Compliance Updater - September 2024

A summary of key compliance stories from around the globe in September.

1. FCA annual report for year ended 31 March 2024.
2. FCA prescribed person report for year ended 31 March 2024.
3. UK HMRC lifts fractional shares ban for ISAs.
4. Wirecard execs ordered to pay €140m.
5. Atlanta Fed president broke the central bank’s trading rules.
6. Citigroup shifts responsibility for its data compliance overhaul.
7. FCA pressures banks over deposit rates.
8. FCA chief executive discusses artificial intelligence (AI).
9. Two-year jail sentence for former boss of Alameda Research.

FCA annual report for year ended 31 March 2024.

The UK’s Financial Conduct Authority (FCA) published its annual report for the 2023/24 year, highlighting the following:

• Consumer protection – the regulator withdrew or amended over 10,000 potentially misleading advertisements and issued 2,285 warnings against unauthorised firms and individuals.
• Enhancing market integrity – 1,261 firms’ authorisations were cancelled, twice as many as were cancelled a year earlier.
• Promoting effective competition – improving the cash savings market and taking steps to strengthen credit information.
• International competitiveness and growth – improving efficiency on assessing authorisations and championing innovation through the regulatory sandbox.

The chair’s foreword also mentioned how the Consumer Duty is considered a landmark reform towards a regulatory framework that emphasises better outcomes for millions of people - an initiative that is likely to be adopted by overseas regulators.

FCA prescribed person report for year ended 31 March 2024.

Alongside its annual report, the FCA also published its prescribed person report on its activities in relation to whistleblowing reports received. In the year to 31 March 2024, the FCA:

• Received and assessed 1,124 new whistleblower reports, 30% of which were submitted anonymously. The allegations raised in the reports included the following top five: Compliance (592 allegations), fitness and propriety (425 allegations), culture of the organisation (377 allegations), consumer detriment (220 allegations) and systems and controls (198 allegations)
• Concluded 1,043 reviews of whistleblowing reports, taking action to manage or reduce harm on 52% of these.

UK HMRC lifts fractional shares ban for ISAs.

The UK tax authority (HMRC) reversed its previous position and will allow fractional shares to qualify for Individual Savings Accounts (ISAs). The move will enable investors to get involved in expensive stocks, such as Apple and Nvidia, from just £1, rather than the hundreds of pounds needed to buy a single share.

Wirecard execs ordered to pay €140m.

Three former Wirecard executives, including ex-CEO Marcus Braun, were ordered to pay €140m plus interest to the administrator of the collapsed firm. The court found that the executives violated their professional duties when they approved a €100m loan to a purported outsource partner in Singapore.

Atlanta Fed president broke the central bank’s trading rules.

The president of the Atlanta Federal Reserve bank, Raphael Bostic, violated the central bank’s trading rules by executing trades during “blackout” periods ahead of the Fed’s interest rate setting meetings. 154 trades were executed by a money manager acting under discretion without being directed by Mr Bostic. He did not realise the trades needed to be reported as he had no knowledge of them until after the event.

Citigroup shifts responsibility for its data compliance overhaul.

Citigroup has decided to shift responsibility for its ongoing project to improve data compliance. The project is in response to the joint enforcement action from the Federal Reserve and Office of the Comptroller of the Currency that imposed a $136m fine on the firm for inaccurate reporting of details around loans. The responsibility for the project will move from Citigroup’s chief operating officer to its chief technology officer, in what appears to be recognition that the COO was overstretched.

FCA pressures banks over deposit rates.

The UK’s FCA warned banks that it would take “appropriate action” if they continued to flout its requirement that consumers receive “fair value” on savings products. The regulator will expect a clear explanation if banks change their rates more quickly in response to interest rate reductions compared to previous increases.

FCA chief executive discusses artificial intelligence (AI).

Nikhil Rathi, the chief executive of the UK’s FCA, encouraged the financial services sector to be “willing to experiment” and articulated his wish for “safe and responsible use of AI to drive beneficial innovation”. He also highlighted the potential dangers using the example of insurance. He pointed out that “AI-enabled hyper-personalisation of insurance” could benefit many, but risks rendering some customers “uninsurable”.

Two-year jail sentence for former boss of Alameda Research.

Caroline Ellison, who ran the trading firm Alameda Research that was at the centre of the collapse of crypto exchange group FTX, was sentenced to a two-year prison term. Alameda Research fraudulently gambled billions of dollars of FTX customers’ funds. The sentence handed to Ms Ellison, who co-operated with the prosecuting authorities, contrast sharply with the 25-year prison term handed to the exchange firm’s CEO, Sam Bankman-Fried.