Themes from 2019

As the end of 2019 beckons, we look back at some of the emerging themes and key developments of the year:

Senior Managers and Certification Regime

In January 2019, the FCA published a consultation regarding SM&CR "Optimising the Senior Managers & Certification Regime and feedback to DP16/4 – Overall responsibility and legal function". This proposed to exclude the legal function from the overall responsibility requirement – read more in our client briefing. 

In July, the FCA published final rules on optimising the SM&CR, which confirmed that the Head of Legal role would be excluded from the requirement to be approved as a Senior Manager; detailed the extension of the SM&CR to FCA solo-regulated firms from 9 December 2019; and introduced a new public Directory of individuals working in the financial services, which from September 2019 requires firms to submit their data. 

The FCA is yet to bring a case under the new SM&CR, which was intended to be a catalyst for change and an opportunity to establish healthy cultures and effective governance by encouraging greater accountability and setting new standards of personal conduct. It remains to be seen how this regime will be enforced by the FCA to ensure that these goals are attained. 

In September, UK Finance and Ashurst released a joint report on the evolution and reform of the SM&CR aiming to discover what change has occurred as a result of SM&CR, both in individuals and at firms (if any) – read the full report and press release here.

PRA enforcement 

In June 2019, Ashurst attended the PRA's inaugural roundtable, hosted by the enforcement team, to discuss policy with the aim of promoting a dialogue between the enforcement team and key people within the industry. A variety of topics were discussed and the enforcement team highlighted key points from three enforcement related documents published during this year – see our client briefing.

As was noted at the roundtable, the PRA takes a supervision led approach to regulating firms and works closely with the enforcement team. Therefore, the PRA's ability to accurately supervise firms is an important pillar of its work, as illustrated by the PRA's comments regarding the Citigroup fine, the PRA's largest fine to date. 

IT failures and operational resilience

The Treasury Committee published its report into "IT failures in the financial services sector" following a series of high-profile disruptions. The aim of the inquiry was to look "under the bonnet" of the financial services sector to determine why such IT service failures were occurring and how these might be prevented in the future. The Report concluded that regulators must do more, including greater regulatory intervention, to ensure that the financial services sector improves. The Committee did not stop there and recommended that the regulators should consider expanding current reporting requirements, consider whether the current practices is the best model for supervising this risk and if necessary they should increase levies to fund appropriate oversight and expertise – read more in our client briefing. 

This chimes with some recent PRA commentary that "experience shows [that] firms that do not produce timely, complete and accurate data during periods of relative stability are less likely to produce it under stress". This is likely to be an ongoing theme as regulators continue to hone-in on operational risks in the coming year and the FCA and PRA continue to focus on systems and controls within financial institutions. 

Culture and climate change 

Just as the culture at financial services firms has been and continues to be a central theme for regulators, 2019 saw both the FCA and PRA put climate change on the agenda: the PRA required banks and PRA firms to identify the senior manager responsible for climate change in their respective organisations by the end of October 2019. This was followed by the FCA's publication of its feedback statement on climate change and green finance, which aims at bringing about wider social benefits by accelerating the transition to a net zero emissions economy. Needless to say this topic is likely to become increasingly prevalent and at the forefront of regulators', service providers' and consumers' minds. Read more on this topic in our client briefing.

Cryptoassets and smart contracts

In November 2019, the UK Jurisdiction Taskforce (a taskforce of the LawTech Delivery Panel) published a "Legal Statement on the Status of Cryptoassets and Smart Contracts" to address some of the perceived legal uncertainty and some lack of confidence amongst market participants and investors. The starting position was that the common law system is "endlessly creative… a living law …open to constant renewal" and able to accommodate technological and business innovation. Therefore, there is no reason why cryptoassets should be any different. The Taskforce did not address the regulation of dealings in cryptoassets, which it considered out-of-scope and within the regulators' purview. Read more about the Taskforce's Statement.

This is a rapidly changing landscape. Digitisation and Fintech presents numerous opportunities as well as cybercrime risks and various AML risks as illustrated by another record year of SARs – particularly in the Fintech space – see our client briefing. With the increasing pressure to combat economic crime it will be interesting to see how many investigations and/or criminal prosecutions are opened during 2020 and how the regulators ensure they are able to properly monitor and police this ever growing area. 

Witness statements

Witness statements have this year become a perennial topic of discussion with commonly uttered gripes (of which there were many) focusing on the cost, length and increasingly argumentative nature of witness statements – see our client briefing from February.

This month, the Commercial Court's Witness Statements Working Group concluded that witness statements are "over-lawyered" and published some recommendations to address some of the problems. While it shied away from recommending radical reforms, it recommended, for example, the creation of an authoritative statement of best practice, a more developed Statement of Truth and that the Courts should more readily apply costs sanctions for non-compliance with the Rules, Practice Directions and Guides. The timing for such developments is yet unknown and it remains to be seen whether these recommendations are implemented and would curb some of the more zealous drafting practices by the legal industry.

Brexit

Any legal round-up would be remiss if it omitted to mention the seminal prorogation cases R (on the application of Miller) v The Prime Minister and Cherry and ors v Advocate General for Scotland. Unsurprisingly, much ink has been expended over this topic and the sheer-volume and breadth of commentary and opinion is indicative of its importance to constitutional law, despite it being a "one-off" set of circumstances and judgment (one hopes). The Supreme Court, with Lady Hale (and her now infamous spider brooch) handing down the judgment, unanimously held that (i) the PM's advice to Her Majesty was justiciable, (ii) the decision to advise Her Majesty to prorogue Parliament was "unlawful, void and of no effect", prevented Parliament from carrying out its constitutional functions without reasonable justification and "the effect upon the fundamentals of our democracy was extreme". Therefore, the prorogation was also void and of no effect – as a matter of law the prorogation can be said never to have happened – see our briefing on the case.

And even after the result of yesterday's General Election, Brexit is likely to remain at the forefront of British life for a good while longer.  See you in 2020!