Tag Archives: Financial Conduct Authority

Institute of Risk Management experts outline key risk areas for 2015

Political instability caused by low oil prices, increased shareholder activism and the business threat posed by a potential UK exit from the EU are among the chief concerns voiced by some of the UK’s leading risk experts for 2015.

As 2014 draws to a close, members of the Institute of Risk Management (IRM) were asked to identify key risk areas for 2015. A broad range of oil and gas, political, healthcare, regulatory and insurance risks were highlighted as potential flashpoints.

Oil and Gas

“The lower oil price will raise a number of risks, including political and social disruption in oil producing countries which, if not successfully managed, will impact on the world,” asserted Mark Boult, Fellow of the IRM and director at risk management consultancy DNV GL.

Boult continued: “Given the greater financial pressure we will see on the sector next year, stakeholders need to maintain their focus on the integrity of assets. Not doing so will deliver poorer reliability and increase the risks of a major accident. Industry and Governments should work together to proactively manage down the commercial pressures and risks facing the industry from the oil price drop.”

A catastrophic major accident and physical asset integrity will remain a major industry focus for next year. “Such events are always – and always need to be – at the front of our minds given the impact they have on people, the environment and the business of the industry as a whole,” explained Boult.

Commentators from the IRM have mapped out key potential risks for 2015

Commentators from the IRM have mapped out key potential risks for 2015

Politics

An uncertain political environment in the UK is highlighted as a key risk area for next year by IRM members. “We need to watch closely how the dialogue between the UK and EU develops,” said José Morago, IRM chairman and group risk director at Aviva. “The potential risk of a UK exit from the EU could bring about even bigger strategic, operational and legal risk challenges to many international companies than those raised by Scottish independence.”

Morago added: “Next year, we have the UK General Election and possible presidential elections in Europe. With continuing fiscal deficits, cost of living pressures, low investment returns and low public trust in financial institutions, there’s a real risk of further – and bolder – political announcements as parties compete for public approval.”

Mark Butterworth, member of the IRM and managing director at risk management consultancy Condie Risk, believes the unpredictability of next year’s UK General Election is unique in his adult memory. Butterworth argues that a vote to leave the EU could provide the Scottish National Party with a boost, “possibly leading to the start of the ‘second’ wave for independence.”

Alternatively, an indecisive result in a May election which fails to resolve ‘the European question’ could lead to “upheaval, forcing a second General Election in late 2015, with all the attendant uncertainty that entails.”

Healthcare

The total number of Ebola deaths is predicted to peak in 2015 according to Patrick Keady FIRM, risk leadership consultant with the NHS. “This will be achieved by continuing with current levels of awareness, actions and plans and by Governments avoiding ineffective knee-jerk reactions. Lessons will be learned from Sierra Leone’s handling of the crisis where 21% of people infected died compared to 60% in Guinea and 42% in Liberia.”

Further 2015 predictions by Keady are as follows:
• “It will be the year more people will say ‘No’ to so-called ‘healthy food’, leading to reduced demand for healthcare in the long term. People can consume up to seven times the World Health Organisation’s daily recommended amount of sugar when their diet is limited to foods such as low fat yoghurts, muesli bars and sports drinks. The debate about processed versus natural food will escalate with the launch of ‘That Sugar Film’ next year.”
• “Drugs and alcohol will both start to be seen as healthcare issues. With 9% of all emergency hospital care being for people with a drug or alcohol problem, 36% of these are from the most disadvantaged neighbourhoods. An increased focus on the health implications of drugs and alcohol will start to benefit the population and, in turn, reduce drug and alcohol-related crime statistics.”

Regulation

According to IRM commentators, new regulation is going to pose risks for companies and company directors in 2015.

Taken together, the 2014 UK Corporate Governance Code and Financial Reporting Council’s Guidance on Risk Management will significantly upgrade the weaponry of shareholder activism in 2015. “Greater corporate governance and risk management education at Board level – including Company Secretaries – will be needed to mitigate against the risk posed by the new regulatory environment,” stated Mark Butterworth.

The Financial Conduct Authority’s drive for greater competence and capability means that Boards of Directors must be far more proactive about ensuring their capabilities match their needs. José Morago commented: “Boards need to identify governance gaps and plug them fast, whether that’s through acquiring new skills, qualifications or experience. What’s expected from Boards is going to be raised quite fast next year.”

Insurance

Reduced profitability for the UK insurance sector is an identifiable risk for 2015 according to Enrico Bertagna, IRM affiliate and senior vice-president of business development at Allied World Europe Insurance.

“If there’s no material change in claims trends or major catastrophes,” outlined Bertagna, “we’re looking at ongoing downward pressure on premium rates, reducing underwriting profits in most classes of business.”

Bertagna also believes we’re likely to see a trend towards the localisation of risk in 2015. “We’ll see less premium flowing to London from emerging markets. That will lead to reduced premium to London market insurers on the one hand, while potentially exposing local market insurers to greater volatility on the other.”

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Financial Conduct Authority launches ‘Scamsmart’ campaign to combat investment fraud

The Financial Conduct Authority (FCA) has launched a national campaign entitled ‘Scamsmart’ which is designed to warn of the dangers concerning investment fraud and how potential scams might be spotted.

A massive £1.2 billion is lost to investment fraud in the UK every year, with the victims of this criminality losing £20,000 each on average. The fraudsters use a number of tactics to entice their victims into investing in products which don’t exist (for example land-banking schemes, carbon credits and rare earth metals).

The FCA believes that those most at risk of investment fraud are people in retirement who are actively seeking to find a good return on their savings. One consumer told the FCA that he was called out of the blue by a firm that offered to buy the shares he held in a company. The deal sounded legitimate and the website looked professional. It wasn’t until the individual concerned was asked to pay a £5,000 bond to enable the deal to go through that they became suspicious.

Investment scams generally involve high-pressured selling using boiler room tactics for products which often don't exist (including land-banking schemes, carbon credits and rare earth metals)

Investment scams generally involve high-pressured selling using boiler room tactics for products which often don’t exist (including land-banking schemes, carbon credits and rare earth metals)

Martin Wheatley, CEO of the FCA, commented: “Those operating investment scams use very sophisticated techniques to build trust and can dupe even experienced investors out of their savings. With large numbers of people at risk, it’s important to know how to spot the signs of a potential scam. We would caution against anyone taking a risk on a firm or individual who isn’t authorised by the FCA. Our message is simple: don’t accept a cold call.”

City of London Police Commander Steve Head, who is also the Police National Co-ordinator for Economic Crime, added: “For many years now, tackling investment fraud has been a major priority for the City of London Police. It’s a crime that hits older people hardest, with the victims losing money they’ve worked hard to save their whole lives and often destroys retirement plans.”

Head continued: “The City of London Police is fully supportive of the FCA’s campaign and backs its call for people to always hang up on cold callers. If anyone does fall victim to an investment fraud, it’s vital they report the matter to Action Fraud in order to give law enforcement the best chance of tracking down those responsible and dismantling their criminal operations”.

Key signs of a potential investment fraud

There are several key signs that an investment fraud might be in play. These are as follows:

*You are contacted unexpectedly about an investment opportunity through a cold call, e-mail or a follow-up call after receiving a promotional brochure out of the blue
*You’re pressured to invest in a time-limited offer (or example a bonus or discount is promised if you invest before a set date)
*The risks to your money are downplayed (for example you’re told that you will own assets you can sell yourself if the investment doesn’t work as expected or legal jargon is used to suggest the investment is very safe)
*The returns sound too good to be true (ie better interest rates are stated than those offered elsewhere)
*You are called repeatedly and kept on the phone for a long time
*You’re told that the offer is only available for a limited time or to a limited group of people

For further information visit the FCA’s Scamsmart website

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Financial Conduct Authority forges ahead of SFO with bribery prosecutions

The newly-formed Financial Conduct Authority (FCA) has stolen a march on the UK’s lead bribery prosecutor the Serious Fraud Office (SFO) in its prosecution of bribery and corruption, EY’s latest Bribery Digest has found.

The digest, which tracks bribery prosecutions in the UK, found that the Serious Fraud Office has not completed a case since July 2012.

In contrast, the FCA’s announcement of a £1.8 million fine in December against an insurance and brokering firm has seen the agency forge ahead with a focus on cracking down on bribery, despite being in existence in its current form for less than a year and juggling competing priorities.

Local police forces and Scotland’s Crown and Procurator Fiscal Service picked up the remaining three cases in this period.

Cost of bribery and corruption

The absence of cases from the UK’s lead prosecutor comes despite findings in a report last month that bribery and corruption costs the EU economy £99 billion on an annual basis, while 64% in the UK believe corruption is common.

The newly formed Financial Conduct Authority has stolen a march on the UK’s lead bribery prosecutor the Serious Fraud Office in its prosecution of bribery and corruption, EY’s latest Bribery Digest has found

The newly formed Financial Conduct Authority has stolen a march on the UK’s lead bribery prosecutor the Serious Fraud Office in its prosecution of bribery and corruption, EY’s latest Bribery Digest has found

The EU report also called for a bigger crackdown on UK firms bribing their way into contracts abroad.

Jonathan Middup, EY UK’s head of anti-bribery and corruption, said: “Not only is there a wealth of evidence that bribery and corruption around the world is continuing, but organisations are increasingly attuned to uncovering and reporting their suspicions. The pipeline of cases for the SFO is ever-growing.”

Middup continued: “However, the major prosecution in the past 18 months has come not under the Bribery Act, but the entirely unheralded Principle 3 of the FCA’s Principles for Business. It states that firms must take reasonable care to control their affairs with adequate risk management, in effect leaving FCA regulated firms far more exposed than other companies subject only to the Bribery Act.”

In conclusion, Middup commented: “In its first case, the FCA has made clear that any failures will be severely punished where a company has checks in place to manage risks, but does not use them effectively. This is a major wake up call to financial firms regulated by the FCA that tick box compliance will not be tolerated and that bribery and corruption is on their radar.”

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