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Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539

Rahman Ravelli's Nicola Sharp discusses traders understanding of the FCA's five conduct rules with Thomson Reuters

Author: Nicola Sharp  24 July 2019
3 min read

The Financial Conduct Authority (FCA) requires traders to have a better understanding of its five conduct rules, it said at its annual public meeting yesterday. The FCA is focused on financial crime and other failings covered by the conduct rules, particularly, consultants said, in wholesale brokers, subject of a recent 'Dear CEO' letter.

"I'd like to see a better understanding of trading staff of what five conduct rules mean in their job", said Jonathan Davidson, executive director of retail supervision and authorisations, FCA, at the annual meeting. From December this year, the FCA will extend the application of the conduct rules from banks and building societies industry wide, including to the broking sector.

"The FCA is concentrating right now on wholesale brokers and on issues raised in its dear CEO letter to the sector. This letter pulled no punches and covers the issues raised by the conduct rules, including market abuse, financial crime and due skill, care and diligence," said Lisa Scott, a consultant at Bovill in London.

"The FCA will look at breaches in these conduct rules and get these out to the public as credible deterrence and that will be industry wide ? not just about wholesale brokers. Integrity is the catch all requirement of the conduct rules, the first rule. What a lot of people don't realise is that it covers behaviour outside the work place as well as in it, and non-financial breaches such as sexual misconduct," she said.

In May this year, the FCA banned a broker, Terry Farr, after he arranged wash trades to obtain unwarranted brokerage payments for no legitimate purpose, according to its final notice. They considered him not a fit and proper person.

"My top advice to brokers, traders and others is to take a step back and think about things a bit. People who know their clients who they've dealt with for ten or 15 years and never ask questions, need to be a bit more challenging and ask questions because the rules are changing. This is about changing the mindset," Scott said.

Breaches of the conduct rules can, and often do, involve a financial crime, said Nicola Sharp, legal director at Rahman Ravelli, a law firm. Rules 1, to act with integrity, 2, to act with due skill care and diligence, or 4, to treat customers fairly can often be breached.

"If a financial institution is in itself operating lawfully, but for some of its trading staff, then the senior managers regime may well prove helpful in preventing breaches of these conduct rules as it places an enhanced duty on those with senior decision-making powers to ensure compliance," she said.

There are limitations, however, to the reach of the regime in this area, she said.

"The senior managers regime is unlikely to be of much help in preventing breaches of the conduct rules where a financial institution has been set up as a mere vehicle to facilitate a financial crime. This is because the decision-making individual in these settings are not likely to have any regard to the regime or the additional responsibilities it places upon them," Sharp said.

Financial promotions

Another area of focus for the FCA, where it is exploring the limits of its powers, is financial promotions. At the annual public meeting, Andrew Bailey, chief executive, said for some years the financial promotions regime had worked in an environment with fewer promotions.

"Most of these financial promotions take place on internet. We have to find out about them. We're not getting as much as assistance as we'd like. If this situation continues, I'd caution people not to buy high yield products on the internet without advice.

"It's very important to get to grips whether financial promotions should be a regulated activity," Bailey said.

When the Financial Services and Markets Act 2000 came into effect, deliberate attention was paid to financial promotions and they were purposely made distinct from regulated activities, said Ben Blackett-Ord, chief executive, Bovill in London.

"The financial promotions regime was specifically designed with things like the internet in mind. That's one of the driving factors why the regime is like it is. Financial promotions are treated differently under FSMA than, for example, under MiFID, and are purely a UK concept," he said.

"The FCA could ask the Treasury to reduce the exemptions available under the financial promotions regime but making the communication of financial promotions a regulated activity in itself would not change much," he said.

Such a change would, in any event, come within the remit of the Treasury and not be within the FCA's direct powers, he said.

This article was originally published on Thomson Reuters Regulatory Intelligence and can be accessed here, behind a paywall.

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Nicola Sharp


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Nicola is known for her fraud, civil recovery and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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