The FCA is now a year old and has recently published its second Business Plan, which provides an insight into the areas that the FCA will concentrate on, including by way of thematic visits.
In addition to the expected work associated with implementation of the AIFMD and preparation for MiFID II (implementation in 2016/17), the FCA promise no let-up in its work to detect and minimise market abuse (see below) and continuance of its intensive supervision of firms holding client money and custody assets.
Annex 1 provides details of current and planned thematic work through to the end of 2015. Although the regulator will continue with its Anti-Money Laundering assessments of major banks it is proposing to extend this to smaller firms – Annex 1 specifically refers to C3 and C4 firms (all firms should be aware of their ‘conduct category’; see Regulatory Roundup 44 for a brief overview on supervision under the FCA).
Elsewhere, between them asset managers and investment banks can expect thematic reviews relating to market abuse controls; controls over the flow of information; conflicts of interest; and the agency responsibility of asset managers. CFD providers may find themselves contributing to a thematic on the risks at client take-on and wealth management firms to one on the use of in-house funds.
This year we can also expect to see publication of the FCA’s findings on best execution (see Regulatory Roundup 53) and of policy proposals on the use of dealing commission (see Regulatory Roundup 52) together with a broader debate on the future of the use of dealing commission regime.
Firms may wish to examine the Business Plan in detail to determine whether their business activities fall under one of the proposed thematic reviews and, if such is the case, undertake an in-house review of those activities to ensure that systems and controls are fit for purpose and meet current regulatory requirements.
Chapter 6 concerns seven forward-looking areas of focus, including the by now infamous reference to life insurance firms and the operation legacy products – see the separate article on the FCA Risk Outlook 2014 for further details.
The FCA budget for 2014/15 (Chapter 8) informs us that the Ongoing Regulatory Activity expenditure (‘ORA’) – basically its core operating costs – will increase by £6.3m (+1.4%) to £452m. The Annual Funding Requirement (‘AFR’) – which includes the ORA and which will be met from fees payable to the FCA – increases by £14.3m (+3.3%) to £446.4m (it is lower than the ORA due to a welcome underspend of £10m against the 2013/14 budget). After the benefit of a £43.6m financial penalty rebate, we arrive at a figure for fees payable for 2014/15 of £402.8M (+ 2.2%). The rebate comes from the financial penalties imposed by the FCA.
At one time the regulator was allowed to retain all financial penalties received and to offset them against the fees that firms have to pay. However the Exchequer now receives those monies and the regulator is only permitted to retain the enforcement costs incurred in generating those penalties. Excluded from both the ORA and the AFR is an estimated £41m due to the FCA taking over consumer credit; it is planned that these costs will be recovered from authorised consumer credit firms over a number of years.
Please see the separate article on ‘FCA Regulated Fees and Levies’ for further details on the rates proposed for 2014/15.