Conduct of Business

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As COVID-19 sharpens the focus on corporate culture and ESG, organisations should be aware of heightened regulatory scrutiny.

Corporate culture remains high on the financial regulatory agenda, and it’s likely to attract even more attention in the future. The impact of the COVID-19 pandemic has sharpened the focus on organizational culture and the social and governance aspects of ESG, making it more crucial than ever for organisations to be aware of heightened regulatory scrutiny across regions and industries.

In light of the increased focus on corporate culture, Latham & Watkins has published the second edition of Culture — A Practical Framework for Sustainable Change, an easy to use toolkit and self-assessment guide that enables organisations to monitor, evaluate, and shape their workplace culture.

HM Treasury is planning significant changes to the financial promotion regime, including expanding its scope to certain cryptoassets, and amending the approval process for promotions of unauthorised firms.

By Stuart Davis, Sam Maxson, and Anna Lewis-Martinez

On 20 July 2020, HM Treasury published two consultation papers on a regulatory framework for approval of financial promotions and cryptoasset promotions. The consultations propose to establish a regulatory “gateway” that a firm must pass through before it is able to approve the financial promotions of unauthorised firms, and to bring certain types of cryptoassets into the scope of financial promotions regulations.

The CMA recognises that businesses may need to cooperate to ensure supply of essential products and services during the COVID-19 outbreak.

By Rob Moulton, David Little, Gregory Bonné, and Anna Lewis-Martinez

On 27 March 2020, the FCA and Payment Systems Regulator (PSR) announced their support for the Competition and Markets Authority’s (CMA’s) guidance on its approach to business cooperation under competition law in response to COVID-19, published by the CMA on 25 March 2020.

Both the FCA and the PSR have said that they will take an approach consistent with that of the CMA in relation to their competition law enforcement activity in the financial services sector during the pandemic. That is, the agencies will not seek to take enforcement action against business-critical cooperation between financial services providers, which is required to ensure the supply and distribution of scarce products and/or services affected by the crisis. The agencies noted that “it is important that competition law does not impede firms from working together to provide essential services to consumers in the current coronavirus situation”. However, neither the FCA nor the PSR will tolerate conduct that seeks to exploit the situation and that harms consumers.

FCA Chair hints that new regulation addressing data ethics in the FinTech space may be on the horizon.

By Nicola Higgs, Fiona Maclean and Terese Saplys

Will societies of the future be ruled by algocracy, in which algorithms decide how humans are governed? Charles Randell, Chair of the Financial Conduct Authority (FCA) and Payment Systems Regulator, addressed how to avoid this hypothetical scenario in a broad-ranging speech on that he delivered on 11 July 2018 in London.

Randell’s Remarks

Contributing Factors to an Algocracy

According to Randell, the following three conditions could collectively give rise to a future algocracy:

  • If a small number of major corporations were to hold the largest datasets for a significant number of individuals (as is currently the case)
  • Continuing vast and rapid improvements in artificial intelligence and machine learning that allows firms to mine Big Data sets with greater ease and speed
  • Further developments in behavioural science allowing firms to target their sales efforts by exploiting consumers’ decision-making biases

The FCA has recently announced that it will begin a review of how firms have implemented the unbundling rules “within weeks”.

By Beatrice Lo and Jonathan Ritson-Candler

At its recent asset management conference, the FCA announced that it will imminently launch a review of how asset managers have implemented the new MiFID II obligation to pay for the research they receive from sell-side firms separately from execution costs (the so-called “unbundling rules”). This is the first FCA-initiated MiFID II review, and comes only six months after the implementation of MiFID II. This is indicative of the regulator’s focus in this area.

Many auto advisers and automated discretionary investment managers risk poor outcomes for customers by falling short of FCA expectations.

By Nicola Higgs and Brett Carr

The Financial Conduct Authority (FCA) has issued a statement outlining its expectations of firms providing automated online discretionary investment management (ODIM) services and retail investment auto advisers (auto advisors). The FCA uses its statement to remind firms that the regulator’s rules, including those in relation to suitability and advice, apply equally to services regardless of the medium through which they are offered. Current providers and planned new market entrants should heed the warnings and the learnings of this statement.

What was the FCA analysing?

The FCA conducted two reviews:

  • The first review looked at seven ODIM providers (at the time these firms represented more than half of the firms in this particular market).
  • The second review looked at three auto advisers (being three of the early entrants to this nascent market).