Compliance Updater - November 2022

A summary of key compliance stories from around the globe in November.

1. New York judge drops charges for Libor-rigging against Hayes.
2. £12m payout for treating clients unfairly during the Covid pandemic.
3. OFSI publishes its annual review including key sanctions stats.
4. Questions asked over Northern Trust UK arm’s resilience.
5. ASX scraps plan to use blockchain in settlement system.
6. FCA warns against gamification on trading apps.
7. Mass ESG downgrades in response to EU regulatory guidance on greenwashing.
8. Goldman Sachs agrees to pay $4m penalty over ESG claims.
9. French watchdog fines H20 €75m.
10. UK crypto fraud over £200m in a year.
11. Backward step in EU corporate secrecy?
12. UK plan to relax ringfencing requirements.
13. FCA proposes sweeping changes to UK investment advice regime.

New York judge drops charges for Libor-rigging against Hayes.

A judge in New York threw out criminal charges against Tom Hayes, the former UBS and Citigroup trader who served more than five years in jail in the UK for conspiring to manipulate Libor interest rates. The decision to drop the charges follows an appeals court ruling in a separate US case that overturned Libor-rigging convictions of two former Deutsche Bank traders because the government had “failed to show that any of the trader-influenced submissions were false, fraudulent or misleading”.

£12m pay out for treating clients unfairly during the Covid pandemic.

The UK Financial Conduct Authority announced that seven unnamed UK lenders have agreed to pay £12m in compensation to customers treated unfairly after falling into difficulty during the Covid pandemic. The compensation will be shared among 60,000 borrowers. Customers’ vulnerabilities are becoming increasingly important to the regulator: “Giving the current cost of living challenges, it’s vital that the sector continues to learn lessons to make sure they support struggling customers”.

OFSI publishes its annual review including key sanctions stats.

The UK Treasury’s Office of Financial Sanctions Implementation (OFSI) published its annual review revealing it had frozen more than £18bn in assets as part of its sanctions regime against Russia. This included freezing the assets of 120 Russian entities and more than 1,200 individuals linked to the Kremlin. OFSI also revealed a sharp rise in the number of reported sanctions breaches – 236 reports of suspected breaches in the 6 months to August 2022 compared to 147 in the 12 months to 31 March 2022.  

Questions asked over Northern Trust UK arm’s resilience.

The UK financial services regulators (the FCA and the PRA) have asked Northern Trust to improve its operating systems after it was overwhelmed by the demands of processing margin calls during the recent pension fund turmoil. The turmoil was caused by Kwasi Kwarteng’s disastrous mini-budget that impacted pension funds adopting liability-driven investment strategies.  

ASX scraps plan to use blockchain in settlement system.

The Australian Stock Exchange (ASX) abandoned its years-long plan to upgrade its clearing and settlement system using blockchain technology. Touted as an innovative move into the future of settlement, the project has been beset by delays and has cost the exchange A$250m (US$168m). Banks and financial services companies are estimated to have spent a further A$150m in preparing for the upgrade.

FCA warns against gamification on trading apps.

The UK Financial Conduct Authority said that share trading platforms were giving their customers “in-app points, badges and celebratory messages for making trades” which would increase the likelihood that people “invest in products beyond their risk appetites”. The areas giving cause for concern included celebratory messages or cartoon confetti after users made a trade, and points, badges, rewards and leader boards that ranked users against each other.

Credit Suisse still has another five remaining RMBS cases outstanding as well as being on trial in New York over forex manipulation and in Singapore over links with Georgia’s former prime minister Bidzina Ivanishvili.

Mass ESG downgrades in response to EU regulatory guidance on greenwashing.

European asset managers, including Amundi, BlackRock, Axa and Invesco, are downgrading environmental, social and governance funds in response to the EU’s Sustainable Finance Disclosure Regulation (SFDR). The SFDR aims to reduce greenwashing and distinguishes Article 9 funds, that many describe as “dark green”, from “light green” Article 8 funds. The fund managers are reclassifying what were considered dark green Article 9 funds to light green Article 8. This is after Brussels guidance that all issuers of securities in a fund need to be considered sustainable to meet Article 9 categorisation.

Goldman Sachs agrees to pay $4m penalty over ESG claims.

Goldman Sachs agreed to pay a $4m penalty for representing portfolios as ESG-compliant in advance of supporting and justifying the status. The portfolios were two mutual funds and one separately managed account. Prior to February 2020, Goldman failed to adopt appropriate policies and procedures until “some time after” the ESG strategy was introduced, with employees completing ESG questionnaires only after picking the investments.

French watchdog fines H20 €75m.

France’s Autorite des Marches Financiers recommended a €75m fine for asset manager H20 and a 10-year ban for its chief executive. The punishments come from rule breaches related to H20’s extensive investment in illiquid bonds linked to disgraced German financier Lars Windhorst. The regulator is also seeking a €15m fine from the CEO and a €3m penalty from the chief investment officer. H20 will contest the findings. H20 is also being investigated by the UK’s FCA.

UK crypto fraud over £200m in a year.

Scams involving crypto currencies, including pump and dump schemes and fake Elon Musk endorsements, saw financial losses reach £226m for the year ended September 2022, up 32% on a year earlier.

Backward step in EU corporate secrecy?

An EU Court of Justice ruling has been described as a drastic regression in anti-money laundering efforts. The ruling was that publicly available registers of beneficial ownership were a violation of privacy rights, personal data and the General Data Protection Regulation. Public access to registers is already being removed in countries such as Austria, the Netherlands, Belgium and Luxembourg.

UK plan to relax ringfencing requirements.

City minister Andrew Griffith announced that the UK is intending to relax ringfencing rules for banks to boost competitiveness and take advantage of Brexit freedoms. Ringfencing currently requires lenders with more than £25bn in deposits to separate consumer operations from investment banking. The plan will see the requirement removed for banks with limited trading activities which will likely include Santander UK, Virgin Money and TSB Bank.

FCA proposes sweeping changes to UK investment advice regime.

To unlock financial advice to those with “straightforward financial needs”, the FCA is proposing simplified and therefore more affordable advice. The proposal is to allow companies to reduce paperwork and simplify the advice in relation to “mainstream investment products” such as stocks and shares ISAs.