UK FCA publishes new webpage consolidating its work on wholesale bank supervision

The FCA has published findings from its multi-firm review into share buybacks by UK-listed issuers, focusing on the conduct of banks involved in structuring, marketing and executing these transactions, in particular managing conflicts of interest. The review found no material concerns with outcomes delivered by banks when they are structuring, marketing and executing buybacks. In addition, the FCA did not find unmanaged conflicts in the way the products were executed. The FCA notes that the materials that banks use to educate issuers about their share buyback products could be improved by including (i) options for bespoke features so that issuers are aware of how products can be tailored to their needs; (ii) examples of scenarios to better illustrate potential outcomes of structured buybacks; and (iii) where specific information about the drivers of a bank's execution decisions are not covered, more detail on how structured buybacks work so that issuers have an enhanced understanding of how structured buybacks may behave in practice. In light of its findings, the FCA confirms it has provided individual feedback to all banks in the review and encourages other banks offering share buybacks to assess the findings against their own processes.

While conducting the review, the FCA also received feedback that certain features of the UK Listing Rules and UK Market Abuse Regulation (MAR) may restrict the efficiency of buyback programmes. Such factors include pre- and post-trade disclosure requirements, restrictions on trading of buybacks on trading venues and limits on the level of trading venues' activity on trading venues which reduce the liquidity and pricing available for buybacks. The FCA will consider the feedback in future rule reviews with a view to reducing the burden on firms and supporting effective capital return.

The FCA examined gifts and entertainment given by brokers to wholesale banks to assess firms' conflict of interest controls in this regard. The FCA's review sets out its findings and encourages firms to consider whether their policies on gifts and entertainment need clarifying, to analyse why groups of employees fail to record data and assess the consequences for clients and markets.

The FCA assessed the conflicts of interest registers and breach data relating to conflicts of interests of sample firms. The FCA notes that most firms had added scenarios to reflect a change in business scope and had records of breaches of internal policies. Where firms have no changes over the past three years, the FCA urges firms to challenge the outcomes.

The FCA has published findings from its multi-firm review into off-channel communications (i.e. communications occurring outside of monitored, recorded channels a firm has permitted). The review focuses on wholesale banks' compliance with SYSC 10A recordkeeping rules, which are also discussed in Market Watch 66. Noting that all the firms in the sample had improved their processes over the past two years, the FCA sets out its findings on the steps firms have taken to make improvements in relation to their frameworks, surveillance, third-party vendors, management information, breaches and addressing breaches. The FCA encourages firms to consider the issues it raises. The FCA intends to continue to engage with firms regarding their off-channel communications, in particular discussing the use of breach data to identify trends and the need to take to further action.

The FCA has become aware of issues where insider lists are not being well maintained and will conduct further work to assess whether this is a systemic issue.

The FCA has published findings from its multi-firm review of transaction governance across six wholesale banks. The review covered risk appetites, overall framework and process, pre-committee and committee stages, conditions, engagement of senior executives and cross-border transactions. While no widespread weaknesses were identified, the FCA found that the robustness of governance frameworks vary significantly. The FCA sets out the best practices and weak approaches identified during the review. Firms should consider the findings and, where appropriate, take steps to remedy gaps and inconsistencies across six wholesale banks. The review covered risk appetites, overall framework and process, pre-committee and committee stages, conditions, engagement of senior executives and cross-border transactions. While no widespread weaknesses were identified, the FCA found that the robustness of governance frameworks vary significantly. The FCA sets out the best practices and weak approaches identified during the review. Firms should consider the findings and, where appropriate, take steps to remedy gaps and inconsistencies.

The FCA's work demonstrates that while improvements have been made in this area, issues remain such as the misuse of Title Transfer Collateral Arrangements, change management weaknesses, delays in allocating interest on client money, IT control failures and missing data on reconciliations and a misunderstanding of internal client money reconciliation rules and margin transaction requirements.