Welcome to The MPAC Group, the UK's leading corporate compliance and regulatory advisory firm.

We have achieved this respect by working closely with our clients to meet their corporate regulatory, financial or legal obligations.

We believe client satisfaction is a function of people, solutions and delivery. At MPAC, our team of experts is comprised of experienced compliance officers, money laundering reporting officers (MLROs), senior regulators, qualified actuaries, lawyers and accountants from the financial sector delivering a wide array of services targeted to help our clients navigate through various corporate landscapes. Please take a look at how MPAC can help your business grow.

MiFID II/MIFIR - Commodities Derivatives

The existing Markets in Financial Instruments Directive (MiFID) which has been in force since November 2007 is benign for firms engaged in commodities derivatives trading. The great majority of firms so engaged were doing so on an exclusive basis. They were therefore able to remain exempted either completely from the UK regulatory perimeter as unregulated firms or in a very limited way via the implementation of various exemptions from the full effects of MiFID. In the UK, such firms currently enjoy one of the following regulatory statuses - Local, Oil Market Participant, Energy Market Participant, BIPRU exempt Commodities Firm or IFPRU exempt Commodities firm.

Under MIFIR/MiFID II, however, the regulatory treatment of both commodities derivatives as an asset class and firms engaged in their trading will be significantly more onerous.

Spot physical trading will remain outside the scope of MiFID, however forwards, futures, options and CFDs on the following underlying commodities will come into scope:

  • Metals, including precious;
  • Energy products (oil, gas, coal and fuel oil);
  • Agricultural commodities;
  • Emission allowances;
  • All other commodities, such as electricity

Firms which were previously able to rely on exemptions from MiFID for their commodities derivatives activities under either article 2 (1) b), d) or k) or article 3 [Check references] will need to determine where their business will sit after the implementation of MiFID II/MIFIR on 3rd January 2018.

In the event that your firm is active in this asset class and has to date taken little (or no) action to understand a) what the consequences of the implementation of MiFID II/MIFIR are for its regulatory status or b) what the potential options available to you are, we would recommend you start the ball rolling as soon as possible.

Whatever post-BREXIT solution is agreed between the UK and the EU, the implementation date of MiFID II will precede BREXIT by at least twelve months. Inertia is therefore not an option, also because post-BREXIT the UK will be compelled to able to demonstrate superequivalence of its regulatory framework to ensure access to the EU for financial services firms.

MPAC is already assisting in scope firms to prepare for MiFID II. Whatever your state of preparedness for this significant regulatory change, MPAC would welcome an initial conversation to understand where your firm is and where it wishes to end up. We are able to guide you as to the options available to your firm at a strategic, operational and control level.

Please contact Nick Andrews or Philip Buckingham in the first instance either by e-mail (name.surname@mpacgroup.co.uk) or by telephone on 020 3056 0956.

FCA Proposes Stricter Rules for Contract for Difference Products

The FCA has published its proposal of stricter rules for firms selling 'contract for difference' (CFD) products to retail customers to ensure that consumers are appropriately protected.

CFD products are complex financial instruments offered often through online platforms. The FCA has growing concerns that more retail customers are opening and trading CFD products that they do not adequately understand. 82% of clients lost money on CFD products in the FCA's analysis.

The FCA is proposing a package of measures to limit the risks of CFD products and ensure that customers are better informed, including:

  • Introducing standardised risk warnings and mandatory disclosure of profit-loss ratios on client accounts by all providers to better illustrate the risks and historical performance of these products.
  • Setting lower leverage limits for inexperienced retail clients who do not have 12 months or more experience of active trading in CFDs, with a maximum of 25:1.
  • Capping leverage at a maximum level of 50:1 for all retail clients and introducing lower leverage caps across different assets according to their risks. Some levels of leverage currently offered to retail customers exceed 200:1.
  • Preventing providers from using any form of trading or account opening bonuses or benefits to promote CFD products.

Should you need any additional information, advice or assistance, please do not hesitate to contact us on +44 (0) 20 3056 0956 or email us on info@mpacgroup.co.uk

New HM Treasury Office for Financial Sanctions

HM Treasury launched a new body - the Office of Financial Sanctions Implementation (OFSI) - on 31 March 2016 to ensure financial sanctions are properly understood, implemented and enforced.

The UK Government announced in the 2015 Summer Budget that it would be seeking to increase the penalties for non-compliance with financial sanctions from a maximum of two years' imprisonment and/or an unlimited fine to seven-year imprisonment and/ or an unlimited fine in line with a breach of domestic terrorist asset freeze. We have observed that many commentators have made comparisons between the OFSI and the US Treasury Department's Office of Foreign Assets Control (OFAC), with the majority alluding to the potential increase in UK enforcement action.

We, therefore, strongly urge firms to take financial sanctions seriously and ensure compliance with the regime at all times. To do so, we encourage you to:

  • conduct sanction screening, e.g. utilise an electronic sanctions checking service or check your clients and third party service providers against the OFSI lists before the establishment of the business relationship;
  • conduct on-going monitoring and review the client or service provider against the OFSI lists throughout your business relationship;
  • maintain adequate records of your due diligence;
  • subscribe to the free e-mail alerts generated by the OFSI for any changes to the UK regime; and
  • check the OFSI website for any new updates on guidance and Q&A briefings.

Firms should be made aware that the FCA is not responsible for sanctions enforcement and the FCA's register should not be relied upon for the purpose of sanction screening.

Should you need any additional information, advice or assistance with the UK sanctions regime or sanction screening service, please do not hesitate to contact us on +44 (0) 20 3056 0956 or email us on info@mpacgroup.co.uk

FCA Sent Emails Regarding Misleading Marketing to all Firms Carrying Out Currency Transfer Services

The FCA sent an email to all firms carrying out currency transfer services on 26th May 2016.

The Regulator is concerned with the way that the interbank rate in currency converter tools was used in promotional and marketing materials. The FCA found that currency converter tools may give consumers a false impression that the superior interbank rates shown are available to them, rather than the materially inferior rate which they may actually receive.

The FCA reminded firms undertaking currency transfer businesses should be aware of their compliance with obligations under relevant regulations and legislation such as the Consumer Protection from Unfair Trading Regulations 2008 ('the CPRs'), BCOBS 2 of the FCA Handbook (if banks), The Price Indications (Bureaux de Change) (No 2) Regulations 1992 ('the PIRs') and UK Advertising Codes by the Advertising Standards Authority (ASA).

The FCA also observed that some firms claim that consumers can make specified savings and achieve better rates by using their services rather than those of their competitors. Firms should only make such claims if they are not misleading for the purposes of the CPRs and the FCA financial promotion rules.

In addition, payment institutions are allowed to make factual statements about their regulatory status. However, stating or implying that the firms have the approval or endorsement of the FCA would be in breach of the CPRs.

Should you need any advice or help on marketing and promotion compliance in relation to currency transfer services or any other matter, please do not hesitate to contact us on +44 (0) 20 3056 0956 or email us on info@mpacgroup.co.uk

One-Year Delay to MiFID II/MIFIR Agreed

An agreement on a one-year delay to new securities market rules was approved on 18th May 2016.

In May 2014 the Council of the EU adopted 'MiFID II' and 'MiFIR' to replace the existing MiFID text that regulates markets in financial instruments. MiFID II and MiFIR are:

  • MiFID II: It amends rules on the authorisation and organisational requirements for providers of investment services and on investor protection. The directive also introduces a new type of trading venue, the organised trading facility (OTF). Standardised derivatives contracts are increasingly traded on these platforms, which are currently not regulated.
  • MiFIR: It aims at improving transparency and competition of trading activities by limiting the use of waivers on disclosure requirements and by providing for non-discriminatory access to trading venues and central counterparties (CCPs) for all financial instruments, and requiring derivatives to be traded on organised venues.

Under the approach agreed, the deadline for the member states to transpose MiFID II into national legislation will be 3rd July 2017, and the date of application of both MiFID II and MiFIR will be on 3rd January 2018.

Should you need any additional information, advice or help on MiFID II/MiFIR preparatory issues or any other matter, please do not hesitate to contact us on +44 (0) 20 3056 0956 or email us on info@mpacgroup.co.uk.

Supervisory Priorities Arising from the MAR STOR Regime

The FCA published a web page regarding its supervisory approach and priorities in relation to suspicious transaction and order reports (STOR) regime from the implementation of EU Market Abuse Regulation's (MAR) on 3rd July 2016. The new STOR regime contains a number of key differences compared to the existing Suspicious Transactions Reports (STR) regime under the Market Abuse Directive (MAD).

  • Regulated firms and other persons as 'notifiers' - will be required to detect and report any suspicious behaviour or activity which is in scope of MAR, including instruments traded on a wider range of trading venues compared to MAD and suspicious orders and transactions;
  • Attempted manipulation and attempted insider dealing are in scope of MAR now; and
  • An indicative list of indicators of manipulation from MAR that notifiers should be aware of in ensuring their systems and procedures are effective, and trading venues must also have effective systems aimed at preventing market abuse.

The FCA is building a system for firms and trading venues to use to report STORs. Notifications are to be made using the Connect system.

The FCA will continue to take a risk-based approach, and the new STOR regime may require significant technology changes for some notifiers in relation to surveillance of quotes. The FCA also expects that notifiers to show detailed and realistic plans to be in place for inspection at any time, in order to demonstrate that them have done their best to achieve full compliance, if they are not in a position to deploy fully effective surveillance required by MAR by 3 July 2016.

Should you need any additional information, advice or help on this or any other matter, please do not hesitate to contact us on +44 (0) 20 3056 0956 or email us on info@mpacgroup.co.uk.

FCA's Key Findings on Inducements and Conflicts of Interest

In 2015, the FCA conducted a thematic review on the benefits provided and received by regulated firms. While it will not be publishing a final report, more commentary is expected in the FCA's MiFID II consultation paper. The review presented the following key findings:

  • Firms did not provide or receive hospitality that enhanced the quality of service to clients. The FCA makes it clear that all aspects of the hospitality should be assessed in terms of their ability to enhance client service;
  • Firms combined hospitality that did not offer any enhanced client service with hospitality that did meet requirements. Firms are expected to refrain from this practice and consider each activity's benefit separately;
  • Hospitality logs are not maintained appropriately. Firms must ensure sufficient detail on the benefits received and provided is recorded to guarantee effective monitoring and compliance;
  • Product providers made excess payments to advisory firms facilitating training or educational material supplied by them. The FCA clarifies that payments should only cover the costs incurred, otherwise these are likely to be inducements; and
  • MiFID firms are expected to ensure that clients are given an indication of the value of the allowable benefits provided in order for clients to be aware of the possible levels of inducements, which the firms were not respecting.

Firms should also be reminded that they are still subject to the inducement rules in COBS 2.3 of the FCA Handbook and, in case of Investment Managers, the dealing commission rules in COBS 11.6 of the Handbook. And close attention should be given to the new research unbundling rules coming into force under MiFID II in January 2018.

Should you need any additional information, advice or help on this or any other matter, please do not hesitate to contact us on +44 (0) 20 3056 0956 or email us on info@mpacgroup.co.uk.

FCA Requires Disclosure of Panama Papers Involvement

The FCA has written to around 20 banks and financial services firms enquiring about the extent of their involvement with the law firm Mossack Fonseca and the 11.5 million files knows as the Panama Papers. It has set a deadline of April 15th for those firms to provide information about their dealings with Mossack Fonseca and the action which they are taking. After the initial April 15th disclosure date, the FCA will require the targeted firms to provide "..updates on any significant issues or relationships identified" and a full response outlining the findings following the conclusion of their internal investigations.

The key message behind the FCA's letter is to remind UK based firms that any overseas branches and subsidiaries outside of Europe must comply with the UK's standards for client account monitoring and customer due diligence.

Should you need any additional information, advice or help on this or any other matter, please do not hesitate to contact us on +44 (0) 20 3056 0956 or email us on info@mpacgroup.co.uk.

Iranian Sanctions Update

Following the nuclear agreement agreed by world powers and Iran recently, U.S. and EU lifted some sanctions against Iran. SWIFT is also preparing to allow Iranian banks to return to using the payment system.

Although most sanctions are lifted, it is not the case for all sanctions. The EU goes further than the U.S. in that the majority of individuals and entities of the EU sanction targets will be delisted, whereas U.S. will retain all domestic sanctions and only lift extra-territorial sanctions. Therefore, firms will need to be exceedingly careful in simply reconnecting as not all sanctions were lifted by the U.S. Payments made in US Dollars and firms/banks with U.S. connections need to be cautious. Whilst trade with Iran provides opportunities, the following key points must be considered:

  • Any U.S. Citizens involved?
  • Any payments made in US Dollars?
  • Any transaction involved in the supply of any U.S. made goods either wholly or partially?
  • Is the Iranian counterparty, or any other party involved in the transaction still included on an applicable sanctions list?
  • Any contractual exclusion you may have (e.g. banking arrangements)?
  • Any support provided within the insurance cover?
  • Any implications of dealing with other Iranian counterparties who are sanctioned and may be connected to your client?
  • Any document and evidence of the checks carried out?

MPAC partners with ComplyAdvantage, a leading compliance checking platform which implements real-time data to provide accurate and updated information regarding all politically exposed persons (PEPs), trade sanctions and adverse media.

Should you need any additional information, advice or help on this or any other matter, please do not hesitate to contact us on +44 (0) 20 3056 0956 or email us on info@mpacgroup.co.uk.

Consultation Paper on Regulatory References Requirements

The FCA and the PRA jointly published a Consultation Paper in October 2015 about their proposals for regulatory references.

In the Consultation Paper the FCA and PRA set out the following main proposals for Relevant Approved Persons ("RAP")* and insurers:

  • Requiring firms to request regulatory references from former employers of candidates applying for SMFs and certification functions in RAPs and PRA senior insurance management functions ("SIMFs") at insurers to go back six years.
  • Modifying certain prescribed responsibilities for Senior Managers in RAPs and insurers to include compliance with the regulatory reference rules.
  • Mandating the inclusion of concluded breaches of the conduct requirements of FCA Conduct Rules (COCON), PRA Conduct Rules and Statements of Principle and Code of Practice for Approved Persons (APER) going back six years.
  • Requiring disclosures by RAPs and insurers in a standard format including the need to confirm where there is no relevant information to disclose.
  • Requiring RAPs and insurers to update previous references given in the past six years, where they become aware of matters that would cause them to draft that reference differently if they were drafting it now.

The existing requirements for firms to disclose all relevant information in references remains. The reference should meet the firm's legal obligations to ensure that it is clear, accurate and fair. Currently the requirement to provide a reference on request is actionable for damages. The FCA is consulting that whether, under the new requirement, providing a reference should be actionable for damages. In addition, the FCA and the PRA will consider whether the specific proposals for RAPs and insurers should be extended to all authorised firms.

The FCA and the PRA welcome all comments by 7th December 2015, and will publish their rules in a Policy Statement in early 2016, ahead of the effective date of the new accountability regime on 7th March 2016.

*'RAP' is short for 'relevant authorised person', the term used in section 71A of the Financial Services (Banking Reform) Act 2013 to describe deposit takers and PRA investment firms.

Should you need any additional information, advice or help on this or any other matter, please do not hesitate to contact us on +44 (0) 20 3056 0956 or email us on info@mpacgroup.co.uk.

Plans to Introduce 'Reverse Burden of Proof' Abandoned

The Treasury has dropped its controversial so-called 'reversal of burden of proof' plan, as part of a proposed new Senior Managers & Certification regime which would impose a guilty until proven innocent burden on top executives. Senior managers will instead have a new 'duty of responsibility' plan, which requires management to take appropriate steps to prevent regulatory breaches. Senior staff in the entire financial sector will have more responsibilities for failings under their management.

Tracey McDermott, acting head of the FCA, said: "Extending the senior managers' and certification regime is an important step in embedding a culture of personal responsibility throughout the financial services industry."

The new Senior Managers & Certification regime, which will come into effect on 7th March 2016, will also be extended to fund managers, mortgage brokers and consumer credit firms from 2018.