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Financial Conduct Authority’s Annual Report 2021-2022: Enforcement Trends – Financial Services

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The UK’s FCA recently published its annual report for the 2021-2022 year. Within
the report, there are potential clues as to where the FCA’s
enforcement division might be focussing this year.

1. Money Laundering Regulations

The £264 million fine imposed on Natwest for breach of the
Money Laundering Regulations (“MLRs”) unsurprisingly
appears multiple times. The first, and to date only prosecution for
breach of the regulations by the FCA features as the most
significant enforcement outcome of the period.

It was not a legal requirement, but the fact that the control
failures may have contributed to hundreds of millions of pounds
being laundered through its accounts must have been a factor that
shifted this into the criminal space. The FCA report references the
related case where 11 people have been convicted and a further 13
await trial in connection with the cash deposits.

The FCA has a number of ongoing dual track and
criminal investigations into potential breaches of the MLRs. The FCA’s head of enforcement Mark Steward has
made it clear that serious controls failures may result in more

2. Cryptocurrencies – increased scrutiny of Financial
Crime Controls

80% of Crypto Asset firms were denied FCA authorisation in 2022
as they failed to satisfy the regulator that they could comply with
MLR requirements. A point of emphasis for the FCA is that they are
aware of the potential use of crypto exchanges to funnel money to
fuel crime, terrorism, or war.

The war in Ukraine led to the FCA focussing on the Crypto Asset
sector and it emphasised it would be assessing firms’
implementation of the multiple sanctions issued by governmental
bodies globally. The FCA report also refers to the number of
misleading crypto advertisements it has helped ban and the number
of scams involving crypto it has disrupted.

In summary, the FCA’s focus on crypto and firms, both
legitimate and illegitimate, that make offerings to consumers is
growing and its response is becoming more robust.

3. Market Abuse/Insider dealing

Redcentric PLC, an AIM listed IT service provider
was censured by the FCA in 2020 because its 2016 full year results
were issued in circumstances where it knew, or ought to have known
that the information was false and misleading – materially
misstating its cash position.

The subsequent successful prosecution of Redcentric PLC’s
CFO and Finance Director for market abuse was featured in the FCA
report. This was a rare prosecution of individuals for making false
and misleading statements to the market. To facilitate the
offending, first incorrect data was provided to the company’s
accountants, which led to false accounts being filed. The false
financial information was then repeated in the RNS announcements to
the market.

The censure of Redcentric illustrates that corporate liability
cannot necessarily be avoided by blaming individual employees or
management if the company’s internal controls are deemed to
have been inadequate. It seems that attributing blame to the
auditors for not picking up on financial misstatements is also not
a sufficient defence as the audit partner who signed off on the
accounts was sanctioned by the FRC and received a substantial fine,
but this did not excuse the company from liability.

It is clear that there are more prosecutions for insider dealing
and market abuse in the pipeline and companies should ensure that
they have the right policies and procedures in place to avoid

4. Environmental Social and Governance reporting

Another area of increased FCA focus is on Environmental, Social
& Governance (“ESG”) reporting, and enabling
consumers to have trust in ESG branded products is a clear
priority. The FCA has brought in new rules on climate related
disclosures for listed companies, asset managers, and FCA-regulated
asset owners and has published its inaugural annual Task Force on Climate-related Financial
Disclosures Report.

The FCA will, in the future, be scrutinising whether corporate
representations made about ESG are fair, clear, and not misleading.
Inevitably to demonstrate that the FCA is living up to its own
promises it will take public action against
“greenwashing” (making false or misleading claims about
an entity’s sustainability practices) in a similar vein to
other regulators globally.

It follows that firms should have their governance arrangements
in place around ESG issues so that they are not the ones targeted
by the regulator. The FCA report makes it clear that
“greenwashing” is a form of market abuse.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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