FCA to crack down on conduct in the payment services and e-money sectors

By Rebecca Haughton on September 19, 2018 Posted in Payment services

The FCA published a consultation paper on 1 August 2018 to revamp its rules and guidance for payment service providers (“PSPs”) and e-money institutions, alongside proposing a crack down on the marketing and promotion of currency conversion services.

The proposals are designed to tackle recent concerns over confusing and misleading marketing material and exchange rates shown by some e-money and non-bank payment service providers, and to bring the wider money lending industry under consistent FCA rules, ultimately regulating the standards customers can expect. Continue Reading

Litigation privilege: sense prevails in the Court of Appeal

By Garon Anthony on September 10, 2018 Posted in Corporate disputes, Financial List, Fraud, Regulatory

Last week the Court of Appeal (The Director of the SFO v Eurasian Natural Resources Corporation Limited [2018] EWCA Civ 2006) reversed the High Court’s controversial and troubling decision from 2017 that concerned the extent to which litigation privilege could apply to documents generated in the context of internal investigations.

ENRC successfully argued that legal professional privilege protected from disclosure to the SFO certain documents that had been prepared by ENRC’s lawyers and forensic accountants as part of an internal investigation into allegations of financial irregularities at ENRC.

The Court of Appeal’s decision will be welcomed by clients who can once again instruct lawyers to undertake internal investigations into allegations of wrongdoing without fear of possibly having to reveal the legal work product to prosecutors, governmental authorities or regulators at a later stage.

Crypto-fraud: digital currency scams on the rise

By Katherine Wakeham on September 3, 2018 Posted in Crypto-fraud, Cryptocurrencies

It seems it’s difficult to look anywhere right now without an advert staring back at you for cryptocurrency investments or investment products including a crypto-asset feature: they are on the side of taxis, tube platforms, and the pages of the daily papers. After the semi-meteoric rise (and fall) that was Bitcoin at the end of 2017 it seems some consumers have been jumping on the Bitcoin-bandwagon hoping to gain a quick buck.

And where investors go, scammers follow. So much so that the FCA has recently re-published its warning on cryptocurrency investment scams to highlight this concerning trend.

Both the FCA and Action Fraud report increasing volumes of fraud involving cryptocurrency and cryptocurrency products, or “crypto-fraud”. The scams tend to have the same key features to entice potential victims:

Many will advertise on social media.
They fake recommendations from prominent business people or celebrities to promote the investment, or make it appear as though those individuals endorse the offering.
Following their links will lead to a legitimate-appearing website.
They will give their address as a prominent UK location, usually in the City of London, though most of these scams are reported to be operating from overseas.
The promise will be of high returns achieved quickly.

As the FCA makes clear, cryptocurrencies by themselves are not regulated in the UK and so, whilst some crypto-products do relate to regulated investments within the FCA’s remit, in many cases there is limited protection when things go wrong. In order to avoid being left out of pocket, the FCA and Action Fraud suggest:

Researching the offering, and the firm making it.
Not being rushed into making an investment decision.
Reporting scams to either the FCA or Action Fraud.
If it looks too good to be true, it probably is.

With the hope of reaping big rewards from a well-timed cryptocurrency investment still lingering, we can expect to see the unscrupulous to continue to target consumers with crypto-scams.

But for those looking to legitimately trade in or offer regulated crypto-assets, the FCA and PRA have recently written to firms setting out their expectations. You can see our previous blog post on that topic here.

Court of Appeal upholds ISDA jurisdiction clause

By Chris Webber and Simon Grossobel on August 21, 2018 Posted in Banking, Financial List, ISDA, Structured products

The Court of Appeal in Deutsche Bank AG v Comune di Savona [2018] EWCA 1740 has clarified the position as regards competing jurisdiction clauses, particularly when considering swaps and derivatives and The International Swaps and Derivatives Association (“ISDA”) model agreements. Continue Reading

Financial Action Task Force publishes report on professional money launderers

By Chris Webber and Maria Shorter on August 14, 2018 Posted in Financial crime, Fraud, Money laundering

The Financial Task Force (FATF) has recently published a report that looks at the techniques and tools used by professional money launders (PMLs). This is the first time the FATF has undertaken a project which concentrates on PMLs that specialise in enabling criminals to evade anti-money laundering and counter terrorist financing safeguards and sanctions in order to enjoy the profits from illegal activities.

The report aims to assist authorities to target PMLs as well as the structures that they utilise to launder funds and to disrupt and dismantle the groups involved in this illegal activity so that crime does not pay. Continue Reading

No Contractual Duty Owed to Customers by Banks when Conducting FCA Review into IRHPs

By Garon Anthony and Mariyam Harunah on August 10, 2018 Posted in Uncategorized

The Court of Appeal in Elite Property Holdings Limited, Decolace Properties Limited v Barclays Bank Plc [2018] EWCA Civ 1688 considered the appellants’ Application for permission to appeal against the Mercantile Court Judge’s decision to strike out part of the Appellants claims against the Respondent Bank. Whilst the application concerned permission to appeal, this was the first occassion on which the Court had considered whether or not a bank owed a contractual duty to customers in relation to its conduct of the review of the sale of interest rate hedging products (“IRHPs“) pursuant to an agreement with the Financial Conduct Authority (“FCA“). Therefore, the Court of Appeal gave permission for the judgment to be cited.

FCA’s Anti-Money Laundering Report highlights focus on firms’ financial crime controls

By Chris Webber and Thomas Noble on August 7, 2018 Posted in Financial crime, Fraud, Money laundering, Regulatory

The Financial Conduct Authority (FCA) published its annual Anti-Money Laundering Report on 19 July 2018, for the year ended 31 March 2018.

In the report, the FCA reminded firms that due to the size and global nature of the UK financial industry, financial crime and AML remains a significant risk and is therefore one of the FCA’s key priorities. Continue Reading

Commercial Court upholds ISDA English jurisdiction clause over Italian jurisdiction clause in finance agreement

By Garon Anthony and Mariyam Harunah on July 25, 2018 Posted in Banking, Capital Markets, ISDA

Background

A recent interim hearing in the Commercial Court in BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2018] EWHC 1670 (Comm) concerned the determination of jurisdiction where one party asserts that a dispute falls under the jurisdiction of the English Court under a standard form International Swaps and Derivatives Association (“ISDA“) documentation, and the other party asserts that it is in fact a foreign Court which should deal with the dispute pursuant to a different agreement entered into by the parties.

FCA and PRA Consider Crypto-Assets

By Chris Webber and Katherine Wakeham on July 18, 2018 Posted in Regulatory

Hot on the heels of the FCA’s recent “Dear CEO” letter, the PRA has sent its own reminder to regulated firms considering, or already holding, crypto-assets.

Whilst the FCA focussed on mitigating the financial crime risks faced from use of crypto-assets, the PRA focussed on the risk of exposure to these developing assets which (in the words of the PRA) “have exhibited high price volatility and relative illiquidity” and in the view of the FCA carry the potential for abuse.

PRA’s expectations regarding exposure to crypto-assets

The PRA has stated:

The risks of crypto-assets should be subject to full consideration by the board and highest levels of management.
Where any planned business involves direct exposure to crypto-assets or to entities heavily exposed to crypto-assets, an approved, appropriate, individual with a Senior (Insurance) Management Function should be directly involved in the review, and should sign off on the risk assessment framework. Firms should notify the PRA of that responsible individual.
Incentives provided for involvement in crypto-assets should not encourage excessive risk-taking.
Firms should ensure they have appropriate expertise to assess their risks of crypto-asset exposure.
Extensive due diligence should be undertaken before taking on an exposure to crypto-assets.
Safeguards against all related risks need to be maintained. The perceived risks of crypto-assets encompass not just financial risks, but also operational risks (including cyber risks) and reputational damage. However firms should assess and set out their own consideration of the risks.

The PRA expects firms to inform their supervisory contact of any planned crypto-asset exposure or activity. The PRA acknowledges in the letter that classification of a crypto-asset will depend on the precise feature of the asset, though confirm that crypto-assets “should not be considered as currency for prudential purposes.”

FCA’s good practice for handling financial crime risks posed by crypto-assets

The FCA’s reminders were:

Enhanced scrutiny of clients/prospective clients and their activities may be required when these involve significant business or revenues derived from crypto-related activities.
It may be appropriate to consider:
- Developing staff knowledge and expertise on crypto-assets to ensure clients/activities with a higher risk of financial crime can be identified.
- Financial crime frameworks that keep pace with the fast-moving developments and which should adequately cater for relevant crypto-related activities.
- Client engagement to understand the nature of their crypto-asset business.
- Due diligence on key individuals.
- Considering clients’ own due diligence processes where those clients offer forms of crypto-exchange services.
- When looking at an Initial Coin Offering (ICO), the issuance’s investor base, organisers, the intended use and functionality of the token, and jurisdiction.
The risks associated with different businesses involved in crypto-assets will differ. It will not be appropriate to approach all clients involved with crypto-assets in the same way.
Where customers hold crypto-assets, or these will be the source of funds, the same risk criteria should be used as applied to other sources of wealth/funds. Although the evidential trail for crypto-assets may be weaker, the evidential test to be satisfied does not change.
There may be heightened risk of investment fraud where retail clients are contributing substantial sums to ICOs.

Crypto-assets remain a developing area, both in respect of the products and services on offer, and the regulatory landscape that applies. The guidance and/or requirements emanating from both the FCA and PRA are likely to change as the benefits, risks and types of crypto-assets continue to develop. Indeed, the PRA’s letter anticipates that supervisory or policy updates may be required in due course.

Future developments will include the outcome of the Treasury Committee’s inquiry into digital currencies, which has the potential to result in further regulation. Firms either involved in, with customers involved in, or with exposure to entities involved in, crypto-assets will need to stay abreast if the FCA and/or PRA’s approach to crypto-assets as these develop.

FCA’s Director of Enforcement speaks on whether the financial services industry has improved ten years on from the Financial Crisis

By Garon Anthony and Mariyam Harunah on July 2, 2018 Posted in Regulatory

At the recent Banking Litigation and Regulation Forum, the FCA’s Director of Enforcement and Market Oversight, Mark Steward, discussed the measures implemented by the FCA to tackle the loss of confidence and trust in the financial industry following the Financial Crisis.