EFFECTA CONCISE MONTHLY BULLETIN, May 2024
June 13, 2024 by Clare Curtis
FCA Executive Director Comments
Sarah Pritchard, Executive Director of Markets and International at the Financial Conduct Authority’s (FCA), delivered a speech at the City & Financial Global’s City Week 2024, on 20 May 2024.
She essentially emphasized that the numerous changes in rules and regulations the FCA has introduced recently have been made primarily to support and consolidate the UKs position in global wholesale markets and to facilitate the country’s economic growth and competitiveness across the globe.
Sarah Pritchard continued her speech by stating her belief that the FCA ”outcomes-based approach” will bolster innovation, therefore assisting the UKs markets on being even more efficient. Although London is 2nd only to New York in the most recent Z/Yen rankings of global financial centers (a leading City of London financial think-tank), there remains a plethora of opportunities to further efficiency and reform, by involving a different balance of risk.
In addition, Sarah Pritchard also emphasized that the FCA isdiligently working on ‘incremental changes where sensible’ and is certainly not making changes just for the sake of it.
In fact, she explained that the “outcomes-focused regulation” is deliberate, as the FCA believes that this method will better support innovation in exponentially changing the markets.
For further information, please see (Aiming for calm seas in our market reforms | FCA)
Anti-Greenwashing: An Update
With the introduction of the Anti-Greenwashing rule on 31/05/2024, the FCA is once again consulting on extending the Sustainability Disclosure Regulation to include portfolio management. In the meantime, the regulator has published a list of requirements that firms should have in place for the initial implementation of the rule.
All FCA authorised firms should now be prepared to adhere to the rule if they intend to make declarations about the sustainability of their products and services, ensuring that the claims are ‘fair, clear and not misleading’, and should have already reviewed the regulator’s accompanying guidance to the rule, to better understand and implement the rule within their frameworks.
In particular, UK Asset Managers should by now have become familiar with the regime and have ensured they will be able to meet the applicable requirements within the implementation timeframes, that includes:
- considering and determiningwhether to label their products and services that target positive sustainability outcomes, and if so, assessing if the relevant products align with the qualifying criteria.
- evaluating their products and services against the naming and marketing regulations, and ensuring their organization is sufficiently prepared to be able to make any necessary amendments.
- having prepared, or at least be in the process of preparing, relevant consumer-facing disclosures, comprehensive product disclosures, and any other declarations deemed necessary.
For further information, please see FCA website on Sustainability disclosure and labelling regime (Sustainability disclosure and labelling regime | FCA)
Struggling UK Equity Market?
In an article published in the Sunday Telegraph, things do not seem to be looking particularly bright for UK Equity Markets.
Even with the multitude of steps and measures taken, and continuing to be taken, by the FCA and PRA (Prudential Regulations Authority), to bolster the UK Equity Market, to some, it would appear that this has not been having the desired effect.
Former CEO of the London Stock Exchange, Xavier Rolet, has reached out to whomever the next Government will be, to step in and help strengthen the struggling UK Equities Market.
He suggests a major revamp is required to kick-start a liquidity revival in the markets. Using statistics, he declares that the US markets are approximately 10 times more liquid than the UK and European markets compounded.
Despite the current shadow chancellor (chancellor in waiting perhaps), Rachel Reeves, stating that the Labour Party would establish a British Sovereign Wealth Fund, Mr. Rolet believes the one-off injection of liquidity this would provide will not be sufficient in the longer run. He continues by voicing that ‘Punitive Regulations’ need to be eliminated, including one specific rule that dictates the amount of cash insurers may hold on their balance sheets and their allowable investments.
Enticing high-growth businesses is a must and this cannot be achieved without profound and liquid Equity Markets, ‘Simple Maths’ Mr. Rolet exclaims.
It would appear that Goldman Sachs is thinking along the same lines as they have expressed that, excluding takeovers, the UK Public Equities sector shrunk by £30billion net in the year to April, the quickest drop on record. This sum amounts to 1.2% of the entire market.
Adding to these woeful statistics is the fact that Coutts withdrew almost £2billion from London markets to invest abroad last month alone.
It is essential for the London markets to attract more companies to list with them, as the scarcity of new listings combined with recent company takeover activity, is a significant cause of liquidity dilution. Peel Hunt has even suggested that if this continues, the FTSE All Shares Index could simply cease to exist by 2028.
BNP Paribas is a little more positive, although it still does not foresee any significant listings in London until 2025. The Lobby group CBI (the Confederation of British Industry) has emphasized that London needs to ‘regain its position as the leading Equity Market in Europe’. In fact, the UK has fallen behind its European counterparts due to a surge in new listings there. For example, a large Venice-based company is planning to go public on Milan’s Euronext Market soon, with a potential valuation of £2.6 billion.
FCA Bans & Fines CEO @ Shard Capital
In a display of authority and as a stern reminder to all financial markets participants that it will not tolerate market misconduct in any shape or form, the FCA has fined a former CEO of Shard Capital £120,300 (following a 30% reduction after a settlement was agreed; otherwise, the fine would have been £171,900), and has also banned him from performing any activities in the Financial Sector.
Markets and investors were put at risk after the CEO, on two separate occasions, provided the regulator with false and misleading information regarding cash held for clients.
In the first instance, the FCA discovered he falsely declared that his company held hundreds of millions of pounds in cash for a particular client, when in fact the amounts provided were debts owed by another client.
On the second occasion, the CEO of Shard Capital once again falsely claimed the company held substantial cash for a client, when in fact, the entire cash balance had already been transferred out of the account.
These actions were said to have ‘Fallen woefully short of the standards of skill, care and integrity expected of all those that lead financial firms’ stated the joint Executive Director of the Enforcement and Market Oversight team at the FCA.
Separately, on the sell side of the markets, Citigroup Global Markets Limited (CGML), were fined by the FCA £27,766,200.
The fine resulted from failures in the firm’s systems and controls – a concern the FCA has been highlighting for quite some time now, emphasizing its importance as part of the Consumer Duty requirements. In fact, a trader’s inputting error allowed $1.4billion of Equities to be sold into European Markets when they should not have been, significantly affecting the course of the markets for several minutes.
It was discovered that some of the primary controls in the CGML framework were absent or deficient. In addition, poor system design allowed the trader to override a pop-up alert without having to scroll through and peruse all the alerts within it, which could have prevented the input of the false trades.