The watchdog sniffs out CFDs

The Financial Conduct Authority (“FCA”) has recently turned its attention to firms who may mis-sell contracts for difference (“CFDs”) to customers. The FCA says that it has  a “serious concern” about the market.

On 12 Janaury 2018, following a 12 month review of the CFD market,  the FCA issued an ominous warning in the form of a “Dear CEO” letter addressed to to providers and distributors of CFD products consumers which was headed “resolving failings which may cause significant harm“.

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Look Back In Anger: FCA Enforcement in 2017

During 2017, the FCA imposed fines for misconduct on regulated businesses and individuals totalling over £229,500, 000.

Whilst 2017 did not see a return to the number or size of fines imposed by the FCA in  2014/2015 (when billions of pounds of fines were imposed following interbank rate and FX related misconduct), the year did see a tenfold increase in FCA fines from 2016 (total fines of just over £22 million). And the FCA has said that the era of big fines is not at an end and that if it sees conduct worthy of a big fine then it will vigorously pursue offenders.

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Financial Ombudsman Service overruled by Court JR

In recent judicial review (“JR“) proceedings, R (on the application of Kelly ) (Claimants) v Financial Ombudsman Service & Shawbrook Bank (Interested Party) (2017), the High Court quashed a Financial Ombudsman Service (“FOS”) decision to dismiss a husband and wife’s complaint involving a lender and the interested party bank (“IPB”).  The Court decided that the FOS had misunderstood the nature of the complaint and therefore had acted irrationally.

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Audit watchdog increases size of enforcement unit

It was reported last week that the Financial Reporting Council (the “FRC”), which oversees the UK’s accounting industry, has more than tripled the size of its enforcement team over the past five years. The FRC’s principle role is to regulate auditors, accountants and actuaries with its work aimed at investors and others who rely on company reports, audits and risk management. The FRC has faced public criticism recently over the failure to prosecute auditors for giving clean audits to financial institutions in the months before they were engulfed by the financial crisis. In response it has sought enhanced powers and lower thresholds for bringing prosecutions in future cases.

As part of its enforcement role, the FRC operates independent disciplinary arrangements for accountants and actuaries and oversees the regulatory activities of the accountancy and actuarial professional bodies. In terms of accountants, the FRC investigates where either (i) it considers a matter raises or appears to raise important issues affecting the public interest or (ii) it considers that the matter needs to be investigated to determine whether one or more of its members or member firms may have committed misconduct. That investigation may then give rise to a formal complaint. In the event of an adverse finding on a formal complaint there are a range of sanctions available to the FRC including:

  • Reprimand or severe reprimand
  • Condition – a member could be ordered to comply with any direction considered to be appropriate in the Tribunal’s absolute discretion
  • Exclusion as a member for a specified period
  • Fine
  • Repayment of client’s fees
  • Order withdrawing practising certificate

The FRC’s enforcement unit now employs 30 staff (there were fewer than 10 in 2012) as part of its decision to build an internal forensic accounting unit rather than instructing external advisers. The team also includes significant numbers of lawyers whose role is to prosecute tribunal cases. The increased headcount and specialist nature of the team now in place should enable the FRC to move more quickly in instigating and resolving investigations. The expectation must be that given the increased level of internal resources, the number of investigations and thereafter formal complaints will mirror the trend in FCA investigations and escalate over the coming months and years.

Identifying individuals in FCA regulatory notices – Macris applied

Back in March 2017, the Supreme Court handed down its decision in Financial Conduct Authority v Macris [2017] UKSC 19. We have previously reported on that decision on its way to the Supreme Court and following the judgment.

In brief, Section 393 of the Financial Services and Markets Act 2000 (“FSMA”) provides individuals identified in an FCA notice with third party rights to be provided with a copy of the notice and an opportunity to make representations regarding the notice. Much then turns on whether an individual has been identified in the notice or not.

  1. Lord Sumption found that a person would be identified in a section 393 FSMA notice where “he is identifiable by name or by a synonym for him, such as his office or job title”. Where a synonym was used it must be clear from the notice that the synonym only related to one individual, and the individual must be identifiable from the notice itself or from publicly available information. Extrinsic information can only be used to help with interpreting the language used in the notice rather than supplementing it, i.e. it can only be used to the extent it is necessary to understand what the notice means.
  2. Lord Neuberger (agreeing with Lord Sumption) looked to the wording of section 393 FMSA itself, finding that the language used “appears to stipulate that the person must be identified in the notice, not that he must be identifiable as a result of the notice”. In that regard the notice must be “equivalent to naming him”.

In Cooper v Financial Conduct Authority [2017] UKUT 0428 (TCC) the Upper Tribunal has had its first opportunity to apply the Macris decision, and in doing so found that Mr Cooper had not been identified. A two-stage approach to the question was used, considering each of the two tests identified above. Continue Reading

European Commission conducts dawn raids to ease provision of data to fintech firms

It has recently been reported that the European Commission carried out a series of dawn raids at the premises of a number of entities involved in the banking sector “in a few” EU member states including, reportedly, the Polish and Dutch Banking Associations.

The raids related to the alleged delay by banks providing data requested by account holders that they requested be provided to a number of fintech firms. The raids were carried out on those suspected of deliberately delaying the provision of the data requested.

The Commission’s press release concerning the raids stated:

“The Commission has concerns that the companies involved and/or the associations representing them may have engaged in anti-competitive practices in breach of EU antitrust rules that prohibit cartels and restrictive business practices and/or abuse of dominant market positions (Articles 101 and 102 respectively of the Treaty on the Functioning of the European Union). These alleged anti-competitive practices are aimed at excluding non-bank owned providers of financial services by preventing them from gaining access to bank customers’ account data, despite the fact that the respective customers have given their consent to such access.”

The EU is on a drive to shake up Europe’s retail banking sector with the implementation of Directive (EU) 2015/2366 , known as the Payment Services Directive 2, in January 2018. These regulations will oblige banks to grant third parties access to account data where customers have consented. The purpose of the regulations is to encourage innovative technology companies to join, some would say disrupt, the market and give consumers greater control of their data.

As a result of the implementation of the Directive third party companies (including the likes of Amazon and Facebook) would have access to the data of consenting customers. In turn these disrupters can then handle payments and offer tailored financial advice to customers. In return, the non-bank companies will have to comply with data protection rules.

This is perceived by many to be yet a further threat to the current retail banking system already under threat from so-called challenger banks who have recently entered the market.

The Commission will now analyse the results of the raids and those raided will be able to submit observations, and if necessary, be heard in any subsequent proceedings.

Those having difficulty in the UK are entitled to make a complaint to the Commission or UK banking authorities in order to reduce any delay.

Mastercard: the saga continues…

Further to our recent blog posts regarding the long running litigation, last week the Supreme Court ordered that permission to appeal be granted to the Claimants in MasterCard Incorporated and others (Respondents) v Deutsche Bahn AG and others (Appellants) – UKSC 2017/0095. The appeal concerns prospective amendments to the Claimants’ case in the litigation which would introduce new claims against Mastercard based upon MasterCard’s central acquiring rules (which concern cross border transactions and related fees imposed by MasterCard).

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Supreme Court Shakes-Up the Test for Criminal Dishonesty

Cheating is cheating no matter what differing standards you hold yourself to.

Following the Supreme Court’s recent decision in Ivey (Appellant) v Genting Casinos (UK) Ltd t/a Crockfords (Respondent) [2017] a defendant in a fraud case can no longer rely on the argument that he thought what he was doing was acceptable. If you have been dishonest within the reasonable person’s concept of dishonesty, you’re out. That’s the principle that the Supreme Court wanted to bring home as it effectively merged the civil and criminal tests for dishonesty.

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