Compliance Updater - April 2023
A summary of key compliance stories from around the globe in April.
- UK FCA publishes its Business Plan for the coming year.
- UK Treasury planning for lots of financial services staff to escape personal accountability.
- Swiss prosecutor looking at UBS takeover of Credit Suisse.
- Start-up founder facing criminal charges over $175m sale to JPMorgan.
- US and UK widen sanctions to cover Russian oligarch “fixers”.
- BoE looking to urgently review deposit guarantee scheme.
- Dubai court orders KPMG to pay $231m over Abraaj audit failings.
- Panama expecting removal from FATF’s “grey list”.
- Credit Suisse sues Softbank over Greensill losses.
- FCA to better protect leaseholders over insurance.
- Customer sues Credit Suisse for “dishonest conduct”.
- Link agrees conditional settlement to compensate Woodford investors.
The UK’s Financial Conduct Authority (FCA) published its Business Plan for 2023/24, which sets out its priorities for the second year of the current strategy. The strategy was designed to be flexible and given changes to the external environment, including the soaring cost of living and increased volatility in markets, the FCA is accelerating its work in four areas over the next year through further investment and increased resources:
- Putting consumers’ needs first including embedding the Consumer Duty and continuing to support consumers with the rising cost of living.
- Strengthening the UK’s position in global financial markets to support growth and innovation in the UK, while maintaining high standards, including continuing to reform the listing rules, implementing the wholesale market review and bringing forward proposals on asset management regulation. The FCA is also investing in its data capabilities to ensure effective market oversight.
- Preparing financial services for the future, including embedding its new secondary objective on international competitiveness and growth, and implementing the outcomes of the Future Regulatory Framework review and Edinburgh Reforms.
- Reducing and preventing financial crime and fraud, including increasing the use of data and proactive supervisory work to crack down on financial crime and continuing to help consumers spot the signs of scams through the ScamSmart campaign.
The so-called Edinburgh Reforms that outlined the overhaul to increase the competitiveness of the City of London is likely to see tens of thousands of people excluded from personal accountability introduced under the Senior Managers and Certification Regime (SM&CR). The UK Treasury appears to be anticipating a substantial reduction in the one hundred and ninety thousand individuals currently covered under the SM&CR. The planned changes will also give more credit to individuals with experience internationally to facilitate recruitment of the best global talent.
The Swiss federal prosecutor is investigating the state-backed takeover of Credit Suisse by rival UBS. The investigation will look into possible breaches of Swiss criminal law by government officials, regulators and executives at the two banks.
The founder of Frank, a firm that helps students apply for financial aid, is facing criminal charges for fraud after selling the business to JPMorgan for $175m. Charlie Javice, the founder, sold Frank to JPMorgan after hiring boutique Liontree to run the sales process. JPMorgan has since alleged Javice misrepresented the firm to have 4.25m customers when it only had 300k.
Several so-called “financial fixers” were added to US and UK sanctions lists to broaden coverage to those who are helping Russia evade sanctions. The named individuals included Cypriot, Uzbek and Russian nationals connected to entities in a variety of jurisdictions including Liechtenstein and Switzerland.
The Bank of England (BoE) is considering boosting the Financial Services Compensation Scheme to increase protection above the current £85,000. The urgent review is in response to the troubles in the US with Silicon Valley Bank, and the fact that the US has a much higher guarantee at $250,000. Any uplift is likely to increase costs to the banks that currently collectively fund the scheme.
A Dubai court ordered KPMG Lower Gulf to pay $231m to investors in collapsed private equity firm Abraaj. The judgement said KPMG breached international auditing standards when it approved the financial statements of the Abraaj group before it collapsed. KPMG is expected to appeal against the ruling.
The president of Panama said his country was completing work on a register of beneficial company ownership, one of the last tasks assigned by the Financial Action Task Force. Panama is expecting to be removed from FATF’s grey list in 2023.
Credit Suisse is suing Softbank in London’s High Court based on $440m owed to its customers by a Californian construction company called Katerra. Katerra is funded by Softbank’s Vision Fund and received the $440m from collapsed supply chain finance firm Greensill. It is claimed that Softbank injected money into Greensill to cover the Katerra debts and the money never reached Credit Suisse’s funds.
The UK’s FCA is planning to better protect leaseholders from excessive insurance charges. An investigation into brokers found insufficient evidence for a near 40% rise between 2019 and 2022 in fees, passing on almost £87m in commissions. The brokers had shown “significant shortcomings” in applying fair value rules to their charges according to the regulator.
A Jersey-based investor, Loreley Financing, is suing Credit Suisse in London claiming that it was mis-sold a complex product linked to residential mortgage-backed securities. The product left Loreley with £100m of losses and it claims Credit Suisse made false and dishonest representations to induce it to buy the product.
Link Group, the parent of Link Fund Solutions, has reached a conditional arrangement with the UK’s FCA to compensate the investors in the failed Woodford Equity Income Fund. Link Fund Solutions made “critical errors” as administrator, failing to maintain sufficient liquidity. The agreement will see £235m in compensation paid to investors who lost money and mean that they will recover around 77p in the pound.