Essential Strategies for Financial Services Compliance

Annie Mills, Peter Haines

• Publisher: Wiley
• Year: 2015
• ISBN:
  9781118906194
• Edition: 2
• Topic: Negocios y empresa
• Subtopic: Auditoría

A fully updated edition of the definitive guide to financial regulation

In recent years, not only has the compliance field become firmly established, but it has seen staggering growth, thanks to never-ending changes in the regulatory environment. As regulation increases still further, the demand for clear guidance on navigating daily compliance issues is greater than ever. Now in its second edition, the highly successful Essential Strategies for Financial Services Compliance has been updated with the latest compliance strategies and regulatory information, making it indispensable for compliance officers, legal firms, and anyone else working with the financial services compliance function.

Non-compliance represents a significant material risk for any financial services firm that fails to understand and appropriately apply regulatory standards. This Second Edition of Essential Strategies for Financial Services Compliance makes it easy to digest complex information on the regulatory framework. But this book is far from solely theoretical. A balanced approach means that both the concepts and their application are within reach. Annie Mills and Peter Haines deliver solid advice that can be applied on a day-to-day basis to manage any compliance issues that may arise. Read this book to:

• Understand the conceptual basis of compliance and the current regulatory environment applicable to the financial services industry
• Quickly and thoroughly learn the accepted best practices for everyday compliance
• Get up to date information on the current financial regulatory environment with this new edition
• Reference detailed advice as issues arise in day-to-day operations

This update to the popular first edition of Essential Strategies for Financial Services Compliance will help eliminate non-compliance risk and ensure that your firm is entirely current on its ability to navigate the maze of financial services regulation.

Part One
Commentary and Context

Chapter 1
The UK Regulatory Environment

Although many of the concepts and practices described in this text are products of a growing Compliance discipline that does not proceed directly from any regulatory rule or guidance, regulation is undoubtedly the founding spark and ultimate justification of all Compliance activity in the financial services industry. It is almost certainly true that there would be no Compliance function, Compliance Officers or Compliance anything else if there had not first been a regulatory system in which to put them. It therefore follows that, to get to grips with Compliance, one should have a sound understanding of the regulatory environment that gave rise to it.

This is not to say that Compliance does not justify itself on its own terms, but few financial services businesses volunteer for it; few want to be ‘fettered’ by a framework of ‘restrictions’. Certain firms that are on the perimeter of needing to be regulated have chosen to employ Compliance Officers. Furthermore, a number of firms in industries such as healthcare, pharmaceuticals, beverages and even auction houses have chosen to employ Compliance Officers. However, financial services regulations are there because the industry has purposes to serve beyond the enrichment of those it employs directly, but has a patchy record when it comes to making itself fit for the pursuit of any other ends. Compliance is there because it is too risky and too complicated to try to navigate the regulatory terrain without it.

Therefore, while I dedicate this text to making arguments for the positives that a business can take from effective Compliance, there is no question that it began and, to a large degree, remains an agent of regulation and can only be properly understood with the regulatory regime, in the UK as elsewhere, as a starting point.

Before looking in detail at the constituent parts of the Compliance Officer's world, this chapter fills in the essential background with a brief description of the regulatory environment in the UK. Compliance Officers working in other jurisdictions should know at least as much about their own regulatory environment as that described here for the United Kingdom.

1.1 Regulation in the UK

There is currently a myth in the UK that we have just two financial regulators (the PRA and the FCA) and a single piece of regulatory legislation (the Financial Services and Markets Act 2000 (FSMA) as amended). If you have bought into this story, then you need to think again. In the UK alone there are numerous regulatory bodies other than the PRA and FCA that cover financial services activities – the Pensions Regulator, for example, and the Takeover Panel. There are also a number of laws and regulatory-type bodies that govern the national anti-money laundering effort. And, looking further afield, it's impossible to deny that overseas legislation and regulators affect financial services activity carried on within your chosen jurisdiction. The UK Bribery Act and FATCA are two very good examples of statutes with significant, extraterritorial application. (See Box 6, ‘Going Global’ on page 345 for further explanation on this point.)

Most, but it must be stressed not all, of the UK regulatory framework is based on UK and EU law.

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Financial Services Legislation in the UK

UK Law

• UK law can be divided into two main types:
  • statute law – law created through acts of parliament.
  • case law or common law – law established through legal precedent developed over hundreds of years from custom, tradition and cases coming to court.
• Statute law is of most relevance to financial services although common law also has an impact through, for example, contract law in relation to loan agreements.
• A piece of statute law cannot become final until it has been agreed by both Houses of Parliament and has subsequently received Royal Assent from the Queen.
• Acts of Parliament cannot possibly contain every single detail relating to the area they govern. Consequently, secondary or delegated legislation is used to update and amend statute law without having to go through the full legislative process. This secondary legislation, referred to as statutory instruments or regulations, has the full force of law.

The EU Dimension

• As the UK is a member of the European Union, the UK government must implement EU legislation.
• The main way in which EU law has historically had an impact on UK regulation is through the implementation of the directives and regulations issued as part of the EU's Financial Services Action Plan (see Box 5 on page 343) and the Lamfalussy Process. However, EU regulation is frequently updated, such that numerous directives have been updated multiple times. CRD IV is a good example of this in the area of capital adequacy standards for financial institutions.
• Directives and regulations are pieces of EU legislation that are binding on its member states¹ and on non-member states within the European Economic Area (EEA).² Directives allow national governments certain flexibility in terms of how the end result is achieved and need to be transposed into the law of each member state whereas regulations do not require such transposition and thus apply directly to individual member states without being separately implemented in each country.
• EU law is aimed at harmonizing standards across the EEA in order to support the single market objective and the relevant directives and regulations apply across the EEA in the same way that they apply to the UK, although the extent to which they have really been implemented in letter and spirit across each member state has often been a matter of debate.

Overseas Legislation

• Some pieces of legislation enacted in other jurisdictions are applied on an extraterritorial basis.
• For the financial services industry, the main pieces of relevant legislation falling into this category come from the USA.

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Sitting underneath and alongside the legislation are the requirements that stem from sets of rules, guidelines and industry best practice that underpin the law.

1.2 Different Regulatory Regimes in the UK

It is possible to group pieces of legislation, sets of requirements, etc., together into various subject areas and thus the UK regulatory framework can be divided into various distinct areas (although there is a certain degree of overlap). These include:

• the FSMA regime for investment business;
• the anti-money laundering regime; and
• the takeover regime.

The key features of these are described below.

1.3 The FSMA Regime for Investment Business

The Financial Services and Markets Act 2000 (FSMA) came into effect on 30 November 2001, a date also referred to as N2. Und...