UK Compliance in 2022 – Outlook and key-updates

By the end of 2022, the financial service market in the UK will have been through a process of almost certain continuous change from a regulatory perspective, and the year is likely to close with several key challenges remaining.

For starters, consumer duty will be integrated into procedures, funeral arrangements will be regulated, LIBOR will be a distant memory, and the United Kingdom should be well on its way to a net zero economy.

In many ways, the financial services industry of today is unrecognisable from that of five or ten years ago, and few industries undergo as much regulatory change on a regular basis.

It’s easy to get mired down in the nitty gritty, and regulators will punish those who get the nitty gritty wrong, but amongst the noise, there is a clear path to follow, and intertwined principles to be adhered to.

So, what are the latest regulatory and compliance updates that will be key to your compliance planning and risk profiling in 2022, and beyond?

Updates from the Financial Service Bill

In draught guidelines to toughen social media regulation, the government has taken a step closer to including paid advertising. Parliamentarians debated the Online Safety Bill committee report from December. This urged, among other things, that paid advertisements be included in the scope of the new regulation.

The financial services industry has also been lobbying the government to include in the law both user-generated and social media-based schemes.

What firms will need to prepare for is increased enhanced due diligence and strengthening of current AML systems and processes. Until definitive laws are passed, compliance teams should prepare for more stringent regulatory requirements.

The FCA has new AML and data approaches

The regulator is aiming to achieve strengthened compliance goals whilst also improving its ability to be more imaginative, adaptable, and forceful. The FCA will be able to handle the difficulties of the UK’s increasingly data-driven financial services sector, the transition to a net-zero economy, the pandemic’s ongoing repercussions, and assist in developing a new regulatory framework post-Brexit by using this strategy.

One of the main objectives under the strategy will be enhancing the integrity of the UK’s financial system. The FCA penalised financial institutions in the United Kingdom to the tune of £568 million in 2021.

Individuals have also been sanctioned by the FCA for insider trading, non-financial wrongdoing, and engaging in regulated activities without authorisation. In addition to enforcement cases, the FCA has changed the permissions of a corporation or individual over 100 times in 2021.

The FCA overhauled its decision-making processes in November to ensure faster action to protect consumers. Senior management will be able to make decisions about a firm’s authorisation, including whether to enforce regulations or initiate criminal or civil processes.

When it comes to approving businesses, standards will be applied more rigorously. After conversations noted by the FCA, one out of every five enterprises that applied for authorisation was declined, rejected, or withdrew their application in the year leading up to December 2, 2021.

Following a test launched by the FCA last year, newly approved financial firms will receive enhanced help. This early oversight, together with regular interaction from the FCA, will help ensure enterprises treat their consumers fairly during the critical early years of their development.

The FCA has set out new and ambitious plans for data utilisation as part of its ongoing transformation. The FCA will be able to collect more data and utilise algorithms to identify threats to customers and markets more swiftly because of this approach. Digital listening tools will be used more by the FCA to collect data on anything from mortgages to fraud.

Brexit updates and changes

Brussels plans to extend the interim authorisation that allows European banks and fund managers to use UK clearing houses until June 2025, averting a threat to financial market stability when the arrangement expires later this year. This is doubling the initial original period set for Britain to exit the single market (initially slated to occur at the end of 2020).

The Financial Times stated that according to data supplier Osttra, EU policymakers have long intended to move clearing of euro-denominated contracts out of London, where LCH still processes around 90% of all euro-denominated derivatives. Many people are concerned about the EU’s financial stability being jeopardised by the clearing of €83 trillion in open euro derivatives contracts in a market that is not under its direct control.

Banks and asset managers, on the other hand, have been hesitant to move clearing of euro derivatives out of London due to the expense of shifting holdings, a long-term process that the industry believes will cost several billion euros. For fear of jeopardising market stability, politicians have avoided mandating the relocation of euro derivatives.

In the coming weeks, Brussels will also hold a public consultation on how to make the EU a more appealing clearing destination.

Regulators will take the war against cyber-attacks even more seriously

More businesses that provide critical digital services will need to adhere to strong cyber security obligations, with stiff penalties for non-compliance. Improved incident reporting and higher standards in the cyber security industry are among the other legislative recommendations.

As part of its new £2.6 billion National Cyber Strategy, the government is aiming to take a firmer approach to getting at-risk firms to strengthen their cyber resilience through new legislation to make the UK safer and assist in preventing these types of assaults.

How can the right resource help you keep up with increased regulatory pressure and change?

These additional regulatory requirements and uncertainties mean that many UK firms are facing a scenario of trying to get yet more regulatory compliance implemented into their systems and processes, to effectively detect and deter financial crime.

With most, according to the regulator, already struggling to meet current AML requirements, predictions of additional regulatory scrutiny and processes increasing following BREXIT, mixed with an ever-changing set of rules to keep up with, mean that firms must ensure they always have the right resource in place in their compliance teams.

The right people remain a vitally key component in your compliance function to ensure regulatory changes, challenges and priorities are both met and adhered to. Automation of your current AML processes and systems can only take you so far – they need to be purposeful, and the right people will very much be needed to achieve this.

Ensuring that the skills and suitability of the individuals you retain are just as imperative, if not more so than the technology automation you implement. The human element is still the single most important element of your compliance function and regardless of what technological development or trend comes to play, this will always be true.

Ultimately, hiring the right talent should be at the forefront of ensuring your compliance team is as resilient and prepared as it can be.

If you require assistance in the form of additional resource for your compliance teams to try and keep up with new regulatory demands, contact us to see how we can help your planning, structuring, and onboarding of the right talent.