The FCA announced post-Brexit changes

Last week the UK’s Financial Conduct Authority (FCA) disclosed their annual funding requirements for 2023 to 2024 as part of their business plan. This included a stern warning to financial firms that the budget for the indicated period is expected to rise by 8.5 percent to ￡684.2 million due to the additional cost linked to a post-Brexit revamp of its responsibilities.

According to The Times, the FCA also signaled the implementation of the “future regulatory framework”, as part of the business plan, which includes the replacement of certain European Union (EU) laws, and this will add almost ￡13 million to the budget for the indicated period. Added to this was the introduction of the regulator’s new customer duty which consists of tougher rules regarding the way in which customers are treated by financial firms, at an additional cost of more than ￡5 million.

Increased customer protection

The FCA stated, “We set out the final rules and guidance for a new consumer duty that will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.” The Times reported that according to the new customer duty which is set to be enforced at the end of July 2023, the regulator can punish senior managers at firms with fines or bans for serious breaches of its duties. The FCA added that “The consumer duty is a significant shift in our expectations of firms and is particularly important as consumers face squeezed incomes and the rising cost of living.” It has therefore allocated ￡5.3 million in its budget to ensure the new rulebook is “embedded effectively”.

The Times further reported that although it seems as if firms have been scrambling in preparation to implement the new customer duty, Simon Turner, in his capacity as partner at the audit and professional services firm, EY commented and said that the FCA’s business plan “could not be clearer” and that the implementation of the customer duty “is a priority area”.

Volatility in the financial markets

The watchdog also highlighted the fact that there had been “record levels of volatility” over the last 12 months and that the overall outlook was “highly uncertain” due to this. These remarks were made in light of the recent resolution of Silicon Valley Bank in the UK and failures from other financial institutions including the intervention in relation to Credit Suisse.

Hence, according to The Times, the FCA listed four significant uncertainties which include the possibility for additional volatility in financial markets, the unpredictability of interest rates, the risk of higher than predicted unemployment rates and additional pressure on the disposable income of households. In addition, the authority indicated that it expects a rebate of ￡50.3?million from penalties imposed on firms which leaves ￡633.9 million to raise from fees on the financial industry. However, due to the continued pressure on firms as a result of inflation, particularly on smaller firms, which only pay the minimum fee, the FCA proposed to freeze its minimum rate for the year.

Market abuse in the spotlight

The Times also added that according to the FCA, going forward, it would clamp down on insider trading and the manipulation in the stock market and indicated a push to target abuse that occur in various areas of the financial system. In fact, the authority stated that it would “significantly improve” its ability to identify and prosecute manipulation in the expanded commodities and bond markets during this financial year.

This will be achieved through the optimisation of data by a “dedicated non-equity manipulation team”. The watchdog also stated that they will improve the transparency of securities trading conducted by staff within firms where there is access to market sensitive information. Separately but equally important, is the fact that the FCA is preparing to further regulate the crypto asset industry as well as the buy now, pay later industry.

?

Lysis Group has the expertise to assist firms

With new regulations for the crypto asset industry coming into play and with the recent comments published by the FCA, raising their concerns regarding the poor quality of applications from firms wanting to register and trade as crypto asset firms in the UK, the Lysis Group has the necessary skills and expertise to assist firms in this regard.

We believe that a successful registration requires careful planning and preparation so that the documentation submitted for review is fit for purpose and responds correctly to the test questions. In addition, the applicant must be prepared to provide the regulator with clarity on the business purpose and activities and demonstrate a good understanding of the risks and effectiveness of controls. We also have the capacity and integrated approach to assist crypto asset firms to not only obtain registration from regulators, but to also establish the financial crime framework needed to remain compliant while operating in a regulated market.

The group’s vast experience, as global leader in the field of Financial Crime Compliance (FCC) and Client Lifecycle Management (CLM) also extends to include expert consulting on anti-money laundering (AML) and broader financial crime reviews, looking at the effectiveness of Financial Crime controls in preparation for regulatory visits and consequent remediation activities. This will require a dedicated focus from regulated firms going forward, especially with the FCA’s “future regulatory framework” that will be rolled-out.

Lysis Group can therefore support financial service institutions including wholesale and investment banks, payment services and cards, wealth managers, challenger banks and firms from a range of regulated industries, including crypto asset related businesses.

?

The FCA business plan for 2003 – 2004 can be accessed via the following link:

https://www.fca.org.uk/publications/business-plans/2023-24