TLT summary reportPriorities for International

Banks in 2018

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Financial Crime; Technology and cyber­crime; and Compliance survey.

The regulator was unable to confirm what these chosen aspects will be, but it is likely to be between 1­3 different areas which are associated with high risks and high levels of complaints. Simone confirmed they would not attempt to try and test the entire implementation of MiFID II, due to its significant size.

IT and cyber resilience remain high priorities and the SMCR regime will be kicking in throughout the year. There will also be a focus on ring­fencing which takes effect in mid­2018. The FCA noted this has been a very difficult process but confirmed everything is on track and is now in the 'no objection' stage of the process.

Simone acknowledged that that FCA is very aware that the last 12 months have been a particularly busy period for firms with the implementation of ring­fencing, MiFID II, the SMCR regime with GDPR and the withdrawal from the EU rapidly approaching. The FCA is mindful of the pressure on firms particularly in relation to the type and volume of questions asked of firms. As a consequence, governance on the type, frequency and range of questions the regulator can ask firms has been tightened significantly.

Priorities for International Banks for 2018: Summary

At this year's annual Priorities for International Banks event, TLT was joined by the Financial Conduct Authority's (FCA) Wholesale Banking Supervision team. This report has been prepared based around the key themes that were discussed.

In particular:

The FCA's priorities for 2018; Preparing for the withdrawal from the EU; MiFID II post­implementation;

2017 Highlights and 2018 Priorities

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“Throughout 2017, the FCA had been assessing how firms were implementing new regimes as well as how they were preparing for further new regulatory measures in 2018.” ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••

This session was introduced by our key note speaker Simone Ferreira, Head of Wholesale Banking Supervision. Simone commented that, throughout 2017, the FCA had been assessing how firms were implementing new regimes as well as how they were preparing for implementing further new regulatory measures during 2018.

Looking forward to 2018, the FCA will focus on better understanding the role firms' compliance functions are undertaking within the business. One of the main priorities for 2018 is the upcoming withdrawal from the EU. Simone confirmed the regulator is still watching the space in terms of what actions they will take upon the withdrawal from the EU. She acknowledged that it was difficult to communicate more definitively to firms as many key aspects of the withdrawal process are still very uncertain.

The regulator is also very keen to assess firms' implementation of MiFID II across chosen aspects of the measure. This is likely to commence during the second half of the year in order to allow time for implementation to take effect, so testing can be more accurate.

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MiFID II post­implementation

Led by Susana Garcia­Cervero, the FCA is conscious of the scope and complexity of the 'bedding down' challenges that firms now face post the commencement date of 3 January 2018. The regulator has therefore taken the approach to keep communication channels open and maintain ongoing interaction and dialogue with firms. This is to inform its own understanding of firms' experiences and issues with MiFID II and to assist firms. This will then help to provide a guide to the regulator on which areas to test in the second half of the year, but they need further time for implementation to take effect.

They are aware firms are facing particular challenges with regard to reporting obligations. The FCA is currently working on their supervisory work­plan and confirmed normal supervisory channels should be used to communicate any issues to them.

Financial crime

The FCA reiterated that financial crime remains an important priority is an area that requires collaboration with Specialist Supervision. A proactive Anti­Money Laundering Plan (PAMLP) is underway with 150 firm visits planned over the next four years. The FCA plans to visit each firm once 'per cycle', with a cycle consisting of four years. It is the regulator's intention that these visits will be an opportunity for banks to have informal discussions with the regulator regarding this area. The FCA is very keen to have feedback as it recognises that financial crime can only be effectively tackled if the entire banking community cooperates with each other.

The FCA has found there is still insufficient due diligence taking place especially amongst the International Banks with new staff members drawn from head office due to their limited awareness and knowledge of UK legal and regulatory requirements. There is also evidence of failings in relation to the three lines of defence, week transaction monitoring and ineffective customer risk assessments.

All firms are encouraged to ensure they have adequate levels of governance and robust oversight of financial crime controls.

Withdrawal from the European Union

This part of the session was led by Alessandro Chiozzi, who confirmed the regulator is very confident that talks with the EU will deliver a transitional period, which will ease pressure on firms. The FCA envisaged its role in the process to include providing technical advice to support the Government in the negotiations with the EU and any other countries it may seek to secure future agreements with.

On 20 December 2017, the UK Government, PRA and FCA issued coordinated announcements with implications for firms that are planning to implement changes in response to the UK's decision to withdraw from the EU. The Government confirmed it will bring forward legislation to ensure the UK's position as the world's leading financial centre is maintained and UK customers are protected.

The Government has also expressed confidence that an agreement will be reached on an implementation period after the UK's exit in March 2019. In the event this does not happen, the Government will legislate to provide the FCA with powers to grant EEA firms passporting into the UK with a temporary permission to continue to operate here after exit day.

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"The FCA predicts the affected population needing to apply for authorisation under new legislation is around 100 firms."

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Particularly pertinent to our International Bank clients was confirmation that the Government will legislate to provide regulators with powers to grant EEA firms temporary permission to continue their activities within the UK for a limited period after withdrawal. The FCA predicts the affected population needing to apply for authorisation under the new legislation is to be around 100 firms. Application for authorisation has begun and the authority expects to be able to grant authorisation with effect from exit date in March 2019. Pre­authorisation meetings have already started at the FCA and there is a 12 month review process. Therefore affected branches need to apply before the end of March 2018 to allow for the 12 month review process. It was confirmed that the PRA may grant temporary authorisation for applications made after March 2018, but this is at the discretion of the PRA.

The FCA confirmed that they are still heavily recruiting in this area.

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Firms need to ask different areas of the business how they identify conduct risk. The three lines of defence was an area highly focused on. The regulator has seen the lines of defence models being blurred which is a significant risk if not managed appropriately. This must be addressed. HR needs to be brought into the second line of defence.

Firms need to move away from the concept of an annual compliance plan and need to be far more adaptable. Further independent oversight should be encouraged and redesigning compliance frameworks on a regular basis should take place. The regulator does appreciate there is a lot going on but it was stressed that firms need to think for themselves and come up with their own risk strategy plans.

Concluding remarks

A culture conference is being hosted in March 2018 and firms should take note of the observations made. The regulator encouraged all firms to proactively engage in their website in order to be aware of publications made available, which are there to help guide firms through this ever­changing environment.

We do hope this report is useful, and we hope to hold more sessions like this one and continue to encourage interaction with the FCA in the future.

Get in touch

Paul Gair Partner T 0333 006 0092 Paul.Gair@TLTsolicitors.com

Noline Matemera Partner T 0333 006 0734 Noline.Matemera@TLTsolicitors.com

Peter Carney Partner T 0333 006 0390 Peter.Carney@TLTsolicitors.com

Nick Curling Legal Director T 0333 006 1432 Nick.Curling@TLTsolicitors.com

Technology and cyber crime

This part of the session was led by Daniel Nunn and Jacqui Tege and they were keen to impress the importance of technology within firms and how the regulator now sees technology as very much intertwined with the entire regulated business. The FCA has an increasing appetite for understanding how the industry is using technology and the type of technology being used. It is the regulator's view that systems help firms enact their business policies and procedures. As a result, firms' technology resilience is essential.

The regulator has particular focus on the resilience of technology being used by firms and it has adopted a very outcome focused approach to technology resilience. Robust processes, adequate resourcing and effective governance of resilience systems are expected. There should be continuous investment and improvement on systems' resilience.

The team is working alongside Project Innovate and RegTech in order to proactively communicate on new technology and ensure there is no consumer loss or detriment. Firms will need to demonstrate evidence of how their systems support the services their consumers are dependent upon. Senior management need to recognise this too, and will be expected to do so by the regulator. Communication within firms on technology resilience is essential.

The regulator was keen to point out that adequacy can quickly become inadequacy. With this in mind, the regulator has introduced cyber co­ordination groups (of which firms are divided into sector groups) which aim to open discussion between firms on what is an acceptable standard within a sector and encourage knowledge­sharing. The regulator host and present at these discussions.

Firms should be able to continue operating their core business functions during and after a technology or cyber incident. A cyber security infographic launched in June 2017, with further information, is available at www.fca.org.uk/firms/cyber­resilience.

Compliance survey

The final part of the session was led by Ted MacDonald, who spoke about the compliance survey. The key findings of the survey demonstrated a rapidly changing environment including (but not restricted to):

Scale and pace of global regulatory change; Growth of controls in the front line; New technology and complex business models; Fast emergence of social media; New compliance and surveillance technology; and New and different staff skills needed.

A4 Proposal Cool External 12/03/2018 14:19:06

A4 Proposal Cool External 12/03/2018 14:19:06