Out-Law News 3 min. read

FCA 2015/16 business plan indicates increased focus on prevention of financial crime, says expert

The Financial Conduct Authority (FCA) will target firms with insufficient internal mechanisms in place to minimise the risk of financial crime over the next financial year, according to its business plan for 2015/16.

The regulator has included the importance of firms' financial crime prevention systems and controls as one of its top seven 'areas of focus' over the coming financial year for the first time; replacing last year's focus on rapid house price growth. However, it will continue to monitor the risks posed to financial stability by house price growth as part of its wider regulatory remit. The list also includes technology developments, unfair contract terms and consumer credit affordability assessments, and pension products.

"When combined with the various statements made by the FCA and its senior management over recent weeks it is clear that the FCA will be focusing increased resource on taking action in relation to anti-bribery, anti-money laundering and sanctions," said financial regulation expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com. "This is likely to focus on the appropriateness of systems and controls, and actual criminal conduct which has occurred."

"When combined with the increasing shift towards the criminalisation of corporate and senior management misconduct, it appears extremely likely that criminal prosecutions will only be on the increase within the financial services industry," he said.

The FCA has also confirmed plans to create two new divisions responsible for supervision and authorisations work, each led by a director that will sit on the FCA's executive committee. Tracey McDermott will be responsible for the supervision of investment, wholesale and specialist firms, while Linda Woodall will become acting director of retail and authorisations.

According to the business plan, the FCA intends to pay particular attention to the pensions market over the coming year; both as a follow-up to its 2014 review into annuity sales and as part of next month's pension market reforms. It plans to examine whether the sales practices of annuities providers have improved since its review, and to address how firms are supporting and advising their customers on the best ways to take advantage of their new abilities to access and invest their defined contribution (DC) pension savings more flexibly. It also intends to work closely with the Treasury on its planned creation of a secondary market in annuities and related consumer protections.

In its report, the FCA said that the pension reforms could potentially reduce consumer confidence and the desire to shop around without "appropriate information and guidance". This would in turn impact on competition in the market, it said. It also highlighted the increased risk of "scams" targeting the pension savings of vulnerable consumer groups.

"[W]ithout appropriate information and guidance to empower consumers, greater choice and the offering of more complex products in the pensions market will reduce consumers' confidence and appetite to shop around and so weaken competitive pressure on providers to offer good value in this market, as highlighted in our market study on retirement income," the FCA said in its business plan. "We also believe that there may be an increased risk of scams at the point of liberalisation and onwards."

The business plan also promises a new asset management market study, which will particularly examine charges paid by investors and the reasons for those charges. It will also take forward its previously-announced wholesale market study into competition in investment and corporate banking. Other areas of focus include plans to investigate whether there are barriers to competition or consumer switching in the mortgage market, and further reviews of consumer credit firms and practices.

"The FCA's plan reiterates many of the risks and priorities included in last year's plan, but it is notable that the focus on consumer credit continues with a slightly different approach," said financial regulation expert Michael Ruck. "The FCA will now be looking to focus on culture and practice in consumer credit affordability assessments, and issues relating to unfair contract terms being given sharper focus by the Consumer Rights Act due to come into force this year. Only time will tell if this focus has a positive impact or simply results in the reduction of access to credit which is vital for many customers."

The FCA announced last month that it would formally review competition between banks that provide investment and corporate banking services after finding "unanswered questions about potential conflicts of interest and value for money". From next month, the regulator will also have its own powers to take enforcement action against firms for breaches of the Competition Act and to refer markets to the Competition and Markets Authority (CMA) for in-depth investigation. In November 2014, it found weaknesses in insurance brokers' bribery and corruption prevention systems and controls, and in the anti-money laundering controls operated by small banks.

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