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The Financial Conduct Authority (FCA) takes responsibility for regulating all financial services industries in the UK. To protect customers, increase market integrity and promote healthy competition, the FCA has three operational activities including authorisation, supervision and enforcement. This means that financial service providers, investment firms, and consumer credit firms must be authorised. Additionally, banks, credit unions, and insurance companies must also be regulated by the Bank of England’s Prudential Regulation Authority (PRA).

Operational activities of the FCA

The primary objective of the FCA is to ensure that customer protection is a higher priority than profit. As a regulator, this requires three key operational activities:

Authorisation:

The FCA monitors firms and individuals to check they meet the required standards. Financial services providers must be authorised or registered by the FCA before they offer ‘regulated activities’. Banks, credit unions, and insurance companies are regulated by the FCA and the Prudential Regulation Authority (PRA).

Supervision:

The FCA supervises firms and individuals to ensure they meet the required standards. The supervision is risk-based and takes a three-pillar approach: Proactive supervision of the biggest firms, reactive supervision, in response to actual events, and finally, thematic analysis, which is based on risks affecting multiple firms or entire sectors.

Enforcement:

The FCA intervenes to impose penalties, including orders to stop trading, prosecute, and secure compensation for consumers.
By regulating firms, the FCA protects consumers and allow them to have confidence in the services offered to them. This is important to the economic stability of the country, as consumer trust in financial services stimulates competition and growth.

Who does the FCA regulate?

The FCA takes responsibility for regulating the conduct of financial services firms and markets. Financial services are defined as the economic services provided by the finance industry. This encompasses many types of businesses that manage money. For example, credit unions, banks, credit card companies, insurance companies and stock brokerages.
The FCA also regulates listed corporates and their officers on compliance with their listing and disclosure obligations. As part of its role in maintaining and restoring market integrity, the FCA is also empowered to bring enforcement proceedings against anyone for the criminal and civil offences of insider dealing and market manipulation. It can prosecute authorised firms and their officers for certain breaches of the Money Laundering Regulations.
It’s worth noting that the FCA is funded entirely by the firms they regulate, by charging them fees. Financial services providers must be authorised or registered by the FCA before they offer ‘regulated activities’. The first step in authorisation requires applicants to submit their business plans, risks and controls, qualifications and experience. These details are then analysed by the FCA and they make a decision. Following this, authorised firms must meet minimum standards and comply with the rules and principles.
The FCA supervises around 59,000 firms serving retail and wholesale consumers as well as users of many of the world’s largest and most significant global markets. These businesses vary greatly in size and complexity, and the FCA proportionate their response to regulation based on the level of risks of harm the firms pose to consumers and market integrity.

Why is it important to be FCA regulated?

Consumers are understandably cautious when it comes to investing their money as there is always a risk that you might end up interacting with an untrustworthy firm. If a firm is FCA regulated, you can be confident that their treatment of customers conforms to the FCA’s strict criteria. This takes much of the detective work and apprehension out of choosing a financial service provider, as the FCA ensures that all the supervised firms are compliant with the necessary obligations outlined in the Financial Services and Markets Act 2000 (FSMA).
FCA regulation is also important to the economic stability of the country, as consumer trust in financial services stimulates competition and growth. By abiding by the FCA’s, businesses may also benefit as financial service providers who put consumers first historically win new business based on service, quality, and price. Before the FCA took responsibility for regulating the financial services industry, financial crimes resulted in billions of pounds in fines, compensation, and other penalties for businesses. The FCA work incredibly hard to monitor our sales-driven culture and implement appropriate control and enforcement measures to ensure consumers and the economy do not suffer.

How do financial services providers become authorised and registered by the FCA?

A firm must submit an application form to the FCA, who will appoint a case officer. The case officer then works with the firm to understand its processes and procedures. Following this evaluation, the officer will assess whether the business meets the requirements laid down in the FCA Handbook. The FCA also takes responsibility for approving the key individuals within the firm, including all directors and certain others holding key positions, such as Compliance Officers. As part of this assessment, the FCA must be comfortable that the individuals are fit and proper to take on these roles. After deciding on authorisation, the FCA will write to the applicant either confirming authorisation or explaining why it has been rejected.
Firms must pay a fee when they apply, followed by an annual fee thereafter. They are also required to communicate with the FCA by filing regular reports that cover items such as client money and any complaints received.

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Anyone who deals with distributing products or services to customers must ensure that the customers are treated fairly. The Financial Conduct Authority (FCA) oversees the financial, professional and ethical conduct of financial service providers. Through their Principles for Businesses and criteria for Treating Customers Fairly (TCF), the FCA aims to help companies understand how to prioritise fair treatment of customers and why this is so important.
Consumer research has identified basic standards that are fundamental to fairness. They include:

• Give the customer what they paid for
• Don’t take advantage of the customer
• Offer the customer the best product you can
• Pay claims promptly and fairly
• Do your best to resolve complaints as quickly as possible
• Show flexibility, empathy and consideration towards your customer
• Be clear and transparent in all your customer dealings

The Financial Conduct Authority (FCA) used these customer expectations to define standards in their Principles for Business. These principles apply to all financial service providers regulated by the FCA, regardless of their number of employees or product range.
All Principles for Businesses are important, but the main Principle relating to treating customers fairly is Principle 6. This states that: ‘A firm must pay due regard to the interests of its customers and treat them fairly’. The aim of this principle is for financial services providers to consider customers and to put their interests at the heart of how they run their business.

How can businesses treat customers fairly?

It’s important to note that treating customers fairly is different from customer satisfaction. Not all customers who are treated fairly are satisfied. For example, a customer might feel that they’re entitled to special treatment because of their loyalty to the business, but there’s nothing about this in the company’s terms and conditions. In this situation, the client might respond by feeling disappointed and dissatisfied, even though they were treated the same way as every other customer. Likewise, a satisfied customer may be unaware that they were treated unfairly. It’s unlikely that every single customer will be satisfied with your service, but it’s important that every customer feels that they’ve been treated fairly.
To treat customers fairly, financial services providers must carry out the following tasks:

• Demonstrate understanding: Demonstrate that they understand TCF and communicate it to their employees and customers.
• Business decisions: Financial services providers must consider how business decisions and products may affect their customers. It’s important to note that companies are free to determine the level of service to offer and what price to charge, as long as it doesn’t infringe on a TCF outcome.
• Regular reviews: Regularly review products they receive complaints about.
• New products: Keep up to date with the market and new products. Businesses can operate with minimum regulatory intervention when launching new products and services, provided that they clearly apply the principles of fairness as outlined in Principle 6.
• Training: Employees should receive appropriate product-training.
• Sales: Demonstrate an approach to sales that puts suitability and customers’ interests first.
• Acknowledgement of complaints: Acknowledge and respond to customer

What are the outcomes of treating customers fairly?

The FCA encourages firms to consider 6 consumer outcomes when implementing their TCF initiatives and in assessing whether the changes they are implementing are having an impact:

• Consumer outcome 1: Consumers must be confident that the firms they’re dealing with treat customers fairly as part of their corporate culture.
• Consumer outcome 2: Products and services marketed and sold in the retail market must be designed to meet the needs of identified consumer groups and targeted accordingly. For example, businesses must periodically review complaints and use this information to assess the performance of the distribution channels.
• Consumer outcome 3: Consumers must be provided with clear information. This means that businesses must ensure that they keep customers appropriately informed before, during and after the point of sale.
• Consumer outcome 4: Where consumers receive advice, the advice must be suitable, with consideration applied to their specific circumstances.
• Consumer outcome 5: Consumers must be provided with products that perform as they have been led to expect, and the service they receive must be of an acceptable standard. This means that organisations must regularly review products and feedback from consumers
• Consumer outcome 6: Firms must not impose unreasonable post-sale barriers on consumers who change product, switch provider, submit a claim or make a complaint.

Why should you treat customers fairly?

Consumers need to know that they can trust financial services and have confidence that products meet their needs. Treating customers fairly will help to minimise the risk of financial mis-selling, avoid reputational damage, reduce complaints and improve customer retention. These results contribute to improving your businesses brand image, which will increase consumers’ confidence in your services.
Businesses are also obliged to treat customers fairly to comply with the FCA’s regulations. The FCA will launch an enforcement investigation wherever there are circumstances suggesting misconduct, or for authorised firms where there is ‘good reason’ for doing so. Under the Financial Services and Markets Act 2000 (FSMA), the FCA has enforcement powers to withdraw a firm’s authorisation, issue fines and impose criminal prosecutions. They also publish enforcement notices to inform the public and maximise the deterrent effect of enforcement action. This means that if your firm fails to comply with the regulations, you risk compromising the business’ reputation, as well as any important professional relationships.

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The Market Abuse Regulations (MAR) are a set of robust regulations, enforced across the European Union (EU) to actively reduce the rate of market abuse in the industry and to protect individual investors and consumers. The MAR came into effect on 3 July 2016 across EU member states and is subsequently enforced in the UK by the Financial Conduct Authority (FCA). The FCA is currently driving an important initiative to enhance the financial services industry and to protect the consumers operating within it from market abuse. Therefore, the FCA penalise firms and individuals who engage in market abuse severely. Knowledge and training of the MAR is of utmost importance for those working and dealing in the financial services industry.

Why is the MAR important?

The MAR is important because it is part of the drive to reduce market abuse, which has been a significant problem in the financial services industry. Since the financial crisis in 2008, confidence in the financial services industry has been volatile. Market abuse has further eroded consumer confidence in the industry. Therefore, the MAR is important as it will help to restore confidence and to enhance the culture of the financial services industry.

The MAR has effectively expanded regulatory scope across more financial instruments and established vastly detailed compliance requirements. Now, the MAR applies to financial instruments which are traded on multilateral trading facilities (MTF) and organised trading facilities (OTF), not just on an EU regulated market.

Why did the MAR come into force?

The MAR came into force on 3 July 2016 and effectively replaced the EU Market Abuse Directive (MAD). The MAR has established far more detailed requirements which relate to the disclosure of inside information, market soundings, market surveillance, transaction reporting and investment recommendations. Therefore, those working within financial services firms have a huge responsibility to ensure they are conducting themselves in line with the MAR, to demonstrate that their conduct is not going to harm the market or consumers.

What happens if you do not comply with the MAR?

If a firm or an individual breaches the MAR, they will be subject to investigation by the Financial Conduct Authority (FCA), the regulatory body in the UK which is committed to preventing, detecting and penalising market abuse.

If a breach of the MAR occurs, the FCA can impose unlimited fines, order injunctions or prohibit regulated firms or approved persons. Specifically, insider dealing and market manipulation can be penalised with criminal sanctions, which can involve custodial sentences of up to 7 years, as well as a fine.

The FCA reported in June 2019 that Fabiana Abdel-Malek, a senior compliance officer for UBS AG, and Walid Choucair, a family friend, were both sentenced to three years imprisonment after they were found guilty of five offences of insider dealing. The FCA found that Fabiana Abdel-Malek had encountered inside information from UBS AG and offered this to her family friend, Walid Choucair, who was a day trader of financial securities.

Due to the information that Choucair received, a profit of £1.4 million was made due to trading which was able to take place with insider dealing. The National Crime Agency co-operated with the FCA to investigate and penalise this incident of market abuse.

What impact will Brexit have on the MAR?

Currently, financial services firms listed in the UK which trade in financial instruments, are still under the regulatory scope of the MAR. However, the intended exit of the UK from the European Union has undoubtedly raised concerns over how the MAR will apply to regulated firms in the UK following the exit.

If UK based firms continue to access the single market, the European Union will require the UK to maintain a market abuse regulatory framework which is compatible with the MAR. A deal for the UK’s exit strategy has not been finalised yet, and therefore we cannot confirm what impact Brexit will have on MAR. However, by staying up-to-date with changes and understanding the specific regulations established under MAR, it will ensure that you are prepared and are compliant.

The UK financial services firms contribute hugely to our economy, so we must be able to trust them. The primary objective of the Financial Conduct Authority (FCA) is to regulate and manage the conduct of these firms to protect consumers and the economy. This involves a broad range of roles and responsibilities, which are outlined in the Financial Services and Markets Act 2000 (FSMA). These obligations contribute to their overall objectives to restore and maintain market integrity, protect consumers and promote healthy competition.

What is the FCA?

The Financial Conduct Authority (FCA) is the UK regulator for financial services firms and financial markets. Under the Financial Services and Markets Act 2000 (FSMA), they have various enforcement powers designed to regulate the conduct of financial services and enforce integrity and fair competition within the sector.

The primary objective of the FCA is to ensure that customer protection is a higher priority than profit, and their key operational activities are designed to uphold this responsibility. Their three key operational activities include:

• Authorisation: The FCA monitors firms and individuals to check they meet the required standards. Financial services providers must be authorised or registered by the FCA before they offer ‘regulated activities’. Banks, credit unions and insurance companies are regulated by the FCA and the Prudential Regulation Authority (PRA). This authorisation involves two steps:

1. 1. 1. Applicants are vetted by the FCA based on their business plans, risks and controls, qualifications, and experience.
      2. Authorised firms must meet minimum standards and comply with the rules and principles. The FCA Handbook outlines requirements and contains modules relating to different areas of compliance.

• Supervision: This operational activity involves the FCA supervising firms and individuals to ensure they meet the required standards. This supervision is risk-based, and focuses on fair treatment of consumers and upholding market integrity. Currently, the FCA supervises around 59,000 firms serving retail and wholesale consumers as well as users of many of the world’s largest and most significant global markets. Their approach to supervision is proportionated depending on if a firm is classified as a fixed portfolio firm or a flexible portfolio firm.
  • Supervision takes a three-pillar approach:
    • Pillar 1: Proactive supervision of the biggest firms
    • Pillar 2: Reactive supervision, in response to actual events or emerging risks
    • Pillar 3: Thematic analysis, based on risks affecting multiple firms or entire sectors.
• Enforcement: Where there is non-compliance, the FCA intervenes by launching an enforcement investigation. More recently, the FCA has announced their plans to use investigations as a tool to determine whether any wrongdoing has occurred, rather than as a response to obvious breaches. This means they have lowered the threshold for cases they think might require investigation and enforcement action.

The FCA has criminal, civil and regulatory enforcement powers to protect consumers. Usually, the penalties they impose are fines, which are issued through a lengthy process. They assess the risk of harm caused by the misconduct and consider any mitigating factors, including adjustments for early settlements. In recent years, the FCA has promised to update their approach in order to make use of all of their enforcement powers. For example, there’s a renewed focus on using the FCA’s power to vary a firm’s permissions in order to prevent harm.

The 11 Principles for Business

The FCA supervises over 59,000 firms, using their 11 Principles for Business as criteria to measure and regulate each company’s conduct. These are standards of conduct that all firms must follow to meet regulatory obligations. The FCA uses two key measures: Treating customers fairly (TCF) and training competence (T&C).

The 11 Principles for Business are:

1. Integrity: A firm must conduct its business with integrity.
2. Skill, care and diligence: A firm must conduct its business with due skill, care and diligence.
3. Management and control: A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
4. Financial prudence: A firm must maintain adequate financial resources
5. Market conduct: A firm must observe proper standards of market conduct
6. Customers’ interests: A firm must pay due regard to the interests of its customers and treat them fairly.
7. Communications with clients: A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading.
8. Conflicts of interest: A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.
9. Customers: relationships of trust: A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.
10. Clients’ assets: A firm must arrange adequate protection for clients’ assets when it is responsible for them.
11. Relations with regulators: A firm must deal with its regulators openly and cooperatively and must disclose to the FCA appropriately anything relating to the firm of which the FCA would reasonably expect notice.

Training Competence Requirements

In order to adhere to ‘Principle 3: Management and Control’, businesses need to ensure that employees are competent to carry out regulated activities. This requires training, supervision, record keeping and management information (MI). Employees also need to satisfy the FCA’s training and competency requirements in relation to the job they perform. These include:

• FCA requirements: FCA requirements for competence must be understood for any job role where a controlled function is performed.
• Recruitment: Recruitment needs to be aligned with the competence and experience requirements for the role.
• Training and support: The training or support to achieve competence must be provided to employees.
• Measurement: Key Performance Indicators (KPIs) must be monitored. Supervisors or assessors must have the necessary coaching and assessment skills.
• Quality assurance: Quality assurance is required to ensure that standards continue to be met.
• Evidence: Records of employees need to be kept for 3 to 5 years or indefinitely, depending on job role.

Why are these principles important?

Before the FCA took responsibility for regulating the financial services industry, misconduct resulted in billions of pounds in fines, compensation and other penalties for businesses. By adhering to the principles for business, companies not only reduce the risk of being prosecuted, but they also gain more customers by aligning themselves with admirable values. Financial service providers who put customers first and endorse a culture of fair treatment historically win more business. This stimulates healthy competition and growth within the sector.

FCA Consumer Outcomes

The FCA supervises over 59,000 firms, using their ‘6 Consumer Outcomes’ as criteria to measure and regulate each company’s conduct. These outcomes represent the standards of conduct that all firms must follow to meet regulatory obligations. Businesses must provide evidence that all 6 consumer outcomes are being met, to avoid supervision or penalties enforced by the FCA.

Consumer Outcome 1

The fair treatment of customers must be central to your business’ corporate culture. These values must be embedded throughout every department and activity executed by your company, which means senior management teams must actively endorse a customer-centric code of conduct.

Consumer Outcome 2

Products and services marketed and sold in the retail market must be designed to meet the needs of identified consumer groups and must be targeted accordingly. This means:

• Ensuring products and services are targeted at the right markets and consumers to avoid misselling
• Periodically reviewing complaints and claims management information
• Collecting and analysing information to assess the performance of the distribution channels

Consumer Outcome 3

Consumers must be provided with clear information and kept appropriately informed before, during, and after the point of sale. There are several ways to ensure this; for example:

• Before the sale: Avoid small print or jargon. Product features or limitations must be communicated to customers through your distribution channels
• Point of sale: Point of sale information must be clear and help customers to decide if the product meets their requirements
• Post sale: Post-sale information must make consumers aware of product performance, opportunities to act, and any changes in the terms and conditions.

Consumer Outcome 4

Where consumers receive advice, the advice must be suitable. This means any guidance offered must consider their unique circumstances.

Consumer Outcome 5

Consumers must be provided with products that perform as they have been led to expect, and the service they receive is of an acceptable standard. Organisations must regularly review products and feedback from consumers. High numbers of claims and complaints may indicate that customers are not being treated fairly. Buyers must be made aware of potential market risks for products. Consumers can still be treated fairly if the product they purchase performs poorly. However, it isn’t fair if consumers are misled about the possible performance of a product.

Consumer Outcome 6

Firms must not impose unreasonable post-sale barriers on consumers who change product, switch provider, submit a claim or make a complaint. Customers should be able to change products or switch providers without excessive penalties. It must not be difficult for consumers to make claims or complaints. Complaints are a valuable source of feedback and an early warning of failures in service delivery. The way you handle complaints can enhance or damage your reputation.

What happens when there is non-compliance?

All regulated firms must comply with the principles and rules set out in the FCA Handbook. The Handbook consists of modules relating to different areas of compliance and is available online or in print. When there is non-compliance, the FCA intervenes to limit the damage and seek redress.

The FCA will launch an enforcement investigation wherever there are circumstances suggesting misconduct, or for authorised firms where there is ‘good reason’ for doing so. This is a low threshold, and more recently, the FCA has announced their plans to use investigations as a tool to determine whether any wrongdoing has occurred, rather than as a response to obvious breaches.

FCA’s current approach to imposing financial penalties is based on a five-step process. They assess the risk of harm caused by the misconduct and consider any mitigating factors, including adjustments for early settlements. In recent years, the FCA has promised to update their approach to make use of all of their enforcement powers. For example, there’s a renewed focus on using the FCA’s power to vary a firm’s permissions to prevent harm.

What enforcement powers does the FCA have?

Where standards of conduct are not met, the FCA has criminal, civil and regulatory enforcement powers to protect consumers. For example, the FCA can withdraw a firm’s authorisation, issue fines and impose criminal prosecutions. They also publish enforcement notices to inform the public and maximise the deterrent effect of enforcement action. This means that if your firm fails to comply with the regulations, you risk compromising the business’ reputation, as well as any important professional relationships. The FCA also has an enforcement division that works with other bodies to ensure early enforcement action is taken.

There is a discount scheme for financial penalties, suspensions, restrictions conditions and disciplinary prohibitions if the case is resolved quickly. For example, if a firm fully agrees with the facts proposed by the FCA, they could receive a discount of up to 30% on their financial penalty.

The Market Abuse Regulations (MAR) was created in July 2016 to enhance and harmonise the EU regime on market abuse. The key points of the MAR focus on the types of market abuse which will not be tolerated and how to identify and avoid market abuse. The MAR also increases the scope of existing offences and introduce new offences, such as attempted insider dealing and manipulation of benchmarks. The points set out in the MAR must be complied with to ensure that we are all contributing to a healthy and competitive culture for financial services firms.

What is Market Abuse?

Market abuse refers to the actions of an individual which distort the transparency of the market and creates an unfair advantage for that individual. Reducing market abuse is at the core of the Financial Conduct Authority’s objectives at the moment, as they aim to enhance confidence in the UK markets and to prevent UK markets from being used for financial crime.

The key points in the MAR refer to the following types of market abuse:

• Insider Information: This is information which is price sensitive and has not been released as public information but is used by an inside employee for personal gain.
• Market Manipulation: This can include manipulating the price of listed investments for an individual’s purpose and advantage.
• Attempted Market Manipulation: The attempt to manipulate the market is a considerable civil offence.
• Insiders’ Lists: This is a list maintained by issuers which includes details of all persons who have access to inside information.
• Disclosure of Managers’ Deals: This refers to the sensitive information included in such deals, which also may not be public information.
• Suspicious Transaction Reporting: This applies to transaction reports which are suspicious and suggest that market abuse might have taken place.
• Research Disclosure: A firm must disclose the identity of the person responsible for researching the firm.

Why did the MAR replace the Market Abuse Directive (MAD)?

The MAR replaced the MAD in July 2016 intending to expand the regulatory scope across more financial instruments and venues, to ensure that there is a stronger crackdown on market abuse. The MAR has extended regulatory scope across financial instruments admitted to trading on multilateral trading facilities (MTF), organised trading facility (OTF) and over the counter (OTC).

Through expanding the regulatory scope, it sets the precedent that market abuse will not be tolerated.

In January 2018, the FCA reported that they had fined Interactive Brokers (UK) (IBUK), a London based online broker, for failing to identify and control market abuse during the period February 2014 to February 2015. The FCA investigated IBUK’s post-trade systems and controls used for identifying and reporting suspicious transactions. The post-trade monitoring systems implemented by IBUK were inadequate as they were unable to identify potential market abuse and oversight of the team responsible for reviewing reports. Therefore, IBUK could not identify when a suspicious transaction report had occurred.

The FCA concluded that IBUK had demonstrated very poor market abuse controls and serious weaknesses in their procedures, which could have allowed market abuse to occur. Therefore, the FCA fined IBUK £1,049,412.

The MAR is an important regulatory framework which must be complied with across the UK and the EU member states. Therefore, knowledge of the MAR’s key points and how to comply is of utmost importance.

The UK financial services firms contribute hugely to our economy, so we must be able to trust them. The primary objective of the Financial Conduct Authority (FCA) is to regulate and manage the conduct of these firms to protect consumers and the economy. This involves a broad range of roles and responsibilities, which are outlined in the Financial Services and Markets Act 2000 (FSMA). These obligations contribute to their overall objectives to restore and maintain market integrity, protect consumers and promote healthy competition.

What is the FCA?

The Financial Conduct Authority (FCA) is the UK regulator for financial services firms and financial markets. Under the Financial Services and Markets Act 2000 (FSMA), they have various enforcement powers designed to regulate the conduct of financial services and enforce integrity and fair competition within the sector.

The primary objective of the FCA is to ensure that customer protection is a higher priority than profit, and their key operational activities are designed to uphold this responsibility. Their three key operational activities include:

• Authorisation: The FCA monitors firms and individuals to check they meet the required standards. Financial services providers must be authorised or registered by the FCA before they offer ‘regulated activities’. Banks, credit unions and insurance companies are regulated by the FCA and the Prudential Regulation Authority (PRA). This authorisation involves two steps:

1. 1. 1. Applicants are vetted by the FCA based on their business plans, risks and controls, qualifications, and experience.
      2. Authorised firms must meet minimum standards and comply with the rules and principles. The FCA Handbook outlines requirements and contains modules relating to different areas of compliance.

• Supervision: This operational activity involves the FCA supervising firms and individuals to ensure they meet the required standards. This supervision is risk-based, and focuses on fair treatment of consumers and upholding market integrity. Currently, the FCA supervises around 59,000 firms serving retail and wholesale consumers as well as users of many of the world’s largest and most significant global markets. Their approach to supervision is proportionated depending on if a firm is classified as a fixed portfolio firm or a flexible portfolio firm.
  • Supervision takes a three-pillar approach:
    • Pillar 1: Proactive supervision of the biggest firms
    • Pillar 2: Reactive supervision, in response to actual events or emerging risks
    • Pillar 3: Thematic analysis, based on risks affecting multiple firms or entire sectors.
• Enforcement: Where there is non-compliance, the FCA intervenes by launching an enforcement investigation. More recently, the FCA has announced their plans to use investigations as a tool to determine whether any wrongdoing has occurred, rather than as a response to obvious breaches. This means they have lowered the threshold for cases they think might require investigation and enforcement action.

The FCA has criminal, civil and regulatory enforcement powers to protect consumers. Usually, the penalties they impose are fines, which are issued through a lengthy process. They assess the risk of harm caused by the misconduct and consider any mitigating factors, including adjustments for early settlements. In recent years, the FCA has promised to update their approach in order to make use of all of their enforcement powers. For example, there’s a renewed focus on using the FCA’s power to vary a firm’s permissions in order to prevent harm.

The 11 Principles for Business

The FCA supervises over 59,000 firms, using their 11 Principles for Business as criteria to measure and regulate each company’s conduct. These are standards of conduct that all firms must follow to meet regulatory obligations. The FCA uses two key measures: Treating customers fairly (TCF) and training competence (T&C).

The 11 Principles for Business are:

1. Integrity: A firm must conduct its business with integrity.
2. Skill, care and diligence: A firm must conduct its business with due skill, care and diligence.
3. Management and control: A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
4. Financial prudence: A firm must maintain adequate financial resources
5. Market conduct: A firm must observe proper standards of market conduct
6. Customers’ interests: A firm must pay due regard to the interests of its customers and treat them fairly.
7. Communications with clients: A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading.
8. Conflicts of interest: A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.
9. Customers: relationships of trust: A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.
10. Clients’ assets: A firm must arrange adequate protection for clients’ assets when it is responsible for them.
11. Relations with regulators: A firm must deal with its regulators openly and cooperatively and must disclose to the FCA appropriately anything relating to the firm of which the FCA would reasonably expect notice.

Training Competence Requirements

In order to adhere to ‘Principle 3: Management and Control’, businesses need to ensure that employees are competent to carry out regulated activities. This requires training, supervision, record keeping and management information (MI). Employees also need to satisfy the FCA’s training and competency requirements in relation to the job they perform. These include:

• FCA requirements: FCA requirements for competence must be understood for any job role where a controlled function is performed.
• Recruitment: Recruitment needs to be aligned with the competence and experience requirements for the role.
• Training and support: The training or support to achieve competence must be provided to employees.
• Measurement: Key Performance Indicators (KPIs) must be monitored. Supervisors or assessors must have the necessary coaching and assessment skills.
• Quality assurance: Quality assurance is required to ensure that standards continue to be met.
• Evidence: Records of employees need to be kept for 3 to 5 years or indefinitely, depending on job role.

Why are these principles important?

Before the FCA took responsibility for regulating the financial services industry, misconduct resulted in billions of pounds in fines, compensation and other penalties for businesses. By adhering to the principles for business, companies not only reduce the risk of being prosecuted, but they also gain more customers by aligning themselves with admirable values. Financial service providers who put customers first and endorse a culture of fair treatment historically win more business. This stimulates healthy competition and growth within the sector.

FCA Consumer Outcomes

The FCA supervises over 59,000 firms, using their ‘6 Consumer Outcomes’ as criteria to measure and regulate each company’s conduct. These outcomes represent the standards of conduct that all firms must follow to meet regulatory obligations. Businesses must provide evidence that all 6 consumer outcomes are being met, to avoid supervision or penalties enforced by the FCA.

Consumer Outcome 1

The fair treatment of customers must be central to your business’ corporate culture. These values must be embedded throughout every department and activity executed by your company, which means senior management teams must actively endorse a customer-centric code of conduct.

Consumer Outcome 2

Products and services marketed and sold in the retail market must be designed to meet the needs of identified consumer groups and must be targeted accordingly. This means:

• Ensuring products and services are targeted at the right markets and consumers to avoid misselling
• Periodically reviewing complaints and claims management information
• Collecting and analysing information to assess the performance of the distribution channels

Consumer Outcome 3

Consumers must be provided with clear information and kept appropriately informed before, during, and after the point of sale. There are several ways to ensure this; for example:

• Before the sale: Avoid small print or jargon. Product features or limitations must be communicated to customers through your distribution channels
• Point of sale: Point of sale information must be clear and help customers to decide if the product meets their requirements
• Post sale: Post-sale information must make consumers aware of product performance, opportunities to act, and any changes in the terms and conditions.

Consumer Outcome 4

Where consumers receive advice, the advice must be suitable. This means any guidance offered must consider their unique circumstances.

Consumer Outcome 5

Consumers must be provided with products that perform as they have been led to expect, and the service they receive is of an acceptable standard. Organisations must regularly review products and feedback from consumers. High numbers of claims and complaints may indicate that customers are not being treated fairly. Buyers must be made aware of potential market risks for products. Consumers can still be treated fairly if the product they purchase performs poorly. However, it isn’t fair if consumers are misled about the possible performance of a product.

Consumer Outcome 6

Firms must not impose unreasonable post-sale barriers on consumers who change product, switch provider, submit a claim or make a complaint. Customers should be able to change products or switch providers without excessive penalties. It must not be difficult for consumers to make claims or complaints. Complaints are a valuable source of feedback and an early warning of failures in service delivery. The way you handle complaints can enhance or damage your reputation.

What happens when there is non-compliance?

All regulated firms must comply with the principles and rules set out in the FCA Handbook. The Handbook consists of modules relating to different areas of compliance and is available online or in print. When there is non-compliance, the FCA intervenes to limit the damage and seek redress.

The FCA will launch an enforcement investigation wherever there are circumstances suggesting misconduct, or for authorised firms where there is ‘good reason’ for doing so. This is a low threshold, and more recently, the FCA has announced their plans to use investigations as a tool to determine whether any wrongdoing has occurred, rather than as a response to obvious breaches.

FCA’s current approach to imposing financial penalties is based on a five-step process. They assess the risk of harm caused by the misconduct and consider any mitigating factors, including adjustments for early settlements. In recent years, the FCA has promised to update their approach to make use of all of their enforcement powers. For example, there’s a renewed focus on using the FCA’s power to vary a firm’s permissions to prevent harm.

What enforcement powers does the FCA have?

Where standards of conduct are not met, the FCA has criminal, civil and regulatory enforcement powers to protect consumers. For example, the FCA can withdraw a firm’s authorisation, issue fines and impose criminal prosecutions. They also publish enforcement notices to inform the public and maximise the deterrent effect of enforcement action. This means that if your firm fails to comply with the regulations, you risk compromising the business’ reputation, as well as any important professional relationships. The FCA also has an enforcement division that works with other bodies to ensure early enforcement action is taken.

There is a discount scheme for financial penalties, suspensions, restrictions conditions and disciplinary prohibitions if the case is resolved quickly. For example, if a firm fully agrees with the facts proposed by the FCA, they could receive a discount of up to 30% on their financial penalty.

The Financial Conduct Authority (FCA) have a key focus on safeguarding vulnerable persons in the financial services industry, to ensure that all consumers are treated fairly and are protected. The customer service staff in a financial services firm play a vital role in identifying and supporting vulnerable persons. Financial services firms must meet the FCA guidelines around safeguarding vulnerable persons to protect clients and to remain compliant. To understand how to meet the FCA guidelines appropriately, the FCA provides guidance and advice on their websites and in the FCA handbook. If a financial services firm fails to comply with the FCA guidelines they will be subject to investigation and significant penalties. Therefore, it is important to understand how consumers can be vulnerable and how to safeguard them appropriately.

Who is considered as a Vulnerable Person?

The FCA defines three categories of vulnerability:

Particularly vulnerable: Particularly vulnerable persons are at far greater risk of harm than most vulnerable customers and therefore this harm could be more imminent and have severe consequences. Particularly vulnerable persons could have mental capacity limitations and mental health issues, and therefore they must be safeguarded appropriately.

Vulnerable: A vulnerable person is someone whose situation puts them at particular risk of harm, especially if firms fail to take appropriate care to safeguard them.

Potentially vulnerable: Potentially vulnerable customers can make informed decisions about their finances. They are not vulnerable now, but they could become vulnerable in the future.

The FCA requires firms to consider the welfare of vulnerable and particularly vulnerable customers. It is important to identify and safeguard these vulnerable customers. The customers who are vulnerable now may not be in the future, and vice-versa, therefore it is important to review customers.

What constitutes vulnerability?

Customers can become vulnerable for a range of reasons, such as the following:

Health: 5% of UK adults are vulnerable due to their health, this includes physical disability, long-term illness, mental health problems and elderly problems such as cognitive, mobility or sensory impairment.

Resilience: Those who have a low income or debt could struggle if prices or interest rates increase, therefore making them vulnerable. This affects around 30% of UK adults.

Capability: Those with limited knowledge or confidence in managing their finances could become vulnerable, as 17% of UK adults report that they have limited knowledge when it comes to their finances. This can be due to inexperience, low literacy and numeracy skills, language and financial capability skills.

Life Events: Bereavement, sudden relationship/household changes, benefits difficulties or carer responsibilities could make someone vulnerable.

Why is it important to safeguard Vulnerable Persons?

Vulnerabilities can have a range of financial, emotional and practical consequences, which could affect a vulnerable person’s financial situation and decisions. Negative impacts include financial losses, unfair treatment, increased stress, mental incapacity and infringement of legal rights. Therefore, it is important to safeguard vulnerable persons to avoid negative impacts such as these.

The FCA will investigate firms if they suspect that a vulnerable person has been neglected or exploited. If the FCA identify a negative impact on vulnerable customers, they will increase the penalty and fines imposed on the responsible firm.

The FCA guidelines on safeguarding vulnerable persons

The FCA demands that firms must demonstrate the following practices:

• Demonstrate consistent practice across all operational areas
• Implement a Vulnerable Persons Policy which all staff are aware of
• Provide adequate training for employees regarding dealing with vulnerable persons
• Empower specialists to be flexible
• Apply terms and conditions flexibly
• Communicate flexibly and accessibly with all customers
• Provide clear product information
• Review practices to identify areas for improvement
• Continuously evaluate the effectiveness of the Vulnerable Persons Policy

It is of utmost importance for firms to abide by the FCA guidelines for safeguarding vulnerable persons. Therefore, establishing how your firm is going to identify and treat vulnerable persons is essential.

The Market Abuse Regulation (MAR) is enforced across the European Union (EU) since 3 July 2016 and aims to prevent and punish those who engage in market abuse. Preventing market abuse is a vital part of the Financial Conduct Authority’s (FCA) drive to protect consumers, to enhance integrity in the market and to promote healthy competition amongst financial service providers. The FCA holds entire firms and individuals responsible for market abuse, and therefore the consequences for breaching MAR can be damaging. The consequences for breaching the MAR are taken very seriously by the FCA, law enforcement agencies and other regulators across the EU. Therefore, it is important to understand the MAR and how to comply.

Why is MAR important?

The MAR is of utmost importance as it aims to protect consumers in the financial services industry and to enhance confidence in the market. The MAR ensures that financial services firms are bound to a regulatory framework and sets the precedent that market abuse will not be tolerated.

The MAR is enforced across the EU Member States to reduce the effects of market abuse. The MAR replaced the Market Abuse Directive which was in place before July 2016 and essentially extends regulation over more financial venues, instruments and behaviours.

What constitutes a breach of MAR?

If someone conducts an act of market abuse, this will constitute a breach of the MAR. Market abuse refers to incidents where a consumer has been unfairly affected or disadvantaged due to the actions of an individual in a position of financial authority.

There are two types of market abuse:

Insider Dealing: This refers to an individual who has access to inside information, which they do not inform others about, and then uses this information for a personal gain.
Market Manipulation: This refers to an individual who intentionally gives out misleading information to influence a price or a share for personal gain.

Enforcement and penalties for breaching the MAR

To detect market abuse, the FCA actively analyse the financial market and the various forms of data leaving financial services firms, such as transaction reporting data, order book data, benchmark submission and other market data.

The FCA deter individuals from engaging in market abuse by imposing unlimited fines, injunctions and criminal sanctions on those who have breached the MAR previously. For example, insider dealing and market manipulation are considered to be serious breaches of the MAR and thus incur custodial sentences of up to 7 years, as well as unlimited fines.

Shortly after the MAR came into force in July 2016, the FCA had to investigate a small AIM traded investment company, known as Tejoori Limited. Tejoori Limited was found guilty of breaching Article 17 (1) of the MAR, which refers to the handling of inside information and thus was fined £70,000 by the FCA. Since the FCA considers MAR to be of utmost importance, investigations and penalties are taken very seriously.

How to report a breach of MAR

If you suspect suspicious activity within the firm in which you work or deal with, then you must report this suspicion to the FCA. The FCA will subsequently investigate the suspected market abuse thoroughly.

The FCA has created the Suspicious Transaction and Order Reporting (STOR) regime for individuals to follow if they need to report a suspicious incident to the FCA. Details on how to report incidents to the FCA under this regime are available on the FCA website.

The FCA considers breaches of the MAR to be serious acts of misconduct and thus are punished with severe financial penalties and criminal sanctions. Therefore, it is important to understand how to comply with the MAR properly.

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The aggressive sales-based culture exhibited by the financial services industry has driven numerous cases of misconduct, malpractice and fraud. This has resulted in billions of pounds in fines, which has a severe effect on consumers and the economy. Financial misconduct manifests itself in businesses in various ways, including invoice forgery, fraud and the abuse of corporate credit cards. According to Section 1H of the Financial Services and Markets Act 2000 (FSMA), financial misconduct is defined as:

• Fraud or dishonesty
• Misconduct in, or misuse of information relating to a financial market
• Handling the proceeds of crime
• The financing terrorism

The conduct of financial services firms and markets must be regulated to enforce integrity, fair competition, and to protect consumers. This is the purpose of the Financial Conduct Authority (FCA).

Examples

In 2008, the Carphone Warehouse introduced an insurance cover called ‘Geek Squad’ for their mobile phones. Reports suggest that employees were trained to recommend this coverage, even where it was not necessarily a useful product for customers. The company endorsed various ‘spin-selling’ techniques, including ‘objection handling’ and suggesting that customers buy the product on the spot and cancel within 14 days.
This will resonate with many people, as most consumers recognise how easy it is to forget about cancelling a subscription moments after you’ve signed a contract. Carphone Warehouse exploited this and even designed the ‘Geek Squad’ terms to be ambiguous so that customers were less likely to discover that the cover wasn’t relevant to them within two weeks. However, some individuals did notice that ‘Geek Squad’ didn’t apply to their phone plans. This prompted many complaints, and a high proportion of policies were cancelled. Despite this, Carphone Warehouse did nothing to address the issue. This behaviour is a clear example of ‘fraud and dishonesty’, and therefore the FCA was able to prosecute the company for violating Section 1H of the FSMA. After the investigation, Carphone Warehouse was fined £41,000,000.

What is the result of financial misconduct?

In the UK, the FCA is the authority primarily responsible for investigating potential misconduct within the financial services sector. As part of its role in maintaining and restoring market integrity, the FCA is also empowered to bring enforcement proceedings against anyone for the criminal and civil offences of insider dealing and market manipulation. It can prosecute authorised firms and their officers for certain breaches of the Money Laundering Regulations.
The FCA will launch an enforcement investigation wherever there are circumstances suggesting misconduct, or for authorised firms where there is ‘good reason’ for doing so. Once they have sufficient evidence to understand the nature of any misconduct, the FCA suggests settlement negotiations. If a subject is found guilty of financial misconduct, the FCA has criminal, civil and regulatory enforcement powers to protect consumers. For example, they can withdraw a firm’s authorisation, issue fines and impose criminal prosecutions.

How can you avoid financial misconduct?

There have been more and more reported cases of financial misconduct over the years. When an employee commits financial misconduct, it’s essentially a form of theft from their employer. If a business doesn’t implement necessary control measures and checks, financial misconduct can go undetected for a long time. It’s incredibly important to endorse clear expectations and to develop solid policies and procedures. Regular training and assessing employees against these criteria are also essential to maintain effective communication and continual improvement.
You should also consider implementing a ‘whistleblowing’ policy, which encourages employees to report incidents of suspected financial misconduct. The point of this kind of formal procedure is to ensure staff members feel confident to report colleagues, regardless of their level of seniority, without fear of reprisal.
Setting the right cultural values and encouraging employees to conduct themselves accordingly is the most important part of avoiding financial misconduct. If your company’s ethics and the expectations for employee behaviour is established from the outset and monitored regularly, you’re far more likely to avoid any incidents of misconduct, financial or otherwise.

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Financial sanctions are essentially restrictive measures imposed on financial resources and services for individuals, entities and bodies that engage in criminal activities. Financial sanctions were implemented to help achieve the UK’s foreign policy and national security objectives, including the prevention of terrorist financing. These sanctions are also designed to maintain confidence in the integrity of the UK’s financial service sector. All businesses must understand the various procedures and responsibilities involved with financial sanctions, as they’re only effective if they’re properly implemented.

All UK and non-UK individuals, businesses and charities need to comply with financial sanctions if they carry out activities within the UK’s territory and are established under UK law and operating overseas. This means that UK citizens need to comply with financial sanctions wherever they are in the world.

What is OFSI?

The Office of Financial Sanctions Implementation (OFSI), which is a part of HM Treasury, is the UK’s authority for implementing financial sanctions. OFSI is responsible for regulating financial sanctions, using their enforcement powers to ensure all businesses and entities comply. OFSI also publishes a consolidated financial sanctions list, which helps firms screen and identify designated persons subject to UK, EU and UN financial sanctions. Information on the consolidated list includes aliases, date of birth, passport details, nationality, last known address, employment or government role. To spread the word about financial sanctions, they also speak at financial crime, financial services, foreign policy and other industry events and meetings. This kind of interactive engagement with the compliance community provides them with the opportunity to respond to any concerns regarding financial sanctions.

Types of financial sanctions

If the individual or entity you are dealing with matches all the information on the consolidated list, this is likely to be a target match. In this situation, the business is legally obliged to freeze the funds or economic resources that it controls and report to HMT’s Asset Freezing Unit. All businesses, organisations and individuals are under obligation to report information about sanctions breaches to the OFSI.

As well as asset freezes, your business might have to impose restrictions on financial markets and services, which apply to named individuals, entities and bodies, or to entire sectors. Examples of such restrictions include investment bans and limitations on access to capital markets. In some cases, the firm may have to cease all business of a specified type with a specific person, group, sector territory or country.

The most common types of financial sanctions include:

Asset freezes: If you have reason to suspect that you’re dealing with a designated person you must ‘freeze’ them. This means ceasing to deal with them and report them to OFSI.
Restrictions on financial markets and services: These can apply to named individuals, entities and bodies, to specified groups or to entire sectors. Examples of these include investment bans and restrictions on access to capital markets. Businesses might also be required to notify or seek authorisation before certain payments are made or received.
Directions to cease all business: These directions will specify the type of business and apply to a specific person, group, sector or country.

Why do we have financial sanctions?

The main objective of financial sanctions is to keep our country safe. This is achieved as follows:

• By increasing the costs associated with a particular regime, financial sanctions are designed to force the individuals within the regime into changing their behaviour.
• The sanctions also work to constrain a target by denying them access to key resources needed to continue their offending behaviour, including the financing of terrorism or nuclear proliferation.
• Financial sanctions are also used to signal disapproval. This stigmatises and potentially isolates a regime or individual. This is also a way of sending broader political messages nationally or internationally.
• Finally, financial sanctions are used to protect the value of assets that have been misappropriated from a country.

By complying with OFSI, companies ensure that they’re conducting legitimate business both in the UK and abroad. Upholding the financial sanctions regime is also an essential component of protecting our country. By adhering to the obligations, firms are doing their part to avoid substantial fines and more significantly, to protect our country from potential harm.

Sanctions screenings

It’s against the law for firms to provide funds or carry out transactions for designated persons on the consolidated financial sanctions list. To ensure that your business activities are safe and legal, you must implement sanctions screenings whenever you take on new customers. Screening helps businesses to identify sanctioned individuals and organisations, which means they can make appropriately compliant risk decisions.

There are two main screening controls that most businesses will use: transaction screening and customer screening. Transaction screening identifies transactions involving targeted individuals or entities, whereas customer screening (also known as name screening) recognises targeted individuals or entities during the lifecycle of the customer relationship with the company. Both screenings are designed to form a robust set of controls for identifying sanctions targets.

OFSI publishes the consolidated list to help businesses and individuals comply with financial sanctions. The list includes all designated persons subject to financial sanctions under EU and UK legislation, as well as those subject to UN sanctions which are implemented through EU regulations. The list is also updated within one working day for all new UN, EU and UK listings coming into force in the UK, and within three working days for all other amendments. This means it’s almost always up to date, so businesses can be sure that their screenings are accurate and reliable.

There are some limitations to consider for the screening system. For example, many different people can share the same or similar details. Human error also might cause slight differences, for example, spelling mistakes or incomplete data. To accommodate this, screening software includes ‘fuzzy matching’. To ensure that matches are as accurate as possible, firms must calibrate the system in line with the risk profile of their business. Companies should also use human intervention to assess which results are false positives. This means investigating potential matches to determine whether they’re fuzzy or true matches. Other information on the list, such as date of birth and nationality, can be used to eliminate or confirm a potential match. The decision-making process must be documented in writing.

What happens if you ignore financial sanctions?

Financial sanctions are designed to help achieve the UK’s foreign policy and national security objectives. They’re implemented to control the risks of terrorist financing, whilst also maintaining confidence in the integrity of the UK’s financial service sector. However, financial sanctions are only effective if they’re properly implemented by the relevant businesses. Failure to comply with financial sanctions has serious consequences, both legal and ethical.

Breaches of financial sanctions are criminal offences. OFSI has the power to impose criminal convictions (with sentences of up to 7 years) or monetary penalties.Under the Policing and Crime Act 2017 (the 2017 Act), HM Treasury has enforcement powers to impose monetary penalties for breaches of financial sanctions. Breaches of financial sanctions are criminal offences, and you could be sentenced to up to seven years in prison. The monetary penalties regime created by the 2017 Act provides an alternative to criminal prosecution for breaches of financial sanctions legislation. However, the fines are severe, with companies paying up to £1 million or 50% of the estimated value of the funds or resources.

If your business becomes associated with an irresponsible approach to financial sanctions, you’re also risking significant reputational damage. This often results in your business losing shareholder, which can lead to diminished sales. However, perhaps more importantly, failure to comply with these regulations means you’re ignoring a serious ethical responsibility. The main purpose of financial sanctions is to keep our country safe. By adhering to the obligations, firms are doing their part to protect our country from potential harm.