Recommendations & Conclusions
38 items
1
Conclusion
Fourth Report - The Financial Conduct A…
It is not immediately clear that Mr Bailey’s concerns about the distinction between “responsibility” and “culpability” in Dame Elizabeth’s draft report would have “compelled” him to make his “free-standing” objection. However we accept that it is likely that his strong concerns over the “responsibility” vs “culpability” point may have led …
Government response. Second Special Report of Session 2021–22 9 The FCA takes a holistic approach when recruiting for all roles, but particularly for our critical roles. Once a position becomes vacant, we look at internal succession plans for all our Senior Leadership …
HM Treasury
2
Conclusion
Fourth Report - The Financial Conduct A…
We welcome the FCA’s approach to recruitment for some senior executive roles, which involved global searches, but we believe that the FCA was wrong not to have engaged in a fuller recruitment programme for the Executive Director for Transformation role, including the consideration of potential recruits from outside the FCA. …
Government response. The Senior Managers Regime, which focuses on the most senior individuals who perform key roles, aims to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct. By driving greater clarity about who is …
HM Treasury
3
Conclusion
Fourth Report - The Financial Conduct A…
Given that Dame Elizabeth’s report cited Megan Butler as bearing responsibility for important areas of failure and that her recruitment was conducted internally with just one alternative candidate, we understand why many will feel that “a buck that does not stop with an individual stops nowhere” when it comes to …
Government response. The Senior Managers Regime, which focuses on the most senior individuals who perform key roles, aims to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct. By driving greater clarity about who is …
HM Treasury
4
Recommendation
Fourth Report - The Financial Conduct A…
We recommend that the default position should be that the FCA take a holistic approach when recruiting for critical roles, rather than engaging in a restricted recruitment process. For time-critical appointments, the FCA should consider appointing on an interim basis until a wider search, considering where appropriate both internal and …
Government response. Charles Randell and I are committed to ensuring the FCA implements all nine of the recommendations from Dame Elizabeth’s report,2 and the FCA Board and the Chairs of its Audit and Risk Committees provide independent oversight of this work. As …
HM Treasury
5
Conclusion
Fourth Report - The Financial Conduct A…
We accept that a degree of shared responsibility is desirable and necessary in an organisation such as the Financial Conduct Authority. However, it is not readily justifiable for the FCA to require the firms that it regulates to adhere to the principles of the Senior Managers Regime but seemingly not …
Government response. 8 All reporting firms moved to FCA’s new data collection platform RegData, Financial Conduct Authority, published 19 May 2021 9 Quarterly Consultation, No 32, Financial Conduct Authority, published June 2021 10 Issuing statutory notices—a new approach to decision makers, Financial …
HM Treasury
6
Conclusion
Fourth Report - The Financial Conduct A…
We recognise that the demands of some of these senior executive positions at the Financial Conduct Authority are heavy, and that individual accountability for organisational failings may deter strong candidates from applying for them. But an over-reliance on collective responsibility may deny visible accountability and could lessen confidence in the …
Government response. We agree with the Committee that it is important to do as much as we can to ensure consumers are aware of the risks associated with unregulated activities and are able to make informed judgements. a way which is clear, …
HM Treasury
7
Conclusion
Fourth Report - The Financial Conduct A…
The FCA plays a vital role as the UK’s financial conduct regulator and prudential regulator for most financial services firms. Its work affects millions of financial services customers and it is important that it has the right culture to facilitate its objectives. We support the views of the current FCA …
Government response. Our annual perimeter report, that we first published in 2019, seeks to provide greater clarity to stakeholders on the FCA’s role, and to set out specific issues that have arisen around our perimeter. We will take this feedback from the …
HM Treasury
8
Conclusion
Fourth Report - The Financial Conduct A…
We welcome the FCA’s ongoing transformation programme which has cultural change as one of its priorities. We however note that the FCA has undergone numerous structural and operational changes since its inception, with more changes expected as part of the ongoing transformation. We recognise that culture change takes time but …
Government response. to HM Treasury to change or adapt relevant legislation setting the perimeter of regulation. We have also worked with HM Treasury to provide more transparency around the process by which we address harms emerging outside our perimeter. HM Treasury published …
HM Treasury
9
Conclusion
Fourth Report - The Financial Conduct A…
The FCA accepts that there were failings in the contact centre during the Relevant Period as identified in Dame Elizabeth’s report, and has begun taking steps to address these. We welcome the operational improvements that have been made since the publication of Dame Elizabeth’s report, including the training of call-handlers …
Government response. To ensure we deliver on our objectives and in the public interest, we focus our resources on those markets where we see the most potential for harm. Changes in the range of 14 HM Treasury and Financial Conduct Authority Regulatory …
HM Treasury
10
Conclusion
Fourth Report - The Financial Conduct A…
The FCA should ensure that it keeps its contact centre policies and training up to date to ensure clarity and consistency, not just in relation to firms such as LCF but to the wider organisation. (Paragraph 76) The regulatory perimeter and the scope of the FCA’s remit
Government response. regulation but involve authorised firms will be a key aspect of the FCA’s surveillance, triage and interventions work as it evolves, as well as the work to develop our approach to assessing financial information at the gateway. In pursuit of …
HM Treasury
11
Conclusion
Fourth Report - The Financial Conduct A…
The case of LCF illustrates how important it is that the FCA looks at a regulated firm’s activities both within and outside the perimeter of regulation. The FCA’s failure to consider issues raised in LCF’s unregulated bond business led to red flags being missed. (Paragraph 92) 50 The Financial Conduct …
Government response. We appreciate that these are difficult issues. With police forces now spending less than 1% of its resources on fraud investigations when, according to Action Fraud, fraud accounts for 1 in 3 crimes, we can understand the desire to look …
HM Treasury
12
Recommendation
Fourth Report - The Financial Conduct A…
The “halo effect” appears to be inevitable as long as authorised firms also carry out unregulated activities. We reiterate the recommendation made by our predecessors that the FCA should ensure that it requires authorised firms to make clear explicitly the risks to customers associated with their unregulated activities.
Government response. 18 Second Special Report of Session 2021–22 As of 1 January 2020, we brought in a temporary ban on the mass marketing of Speculative Illiquid Securities (SIS), including speculative mini-bonds, to retail investors. In January 2021 we made the temporary …
HM Treasury
13
Recommendation
Fourth Report - The Financial Conduct A…
In future, the FCA should set out in its annual perimeter report how its supervisory strategies and policies reflect the activities of authorised firms both within and outside the perimeter.
Government response. Through our ongoing work in the consumer investments mass market, we want to improve the support available from firms to consumers, so that they are better equipped to make financial decisions. The ‘Evaluation of the impact of the Retail Distribution …
HM Treasury
14
Conclusion
Fourth Report - The Financial Conduct A…
The perimeter is complex, and while the FCA has some limited powers to act beyond the perimeter, it does not have the remit to actively monitor or intervene outside the perimeter. We recognise the need for the FCA to make prioritisation decisions as its resources are finite.
Government response. We will continue to coordinate with the Treasury on our respective communications with bondholders. The administrators also play an important role and will need to work closely with the FSCS given the Government’s plans for FSCS to administer the LCF …
HM Treasury
15
Conclusion
Fourth Report - The Financial Conduct A…
We welcome the ongoing dialogue between the Treasury, the FCA, and other financial regulators on the perimeter, but the failings in the FCA’s regulation of LCF and constant movement of the perimeter are signs that further action is required.
Government response. In accordance with the Complaints Scheme, all LCF complaints are being considered individually. We will provide an update to the Committee by 30 September 2021 on the FCA’s resolution of the LCF complaints. As at 23 August 2021, we had …
HM Treasury
16
Recommendation
Fourth Report - The Financial Conduct A…
We therefore reiterate a recommendation made by a previous Treasury Committee, that the FCA be given the formal power and remit to be able to recommend formally to the Treasury changes to the perimeter of regulation, where that would enhance its ability to meet its objectives, in particular to prevent …
Government response. In September 2019, we established our Joint Supervision and Enforcement Team to develop and deliver the supervisory strategy for non-standard investments. From 2020, the team has taken forward or referred for further assessment over 800 non-standard investment financial promotions cases. …
HM Treasury
17
Conclusion
Fourth Report - The Financial Conduct A…
Both the FCA and the Treasury accept that the scope of the FCA’s remit is broad and continues to increase. The breadth of the scope has had some operational impacts on the FCA’s ability to carry out its work. We note that the Treasury’s intention is to consider the scope …
Government response. We share the Committee’s concern about the appropriateness of the Financial Promotion Order exemptions for high-net-worth and sophisticated investors. As discussed during our evidence session, we believe the exemptions are a significant vulnerability in the financial promotion regime. Indeed, we …
HM Treasury
18
Recommendation
Fourth Report - The Financial Conduct A…
If the FCA Board were to set itself an end date for the transformation programme, as we recommend in Chapter 2, the Treasury would have a clear indication of when to begin its consideration of the scope of the FCA’s remit.
Government response. We have consistently worked to notify Google and other online search and social media platforms of unauthorised and misleading or scam adverts we identify in order that they can be taken down, as well as including details of firms or …
HM Treasury
19
Recommendation
Fourth Report - The Financial Conduct A…
Any changes to the perimeter must be matched with appropriate changes in the FCA’s resources, and the FCA should republish its priorities. The Treasury should publish a policy statement on how it will analyse changes to the FCA’s perimeter and what factors it will take into account.
Government response. We have consistently worked to notify Google and other online search and social media platforms of unauthorised and misleading or scam adverts we identify in order that they can be taken down, as well as including details of firms or …
HM Treasury
20
Conclusion
Fourth Report - The Financial Conduct A…
The FCA recognises that it has a statutory duty to protect customers from fraud. In the case of LCF, the regulator fell short, due to a culture that saw fraud as principally a matter for the police, and its lack of enthusiasm to look beyond the perimeter. Dame Elizabeth recommended …
Government response. We welcome the Report and appreciate the Committee’s scrutiny. I would like to repeat the apology made by our Chair for the errors the FCA made in our handling of this case. We know that London Capital & Finance’s (LCF’s) …
HM Treasury
21
Recommendation
Fourth Report - The Financial Conduct A…
The FCA should develop a strategy for how it will approach fraud risks that are outside the perimeter of regulation but involve authorised firms. That strategy should be set out in the next perimeter report.
Government response. Tackling more effectively the issue of fraud risks that are outside the perimeter of regulation but involve authorised firms will be a key aspect of the FCA’s surveillance, triage and interventions work as it evolves, as well as the work …
HM Treasury
22
Conclusion
Fourth Report - The Financial Conduct A…
The FCA’s work to prevent fraud is done in partnership with other bodies such as the National Crime Agency and Serious Fraud Office. But the police have limited resources and personnel devoted to tackling fraud, and the FCA currently does not have the full powers of a law enforcement body.
Government response. The Government takes fraud very seriously. The Treasury continues to work closely across Government, and with industry, regulators and law enforcement, to close down the vulnerabilities that fraudsters exploit and ensure members of the public have the information they need …
HM Treasury
23
Conclusion
Fourth Report - The Financial Conduct A…
There may be scope for the Government to consider whether the FCA should be given more powers to enable it to investigate fraud and financial crime. We will continue to consider this as part of our Economic Crime inquiry.
Government response. The Government takes fraud very seriously. The Treasury continues to work closely across Government, and with industry, regulators and law enforcement, to close down the vulnerabilities that fraudsters exploit and ensure members of the public have the information they need …
HM Treasury
24
Conclusion
Fourth Report - The Financial Conduct A…
The unusual way in which LCF used mini-bonds and the high level of risk associated with any such investments highlight the need for the Treasury’s intervention. We welcome the Treasury’s ongoing consultation on the regulation of non-transferable debt securities but note the delay in its launch.
Government response. The Treasury’s consultation on the regulation of non-transferable debt securities (NTDS) closed on 21 July 2021. As the Committee’s report alludes to, this consultation is the culmination of a review into the regulation of mini-bonds that the Government announced in …
HM Treasury
25
Conclusion
Fourth Report - The Financial Conduct A…
In light of the recent failings of several mini-bond issuers and the nature of the existing regulatory arrangements, the Treasury should proceed with its analysis as soon as the consultation on the regulation of non-transferable debt securities closes, and it should aim to publish the outcome by the end of …
Government response. The Treasury’s consultation on the regulation of non-transferable debt securities (NTDS) closed on 21 July 2021. As the Committee’s report alludes to, this consultation is the culmination of a review into the regulation of mini-bonds that the Government announced in …
HM Treasury
26
Conclusion
Fourth Report - The Financial Conduct A…
The FCA should consider how it can improve its customer information so as to help equip customers with the ability to deal with the important financial decisions that they will have to take, and the risks that are attached to those decisions.
Government response. Through our ongoing work in the consumer investments mass market, we want to improve the support available from firms to consumers, so that they are better equipped to make financial decisions. The ‘Evaluation of the impact of the Retail Distribution …
HM Treasury
27
Conclusion
Fourth Report - The Financial Conduct A…
The collapse of LCF brought about a huge degree of uncertainty for bondholders, some of whom were faced with an anxious wait for the publication of Dame Elizabeth’s report and further details of the Government’s compensation scheme. We welcome the approach that the Treasury has taken to compensate LCF bondholders, …
Government response. The Treasury is progressing work on the LCF compensation scheme rules, in close collaboration with the Financial Services Compensation Scheme (FSCS) who will administer the scheme. The FSCS is committed to ensuring that payments are made to all eligible LCF …
HM Treasury
28
Conclusion
Fourth Report - The Financial Conduct A…
The Government has taken a positive step by introducing the primary legislation necessary to establish the LCF compensation scheme. If the Bill has a successful passage through Parliament, the Treasury should ensure a smooth running of the compensation scheme, without any further delays, making sure that eligible LCF bondholders are …
Government response. The Treasury is progressing work on the LCF compensation scheme rules, in close collaboration with the Financial Services Compensation Scheme (FSCS) who will administer the scheme. The FSCS is committed to ensuring that payments are made to all eligible LCF …
HM Treasury
29
Recommendation
Fourth Report - The Financial Conduct A…
We note that there are other ongoing discussions and channels by which LCF bondholders can seek compensation, such as through the FCA complaints scheme 52 The Financial Conduct Authority’s Regulation of London Capital & Finance plc and through LCF administrators. The Treasury and the FCA should ensure that these discussions …
Government response. The Treasury is progressing work on the LCF compensation scheme rules, in close collaboration with the Financial Services Compensation Scheme (FSCS) who will administer the scheme. The FSCS is committed to ensuring that payments are made to all eligible LCF …
HM Treasury
30
Conclusion
Fourth Report - The Financial Conduct A…
The FCA should provide us with an update on its resolution of LCF complaints by 30 September 2021. (Paragraph 160) Financial promotions
Government response. In accordance with the Complaints Scheme, all LCF complaints are being considered individually. We will provide an update to the Committee by 30 September 2021 on the FCA’s resolution of the LCF complaints. As at 23 August 2021, we had …
HM Treasury
31
Conclusion
Fourth Report - The Financial Conduct A…
We welcome the Treasury’s ongoing consultation on approving financial promotions. We trust that the results of the consultation will be published swiftly and the conclusions implemented as soon as possible.
Government response. The Government continues to keep the legislative framework underpinning the regulation of financial promotions under review. This includes arrangements for financial promotions communicated by authorised firms, as well as the effectiveness of the exemptions that form part of the regime. …
HM Treasury
32
Conclusion
Fourth Report - The Financial Conduct A…
We welcome the steps taken by the FCA to change its approach to financial promotions, as well as introducing the “use it or lose it” programme. In future, the FCA should be more interventionist and should make more frequent use of its powers rather than maintaining a culture of risk …
Government response. In September 2019, we established our Joint Supervision and Enforcement Team to develop and deliver the supervisory strategy for non-standard investments. From 2020, the team has taken forward or referred for further assessment over 800 non-standard investment financial promotions cases. …
HM Treasury
33
Conclusion
Fourth Report - The Financial Conduct A…
The Financial Promotion Order would benefit from reform due to the increasing risks associated with the exemptions that allow customers to self-certify as high net worth or sophisticated.
Government response. The Government continues to keep the legislative framework underpinning the regulation of financial promotions under review. This includes arrangements for financial promotions communicated by authorised firms, as well as the effectiveness of the exemptions that form part of the regime. …
HM Treasury
34
Conclusion
Fourth Report - The Financial Conduct A…
The Treasury should—as a matter of priority—re-evaluate the Financial Promotion Order exemptions to determine their appropriateness and consider what changes need to be made to protect consumers.
Government response. The Government continues to keep the legislative framework underpinning the regulation of financial promotions under review. This includes arrangements for financial promotions communicated by authorised firms, as well as the effectiveness of the exemptions that form part of the regime. …
HM Treasury
35
Recommendation
Fourth Report - The Financial Conduct A…
It is very disappointing to see that despite the numerous representations made to the Government, measures to address fraud via online advertising have not been included in the draft Online Safety Bill. This is a missed opportunity to act and potentially help prevent another LCF-type event. The increasing frequency of …
Government response. The inclusion of fraud in scope of the Online Safety Bill will have a real impact on protecting people from the devastating impact of scams posted on social media and dating sites. Furthermore, the Government is considering tougher regulation of …
HM Treasury
36
Conclusion
Fourth Report - The Financial Conduct A…
We note the Government’s intention to consider additional legislative and non- legislative solutions to tackle fraud via advertising, emails or cloned websites, including the online advertising programme, but we believe quicker action is required to protect consumers and help the FCA address the issue adequately.
Government response. The inclusion of fraud in scope of the Online Safety Bill will have a real impact on protecting people from the devastating impact of scams posted on social media and dating sites. Furthermore, the Government is considering tougher regulation of …
HM Treasury
37
Recommendation
Fourth Report - The Financial Conduct A…
We recommend that the Government should include measures to address fraud via online advertising in the Online Safety Bill, in the interests of preventing further harm to customers being offered fraudulent financial products.
Government response. The inclusion of fraud in scope of the Online Safety Bill will have a real impact on protecting people from the devastating impact of scams posted on social media and dating sites. Furthermore, the Government is considering tougher regulation of …
HM Treasury
38
Conclusion
Fourth Report - The Financial Conduct A…
Pending any legislative changes, the FCA should continue to work with online platforms such as Google to remove misleading and fraudulent adverts as quickly as possible, to protect customers from scams. (Paragraph 193) The Financial Conduct Authority’s Regulation of London Capital & Finance plc 53
Government response. The inclusion of fraud in scope of the Online Safety Bill will have a real impact on protecting people from the devastating impact of scams posted on social media and dating sites. Furthermore, the Government is considering tougher regulation of …
HM Treasury