Clifford Chance

We highlight some of the key areas of focus for financial services firms in 2020.

1. New directive places treatment of whistleblowers under the microscope

The provisions of the Whistleblowing: Directive (EU) 2019/1937 on the protection of persons who report breaches of Union law (the Directive) comes into force on  17 December 2021 introducing measures to: ensure retaliatory or recriminatory action cannot be taken against whistleblowers, and; a 'three tier' reporting mechanism.

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2. Environmental, Social and Governance issues (ESG)

Firms will need to raise their ethical awareness as sustainable finance is set to be hot on the regulatory agenda in 2020, with an increasing focus on non-financial risks and how firms' define their 'company purpose'.

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3. Proposed new regulatory rules for Operational Resilience and Outsourcing risk

Wide-ranging rules on operational resilience and outsourcing will require firms to identify and document arrangements in place with respect to business activities that, if disrupted, would pose a risk to consumers and market participants, a firm's safety and soundness and the wider stability and integrity of the UK financial sector.

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4. Fifth Money Laundering Directive extends regime to Cryptoasset firms

On 10 January 2020, the Fifth Money Laundering Directive (EU)2018/43 (5MLD) came into force and the FCA took up the role of the anti-money laundering and counter terrorist financing supervisor for cryptoasset businesses.

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5. DPAs: a get out of jail free card?

2019 was a mixed year for Deferred Prosecution Agreements (DPA's) with failures by the SFO to establish individual involvement in the conduct covered by the DPAs.

In January 2019, the SFO released the terms of a DPA reached in 2017 with Tesco Stores Limited, who agreed to pay a GDP129m fine and GDP3m investigation costs. However, following the earlier collapse of the trial and acquittal of two defendants in the case, the SFO offered no evidence against the remaining defendant who was similarly acquitted of all charges.

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6. Culture and governance to focus on psychological safety

Culture and Governance remains a key priority in 2020 as the FCA expands on the themes of its 2018 Transforming Culture Discussion Paper.

The FCA confirmed in its 2019/20 Business Plan that it will hold a second 'Transforming Culture Conference' in March 2020 to share and discuss the outputs that flowed from its first Transforming Culture Conference, which included a focus on 'psychological safety'.

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7. A new Regulatory Duty of Care

In a speech by Christopher Woolard on 21 October 2019, the FCA indicated it intends to further consult on the duty of care in 2020.

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8. Closing the gaps on Individual Accountability

In December 2020, the SMCR will be extended to benchmark administrators, as set out in FCA CP19/31. In its second report on IT failures in the financial services sector, the Treasury Committee has also called for its extension to financial market infrastructure firms, including payment systems, to improve accountability among service providers whose operational failures could cause significant consumer harm.

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9. Extension of the regulatory perimeter to Cryptoassets and allocation of risk in Artificial Intelligence (AI)

Cryptoassets

Following the findings in the final report of the joint HM Treasury/FCA/Bank of England Cryptoassets Taskforce, HM Treasury is expected to publish its consultation on the extension of the regulatory perimeter to those cryptoassets with comparable features to specified investments and examine how exchange tokens and related firms, such as crypto exchanges and wallet providers, could be regulated effectively.

AI

Whilst AI remains in a nascent stage in terms of development and regulatory treatment, it is interesting to note that in mid-2020, the English civil courts will consider the question of where liability lies when an investor suffers substantial losses at the hands of an AI-powered trading or investment system in Tyndaris v VWM.

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10. Further ICO Enforcement actions

During 2020, firms must not take their eye off their ongoing data protection obligations, as we anticipate further investigations by the Information Commissioners Office (the ICO) and for the ICO to look for ways to use not only its non-criminal enforcement powers, but also its criminal prosecution and audit powers. We expect to see the ICO using its extensive powers to search for evidence to support suspicions of misconduct under the General Data Protection Regulations 2018 (GDPR), including making visits to businesses to do so.

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