Here’s a round-up of our top stories in November 2013
U.S. brokers must be able to quickly show examiners data on the stocks they sell, under the new exam strategy of the Financial Industry Regulatory Authority, Nick Paraskeva writes for Compliance Complete. His article, FINRA wants data “at its fingertips,” will focus exams on conflicts and compensation in 2014, gives Compliance Complete readers an early look at FINRA’s exam processes and priorities for 2014
A final version of the Volcker Rule on curbing risky bank practices may be proposed by U.S. regulators as early as December. A must-read article from Compliance Complete’s Henry Engler, Volcker Rule: When is market-making really proprietary trading?, examines the critical issue of how will regulators distinguish banned proprietary trading from permissible market-making.
The five-stage process for setting financial penalties for misconduct that the Financial Services Authority introduced in 2010 continues to produce inconsistent and arbitrary fines, senior lawyers told Compliance Complete. One dismissed the post-2010 five-step formula, intended to generate fines tied to seriousness of misconduct and the amount of ill-gotten gains, as ‘cod science’.
The European Securities and Markets Authority has finally approved the registration of four trade repositories under the European Market Infrastructure Regulation, giving market participants just over two months to prepare for derivatives reporting. Regulators, trade bodies, derivatives dealers and the buy side now have a limited time to prepare for reporting, even though some prickly issues involving the mechanics of trade reporting still need to be solved, said Rachel Wolcott, of Compliance Complete.
In a related article, Patricia Lee explained how the swap execution facilities rules under Dodd-Frank will affect non-U.S. persons and entities involved in OTC derivatives trades with U.S. counterparties.
Future job descriptions will be significantly more detailed than those previously used and for the protection of both the individual and the firm it is critical that all regulatory criteria and expectations are included. As part of the daily management of the firm senior individuals will need routinely to collect and maintain the evidence to show how they discharged all their obligations and responsibilities. When roles change, detailed documented handovers need to become the norm to ensure that all concerned can manage their personal regulatory risk, said Susannah Hammond, of the Regulatory Intelligence team. In addition, risk and compliance practitioners need to spend more time building relationships with board members to ensure their concerns can be escalated quickly, said Nathan Lynch, of Compliance Complete, in this article.
The Financial Conduct Authority has put behavioural economics firmly on the agenda for financial services firms, which now need to be careful that their products and sales processes do not exploit any unconscious biases on the part of consumers. An awareness of the common pitfalls that can trip up any decision, and which might lead to decision makers drawing the wrong conclusion and, ultimately, taking incorrect action, can help financial services firms to avoid those pitfalls, said Jane Walshe, of the Regulatory Intelligence team, in this piece.
An outsourcing report due out this month from a working group of asset managers and service providers marks a watershed for compliance officers, experts have said. Following the publication by the Outsourcing Working Group, whose work so far is acknowledged in the Financial Conduct Authority’s report on its related thematic review, compliance officers in some asset managers, including those owned by insurance groups, will be well advised to clarify their role in oversight of service providers, they said.
The Financial Conduct Authority has no master definition of “conduct risk”, Linda Woodall, its director of mortgage and consumer lending, said at a conference attended by representatives of insurers, banks and others involved in mortgage lending. She said the phrase “conduct risk” had reached almost mystical status in the market, and the FCA was aware that its new approach had created some uncertainty for firms that wanted to make sure they were doing the right thing but were unclear about the regulator’s expectations.
Self-invested personal pensions are increasingly investing in fraudulent assets, and the compliance officers of the exposed provider firms risk personal criminal liability, according to Anthony Barnfather, partner, Pannone. Barnfather said that compliance officers must tighten their checks to combat such investment, particularly dubious pension liberation schemes, which often target SIPPs, and he discussed also the responsibilities of financial advisers in this area of pensions investment, one in which insurers have significant involvement. Barnfather spoke out as the Financial Conduct Authority launched a third thematic review of SIPP operators.
Insurers are baulking at the monumental Solvency II data demands and the ignorance of some regulators about how to handle this, as the Association of British Insurers’ Solvency II conference heard. The time to act is now, they agreed, given that the European Insurance and Occupational Pensions Authority preparatory guidelines, following consultation apply, complete with extensive reporting requirements, from January 1, 2014.
Retail financial services firms must scrutinise published decisions by the Financial Ombudsman Service in detail given the Financial Conduct Authority’s uncertain expectations in this area, said Patricia Easterbrook, director, retail banking, British Bankers’ Association. She provided this clarity at a BBA seminar on complaints handling where delegates were unclear about how far they should look at published decisions by the FOS for purposes of preparing for their own interactions with the service. This is not a simple or quick process, even as complaints handling has high FCA priority.
The Financial Conduct Authority has unveiled a forged statement of professional standing amid data mismatching in the post-Retail Distribution Review training and competence regime. Susan de Mont, head of event supervision department, supervision division, FCA, warned of the incident, without giving specifics, at a recent conference.