We wrote in our July Newsletter (“Capital, Capital”) of the likely changes to the Investment Firms Prudential Regime, which were due to take place this coming June 2021.

These would have led to changes in MiFID firms’ capital requirements and FCA reporting. We took a “Game of Thrones” perspective to this in our article “Winter is Coming” in the September issue of Compliance Monitor.

We’re happy to report that this particular dragon has not been slain, but has been deferred. FCA announced on 16 November that owing to “the greater volume of regulatory reform in 2021” that the implementation of this regime has been deferred until 1 January 2022.

In the meantime, FCA’s finalised guidance FG 20-1 “assessing adequate financial resources” remains in place. This requires firms to attribute capital to the risks they face – in particular the cost of wind-down. Firms who currently prepare an ICAAP will be used to this process. Fulcrum Compliance will be working with clients over the coming months to make sure that this is in place.

Questions, questions

It’s unlikely that you’ve escaped the plethora of surveys which have emanated from FCA on wind-down and other subjects in this last quarter.

FCA has a legitimate interest in understanding the effects of Covid-19 and Brexit on the sector, and email surveys are probably the best tool it has for finding out what’s going on in the firms with whom it doesn’t have a routine dialogue.

However there have been regular and repeated instances of surveys which look like the real thing but are in fact spoofs. Our advice is to check with the FCA Supervision Hub (Contact Centre) to make sure that any survey is genuine. Make sure you get a case reference number for your call.

Sadly, those sending out the surveys don’t always tell the Supervision Hub, so it may be a while before the information gets to them. Best to check more than once.

Come back and finish what you started

Hopefully, the recent lifting of Lockdown II in England will presage a return to the office. Our advice is that you’re probably better off – at least from an FCA perspective – in the office, rather than at home.

No matter how good your working from home facilities are, the fact remains that the quality of management oversight and the informal interactions between staff must all be impaired in some way by WFH.

FCA’s Director of Market Oversight Julia Hoggett clearly stated in a speech this October that “our expectation is that going forward, office and working from home arrangements should be equivalent.” And with all the issues surrounding home working, that equivalence is difficult to achieve.

Get back to where you once belonged

Sadly, the FCA themselves show no signs of doing this themselves.

A report in The Times on 24 November revealed that the FCA “bought ‘gaming’ computer screens and racing car-style office chairs for its staff to use at home in a £416,000 splurge during the first lockdown.”

The FCA were “among the most lavish spenders” of government departments and quangos, according to The Times. Having made this investment, it’s unlikely that they’ll be returning to Stratford soon.

Has this entirely reasonable “responsibility for [their] staff’s health in their working environment” (FCA statement reported in The Times) led to a decline in the quality of supervision? An article in the FT on 11 October pointed to a decline in the volume of enforcement cases in Lockdown I, as FCA shifted its focus from business as usual to operational continuity and financial stability. Just to give one example, The Times highlighted that cases against individuals fell to 22, down from 75 a year earlier.

Fulcrum Compliance’s own experience (albeit second hand and thankfully at a lower level) chimes with this. We’re afraid that the vastly increased number of surveys, sent from different parts of the FCA, asking similar questions with no apparent co-ordination across the FCA and often received by the same firms, are symptomatic of staff working from home and not talking to each other.

Let’s be careful out there…

So said Sgt. Phil Esterhaus, on every episode of the 80s US cop show Hill Street Blues.

And so we should be. We’ve written previously of how FCA takes into account “non-financial” misconduct when considering cases of individual enforcement, so it was no surprise to see on 5 November that FCA has banned three individuals from practicing in the industry, their having been convicted of serious non-financial crimes whilst employed in the sector.

It may be tempting to regard this as “me too” virtue signalling by FCA. After all, the crimes committed were so clear cut that FCA’s banning them in fact offers no insight for management at firms, who are trying to deal with far more nuanced cases of questionable conduct. So why bother with an enforcement action?

Mark Steward, FCA Executive Director of Enforcement said “the FCA expects high standards of character, probity and fitness and properness from those who operate in the financial services industry and will take action to ensure these standards are maintained.”

That may be all very well, but where does this stop? Will FCA seek to usurp the courts and legal processes by imposing its own moral standards? We don’t know – but in the meantime, follow Sgt. Esterhaus’s advice.

And finally

What a year. Fulcrum Compliance would like to thank all of its clients (who, we’re pleased to say, have weathered this storm well) for their ongoing custom. 2021 can only get better – roll on the vaccine. After this, Brexit will seem like a walk in the park. Right? We’ll find out soon enough.