lexis psl guide to … the financial services act...lexis®psl guide to … the financial services...

Spring 2013 | lexislegalintelligence.co.uk

Lexis®PSL guide to …

The Financial Services Act

Comment

The TeamMeet the experts... 2

FSA 2012Financial Services Act 2012 —how the new regime will work 4

Timeline 7

Regulatory structure 8

EnforcementFighting financial crime 9

Regulatory ReformEnforcementA credible deterrent? 13

Financial OmbudsmanFinancial Ombudsman Service gears up for the new environment 14

Legislation updateRegime change 15

Corporate crimeFCA on the offensive? 18

Q&APractice area impact 20

Facts and FiguresRegulation changes in figures 22

Post-CutoverLaw firm checklist 23

Applied Legal Intelligence

0313-063 LexisPSL Adverts - Resize_1.indd 1 19/03/2013 16:29

Spring 2013 | lexislegalintelligence.co.uk 1

Welcome to new regulation

T he Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) finally come into operation on the legal cutover date of 1 April 2013, signalling the biggest shake-up of financial regulation

in the UK since the creation of the Financial Services Authority. The changes, announced by the Chancellor of the Exchequer George

Osborne in June 2010, followed the urgent and ongoing problems within the global financial system, exacerbated by weaknesses in regulation. The changes were brought about to address acknowledged failings in the UK’s tri-partite regulatory system, in place since 2000.

Announcing the regulatory split, in a speech to the Lord Mayor’s dinner for bankers and merchants of the City of London, Mr Osborne said: ‘At the heart of the crisis was a rapid and unsustainable increase in debt that our macroeconomic and regulatory system utterly failed to identify let alone prevent. Inflation targeting succeeded in anchoring inflation expectations, but the very design of the policy framework meant that responding to an explosion in balance sheets, asset prices and macro imbalances was impossible.’

To counter these problems, he proposed greater power for financial oversight to be placed back in the hands of the Bank of England, with a new subsidiary organisation, the PRA, employed to promote the safety and stability of deposit takers, insurers and systemically important investment firms in order to protect the UK financial system.

The FCA will take on responsibility for regulating the conduct of the retail and wholesale financial services industry, and will be responsible for the prudential regulation of firms that do not fall under the PRA.

Since the June 2010 speech, Mr Osborne’s plans have been subject to comment and consultation, and legislation has been brought into force. The coming months and years will show how that will manifest itself.

And that is where the experts in Lexis®PSL come in. Not only have all of our 25 practice areas adjusted to what is happening, we have also made sure our customers are guided through legal cutover and beyond. Here we have put together the pick of our latest comment, looking at how the changes brought about by the FSA 2012, such as the new Pt 7 offences, will operate in practice and how the changes might impact other practice areas. We have also put together a checklist, along with structural diagrams and timelines to show how we got here, and where we go now.

So, here we go!



Comment

Comment

lexislegalintelligence.co.uk | Spring 2013 2

Caroline has advised on diverse issues relating to the financial services industry. She has meaningful in-house and private practice experience, handling project work, new product development, significant regulatory change and general financial services advisory. Caroline spent a number of years at Barclays Wealth and worked as a consultant with Morgan Stanley, Bank of America Merrill Lynch and WorldPay. Caroline also specialised in financial services at CMS Cameron McKenna, having previously qualified into the commercial team at Hammonds in 1999.

Morag is head of LexisPSL Crime and a senior criminal fraud solicitor with experience of SFO, HMRC, BIS, FSA and other investigations as well as CPS prosecutions. Her early career was with Simons Muirhead & Burton, then Irwin Mitchell where she helped establish the firm’s white collar crime department. Latterly, she was with the Criminal Fraud team at Byrne and Partners. Morag is widely published on criminal matters and she was the editor of The Advocate between 2000 and 2006 and a member of the LCCSA committee. She set up the Young Fraud Lawyers Association in 2000 and was a member of the inaugural committee as the Education Officer. She has also organised in-house seminars and training for eight corporate crime firms in the Fraud Training Group.

Caroline BystromSolicitor, Financial Services

[email protected]

Morag ReaSolicitor, Corporate Crime

[email protected]

Meet the experts...

the team

Editorialdirector of content: Simon CollinEditor: Nick Crinnion

Offices:LexisNexis, Halsbury House, 35 Chancery Lane, London, WC2A 1EL.Tel: 020 7400 2500

Reproduction, copying or extracting by any means of the whole or part of this publication must not be undertaken without the written permission of the publishers.

This publication is intended to be a general guide and cannot be a substitute for professional advice. Neither the authors nor the publisher accept any responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this publication.

the team


Samantha qualified as a solicitor with the leading general crime specialists Victor, Lissack, Roscoe & Coleman. In 1999 she moved to BCL Burton Copeland as a senior assistant solicitor and led complex investigations involving allegations of conspiracy to defraud, fraudulent trading, false accounting, bribery and corruption, insider dealing, market abuse and money laundering. She is a specialist in corporate crime with wide ranging experience, having worked on a number of high profile and high value SFO, FSA and HMRC investigations and prosecutions together with associated restraint and confiscation proceedings. She is also a member of the LCCSA and has been a contributor to their responses to various changes in criminal law legislation including fraud law reform.

Helen joined LexisNexis after practising pensions law at Speechly Bircham and before that, Slaughter and May where she trained. She has extensive experience in a vast array of pension issues, including scheme closures, pension aspects of corporate transactions and public procurement, scheme governance issues and Pension Ombudsman complaints. Helen is also a member of the Association of Pension Lawyers.

Simon specialises in all areas of EU and UK competition law and has worked for leading law firms in both London and Brussels. He has considerable experience advising a range of clients across the whole range of competition law, including merger control rules, antitrust investigations, the application of competition law to commercial agreements, competition compliance and the application of state aid rules.

Jane specialises in corporate and corporate finance work and has acted for corporate entities, investment banks and individuals in domestic and international transactions. She has advised on AIM and Main Market listings, public company takeovers, private acquisitions and disposals, private equity transactions, corporate restructurings and general corporate matters.Jane qualified at PwC Legal where she worked for a number of years as a corporate solicitor, before moving in-house as assistant general counsel at Sodexho. Prior to joining LexisNexis, Jane was a corporate associate at Rosenblatt solicitors.

Samantha MoramSolicitor, Corporate Crime

[email protected]

Helen PhillipsSolicitor, Pensions

[email protected]

Simon DoddSolicitor, Competition

[email protected]

Jane MayfieldSolicitor, Corporate

[email protected]

the team


Financial Services Act 2012 —how the new regime will work

The Financial Services Act 2012 (FSA 2012) received Royal Assent on 19 December 2012. Here we outline the changes that will be introduced and examine what it will mean to UK authorised firms. FSA 2012 introduces a new regulatory structure in the UK from 1 April 2013

Before legal cutover (1 April 2013), the Financial Services Authority (FSA) began to adopt a more judgment-based approach

to the supervision of authorised firms. This was reinforced by the introduction of a ‘twin peaks’ model operating within the FSA from 2 April 2012.

How did we get here?The FSA was split into two business units—the Prudential Business Unit and the Conduct Business Unit. These developments resulted in changes to the way the FSA worked with firms in preparation for when the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) officially came into existence. The twin peaks model presented an opportunity to drive home and further embed the move to forward-looking, proactive, judgment-based supervision and crystallised the change from the ‘old style reactive approach’ to the ‘new style proactive approach’ to regulation.

During Spring/Summer 2012, the FSA began taking steps to separate prudential and conduct regulation in preparation for the creation of the new FCA and the PRA in April 2013.

Under the new regulatory structure the PRA’s approach to regulation will be very clearly judgment-based rather than narrowly rules-based.

What’s new?The new regulatory structure has changed the way in which regulation is carried out rather than fundamentally altering the existing regulatory structure. Back in June 2010, the Chancellor announced changes to the regulation of financial services in the UK—namely the separation of prudential and conduct regulation, both of which

were previously regulated by the FSA. There are now two new regulators, the PRA (the prudential regulator) and the FCA (the conduct regulator).

FSA 2012 not only introduced these two new regulators but also clarified the focus and supervisory powers of each body. The proposals introduce a much stricter and more intrusive regulatory structure in the UK, for instance the FCA has been awarded new product intervention powers and its investigatory powers will be intensified. See the recent case of the Lloyds Banking Group which was fined £4.3 million for delayed PPI redress payments.

What will stay the same?Although the changes introduced under FSA 2012 will usher in a new era for UK financial regulation, the current regulatory structure will remain the same to a large extent.

The following elements of the current system will remain unchanged:●● the need for a firm to be authorised before

carrying out regulated activities●● the need for specific individuals to be approved ●● the definition of regulated activities and

investments ●● the regulation of financial markets in the UK●● the need for authorised firms to comply with

FSa 2012

FSa 2012


prudential and standards of conduct of business rules, and

●● the UK regulators’ power to supervise firms and to take enforcement action where necessary

How will change be implemented? FSA 2012 contains the core provisions for the proposed structural reforms.

The main changes involve amendments to the Financial Services and Markets Act 2000 (FSMA 2000); the Bank of England Act 1998 (BEA 1998) and the Banking Act 2009 (BA 2009). All changes are effective from 1 April 2013.

On 15 October 2012, HM Treasury published a consultation document entitled A new approach to financial regulation: draft secondary legislation.

The document consulted on the key secondary legislation and documents that implemented change, this legislation dealt with issues including:●● the allocation of regulator responsibility

between the PRA and the FCA (FSMA 2000, s 22A (as amended by FSA 2012))

●● setting out the threshold conditions that authorised persons must meet in order to become and remain authorised (FSMA 2000, s 55C)

●● transferring regulation of mutual societies to the PRA and FCA

●● the regulators’ power of direction and information gathering rules over parent undertakings of authorised persons or recognised UK investment exchanges (FSMA 2000, ss 192A–192N) and, recognised UK clearing houses (FSA 2012, Sch 7)

●● the allocation of responsibility for rule-making with regards to the Financial Services Compensation Scheme between the FCA and PRA (FSMA 2000, s 213), and

●● the power to designate bodies that can make super-complaints about the impact of the market in the UK for financial services on the interests of consumers (FSMA 2000, s 234B)

Split of FSA functionsBy replacing the FSA with the FCA and PRA, the powers of the regulator will be split. The hope is that this separation of duties (prudential versus conduct) means the expertise needed will be delivered to the financial market.

Firms that are dual-regulated, such as banks, insurers and major investment firms, will be supervised by two independent groups for prudential and conduct.

These groups will work to different objectives and act separately with firms, but will coordinate internally to share information and data. All other firms will be supervised by one supervision area for both conduct and prudential issues.

The supervision models will be different for the PRA and the FCA:●● prudential supervision will continue to have

dedicated resources supervising firms, and●● conduct supervision will focus more on

thematic work and less on firm-specific work

The Advanced Risk Response Operating Framework (ARROW), the FSA’s process for assessing and dealing with risk, has been replaced by two separate risk programmes, one for prudential and one for conduct. Firms will have two separate sets of mitigating actions, of equal importance, to address.

ARROW assessment will now be carried out by two supervisory teams, which will assess the risks against their new objectives.

The Prudential Regulatory AuthorityThe PRA will be a subsidiary of the Bank of England (BoE). At the BoE, the Financial Policy Committee (FPC) will assume a new rule for financial stability. The PRA’s general objective is to promote the safety

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FSa 2012


and soundness of PRA-authorised persons. Its objectives will primarily be met by seeking:●● to ensure the business of PRA-authorised

persons is carried out to avoid an adverse effect (ie a disruption to the continuity) on the stability of the financial system, and

●● to minimise the adverse effect any failure (eg insolvency) by a PRA-authorised person could have on that stability.

●● the PRA will not, however, have a statutory duty to ensure that the firms it regulates do not fail.

The PRA will also have the following responsibilities and statutory objectives: ●● to contribute to securing an appropriate degree

of policyholder protection in relation to the insurers it regulates

●● to supervise PRA-authorised persons, and ●● to secure an appropriate degree of protection

for with-profits policyholders

In order to advance its objectives the PRA will make rules, prepare and issue codes, and determine the general policies and principles by which it will operate. For example, it will make rules on remuneration, resolution plans and recovery plans. The PRA will also have a power of veto over the FCA if there is a threat to the stability of the financial system.

The Financial Conduct AuthorityThe FSA will be renamed the FCA and will supervise some firms prudentially, however the PRA will assume responsibility for the prudential supervision of dual-regulated firms.

The FCA will have a duty to act compatibly with its strategic objective, which is to ensure relevant markets function well.

Additionally, its operational objectives will be: ●● consumer protection●● market integrity, efficiency and choice, and●● to promote competition and make sure it is in

the interests of consumers

The FCA must also have regard to the regulatory principles: reduce financial crime and make general rules on client money and product intervention.

The new supervisory approach will comprise of five main elements: ●● to be more forward-looking in the assessment

of potential problems●● to intervene earlier when the FCA sees

problems

●● to address the underlying causes of problems that it sees not just the symptoms

●● to secure redress for consumers if failures do occur, and

●● to take meaningful action against firms that fail to meets its standards through levels of fines that have a credible deterrence

In relation to credible deterrence see the recent case of Barclays Bank Plc, where Barclays was fined £59.5m for misconduct relating to the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR).

This is the largest fine ever imposed by the FSA to date.

The Financial Policy CommitteeAt the heart of the new regulatory structure, through the creation of the FPC, the BoE will have a central role in enhancing financial stability. The creation of the FPC confirms the paramount position of the BoE in the new regulatory structure and it is designed to ensure that macro-prudential developments are rapidly identified and promptly addressed.

The FPC will be introduced by amendments to the Bank of England Act 1998 and will have the important role and objective of protecting and enhancing the stability of the financial system. It will be responsible for macro-prudential regulation and monitoring the stability of the UK financial system and will sit within the Bank.

Among other things, the FPC will have the power to give directions and to make recommendations to the PRA and the FCA. The macro-prudential and systematic focus provided by the Bank in the new regulatory structure is lacking in the current framework. The FPC will have a duty to notify the Treasury of any possible need for public funds.

The BoE, the Treasury and the PRA must arrange to coordinate the discharge of their respective functions as they affect the public interest and financial stability—in particular, in circumstances where the Bank has given a public funds notification.

The BoE will perform the role of liaising with the Chancellor of the Exchequer over financial stability reports produced by the FPC and give directions to the PRA and FCA requiring information or documents necessary to pursue the financial stability objective. The Governor of the BoE will be the chair of the PRA and a member of the FCA.

FSa 2012


TimelineFSa 2012

2011February: Government consults on

objectives, powers and proposed

coordination between the new regulators

in A new approach to financial regulation:

building a stronger system

April: FSA announces it will replace risk and

supervision business units with a prudential,

and consumer and markets business unit.

The FSA will operate distinct prudential and

conduct approaches to regulation

May: BoE and FSA publish a joint paper on

the PRA approach to supervision of regulated

deposit-takers and certain investment firms

June: Treasury publishes draft Bill in

White Paper: A New Approach to Financial

Regulation: the Blueprint for Reform

June: FSA publish a paper on the FCA’s

approach to regulation. Bank of England

and FSA publish a joint paper on the PRA

approach to insurer supervision

July: Treasury publishes consolidated version

of FSMA 2000 (as amended by the Financial

Services Bill 2011)

August: Treasury Select Committee officially

launches inquiry into accountability of the FCA

November: Treasury Select Committee

reports on the accountability of the Bank of

England

december: Pre-legislative scrutiny of the

Financial Services Bill complete

december: Government publishes response

to Vickers Report

2012January: Martin Wheatley (managing director,

FSA Consumer and Markets business unit)

and Clive Adamson (director of supervision,

FSA conduct business unit) set out visions of

operation and supervision of FCA in speeches

to the British Bankers’ Association

January: Financial Services Bill receives first

Parliamentary reading

January: Treasury publishes policy document:

A new Approach to financial regulation:

securing stability, protecting consumers, along

with the Financial Services Bill

February: Treasury Committee publishes

concerns on the new regulator, its objectives,

accountability and cost

February: Financial Ombudsman

Service publishes draft Memorandum of

Understanding on how the FCA and Financial

Ombudsman Service will cooperate

April: FSA moves to ‘twin peaks’ operating

model in advance of legal cutover to FCA and

PRA in April 2013

May: FSA publishes draft statement setting

out FCA policy on the making of temporary

product intervention rules

May: FSA issues a note setting out the

BoE’s and the FSA’s initial views on how the

Prudential Regulation Authority will exercise

its powers, including the designation of certain

investment firms for prudential regulation by

the PRA rather than by the FCA

June: Hector Sants appointed as head of the

interim FPC

June: Government publishes White Paper on

how recommendations from the Independent

Commission on Banking will be implemented,

and sets out further detail on plans to separate

retail and investment banking through

ringfencing and increase competition in the

banking sector

June: Financial Services Bill reaches the

Committee stage in the House of Lords

September: Consultation on FPC macro

prudential tools

September: Consultation on regulatory reform

of the PRA and FCA regimes relating to aspects

of authorisation and supervision

october: Draft Financial Services (Banking

Reform) Bill published

october: FSA publishes consultation paper on

proposed approach of the FCA

october: FSA and BoE publish updated PRA

approach documents. Treasury consults on

secondary legislation to be made under the

Financial Services Bill

december: FSA consults on: proposals on the

PRA approach to enforcement, policy and

procedure; amendments to the regulatory

requirements needed for the creation of the

new rulebooks; general transitional provisions

to facilitate the transition from the FSA

Handbook to the new FCA Handbook; and

proposed amendments to certain provisions of

the existing FSA Enforcement Guide

december: Financial Services Bill receives

Royal Assent

2013January: Government publishes

commencement orders bringing in various

elements of FSA 2012

February: FSA consults on detailed Handbook

provisions needed to support secondary

legislation needed by the Treasury to make

the transition to the new regulatory structure

March: FSA publishes links to each of the FSA,

PRA and FCA Handbooks so far as currently

made on its website

1 April 2013: Legal cutover

2010June: The Chancellor of the Exchequer

announces new structure for UK financial

services regulation during a speech at

Mansion House

July: Government sets out initial plans

for reform of financial regulation in the

consultation paper A new approach to financial

regulation: judgment, focus and stability


Systemic infrastructure central counterparties, settlement systems and

payment systems

All other regulated firms including investment firms and exchanges,

and other financial services providers including independent

financial advisors, insurance brokers and fund managers

Dual-regulated firms, prudentially significant firms,

deposit takers, insurance firms, and

some investment firms

Prudential regulation

PRA

Responsible for promoting the safety and soundness of deposit-taking firms, insurers and systemically important

investment firms

Prudential regulation

Conduct regulation

Prudential and conduct regulation

FCA

Responsible for ensuring that relevant markets function well, for the

conduct supervision of financial services firms, the prudential supervision

of firms not supervised by the PRA, protecting consumers and promoting competition

Directions and recommendation to counter risk within the system

Bank of England

Protecting and enhancing the stability of the financial system of the UK. It has primary operational responsibility for financial crisis management and for oversight of payment systems, settlement systems and clearing houses. It is also the UK’s resolution authority

FPCResponsible for contributing to the Bank’s objective

of protecting and enhancing the stability of the UK financial system, and supporting government

economic policies—including those of growth and employment. It will focus on

identifying, monitoring and managing systemic risk

Subsidiary of the Bank

Regulatory structureFSa 2012


Fighting financial crime

The Financial Services Act received Royal Assent at the end of 2012, altering the regulatory landscape for financial services

in the UK significantly. A major part of this is the introduction of the Prudential Regulation Authority (PRA) and its sister regulator, the Financial Conduct Authority (FCA) and an increased role for the Bank of England. While these regulators are complementary, each has a quite different emphasis.

Overall, the objective is to ensure financial stability, through macro and micro prudential oversight and supervisions of financial services markets, in their many guises. A key aspect of this is to ensure that the UK’s financial system is not abused for financial crime purposes. This role passes to the FCA.

Tackling financial crime is not a new conceptTackling financial crime has been a key priority for the Financial Services Authority (FSA) over the past

few years and in that respect, the FCA’s focus on financial crime will not be unfamiliar.

Whereas the FSA had a number of regulatory objectives, of which the reduction of financial crime was one, the FCA has a single strategic objective of ensuring that markets function well; its operational objectives—consumer protection, integrity and competition—support that single strategic objective. The intention is that a more proactive and intrusive approach will be taken in the fulfilment of these operational objectives than previously existed under the FSA.

The FCA’s operational objective of integrity is defined as ‘protecting and enhancing the integrity of the UK financial system’. The integrity of the financial system includes five different elements, two of which explicitly task the FCA not to let the UK financial system be used for the purposes of financial crime and not to allow it to be affected by behaviour that amounts to market abuse.

The FCA’s approachIt is intended that the FCA will be tougher and bolder in pursuing this objective, building on and enhancing the FSA’s credible deterrence strategy, intervening earlier to tackle potential risks to market integrity before they crystallise.

The FSA publication Journey to the FCA states: ‘Stopping firms being used to facilitate financial

crime will continue to be a priority. We will focus on the types of firms that are most vulnerable to abuse by criminals (whether because of their size, customer base, product lines or corporate culture). The work to tackle financial crime influences many of the FSA’s activities—such as deciding who is allowed to own and run a financial firm, what questions are asked of firms, and how or whether to publish those that fall short.’

Journey to the FCA sets out what the FSA saw as three important financial crime risks:●● fraud●● money laundering, and ●● bribery and corruption

In relation to anti-money laundering, it states: ‘We will continue to make examples of firms who take unacceptable risks.’

The FSA has also been very clear that the FCA will continue to take strong action, both as a criminal prosecutor and using the civil market abuse regime, to deal with market misconduct in all its forms (including the new offences relating to benchmark rate setting).

Judith Seddon, director of business crime and regulatory enforcement at Clifford Chance, discusses the Financial Conduct Authority and the financial crime agenda

enForCement

enForCement


In contrast, the PRA—the sister agency charged with overseeing the safety and soundness of financial institutions—has no financial crime mandate. Countering financial crime is not part of its remit. This is deliberate, to avoid confusion as to which authority is leading on this.

The FCA and criminal prosecutions The trend for the regulator to use its prosecutorial powers is only likely to increase. The FSA’s first criminal case was brought in 2009. Margaret Cole, then Director of Enforcement, said the conviction was the first step on the journey of delivering credible deterrence. Since then, insider dealing has been pursued aggressively by the FSA and the sentences have increased gradually. The FSA has sent more than 20 people to jail in the past three years for insider dealing offences and is taking on increasingly complex and difficult cases.

The intention to continue this trend is set out in Journey to the Financial Conduct Authority in which the FSA stated it is intended the FCA will carry forward its ‘enforcement-focused approach to tackling abusive market behaviour, and failures to disclose information to the market’.

What will the FCA try to prosecute?The FCA is likely to continue to prosecute insider dealing—although it may also prosecute any of the offences relating to financial services set out under the Financial Services Act 2012, Pt 7.

It is worth noting in 2010 the FSA successfully argued before the Supreme Court in the case of Rollins [2010] UKSC 39, [2010] All ER (D) 289 (Jul) that it should be able to prosecute criminal offences where to do so would be consistent with meeting any of its statutory objectives. This enabled the FSA to prosecute Mr Rollins for insider dealing and for money laundering when he subsequently laundered the proceeds of his criminal activity.

Similar principles will apply to the FCA in terms of its ability to prosecute where to do so would be consistent with its financial crime mandate.

The new provisions will not operate retrospectively.

Changes to deal with benchmark rate riggingThe new provisions set out in the new the Financial Services and Markets Act 2000, Pt 7 deal with misleading statements and misleading impressions in relation to the setting of benchmarks, such as LIBOR.

That offence is committed where a person makes a false or misleading statement in the

course of arrangements for the setting of a relevant benchmark, intending that the statement should be used for the purpose of the setting of a relevant benchmark and knowing that the statement is false or misleading or is reckless as to whether it is.

The offence is also committed where a person intends to or is reckless as to whether he creates a false or misleading impression as to the price or value of any investment or as to the interest rate appropriate to any transaction and knows that the impression may affect the setting of a relevant benchmark.

The maximum penalty for a person found guilty of this offence is seven years’ imprisonment.

The FCA may use a wide range of tools to combat financial crimeStatutory immunitiesThe FSA was given the power in April 2010 to grant statutory immunities under the Serious Organised Crime and Police Act 2005 to incentivise people to come forward and give evidence against others who may have had a greater part in the wrongdoing.

The power of the FSA to grant statutory immunities has been transferred to the FCA and again, it is likely that the FCA will seek to use this power to bring more prosecutions particularly in cases involving multiple defendants.

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International cooperationInternational cooperation has increased significantly in recent years. A good example of the increasing levels of international cooperation was the recent Blue Index case, which was the first parallel investigation into insider dealing, leading to action in both the US and the UK.

The FSA has said that the FCA will continue to work closely with other organisations both at home and overseas to combat financial crime to coordinate action and bring people to justice, particularly if such crime affects UK consumers or markets.

Enforcement procedureThe change from FSA to FCA will not have a huge impact on enforcement procedure—for example, the procedure for statutory notices will remain largely unchanged. However, the Handbook itself will undergo significant structural changes, with rules and guidance being ‘designated’ to either the PRA or the FCA.

Handbook provisions relating to the requirement to establish and maintain effective systems and controls to counter the risk that a firm could be used to further financial crime will remain.

One key change which is likely to be used to combat financial crime is the power to appoint skilled persons. The FCA will be able to appoint a

skilled person directly to conduct the work, with no power for the firm to object to such appointment. This is likely to be used to advance the FCA’s integrity objective, for example, by appointing a skilled person to report where there may be concerns about firms being used to facilitate financial crime.

What is the PRA’s role in this field?From a prudential point of view, the PRA will need to know financial institutions are on top of risks arising from fraud, and that their safety and soundness is not at risk.

The Draft Memorandum of Understanding between the FCA and the PRA sets out how the PRA and FCA should coordinate in relation to financial crime: the PRA is required to alert the FCA to any evidence which it believes may materially affect the FCA’s function in relation to financial crime; the FCA will alert the PRA to any investigations in respect of financial crime into dual-regulated firms, PRA-approved persons or FCA-regulated firms in a dual-regulated group before commencing or publicly announcing such investigations.

How can regulated firms stay on the right side of the line?The FSA has stated that the FCA will continue to use many of the tools as it did before legal cutover to ensure financial institutions are meeting their regulatory obligations in relation to financial crime. The FCA will continue with intensive and intrusive supervision on anti-money laundering, sanctions, counter-terrorist financing and anti-bribery and corruption systems and controls; and has said that it will also devote more resources to ensuring the biggest retail and investment banks are complying with their legal and regulatory obligations.

In light of the FCA’s stated intention of being more robust and interventionist in approach, it is worth firms reviewing their anti-financial crime systems and controls to ensure that they comply with all applicable legal requirements. Although the Financial Crime Guide, which was updated in November 2012, does not form part of the Handbook, it is designed to provide practical assistance and information for firms of all sizes and across all FSA-supervised sectors on actions they can take to counter the risk that they might be used to further financial crime. It is worth careful consideration and firms should consider how their systems and controls would stand up to scrutiny in light of the guidance and examples of good and poor practice which it sets out.

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A credible deterrent?Sarah Clarke of Serjeant’s Inn Chambers examines how the FCA enforcement regime will operate

Sarah ClarkeBarrister and financial services litigation expert at Serjeant’s Inn Chambers. She is a member of the Lexis®PSL Financial Services consulting editorial board. Her practice includes high profile, complex regulatory and disciplinary proceedings and related criminal matters, building on time in the FSA’s enforcement division as a technical specialist and in-house counsel.



regulatory reForm

While there may be little change on the surface, the new enforcement regime could see a focus on early intervention to

protect consumers and preserve market integrity.

Should law firms re-examine their enforcement situations? In the short term not a lot will change because the Financial Conduct Authority (FCA) is aiming for a seamless transition as far as firms are concerned. The whole of the enforcement division of the Financial Services Authority (FSA) is being moved over to the FCA without any changes at all. The relevant parts of the FSA Handbook are also being carried over into the FCA Handbook, so that the Enforcement Guide and the Decisions Procedures and Penalties Manual are also largely unchanged.

The FCA’s operational objectives are consumer protection, protection and enhancement of the integrity of the UK financial system, and promoting effective competition in the interests of consumers in the markets. All this will mean more pressure on firms to demonstrate they have the right systems and controls in place and are keeping the FCA’s new regulatory objectives in mind. Firms should be conscious that the FCA most likely will be looking to use its new powers of early intervention and to step in at the first opportunity should something go wrong—powers that the FSA does not have. The FSA’s Approach Document, Journey to the FCA, sets out how the FCA will approach its objectives.

All the indications are that ‘credible deterrence’ will remain very much at the heart of the FCA’s Enforcement Strategy, as confirmed by Tracey McDermott, the Economic and Financial Crimes Commission Director: ‘Enforcement—in its traditional sense—will remain a core part of what we do. Our credible deterrence strategy will remain, taking tough and meaningful action against those firms and individuals who fall short of our standards and break the rules.’

Are there additional record management or compliance responsibilities for lawyers?Journey to the FCA states it will require: ‘From the boardroom to point of sale and beyond, firms’ behaviour, attitudes and motivations must be about good conduct—especially in terms of the experiences and outcomes they offer their customers and clients, whether it is someone buying a basic product or completing a complex transaction.’

What this means is that firms must be able to demonstrate ‘cradle to grave’ compliance, and good record-keeping is an integral part of this. Lawyers need to make sure their clients understand the increased consumer focus of the FCA and that this will require firms to demonstrate this is at the heart of their compliance process.

How will the FCA’s enforcement powers manifest themselves? As discussed earlier, the FCA will be keen to ensure its enforcement cases reflect their new objectives, which will mean an increased focus on consumer outcomes and also the integrity of the financial markets. Journey to the FCA states: ‘We will step in earlier, and act faster, when we identify problems that risk harming consumers or the integrity of the market.’

This is reflected in some of the new enforcement powers.

Financial promotions: The FCA can ban misleading financial promotions. This power means the FCA can remove promotions immediately from the market, or prevent them from being used in the first place, without going through the full enforcement process.

Publicising enforcement action: The FCA can publicly announce that it has begun disciplinary action against a firm or individual. It will be able to publish details of a ‘warning notice’ proposing disciplinary action, to signal the start of formal enforcement proceedings.

Enforcement

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Financial Ombudsman Service gears up for the new environmentCaroline Wayman, legal director and Principal Ombudsman at the Financial Ombudsman Service, explains how the complaints handling process will work in the post-Financial Services Act 2012 environment

Changes are being made to the Financial Ombudsman Service’s ‘DISP’ Handbook (Dispute Resolution: complaints sourcebook)

from 1 April through the Financial Services Act 2012 (FSA 2012).

The Ombudsman will also, from that date, be dealing with the two new regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), which are replacing the Financial Services Authority and the existing regulatory framework.

What are the key changes to the complaints handling and dispute resolution processes?The main point is Parliament has reconfirmed the role of an independent ombudsman service, free to consumers. We continue to resolve cases on a ‘fair and reasonable’ basis.

The FSA 2012 did not fundamentally alter the complaints-handling process.

FSA 2012 requires us to publish our decisions. This will be coming into place from April. We issue between 400 and 500 decisions every week. We will publish those when we have a decent body of decisions and when the parties have had the time to consider them.

After we make a decision we give the parties four weeks to consider them and for the customer to accept or not. If the customer accepts then the decision becomes binding.

We have consulted on the rules which will bring the changes into effect. The first one is the ability to accept decisions which are not in writing—FSA 2012 removes the requirement to accept an Ombudsman decision in writing.

The second one is a new ability for customers to accept an Ombudsman decision out of time. It is important for both parties to have finality and certainty so we will do that in exceptional circumstances.

Caroline Wayman is a non-practising barrister, lead ombudsman, Financial Ombudsman Service, and adjudicator at the Insurance Ombudsman Bureau

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Consumer credit: The government proposes to transfer responsibility for consumer credit regulation from the Office of Fair Trading to the FCA, and will make its final decision in 2013.

Do the authorities have sufficient resources to enforce the new system?Broadly, they will have the same resources as before. In particular, the FCA Enforcement Division is being transposed in its entirety from the current FSA Enforcement and Financial Crime Division.

It will take some time for the trends to emerge and enforcement under the new regime to start.

Do you have a timescale in mind for this?It takes time for a case to be referred to the regulator and thereafter for it to be investigated and an outcome to be achieved.

I think 12 months is a fair timescale to judge what trend the FCA’s enforcement outcomes will follow.

What will happen to ongoing cases?Nothing, certainly not in the short term. It will be very much business as usual, though of course, new cases coming through it will be looking to underpin the new regulatory objectives of the FCA.

Financial Ombudsman


The third is the correction of clerical mistakes and, attached to that, is the fourth one which means that minor procedural irregularities would not make an Ombudsman decision void.

Are firms likely to have to make significant changes to their processes?They are technical changes and should not involve businesses in having to make changes to their procedures.

How will the Ombudsman Service have to change its relationships in light of the introduction of the new regulatory system with the FCA and PRA replacing the current system with the FSA at its centre?We continue to work closely with the FSA now. As part of the consumer redress landscape, our ongoing relationship will be with the FCA, rather than the PRA. Much of the FSA 2012 formalises that which we already do. For example, there is a duty to disclose information to the FCA. Currently, we share information with the FCA when it requests it, when it is appropriate and when there is a gateway to do so. There is also a requirement to have a memorandum of understanding which we’ve always had. Regarding

the super-complaints procedure, we will be one of the designated people who can make such a reference.

What can the financial services industry do to develop an appropriate relationship with the Ombudsman in light of the regulatory changes?We will be encouraging businesses to be thoughtful and careful in their complaints-handling, learn from cases that come to us, and to apply that learning to the earliest part of their complaints-handling.

We’d encourage them to settle as early as possible without needing to involve us. If things do come to the Ombudsman, we will encourage them to be cooperative with us and to have people available with whom we can liaise and agree to an informal resolution rather than forcing things through to the formal part of the process, an Ombudsman decision.

We run quite a lot of events around the country. We have a technical advice desk which businesses can contact. We’d encourage them to use all of that.

We will carry on high-level liaison with the industry and with the new regulator, sharing with them emerging issues and helping the new regulator in its consumer protection objective.

Emma Radmore Managing associate in the financial services and funds practice of SNR Denton. She is a contributing author to Lexis®PSL Financial Services

Regime changeHow should firms approach the shift in regulation? emma radmore of SNR Denton UK sets out some of the changes and concerns arising from the Financial Services Act 2012 and recently published legislation

The Financial Services Act 2012 (FSA 2012) received Royal Assent in December 2012 and will amend the Financial Services and

Markets Act 2000 (FSMA 2000) from 1 April 2013. The FSA 2012, which will also introduce a new set of regulatory bodies, is intended to strengthen the UK’s financial regulatory structure significantly reforming the current regulatory system which divides regulatory responsibility for financial stability

between the Treasury, the Bank of England and the Financial Services Authority (FSA).

Which important details do these recent draft SIs clarify? Both the FSA 2012 itself and the raft of made and draft SIs go a long way to giving certainty to regulated firms on several fundamental issues which it is critical to understand sooner rather than later.

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Legislation update


Firms have known for some time what the fundamental changes will be: the introduction of the new regulatory structure, the split of responsibility between the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) and the change in supervisory attitude and focus. The SIs are particularly helpful in clarifying not only some key transitional provisions but also the Threshold Conditions Order is a clear way to help firms (especially dual-regulated firms) understand the highest-level principles on which the new regulators will judge them.

What do the FSA 2012 and SIs make clear? With the new FSA 2012 and SIs, firms can be sure of:●● the powers of each regulator and how the new

regulators should interact●● the standards firms must meet on an initial and

on-going basis●● the basis on which regulators may make

rules (particularly the controversial product intervention rules which the FCA has responsibility for)

●● what new regulated activities will be introduced as at legal cutover (LCO) and how firms who carry them on should prepare for them

●● for larger financial groups, which parent entities might find themselves the focus of regulatory attention

As yet, with no officially published consolidated version of the FSA 2012 and more commencement orders and presumably SIs to come, it is hard to see precisely what existing provisions have been replaced or subtly changed, but it is finally easier to see the shape of regulation to come.

Are there any surprises or concerns? There are no real surprises in the FSA 2012 or the raft of SIs. Some provisions are slightly concerning because the drafting is perhaps not as clear as it could have been. In particular, although not a cause for immediate concern given that consumer credit activities will not be brought within the FSMA 2000 from LCO, the way in which the FSMA 2000, Sch 2 has been amended to take account of certain Consumer Credit Act-regulated (CCA 1974) activities seems to give what is surely the unintended potential for the FSMA 2000 to cover some lending activities which are not currently regulated.

Presumably, precisely what the Financial Services and Market Act 2000 (Regulated Activities) Order 2013 will cover, and what will remain in the

CCA 1974, will be clarified in the consultations planned in the coming months—the FSA promising consultation during the first quarter of 2013.

A related concern is in the amendment to the FSMA 2000, s 39 (appointed representatives). The drafting is unclear, but it seems the intention is to allow firms that are authorised only for activities that are currently CCA 1974 activities to continue to be appointed representatives for currently regulated activities once the CCA 1974 activities transfer. The explanatory notes published with the FSA 2012 support this. Again, hopefully when the CCA 1974 activities are brought within the FSMA 2000 and the Appointed Representatives Regulations amended, this will become clear.

What transitional documentation and guidance will be available? Gradually, over the course of January, several key documents emerged which will help firms to manage the transition. In particular, the Transitional Provisions Order and FSA’s Consultation Paper (CP 13/3) will provide welcome guidance.

Firms will, of course, welcome clarity as soon as possible over the precise structure of the rules of the new regulators, in particular, confirmation of the form of the FCA Rules (which will essentially be the FSA Rules, amended appropriately, and with parts relevant only to the prudential regulation of dual-regulated firms stripped out). This seems near completion. The PRA, although at an advanced stage of thinking, has been less forthcoming about the structure of its rules.

How will the rules of the new regulator compare to the existing FSA rules? Indications, such as its draft enforcement policies, are that these will look and feel significantly different to the current FSA rules even where their content will be fundamentally the same.

What should firms particularly look out for? Firms will be concerned to check the grandfathering provisions relating to permissions, approved persons, waivers and ongoing applications work as intended. The FSA has indicated firms will not have to reapply to their new regulators for permissions either for their business or for their approved persons. Clearly to do so would be an administrative nightmare for firms and regulators alike.

The only sensible route is to assume firms with an FSA permission to carry on a particular regulated activity will have permission from the

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relevant post-LCO regulator to carry on that activity and that it will be mapped across to the appropriate regulator.

Will persons approved under the existing regime have to reapply for approval? It is fundamental firms know whether they will need to make any new applications to the new regulators and if so, by when and for what. The FSA has already indicated it will not expect any current approved persons to have to reapply for approval to carry on their current functions—these will also be mapped across to the PRA or FCA as appropriate. As far as the new regulated activities related to benchmarks that will take effect at LCO are concerned, the SI is clear in providing interim permissions to firms that have been carrying on these activities to date.

How does the PRA-regulated Activities Order relate to the current Regulated Activity Order? The Financial Services and Market Act 2000 (PRA-regulated Activities) Order 2013 comes as

no great surprise—the scope of firms for which the PRA will be the prudential regulator is much the same as the Treasury consulted on some time ago. All banks (and other deposit acceptors) and insurance companies will have been preparing to be dual-regulated. The PRA-Regulated Activities Order refers specifically to the relevant regulated activities as the sole determinant of whether firms are covered. The same applies to the Lloyd’s-related activities it covers.

Is the Order clear on who it covers? The Order could lead to confusion in relation to the investment firms it covers. In principle, all firms that deal as principal and are BIPRU 703K firms should be prepared to be PRA-regulated. But the wording of the Order means not all firms that meet these two conditions will be PRA-regulated, as it is a matter for the PRA’s discretion. This means there are still some firms (albeit probably very few) who do not know whether they will be dual-regulated.

Since dual-regulated firms will feel the effects of the changes more deeply—not only because they will need to understand which rules of which regulator apply to various parts of their business, but also because of PRA’s intent to impose a different regulatory culture—it will be important to give all firms clarity on their regulator as soon as possible.

How will ‘borderline’ firms be treated under the new regime? Although there are several documents firms can refer to which give guidance on which types of firms the PRA is likely to designate, there is uncertainty around some of the borderline firms, and this will be exacerbated by the powers in the FSA 2012 to de-designate designated firms at some stage after LCO, and to designate firms that were not originally designated.

Post-LCO, firms that have adapted their business to dealing with one regulator’s prudential style will inevitably have to review some high-level policies and business models to adapt to another. One would hope the regulators will re-designate or de-designate only for good reason, and liaise appropriately with affected firms on how to deal with the transition.

Also, the PRA documents published to date, in particular its Approach documents, have focused on the banking and insurance sectors, which must leave investment firms feeling less comfortable about the PRA’s strategy for dealing with them.

Statutory Instruments

Financial Services Act 2012 (Commencement No 1) Order 2013, SI 2013/113From 24 January 2013 certain provisions of the Financial Services Act 2012 are brought into force regarding the making of subordinate legislation, orders and regulations; powers of the new financial regulators; and the making of appointments.

Financial Services and Markets Act 2000 (PRA-regulated Activities) Order 2013The Order creates new regulated activities related to the setting of specified benchmarks, the first of which will be the London Inter-Bank Offered Rate, known as ‘LIBOR’, from 2 April 2013. Consumer protection for the manipulation of benchmarks is also introduced, with expanded powers for the Financial Conduct Authority.

Bank of England Act 1998 (Macro-prudential Measures) Order 2013From 1 April 2013 this draft Order sets out the measures which the Bank of England’s Financial Policy Committee may direct the Prudential Regulation Authority or Financial Conduct Authority to implement.

Financial Services and Markets Act 2000 (Threshold Conditions) Order 2013New threshold conditions will have to be met by financial services firms from 1 April 2013 in order to become authorised under the Financial Services and Markets Act 2000 by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA).

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FCA on the offensive?morag rea examines how the new misleading statements and practice offences will work, who they will affect, and what lawyers and their clients need to be aware of in the post-legal cutover environment

There are three new offences which will replace the criminal offence of misleading statements and practices (Financial Services

and Markets Act 2000, s 397) (FSMA 2000) which is to be repealed. The offences are:●● misleading statements under s 89●● misleading impressions under s 90, and●● misleading statements etc in relation to

benchmarks (eg LIBOR) under s 91

How do they operate? A person commits the misleading statement offence if they make a statement or conceal facts with the intention of inducing, or is reckless as to whether making or concealing them may induce a person:●● to enter into/or offer to enter into/or to refrain

from entering or offering to enter into a relevant agreement or

●● to exercise, or refrain from exercising, any rights conferred by a relevant investment

This would include lying about a company’s assets to entice investors. A person commits the misleading impressions offence if they do any act or engage in any course of conduct which creates a false or misleading impression as to the market in, or the price of, any relevant investments, and they intended to do so, and:●● by creating the impression of intention to induce

another to acquire, dispose of, subscribe for or underwrite the investments or to refrain from doing so or to exercise or refrain from exercising any rights conferred by the investment and/or

●● they know the impression is false or misleading or is reckless as to whether it is and they intend by creating the impression it will result in his or another’s gain or a loss to another person

Both these offences are similar to those in FSMA 2000, s 397 but with the following differences:●● a distinction is now drawn between ‘misleading

statements’ (s 89) and ‘misleading impressions’ (s 90)

●● the misleading statements offence only refers to a ‘false or misleading statement’ unlike the s 397 offence which also refers to a ‘promise or forecast’—the new offence does not refer to ‘deceptive statements’

●● the misleading impressions offence contains an additional offence of knowingly or recklessly creating a false impression for the purpose of personal gain or a loss to another

There is also a new offence in respect of misleading statements and impressions in relation to benchmarks, for example LIBOR (s 91). A person will commit an offence if they make a false or misleading statement to another person and they:●● make the statement in the course of

arrangements for setting of a relevant benchmark●● intend that the statement should be used

for the purpose of the setting of a relevant benchmark and

●● know that the statement is false or misleading or is reckless as to whether it is, or

●● does any act or engages in any course of conduct which creates a false or misleading impression as to the price or value of any investment or as to the interest rate appropriate to any transaction if: ●● they intend to create the impression●● the impression may affect the setting of a

relevant benchmark●● they know the impression is false or

misleading or are reckless as to whether it is, or

Morag ReaHead of Lexis®PSL Corporate Crime

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Corporate crime


●● they know that the impression may affect the setting of a relevant benchmark

Following conviction the maximum penalty for all three offences is seven years’ imprisonment, the same as the current maximum for s 397 FMSA offences.

Are there any statutory defences? The statutory defences are largely the same as for the old s 397 offences. For all three Financial Services Act 2012 offences, it is a defence for a person charged to show that any statement was made or that they acted or engaged in conduct in conformity with:●● price stabilising rules (FSMA 2000, s 144)●● control of information rules (FSMA 2000, s 147)●● the relevant provisions of Commission

Regulation (EC) 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards exemptions for buy-back programmes and stabilisation of financial instruments

In addition for the misleading impressions offence it is also a defence to show that the individual reasonably believed that his act or conduct would not create an impression that was false or misleading.

Are there specific challenges or advantages with prosecuting and defending such cases? Previously the FSA was criticised for failing to prosecute cases for market manipulation or market rigging offences mainly because such offences were so difficult to prove without ‘whistleblowers’. Since April 2010 the FSA has had the power to grant immunities under Serious Organised Crime and Police Act 2005 which provide incentives to people who come forward and give evidence against others who may have a greater part in the wrongdoing. This FSA power has now been transferred to the FCA and it is likely they will continue to bring more and more prosecutions particularly where there are multiple defendants. Such incentive schemes will make it harder to defend such cases. International cooperation has also increased dramatically in recent years. It is anticipated the FCA will continue to work closely with organisations at home and abroad to combat financial crime and stabilise the markets in the UK.

Who is likely to be targeted for prosecution under the new offences? It is anticipated that the FCA will use its prosecutorial powers more and more. Insider dealing has been pursued aggressively for the last few years and

sentences are gradually increasing. Such an aggressive attitude to prosecutions is set to continue with the FCA and is set out in its publication Journey to the Financial Conduct Authority in which the FSA stated that it is the intention for the FCA to carry forward its ‘enforcement-focused approach to tackling abusive market behaviour, and failures to disclose information to the market’.

The FCA is likely to continue to mostly prosecute insider dealing. However, with the new offences is also anticipated there will be more market rigging/manipulation prosecutions particularly in relation to LIBOR rigging/manipulation. The FCA will also have the power to prosecute other criminal offences as its predecessor the FSA did where to do so would be consistent with meeting any of its statutory objectives, for example insider dealers can also be prosecuted for money laundering as in the case of Rollins.

How will life be different under the FCA? It is anticipated there will be very little change. Enforcement procedure largely stays the same with the exception that the FCA will now be able to appoint a skilled person themselves to report where there may be concerns about firms being used to facilitate financial crime. The structure of the Handbook will be significantly different with rules and guidance being designated to either the PRA or FCA.

How will the changes impact corporate crime lawyers and their clients? Corporate crime lawyers should be aware of the new offences in particular the offence of making of misleading statements and impressions in relation to benchmarks. The breadth of the definition of benchmark is wide and it will be interesting to see how the FCA interprets the definition when using its power to prosecute for this offence. It remains to be seen whether the introduction of this offence is an appropriate measure to prevent the manipulation of LIBOR and other benchmarks in the future or an overreaction—it is certainly a clearly targeted offence. Therefore lawyers should expect prosecutions under this offence. Lawyers will need to get used to the physical and structural differences of the Handbook.

Clients should review their anti-financial crime systems and controls to ensure that they comply with all applicable legal requirements which they should already do for money laundering purposes. The Financial Crime Guide updated in November 2012 provides practical assistance and information for all firms on how to counter the risk that they might be used to further financial crime.

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Practice area impact

Pensions

What will imminent introduction of the FCA and the PRA mean for pensions lawyers and their clients?Firms currently regulated by the FSA will have to assess how the new Handbooks apply to them. If they are to be regulated both by the PRA and the FCA (ie, if they are ‘dual-regulated firms’) both Handbooks will need to be looked at.

Pension lawyers may have some of those firms among their clients, which may include providers of personal pension arrangements, fund managers, investment advisers, insurance companies and other financial institutions.

Whether acting for those firms or for trustees or employers of pension schemes that have dealings with those firms, pension lawyers may find themselves looking at the new handbooks when carrying out certain types of work, including on:●● group personal pension or personal

stakeholder arrangements●● life assurance arrangements●● buy-in or buy-out documentation ●● investment management agreements●● contingent assets granted to pension

schemes (eg, security over cash provided by a bank)

●● bonds/indemnities granted for the purposes of an admission agreement

What should pension lawyers look out for?From a pensions perspective, no substantive changes were made on the republication of the provisions of the FSA Handbook in the PRA and FCA Handbooks. Still, pension lawyers may need to satisfy themselves that applicable provisions have survived without change when working on any of the above arrangements or documents. They will also need to ensure that any reference to the FSA Handbook contained in such documentation has been properly updated.

On a policy-making level, there are two points to note:●● interaction with the European Insurance

and Occupational Pension Authority

Competition

What is the express competition objective under the FCA?One of the aims of the new FCA will be to promote competition within the financial services sector.

How will this operate in practice? The FCA will not have the power to enforce competition law itself. Therefore, it will only be able to promote competition within financial regulations and through persuasion, for example encouraging banks to publish more information so that customers are better informed or making it easier for customers to switch banks.

How does the FCA and its new objective fit in with the current competition regulatory system?The FCA will not be part of the competition regulatory system.

If it considers that there are competition issues to investigate, it will have to refer these issues to the OFT, it should be noted—although the OFT is already keeping a close watch on the banking industry, with a number of investigations ongoing.

There is a very real threat that the banking industry will be referred to the Competition Commission in the next couple of years for an in-depth market investigation.

Will this affect the day-to-day work of competition lawyers and their clients?There is no change in competition regulation. Competition lawyers should however keep a close watch on how the industry develops, including the ongoing work of competition authorities in this sector.

What should competition lawyers do next?This will not have an impact on competition lawyers.

Simon Dodd, solicitor in the Lexis®PSL Competition team

Q&a

Q&a


(EIOPA)—the PRA, with the FCA’s support, will represent the UK on an international level when dealing with the EIOPA. Players in the pensions industry will therefore need to liaise with the PRA insofar as EIOPA’s policy-making targets the occupational pensions sector (eg, Solvency II)

●● division of roles with the Pensions Regulator—there have been areas of shared responsibility between the FSA and the Pensions Regulator (mainly in relation to the regulation of personal pensions), which meant the FSA and the Pensions Regulator have had to take a coordinated approach to regulation so as to avoid any gaps and duplication in their work. The FCA may over time decide to review the scope of its role in such shared areas, but in the meantime, there is every indication that the FCA will continue to work closely with the Pensions Regulator

What next? As they come into their own, it is expected that the PRA and FCA will fine-tune their policy documentation, as well as the way they interact with each other (eg in relation to the FSCS) and other external bodies (eg the Pensions Regulator).

The PRA has already indicated that, once it has assumed its responsibilities, it will start reviewing the FSA Handbook provisions contained in its new handbook, with the aim of replacing it, eventually, with its own Rulebook.

It will therefore be important for pension lawyers to remain alert to future changes.

helen Phillips, solicitor in the Lexis®PSL Pensions team

Commercial

How will commercial lawyers be affected?The relevance to commercial lawyers and/or in-house lawyers will depend largely on whether they act for or work for a firm which will be regulated or supervised by the PRA or the FCA. It is worth noting the FCA will be granted additional powers to:●● make temporary product intervention rules to block

an imminent product launch or to stop an existing one●● require firms to withdraw or amend misleading

financial promotions with immediate effect●● publish details of the start of enforcement

proceedings against a firm for rule breaches or compliance failings, and

●● impose requirements on certain unregulated parent undertakings that exert influence over authorised persons

For commercial lawyers who advise firms governed by the OFT under the Consumer Credit Act 1974, it is thought provisions will be introduced to allow government to transfer regulatory responsibility for consumer credit to the FCA, currently slated for 2014.

Are there any concerns?Even though shadow structures have been implemented for some time, after legal cutover there is likely to be an amount of uncertainty and duplication within the process while each authority establishes itself. Firms will need to monitor guidance notes and statements regularly to ensure that they are up to date with changes being implemented.

What should they do now?Firms regulated by the FSA at legal cutover will have their permissions transferred or ‘grandfathered’ across to the new regulator(s) and will not be required to submit a new authorisation application. In terms of each firm’s statutory status disclosure requirements, the FSA has confirmed that there will be a six-month transition period for firms to make the necessary changes to their stationary or electronic equivalents.

Christopher axford, partner, Druces

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Regulation changes in figures

How FSA 2012 has affected FSMA 2000

99 different Acts

amended by FSA 2012

141 hours of Parliamentary debate

64 working days between Royal Assent and legal cutover

126,792 words in FSA 2012

64 sourcebooks NOT changing as a result of FSA 2012

5,679 Total number of ‘links’ added by the LexisNexis

statutes team to consolidate FSA 2012

152,431 words in Halsbury’s Annotations online for FSA 2012

425 news items relating to the PRA and FCA switchover published over

the past three years by the LexisNexis news team

Section 1Deleted

Inserted

Amended

Unaffected

Section 100

Section 200

Section 300

Section 400

Schedule 22

FaCtS anD FigureS

FaCtS anD FigureS


From 1 April...

1 Understand which is your principal regulatorMost firms will be regulated by the FCA for both conduct and prudential regulation—some firms (eg banks, insurers, certain investment firms) will be dual-regulated firms, which means the PRA regulates prudential issues and the FCA regulates conduct

2 Consider whether your firm is impacted by consequential changes For example, the UK Listing Authority is now the FCA and relevant rules are found in the FCA’s Handbook (LR, PR and DTR sourcebooks) and registration-only firms, such as certain friendly societies or small e-money issuers, now liaise with the FCA

3 Stationery and authorisation disclosuresConsider whether any disclosures about your firm’s authorisation status on letterheads, marketing materials or other communications documents need to be updated to reflect the new regulators

4 Review any authorisations and permissions There are grandfathering provisions so any existing permissions do carry over to the new regulators. Firms should ensure their authorisations and permissions continue to reflect the activities their businesses undertake. This is particularly important given that some activities are now regulated by the PRA

5 Understand how regulatory offences have changedThese are found in the Financial Services and Markets Act 2000 (FSMA 2000), Pt 7 and they have been changed by the Financial Services Act 2012 to include misleading statements and impressions and offences relating to benchmarks

6 Be aware of new regulator powers and enforcement toolsSome additional measures have been introduced and could have negative impacts on firms

●● temporary product intervention powers (FSMA 2000, s 138N)●● warning notices with disciplinary outcomes (FSMA 2000, s 391(1)(c))●● duration and cost of credit agreements (FSMA 2000, s 137C)●● withdrawal of financial promotions (FSMA 2000, s 137S)

7 Related bodies have made changesBodies such as the Financial Services Compensation Scheme and the Financial Ombudsman Service have also used this time to make changes to their processes, which may impact complaints handling and redress available to consumers

8 Consider whether your business is involved in consumer creditThere is an open consultation process around the intention to transfer regulation of consumer credit to the FCA in 2014. Are you aware of how this would affect your business?

9 Review documentation and processesIf you use any standard-form documents, you should review these to ensure they include the correct regulatory references, for example, check template documents or precedents

10 Review processes for notifications and reporting to the regulatorsThese may be slightly different under the new regime. For example, for dual-regulated firms, submissions may be made by the FCA’s Online Notifications and Applications system but the PRA may lead on the implications of a submission. Waiver applications now also need to be submitted via email

Law firm checklistPoSt-Cutover

PoSt-Cutover

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