On 23 June 2016 Britain voted to leave the European Union (“EU”).Commonly referred to as Brexit, the vote will have significant implications for Britain’s financial sector.On the morning of the referendum result the Financial Conduct Authority (“FCA“) issued a statement confirming that “[EU] regulation will remain applicable until any changes are made, which will be a matter for Government and Parliament” and “Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect”. How the markets, and regulators alongside them, adapt to increasing volatility is of key importance but, for now at least, the FCA is keen to ensure that it is business as usual. In order to determine what ‘business as usual’ means for the FCA it is necessary to look back at the FCA’s annual Business Plan and Risk Outlook which was published in April of this year.

Individual accountability and changing the culture of regulated firms remain high on the list of priorities. In line with comments made by Tracey McDermott, former CEO of the FCA, that the level of enforcement action was “not sustainable – for regulators or for the industry”, there is less emphasis on enforcement action.

The FCA has reiterated that the culture of regulated firms “has been, and remains, a priority” following criticism directed at the agency resulting from the scrapping of the thematic review of banking culture.  The FCA seems to suggest that, rather than broad, industry-wide reviews,it will concentrate on working with firms on an individual basis.  However, the exact method as to how this will be achieved remains uncertain. The Authority seeks to establish “a culture of accountability at all levels”, but how the success of progress towards this will be judged is also unclear.

There remains a focus on enhancing individual accountability for those in senior positions.  The Senior Managers and Certification Regime (“SMCR“), which came into force in the banking sector in March of this year,will assist in this. Those responsible for the management of a business unit may now be held accountable if a firm contravenes requirements in that unit:the FCA is looking to rely on this, and the new data collection requirements, to continually assess key individuals within regulated firms and inform them as to what is expected of their senior management.

Market abuse was added as a priority by the FCA this year on the back of the Fair and Effective Markets Review (“FEMR“), which looked at Fixed Income, Currencies and Commodities (“FICC“) markets.  It is clear that the FCA views implementing the 21 recommendations made by FEMR as a major step in its wholesale markets agenda.  Further, the Business Plan lists the supervising of the now regulated FICC benchmarks as a main priority of the Authority in the coming year.

Financial advice is another addition to the Business Plan this year, following the Financial Advice Market Review (“FAMR“).  FAMR was, as with FEMR above, run in conjunction with the Treasury, and it is no surprise that the FCA wants to focus attention on its plans for implementing two of its widest-ranging reviews. The findings of FAMR, however, are seen as longer term objectives for the FCA, with a progress report due in 2017 and a review of the outcomes in 2019. Whether Brexit will have a significant impact on the implementation of FEMR and FAMR remains to be seen.

This year will see the Financial Crime Annual Data Return being rolled out. It is hoped that it will allow for the identification of firms with material weaknesses in their anti-money laundering (“AML”) controls which the FCA can focus on and work with to resolve any issues.The FCA will give each regulated firm a scoring, highlighting those which need improvement, increasing accountability for both the FCA and regulated firms. Firms with a low score and which need improvement may find themselves on the Authority’s radar for potential enforcement action.

A key theme throughout the Business Plan is that the FCA is looking to be proactive in its supervisory role and looking to work with firms on an individual basis. This suggests a move towards more cooperative and manageable solutions as between the FCA and regulated firms. This appears to mark a change in approach from the previous emphasis on enforcement. The impact of Brexit on the FCA may feed into the next Business Plan. Before then, it is unlikely that the FCA will announce any significant change of plans, subject to the pace and change at the political level.

Abdulali Jiwaji, Partner, Signature Litigation

Johnny Shearman, Associate, Signature Litigation

www.signaturelitigation.com