Ever close & present sector attention
The UK conduct regulator (Financial Conduct Authority – FCA) has taken various steps and product intervention measures concerning the Forex (FX) and Contract for Difference/ (CFD) sector during recent years in respect to protecting consumer interests, appropriate client classification(s) and disclosures, and sound prudential risk management Alongside this background of specific concern and attention, there are now numerous sector specific and other broader regime developments that FX and CFD firms should be monitoring in the months ahead and on into 2020.
The ramifications of EU-exit outcomes
As the work to effect and establish a new framework of co-operation and provision of goods and services between the UK and Europe continues to unfold, the debate on the specific impacts for services provision, including financial-services, is yet to actually be progressed and resolved. For all UK firms who are engaged in operations or business strategy involving cross-border activity or client relationships, the resultant outcomes concerning the UK’s future relationship with the EU will require all those firms affected to carefully keep under review and possibly modify their ongoing operational business structures and their future corporate and strategic ambitions. The need to amend or alter their corporate structures e.g. creation of branch entities (to continue to access or enter EU markets and jurisdictions) cannot yet be ruled-out.
Conduct expectations for marketing & sales
Over the past few years the FCA has developed and cascaded material where it has set-out to clarify and explain its evolving expectations of providers and brokers who offer or deal with retail CFD products including spread-betting and FX (rolling spot). It has also undertaken related project and analytical review work to flag and address various conduct concerns in respect to the quality of the FX and CFD business and organisations in mitigating properly consumer harm(s).
These developments have incorporated decisions applied in 2018 and beyond to give effect to the underlying decisions of wider European regulators (ESMA) placing restrictions e.g. on leverage and margin limits etc. in respect to CFD activity involving retail clients, as well as a targeted ‘Dear CEO’ letter issued to providers and distributors of CFD-related products. Looking forward, the FCA has indicated its continued supervisory and enforcement attention around ways in which firms might be circumventing its specific product intervention measures e.g. in regard to the necessary quality of financial promotions, in addition to matters impacting prudential soundness and the overall fair treatment of customer need, interest and experience.
A new industry-wide regime for individual accountability
Perhaps one of the most industry-wide significant regime events in 2019 will be the extended introduction of the new Senior Managers & Certification Regime (SM&CR) to almost all firms regulated in the UK under financial services & markets legislation (FSMA) from early December. This will bring new conduct-rules and legal responsibilities on those individuals holding roles/positions of seniority and influence, effectively replacing the former ‘Approved Persons’ regime. Firms will need to strengthen systems and controls which demonstrate a greater visible and agreed level of understanding on the respective duties and accountabilities within firms and their key management and employees.
Managing the exposures and harms of financial-crime
January 2020 is expected see the UK implementing the provisions of the latest European 5th Money Laundering Directive (5MLD) into its national framework. This will bring changes in regard to customer due-diligence standards as well as specific measures concerning beneficial-ownership connected with client relationships. At the same time, it is expected that the UK FCA will assume a working supervisory role in regard to future money-laundering/terrorist-financing standards and concerns covering the emerging payment products and service risks associated with newly merging crypto-currency payment and funding solutions. Firms will need to plan to reflect UK money laundering laws and regulations being updated, alongside the more tailored industry guidance issued by the Joint Money Laundering Steering Group (JMLSG).
The enveloping regulatory radar around crypto-currencies
With global and domestic regulators sharing common concerns over the potential risks (e.g. financial crime) associated with the processes and practices involving crypto-currencies, there has been a concerted effort to develop and introduce and extend regulators interests and obligations to these products and associated services and especially in respect to anti-money laundering and counter terrorist financing (AML/CTF) standards. This remains a fast and developing market in terms of its product and service-delivery technologies and innovations, with crypto-assets and the use of ‘block-chain’ technology being used to engage and facilitate clients in the provision of related account data and underlying fund and transaction records. This is an area of significant and important market investment, but also necessary confidence and trust in relation to its future success and the quality of inherent systems and controls, so expect these to become areas of interest and priority to UK regulators as they continue to consult and develop perimeter-guidance on this subject.
2019/20 and beyond will continue to be a busy time for the FX and CFD firms in regard to likely regulatory changes and developments which they will need to be sufficiently aware and prepared for. Accordingly, the FX and CFD firms should be ensuring their internal management and compliance remain closely alert, aware of and responsive to developments and events that will come to have some impact on their continued business success and operations.
We invite you to CONTACT US to find out how we can help your organisation on this important and topical subject.