A Good Year? 1 January 2014 4 years ago The Financial Conduct Authority (FCA) appears to have been busy since replacing the Financial Services Authority (FSA) in April 2013. But does being busy equate with success? Has it lived up to its early promises? The FCA does not like to take a back seat. This month alone, it has announced that it is examining the suspected abuse of London-based market rates and has attacked the annuity market for basically short changing millions of pensioners. Lest we forget, the FCA has already begun investigations into Libor and foreign exchange pricing and has not been slow in arresting and fining people for insider dealings, market abuse and mis-selling of financial products. It has fined banks millions for rigging Libor and its announcement that it is talking to regulators in Europe, Asia and the US to investigate claims of banks rigging foreign exchange benchmarks looks like the FCA is not backwards in coming forwards when it comes to suspicions of wrongdoing. The FCA began its formal inquiry into foreign exchange rates last October. It took action after it was suggested that bank traders had shared information with counterparts at other banks to manipulate the rate used by fund managers to buy foreign currencies. The foreign exchange market is worth five trillion US dollars a day, so any manipulation could lead to large-scale outcomes. No formal charges have been laid at anyone’s door and there haven’t yet been any solid allegations made. But it is known that Barclays, Royal Bank of Scotland and UBS have been talking to the FCA about this issue. FCA Chief Executive Martin Wheatley has said his organisation will consider tougher guidelines on financial sector pay this year but added that it is unlikely to extend the Brussels cap on bankers’ bonuses to asset managers or insurers. It is also looking into the bank’s corporate recovery units to make sure there are no repeats of the allegations surrounding RBS’ Global Restructuring Group; which has been accused of deliberately driving small firms out of business for its own gain. With banks having set aside £22 billion for payment protection insurance compensation claims, the FCA has said that it would only agree to a deadline for PPI pay-outs if it led to consumers receiving their payments quicker. All in all, it’s a busy time for the FCA. But it has still found the time to claim that the UK’s £14 billion-a-year pension annuity market is not working in the best interests of the 420,000 people who purchase annuities on reaching pension age each year. As a result, it is to spend a year studying the market to examine sales practices. At first glance, such a hectic work rate seems to fit claims made by the FCA when it came into existence. Back then, it pledged to compile intelligence quicker than the FSA and promised it would take action more swiftly when wrongdoing was suspected. FCA Head of Enforcement Tracey McDermott talked of enforcement, credible deterrence and meaningful action against anyone falling short of the FCA’s standards and outlined a determination to both protect innocent people from financial criminals and stop firms facilitating offences such as money laundering. The FCA has talked from day one about the need to be proactive. It may argue that it is doing this by reviewing the likes of foreign exchange rates and the selling of annuities. But such action is arguably only a reaction to what many people have known or suspected for many years. As if to prove the point, the FCA argues that poor practice when it comes to the selling of annuities can be seen on price comparison websites. Hardly the sort of in-depth, investigative seeking out of wrongdoing that the FCA proclaimed it would be all about a year or so ago. By their very nature, the people who are involved in and perpetrating financial crime are constantly on the look out for a new scheme; a way of making money illegally that has not been either identified or acted upon by the authorities. If the FCA fails to identify such people and their criminal practices early, all its talk of keeping pace with the nature and development of financial crime will mean nothing. Its activities will be nothing more than locking the stable door after the horse has bolted. In its defence, the FCA has honoured its promise to work with other agencies around the globe. But the second part of that promise was that this would then produce targeted, intelligence-driven attempts to disrupt those it believed to be committing the fraud. There appears little evidence of this so far. The FCA was created in response to what many saw as the shortcomings of the FSA. No details were given then of how it could have more success than its much derided predecessor. It appears we are none the wiser one year on. The early talk of building bridges rather than relying on enforcement – like the FSA – does not seem to have become a reality and while some of the reviews and investigations that the FCA has announced are laudable, there is no guarantee they will produce results. The FCA appears eager to combat fraud and has clearly sought closer engagement with other agencies here and abroad than the FSA ever achieved. But a year ago, McDermott was talking about the FCA’s need to experiment and be imaginative in its attempts to get results. At the time, we wondered where the new ideas were going to come from. So far, we have learned little more than we knew before the FCA reported for work last April. It is hard to say if the FCA will break the mould of financial crime investigating. But whether it does or not, there is still an onus on each and every company to remain legally compliant. If you do not have proper procedures in place to prevent corruption or a strong anti-fraud policy then it is time to think very quickly about putting them into practice. If nothing else, the FCA is keen to make a name for itself. And if your company provides it with a clear-cut opportunity to do just that then it will take it. As we have outlined here, the FCA has not taken a revolutionary approach to the task it faces. But it has the power to regulate conduct regarding the marketing of financial products, the ability to ban the selling of financial products and the resources to investigate organisations and individuals. Even an organisation seriously lacking in flair and imagination will manage to secure convictions with such powers – and if the FCA has obtained some of the imaginative approaches it talked of last year it is a safe bet it will outstrip its predecessor’s patchy success rate. Without wanting to sit on the fence, it is difficult to wholly disagree with those FCA supporters who heralded its arrival by claiming it would succeed because it would be more proactive than the FSA had been. It has bagged a few scalps, as its cheerleaders predicted. But its approach does not seem to be vastly different from that employed by the FSA and it has already had its critics. The FCA was attacked by the Treasury Select Committee over its supposed lack of concern over the increase in mortgage interest rates at the Bank of Ireland’s UK subsidiary. The Parliamentary Commission for Banking Standards also criticised it for being just like its predecessor in responding inadequately to the interest rate swap scandal. So whether it could be called an unqualified success so far remains doubtful. But it is obtaining results. The main issue for the following 12 months will be whether it can build on these successes to meet the expectations of those who have placed their faith in it.