Top 10 FCA Compliance Priorities in 2022

Posted by

Katharine Leaman

on 17 Jan 2022

We discuss the major compliance issues facing the financial services industry in 2022 from data, due diligence, IFPR, mitigations and systems to the SMCR.

Top 10 Financial Services Compliance Issues in 2022

FCA Compliance Focus in 2022

Priority 1. High-quality data

The Financial Conduct Authority in the UK (FCA) receives huge volumes of data from the firms it regulates and other sources such as regulators around the world, individual investors, employees, and whistleblowers.

They expect data sent to them to be accurate, timely and reliable. You need to ensure you have strong controls around the data that you submit, how it is checked and that you have a committee overseeing what is being submitted.

You must pick up themes and trends from the data you are reporting because that is exactly what FCA is doing, and they expect you to be doing the same.

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Priority 2. SMCR

You will have spent much of 2021 embedding SMCR in your business. In 2022 you can expect the FCA to use what you have told them about how you have implemented SMCR in how they supervise your firm.

That means the FCA makes direct contact with those holding Senior Manager Functions (SMFs) at your firm to discuss areas within their responsibilities. FCA will expect your SMFs to be able to discuss what is in their area of responsibility with them and to do so in an honest, candid, and responsive way. This is one-way FCA will judge the culture in your firm.

SMCR Compliance Roadmap

Priority 3. High-risk investments

FCA has made it quite clear that there are certain investments they consider as high risk, including Cryptocurrencies and Contracts for Differences (CFDs).

The FCA's primary concern with investments like this is the speed with which those markets can move. Investors who are not actively involved in markets day-to-day will not spot and be able to act on that rapid movement until it is too late.

If you are active in any of these markets, then you need to be able to prove to FCA that those investments are suitable and remain in line with your client's attitude to risk and capacity for loss.

Cryptocurrency AML Risks

Priority 4. Suitability

During the lockdown, many individuals started engaging with the financial services sector for the first time. At the same time, markets became more volatile.

With this backdrop plus the FCA's focus on high-risk investments, you must ensure that the portfolios and individual investment recommendations you make to clients are suitable and fully reflect your client's attitude to risk, capacity for loss, and investment experience.

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Priority 5. Due diligence on investments

Current market volatility affects the performance of investments that you offer. Conducting regular due diligence on the investments that you offer enables you to understand how those investments are performing.

You should also ensure that what you see in how those investments are performing aligns with your client's individual attitude to risk and capacity for loss.

Priority 6. Costs & charges disclosures

MiFID II introduced new requirements for the disclosure of costs and charges. As a result, you should have reviewed how you collect and aggregate all the data that relates to costs and charges on the products and services you offer.

This has to include both upfront, ongoing and post-sale costs and charges. You should be monitoring those costs and charges and feeding them up through your product governance and TCF committee structures.

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Priority 7. Systems & controls to mitigate financial crime

Scams and frauds have risen exponentially during lockdowns. The risk of your business being used to facilitate fraud or other criminal activity such as market abuse or financial crime has never been higher.

You should revisit your internal arrangements to ensure they still are sufficiently robust and that your people remain on high alert to report anything suspicious.

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Priority 8. IFPR

The Investment Firms Prudential Regime (IFPR) is the new prudential regime for firms authorised in the UK under the Markets in Financial Instruments Directive (MiFID). It brings requirements for you to have an Internal Capital and Risk Assessment (ICARA).

You should ensure that you are familiar with the new requirements and how much more capital and liquidity you need to hold so that your regulatory reporting in 2022 continues to be accurate.

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Priority 9. Financial resilience

The pandemic has caused many firms to experience revenue fluctuations, and some are making a loss. This is being experienced amongst firms across all sectors.

You should regularly review your liquidity or capital risks, as well as those of your suppliers. Remember, the regulators expect you to be telling them about any emerging risks or issues, especially if it relates to your financial position.

Priority 10. Operational resilience

The FCA expects you to have in place a wind-down plan. It must be credible, which means having triggers for implementation. It should also include timeframes and cost estimates for achieving the wind-down. If you hold client money or assets, you should ensure that you regularly test your Resolution Pack.

The first deadline was the 31st of March 2022, by when firms had to identify their important business services and mapped out the processes that enable those services to function. Firms then need to determine how much disruption those important business services could tolerate and test their ability to endure that disruption to set their impact tolerances.

The FCA also wants a 'lessons learned' exercise completed and a communications plan. Finally, the regulator wants the self-assessment document finalised and approved by the board.

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Want to learn more about FCA Compliance?

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