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By Cheryl Jones
The FCA’s Annual Public Meeting 2015, The QEII Conference Centre, London 22nd July 2015
What were the key points to take away from the Financial Conduct Authority’s (FCA’s) annual public meeting?
‘Another year of solid progress’ said FCA Chairman John Griffith-Jones, but there remained ‘a continuous quest for further improvement’. The words were almost identical to those of last year’s maiden public meeting but the inaugural tones of that meeting were noticeably absent, for, after just 24 months in its current form, the honeymoon period, it seems, is over as the Davis Inquiry Report cast its long shadow over proceedings. Mr Griffith-Jones conceded the FCA had fallen short on delivering its 2014/15 business plan but remained pragmatic, saying ‘the direction of travel is positive but we still look to improve and learn from mistakes’.
The Davis Inquiry Report, conducted by Clifford Chance LLP Partner, Simon Davis, makes uncomfortable reading. Neither Martin Wheatley nor the FCA came out of it at all well. The FCA was deemed ‘seriously inadequate’ by the report—a damning indictment for the regulator and embarrassment for the government. The Chancellor of the Exchequer, George Osborne, was quick to deliver the coup de grace. FCA Chief Executive Officer, Martin Wheatley it to step down on 12 September 2015.The message from the Treasury was clear—‘a different leadership is required’.
‘I feel a sense of disappointment in stepping down’ said Martin Wheatley, addressing the meeting ‘and have unfinished business.’ What that unfinished business is remains to be seen, but he will continue to act as an adviser to the FCA board until 31 January 2016 with a particular emphasis on the implementation of the Fair and Effective Markets Review, which he co-chaired.
Despite the obvious internal miasma left by the report, Mr Griffith-Jones confirmed that all seven areas of recommendation contained in it had been fully implemented by the FCA. Furthermore, in December 2014 the regulator had undergone an internal restructure—adopting a markets-based approach underpinned by ‘effective deterrents’ demonstrated in its levying of £1.5bn in fines against five separate banks for breaches in their spot FX-trading divisions. The FCA had built on its first twelve months and ‘those foundations remain undiminished’. It had been another year of solid progress, but this time Mr Griffith-Jones was emphatic that ‘the success lies with the firms’.
The FCA has been under internal pressure in the past twelve months. Its supervisory responsibilities have grown significantly with an additional 50,000 firms coming under the authority of the regulator, the majority of which are consumer credit firms‘new to the rules and expectations’ of the FCA said Mr Griffith-Jones. The challenge of bringing them on-board presented the FCA with increased operational risks and ‘it has been a full time occupation to communicate as clearly as we can’.
Despite his imminent departure Martin Wheatley was keen to emphasise the FCA had made significant ground in enhancing accountability within firms and said ‘conduct was now top of the agenda for CEOs’ with the introduction of the new senior manager’s regime due to come in March 2016. In the mortgage market and consumer credit spheres the final rules on the Mortgage Credit Directive 2014/17/EU had been implemented in such a way as to minimise disruption to the market and the FCA was committed to working with lenders to monitor the interest-only market to ensure borrowers can repay their mortgages on maturity. Similarly, the add-on insurance sector had come under scrutiny with an estimated £200m per annum being paid out by consumers for unnecessary add-on products. The FCA had introduced key measures to ensure lenders provide key information on such products. The FCA is currently considering proposals to place an outright ban on opt-out selling methods for add-on products. In the pensions sector, projections indicate £1bn has already been withdrawn from personal pension pots following the relaxation of rules on annuities. The FCA will work with the Treasury and Pension Regulator to ensure consumers have all the information and protection they need when seeking to make re-investment decisions.
Questions from the floor raised concerns over hedging products and the growth of the crowdfunding industry. Representatives from the liquidation committee of the collapsed £118m Connaught Income Fund were keen to understand if they would ever get their money back three years after it had failed. Georgina Philippou (acting Executive Director of enforcement and market oversight at the FCA) could offer little comfort conceding ‘the options were limited……….but an investigation was underway into two operators—Capita PLC and Blue Gate Capital’. There were also calls for further regulation in the crowdfunding sphere as institutional investors started to infiltrate the market. Christopher Woolard (Director of strategy and competition at the FCA) acknowledged the market was still maturing with growth in the sector due to the greater choice of credit facilities available. There were only a small number of firms operating within the crowdfunding space and the FCA continued to monitor how those firms operate every six months. Likewise, there was no market to regulate virtual currencies as yet but the FCA continued to monitor the market.
Cheryl Jones, Barrister and Head of the Lexis®PSL Financial Services team.
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