News & Events
Regulatory Pressure for U.K. Financial Firms Unlikely to Subside in 2010
Financial Crisis, Elections Put Focus on Compliance and Transparency Across Entire Financial Services Industry
LONDON – Nov. 30, 2009 – Financial services firms in the United Kingdom will likely continue to face tougher scrutiny by the Financial Services Authority (FSA) in the New Year, say regulatory compliance experts at Wolters Kluwer Financial Services in London. The push for more oversight amid the financial crisis, coupled with uncertainty tied to the upcoming general election, has firms across the industry anticipating more regulatory change and supervision.
“We’re seeing bigger organisations face bigger fines,” said Mary Stevens, manager of U.K. Regulatory Content at Wolters Kluwer Financial Services. “Over the past year, there has been much talk about certain firms being ‘too big to fail.’ However, the FSA seems to be sending the message that no firm is ‘too big to fine.’”
At the same time, recent fines have tended to focus on breaches of the FSA’s Principles for Business, versus specific rules.
“Formerly, when a company was fined, it was typically for a breach of rules,” said Sue Berwick, senior compliance analyst at Wolters Kluwer Financial Services. “Now we are seeing a stronger focus on the FSA Principles, which are high-level and cast a broader net since they can be interpreted in a number of ways.”
A list of the FSA’s Top 10 fines since 2002 shows that four of the top 10 fines were issued in 2009. Additionally, over 5,400 pages of the more than 8,000-page FSA Handbook have been amended in 2009 to date—evidence of the magnitude of regulatory change this year and an indication of the higher level of scrutiny that is on the way.
“The FSA has continued to show its teeth in terms of its ability and willingness to prosecute,” said Steve Blackbourn, a compliance consultant at Wolters Kluwer Financial Services. “With its first successful criminal prosecution for insider dealing, its ongoing responses to the financial crisis issues and threats under the Turner Review, and its work on governance changes under the Walker Review, there is no doubt the FSA is evolving a more rigorous approach in its supervision of financial services firms.”
Not only is the financial crisis shaping the FSA’s actions, but political uncertainty is also playing a part, experts say. As the 2010 election approaches, there is much debate over the FSA’s future in the U.K.
“If there is a change in government, there will be a greater appetite for changes to the U.K. regulatory landscape,” said Blackbourn. “That might include the transfer of certain supervisory authority and responsibilities back to the Bank of England and even the creation of a new and more focused consumer authority.”
The need for internationally-coordinated regulatory efforts will also be a focal point in 2010, added Blackbourn. The FSA and Securities Exchange Commission (SEC) have both issued recent announcements confirming they are cooperating more directly. And a possible new EU-level regulator, such as the proposed European Systemic Risk Board, is seen by many as a way to drive a common regulatory agenda and police macro issues, including liquidity and capital adequacy, across European markets.
John Horan, a compliance consultant at Wolters Kluwer Financial Services, says the need for regulators to show they are doing something to combat illegal activity, will lead to more visibility and perhaps discovery of more fraud.
“Financial institutions need to gear up for tougher regulation,” said Horan. “As more financial firms begin taking a closer look at their own organisations, I think we will see more and more cases of insider fraud come to light.”
More visibility may also be gained by the FSA’s announcement this year that it will publish compliance data at the sector level for the industry as part of its Retail Distribution Review (RDR). This will allow consumers to gain more information about the pricing of products and services, commissions and the qualifications of the individuals working at financial firms.
With a strong focus on transparency, big changes are expected for nearly every sector of the financial services industry.
“This is really the first time this has happened,” said Berwick. “In the past, there were usually just one or two parts of the industry that were the focus of reform at a given point in time. In the coming year, everyone should anticipate change.”
And the adjustment period to those changes will likely last beyond 2010.
“Financial institutions are overwhelmed when it comes to regulatory change, and can sometimes feel like they are playing catch-up,” said Horan. “If you look at recent examples, such as the 2007 regulations that codified and standardized anti-money laundering procedures throughout the EU, they typically continue to sting for the first few years they are in place. With even more regulatory activity expected, and the increased public focus on the financial services industry, firms are looking at a challenging road ahead.”
About Wolters Kluwer Financial Services
Wolters Kluwer Financial Services provides best-in-class compliance, content, and technology solutions and services that help financial organizations manage risk and improve efficiency and effectiveness across their enterprise. The organization’s prominent brands include Bankers Systems, VMP® Mortgage Solutions, PCi, AppOne®, GainsKeeper®, Capital Changes, NILS, AuthenticWeb™ and Uniform Forms™. Wolters Kluwer Financial Services is part of Wolters Kluwer, a leading global information services and publishing company with annual revenues of (2008) €3.4 billion ($4.9 billion) and approximately 20,000 employees worldwide. Please visit our Web site for more information.
