically censuring Capita for failings relating to the CF Arch cru funds. Capita breached Principles 2 (skill, care and diligence) and 3 (management and control) of the FSA's Principles for Businesses (PRIN) as well as rules in the Collective Investment Schemes sourcebook.
Capita is the Authorised Corporate Director of the CF Arch cru funds and in July 2006 delegated this responsibility to a third party, Arch Financial Products (Arch). Capita failed in aspects of its oversight of Arch in that it failed to ensure it had sufficient processes in place to monitor Arch and as a result failed to effectively discharge its regulatory obligations to investors.
The funds were suspended in March 2009 resulting from fears there was insufficient liquidity to meet investors' demands to sell their shares. Funds totalled GBP 391 million. Capita, Bank of New York Mellon Trust and Depositary and HSBC Bank Plc established a voluntary payment scheme of GBP 54 million in June 2011. As part of the settlement reached with the FSA, Capita agreed to contribute GBP 32 million to the scheme, without admission of liability. The FSA decided not to impose a financial penalty on Capita, as in order to make the contribution to the fund Capita required funding from its ultimate parent Capita Group Plc and would not be able to fund a financial penalty in addition.
In the press release, Tracey McDermott commented "those firms which delegate activities to others need to have robust processes to allow them to oversee properly these third parties and protect investors".
Press Release: http://www.fsa.gov.uk/library/communication/pr/2012/106.shtml
Final Notice for Capita: http://www.fsa.gov.uk/static/pubs/final/capita-financial-managers.pdf
26 November: FSA fines UBS GBP 29.7 million for significant failings in not preventing large scale unauthorised trading.
The FSA has published a press release relating to the Final Notice it issued to UBS, fining the bank GBP 29.7 million (discounted from GBP 42.4 for early settlement). The penalty arose since a lack of adequate systems and controls at UBS allowed an employee, Kweku Adoboli, to cause substantial losses of USD 2.3 billion as a result of unauthorised trading. The FSA believes that UBS failed to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems and failed to conduct its business from the London Branch with due skill, care and diligence. UBS's systems put market confidence at risk and enabled Mr Adoboli to commit financial crime. The penalty was set at 5% of the revenue of the Global Synthetic Equities (GSE) trading division. Tracey McDermott commented that this was to "make it clear the FSA expects much higher standards from the firms [it] regulates".
The Swiss Financial Market Supervisory Authority is also taking action against UBS in relation to the above breaches.
Press Release: http://www.fsa.gov.uk/library/communication/pr/2012/105.shtml
Final Notice: http://www.fsa.gov.uk/static/pubs/final/ubs-ag.pdf
Speeches:
No new developments this week.
Bulletins and newsletters:
No new developments this week.
Final notices:
28 November: Michele Louise King.
The FSA has published a Final Notice censuring Michele Louise King and prohibiting her from conducting any controlled function or activity under FSMA. The FSA has said that but for Ms King's financial difficulties, they would also have imposed a fine of GBP 20,000. During the relevant period, Ms King breached Statement of Principle 6 by failing to exercise due skill, care and diligence in managing the business of HDA for which she was responsible in the performance of her controlled function. In particular, Ms King failed to:
- Take reasonable steps to understand her regulatory responsibilities as an approved person
- Take reasonable steps to discharge her regulatory responsibilities
- Understand or take reasonable steps to understand the basic business functions of HDA and her regulatory and management responsibilities thereof
On this basis the FSA has deemed that Ms King does not meet the minimum standards to be a fit and proper person to perform controlled functions.
http://www.fsa.gov.uk/static/pubs/final/michele-king.pdf
25 November: UBS AG.
The FSA has published a Final Notice issued to UBS AG fining it GBP 29.7 million (discounted from GBP 42.4 for early settlement) for breaches of Principles 2 and 3 of the FSA's Principles for Businesses. These breaches occurred between 1 June and 14 September 2011 in the GSE business. The breaches became apparent when a UBS employee, Kweku Adoboli, was discovered to have made USD 2.3 billion of losses through trading on exchange traded index future positions. On 20 November 2012, Mr Adoboli was convicted of two counts of fraud by abuse of position and sentenced to seven years in prison. The FSA found that there was insufficient focus on the key risks associated with unauthorised training. In particular, UBS failed to:
- Adequately supervise the GSE trading division with due skill, care and diligence
- Have adequate systems and controls to detect unauthorised trading in a timely manner
- Have adequate focus on risk management systems or take sufficient action in respect of identified risk management issues
http://www.fsa.gov.uk/static/pubs/final/ubs-ag.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:
30 November: FSA Policy Development Update no. 153.
The FSA has published Policy Development Update (PDU) no. 153. This update summarises the publications the FSA has published since the last issue and those it intends to publish shortly. The update also indicates the changes to the FSA's publishing schedule, as set out in PDU no. 152, published on 26 October 2012.
http://www.fsa.gov.uk/static/pubs/handbook/pdu-newsletter-nov12.pdf
29 November: FSA modification by consent for CASS medium and large firms that cease to hold client money or assets.
The FSA has published a new webpage announcing a modification by consent of the rule in CASS 1A.1.1R(3) of the Client Assets sourcebook (CASS), together with the related direction. Modification by consent allows firms which no longer hold client money or assets to cancel their authority to hold client money and cease to be categorised as CASS medium or CASS large firms. This then means that the firms no longer need to submit monthly client money and asset return reports and no longer need to notify the FSA of their CASS category the following year. Firms wishing to take advantage of modification by consent should contact the FSA's central waivers team. The firm will need to provide the FSA with a copy of a letter from an external independent auditor confirming that the firm does not hold client money or safeguard and administer custody assets. The FSA will then confirm to the firm in writing that modification has been granted. All modifications will also be published on the FSA website.
Webpage: http://www.fsa.gov.uk/doing/regulated/notify/waiver/consent/cass1a1.shtml
Related Direction: http://www.fsa.gov.uk/static/pubs/waivers/cass1a2.pdf
UKLA publications:
No new developments this week.
Upper Tribunal (Tax and Chancery Chamber) (formerly Financial Services and Markets Tribunal (FSMT)):
No new developments this week.
Financial Ombudsman Service (FOS):
27 November: FOS - Ombudsman News: Issue 106.
The FOS has published the final 2012 issue of Ombudsman News. This issue covers:
- Case studies about pet insurance
- Complaints involving confusion over standing orders, direct debits and continuous payment authorities
- Chief ombudsman, Natalie Ceeney, looking back on the challenges of 2012
http://www.financial-ombudsman.org.uk/publications/ombudsman-news/106/106.html
London Stock Exchange (LSE):
28 November: MegaFon raises USD 1.7 billion in London's largest telecoms capital raising for more than a decade.
The London Stock Exchange welcomed MegaFon, one of Russia's largest telecommunications businesses, to its Main Market. The company opened trading in London in a ceremony to mark the start of conditional dealing in its Global Depositary Receipts (GDRs), ahead of its listing on 3 December. MegaFon's offering raised USD 1.7 billion (GBP 1.1 billion), the largest new capital raising by a telecommunications company in London since Orange in 2001. The offering also brings the total amount of capital raised by Russian new issues on London Stock Exchange to USD 8.2 billion (GBP 5.1 billion) this year.
26 November: London Stock Exchange hosts Lebanon Capital Markets Day.
The London Stock Exchange held its first Lebanon Capital Markets Day at its London headquarters in Paternoster Square. The event was held in conjunction with Banque du Liban and BNY Mellon and featured participation from seven of Lebanon's leading companies as well as London-based and international investors.
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