Regulatory Updates November 2024

In this issue we cover:

• Barclays Penalised for Fundraising Transparency Failures
• Parliamentary Feedback on the Financial Conduct Authority’s (FCA) Performance
• FCA Fines MBL £10 Million for Serious Control Failures
• FCA Penalises Former Airline Executive for Trading Violations and Disclosure Breaches
• CP24/24: The MiFID Organisational Regulation
• FCA Statement on the Chancellor’s Mansion House Speech
• DP24/2: Improving the UK Transaction Reporting Regime
• FCA Bans Director Following Grievous Bodily Harm Conviction
• Market Bulletin 52 Stay ahead of the regulations

Barclays Penalised for Fundraising Transparency Failures

The FCA fined Barclays £40 million for its failure to disclose key information during a major fundraising operation in 2008. At the height of the financial crisis, Barclays engaged in capital-raising efforts totalling £11.8 billion, aimed at avoiding a government bailout. However, the FCA determined that payments totalling £322 million made to Qatar Holding as part of this process were not transparently disclosed to the market, constituting a breach of regulatory standards.

The FCA emphasised that maintaining clear, accurate and complete disclosures is essential for preserving investor confidence and ensuring the integrity of financial markets. The omission of such critical details misled stakeholders about the true costs of Barclays’ capital-raising efforts, undermining transparency.

While the original penalty was set at £50 million, Barclays’ efforts to improve governance and implement organisational reforms in the years following the incident resulted in a reduced fine. Despite this adjustment, the FCA’s action underscores its unwavering stance on holding firms accountable for non-compliance with disclosure rules.

Parliamentary Feedback on FCA Performance

A recent report by the All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services has highlighted shortcomings in the FCA’s approach to consumer complaints and its transparency and accountability in regulatory decision-making. The group raised concerns about the timeliness and clarity of the FCA’s actions when addressing issues affecting consumers, with a focus on the inadequate handling on whistle-blower evidence and the organisations cultural defects.

In response, the FCA has recognised these challenges and is taking steps to enhance its processes, with the first planned improvements including bolstering protections for whistleblowers within the organisation and refining strategies to better engage with consumers. These efforts reflect the FCA’s commitment to rebuilding trust and improving its effectiveness as a regulator.

FCA Fines MBL £10 Million for Serious Control Failures

The FCA has fined Monetary Brokerage Limited (MBL) £10 million for significant lapses in its internal controls, enabling a trader to conceal over 400 fictitious trades. These failings allowed a trader to misrepresent their trading book and went undetected for 20 months due to gaps in MBL’s monitoring and risk management systems, allowing this trader to bypass 3 internal controls.

MBL’s internal oversight was inadequate, with weak systems failing to detect clear signs of fraudulent activity. Additionally, the firm’s risk controls were insufficient, lacking effective processes to prevent or address misconduct.

The FCA highlighted that MBL’s control failures undermined market integrity and violated regulatory principles requiring firms to maintain robust governance and monitoring frameworks. This enforcement action reinforces the FCA’s commitment to holding firms accountable for safeguarding transparency and accountability in financial markets.

FCA Penalises Former Airline Executive for Trading Violations and Disclosure Breaches

The (FCA) has fined András Sebők, former Chief Supply Chain Officer at Wizz Air, £123,500 for unauthorised share trading and disclosure failures. Between April 2019 and November 2020, Sebők executed 115 trades in Wizz Air shares, valued at over £4 million, without notifying the company or the FCA as required. Additionally, he conducted 18 trades during closed periods (30-day spans preceding financial results announcements) violating the Market Abuse Regulation (MAR).

The FCA’s investigation revealed that Sebők failed to report these transactions within the mandated three-business-day window, undermining market transparency and integrity. This case marks the first time the FCA has fined a senior executive for trading during closed periods under MAR, highlighting the regulator’s commitment to enforcing compliance among high-ranking corporate officials.

Sebők received a 30% penalty reduction for early settlement; otherwise, the fine would have been £176,400. This enforcement action underscores the FCA’s dedication to maintaining fair and transparent markets by holding individuals accountable for regulatory breaches.

CP24/24: The MiFID Organisational Regulation

The FCA has released Consultation Paper CP24/24, (The MiFID Organisational Regulation) proposing the integration of firm-facing requirements from the MiFID Organisational Regulation (MiFID Org Reg) into the FCA Handbook. This initiative aligns with the Treasury’s plan to repeal the MiFID Org Reg, aiming to maintain regulatory continuity for firms.

The FCA intends to restate current firm-facing obligations from the MiFID Org Reg into its Handbook, preserving the substance of these requirements to ensure a seamless transition for firms. The paper also includes a discussion on potential future reforms to better tailor the rules to the diverse range of UK-authorised firms and their clients. This encompasses considerations for areas not covered by the Consumer Duty and seeks to enhance the effectiveness of conduct and organisational rules derived from MiFID II.

Stakeholders are invited to submit comments on the proposals outlined in Chapter 3 by 28 February 2025 and responses to the discussion points in Chapter 4 are requested by 28 March 2025.

The FCA encourages all interested parties, including MiFID investment firms, credit institutions and collective portfolio management investment firms, to participate in this consultation to help shape the future regulatory framework.

FCA Statement on the Chancellor’s Mansion House Speech

The FCA has responded to the Chancellor’s Mansion House Speech, which outlined key initiatives to bolster the UK’s financial services sector and ensure its global competitiveness. The speech emphasised the importance of innovation, regulatory reform, and sustainable growth in shaping the future of the UK’s financial system.

The FCA echoed its commitment to supporting these priorities, highlighting its work on regulatory modernisation and collaboration with industry stakeholders to deliver sustainable and innovative financial solutions. The regulator also stressed its ongoing focus on balancing market dynamism with robust consumer protections and market stability.

The FCA’s statement also includes published updates on advice guidance boundary reviews, environmental social and governance (ESG) ratings. Modernising the redress system and the national payment strategy.

DP24/2: Improving the UK Transaction Reporting Regime

The FCA has published Discussion Paper DP24/2, inviting feedback on potential improvements to the UK’s transaction reporting framework. The paper aims to address issues in data quality while reducing compliance burdens for firms operating within financial markets.

The FCA emphasises the importance of accurate and complete transaction reporting to enhance market abuse detection and prevention. At the same time, it seeks to streamline reporting processes, making compliance more efficient without compromising the integrity of regulatory standards. The discussion also considers aligning the UK’s reporting framework with international standards to support cross-border financial operations and maintain global competitiveness.

The FCA is calling on MiFID investment firms, credit institutions, trading venues and other stakeholders to share their views on how the reporting regime can be enhanced. Responses are requested by 14 February 2025.

FCA Bans Director Following Grievous Bodily Harm Conviction

The FCA has banned Ari Harris, former director of Reeds Motors Ltd, from working in financial services following his conviction for grievous bodily harm. In July 2020, Mr. Harris pleaded guilty to wounding/inflicting grievous bodily harm without intent and was sentenced to three years’ imprisonment in July 2022.

Mr. Harris failed to inform the FCA of his conviction and imprisonment, as required of approved persons. Additionally, he, along with another director, provided false and misleading information to the FCA regarding the appointment of a new senior manager at the firm.

The FCA determined that Mr. Harris’s actions demonstrated a severe lack of honesty and integrity, rendering him unfit to perform any function related to regulated activities. Consequently, his approval to perform the SMF29 (Limited Scope) senior management function at Reeds Motors Ltd was withdrawn and a prohibition order was issued against him.

This decision underscores the FCA’s commitment to upholding integrity within the financial services industry and its zero-tolerance approach toward individuals who engage in criminal conduct and fail to meet regulatory obligations.

Market Bulletin 52 Stay ahead of the regulations

This edition of the bulletin addresses the critical importance of accurately identifying and managing inside information under the UK’s Market Abuse Regulation (MAR). It outlines best practices for issuers in handling communications with shareholders, especially using digital platforms, and emphasises the need for robust contingency plans during service interruptions like the recent Crowdstrike IT outage. The bulletin also delves into specific cases like offer processes and CEO transitions, underscoring the necessity of timely and compliant disclosures to maintain market integrity and prevent abuse.

• Identification and Disclosure of Inside Information:

Issuer Challenges: Issuers often struggle with identifying and disclosing such information under UK’s Market Abuse Regulation (MAR). Specific scenarios discussed include:

• Situations requiring issuers to identify potential inside information.
• Advice on preparation for the swift identification of such data.
• Communications During Shareholder Interactions:
  • Communication Risks: Using apps like WhatsApp or Telegram for shareholder communications can risk unlawful disclosure of inside information.
  • Issuers are advised on managing the risks of disclosure during informal communications and ensuring all statements are clear and consistent with published information.
• Handling Regulatory Information During Service Interruptions:
  • Recent Outage Impact: An IT outage at Crowdstrike highlighted the disruption potential on Primary Information Provider (PIP) services.
  • Precautions and Recommendations: Issuers should ensure continuity by having backup dissemination plans and verifying that information has been publicly released through proper channels before taking further steps.
• Specific Cases of Inside Information:
  • Offer Processes and CEO Changes: Events like company offers and CEO transitions can constitute inside information depending on various factors, such as the timing of board decisions and public expectations.
  • Financial Information Preparation: Financial results that diverge significantly from forecasts must be disclosed promptly unless justified delays are clear and not misleading.
• Compliance and Enforcement:
  • Training and Controls: Issuers should train relevant personnel and establish committees to manage inside information effectively.
  • FCA Interventions: Real-time monitoring may lead to discussions with issuers about the appropriateness of their information disclosures and could trigger enforcement actions if discrepancies are found.

These guidelines and observations are designed to maintain market integrity and prevent abuse, ensuring all market participants have equal access to important financial information.