Compliance Updater - July 2023
A summary of key compliance stories from around the globe in July.
- FCA calls in bank chiefs over interest on savings.
- FCA confirms Odey investigation.
- Global regulators recommend exit fees for property funds.
- PRA looking at tightening requirements for foreign banks to set up as subsidiaries.
- “Little essays” action from China’s regulator.
- FCA surveys asset managers’ ability to cope with large-scale redemptions.
- New EU/US data sharing deal comes into force.
- Bank of America agrees $250m consumer settlement.
- FCA looking at social media and financial influencers.
- $388m in fines for Credit Suisse over Archegos.
- Joe Lewis facing multiple insider trading charges in US.
- PEP issues and subject access request see resignations at NatWest and its subsidiary, Coutts.
The UK’s Financial Conduct Authority (FCA) called on the big banks and building societies to explain the pace and extent of their pass-through of increasing interest rates on cash savings. The meeting was subsequently reported as “constructive”. It was aiming to clarify the need for banks and building societies to do more to ensure customers are benefitting from better value products, especially savings accounts, in the light of the imminent introduction of the Consumer Duty from 31st July. Days later two-year fixed savings rates had improved from 4.79% on average to 5.07%.
In response to a Treasury select committee request, the FCA confirmed it is investigating Odey Asset Management and its founder Crispin Odey. The investigation is focused on “allegations that (Mr Odey) dismissed OAM’s Executive Committee for an improper purpose” and whether he was a “fit and proper person”. The regulator is also looking at whether Mr Odey failed to comply with conduct rules on integrity and due skill care and diligence.
The Financial Stability Board and the International Organization of Securities Commissions published guidance for asset managers stating that investors who withdraw money from an open-ended fund should not disadvantage clients choosing to stay in the fund. The most obvious dangers exist in property funds where the time taken to sell assets creates a timing mismatch that can contribute to forced sales of illiquid assets at knockdown prices and spiral out of control. The regulators recommended charging clients for withdrawing their cash to address the issue.
After the successful handling of Silicon Valley Bank’s London subsidiary when its parent ran into difficulties, the Prudential Regulation Authority is considering reducing the threshold at which foreign banks need to set up as a subsidiary, rather than a branch. However, toughening the requirement could run counter to the UK government’s stated aim to make UK financial services more competitive.
The China Securities Regulatory Commission fined a small commodities consultancy Rmb360,000 ($49,700) for publishing a so-called “little essay” on WeChat that was not verified and false and resulted in a price rise of 7.6% in iron ore futures. “Little essays” are typically small items of unverified news, shared as images on social media apps to avoid text-based censorship checks.
The FCA surveyed the liquidity management at fourteen asset management firms and found that many used assumptions that were not appropriately conservative to test liquidity. Many also failed to consider how easy it was to sell a large slice of their portfolio to cope with large-scale redemptions.
The European Commission decided that an executive order from Joe Biden to enhance privacy was sufficient to enable data sharing across the Atlantic. The executive order included requirements to delete personal data when it was no longer needed, protect against information being shared with third parties and enabling EU citizens to seek damages for mishandled personal data.
A settlement was reached between Bank of America and US financial watchdogs (the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency) regarding credit card and banking abuses. Bank of America will pay approximately $100m to reimburse customers and a further $150m in fines. The abuses included repeatedly charging overdraft fees on the same transaction.
The FCA said its new Consumer Duty will be applied to social media posts and expressed concerns about “finfluencers” (financial influencers) who promote risky products to their followers. A consultation is proposing that firms should monitor how their affiliate links are used by influencers to ensure they are communicating responsibly with customers.
Credit Suisse was fined $388m by US and UK regulators over “significant failures in risk management and governance” related to the collapse of Archegos Capital. Credit Suisse’s activities with Archegos saw it extend half of the bank’s equity to a single counterparty with no oversight at board level and employees ignoring breaches of risk limits. The Federal Reserve fine was $269m and the UK Prudential Regulation Authority levied an £87m fine.
Joe Lewis, the property investor whose family trust owns football club Tottenham Hotspur, is facing 19 charges in New York for alleged insider trading. The charges include sharing confidential information and encouraging trades based on unpublished price-sensitive information he gained as board member. In one instance, Mr Lewis allegedly told his girlfriend about the results of a clinical trial after which she bought $700k of the relevant company’s shares. In another, he allegedly loaned $500k to two pilots to deal in shares in Mirati Therapeutics and crystallise large profits.
In late June, former UKIP and Brexit party leader, Nigel Farage revealed that his accounts at private bank Coutts (owned by NatWest) had been closed. He was told the closure was a “commercial decision” and he suspected it was linked to his politically exposed person (PEP) status. A BBC correspondent subsequently reported that a senior source at NatWest had confirmed that Mr Farage had fallen below the required threshold at Coutts and that was the reason for the closure. Mr Farage then submitted a subject access request which revealed that Coutts’ decision was significantly based on the reputational risk arising from Mr Farage’s “xenophobic, chauvinistic and racist views”. The CEO of NatWest (Dame Alison Rose) admitted to being the source for the BBC, initially apologised and then resigned from her position. Subsequently, Peter Flavel, the CEO of Coutts also resigned. Mr Flavel’s resignation statement said, “in the handling of Mr Farage’s case we have fallen below the bank’s high standards of personal service… as CEO of Coutts it is right that I bear ultimate responsibility for this”.