Regulation  

FCA needs to catch up with US

FCA needs to catch up with US

The special relationship between the UK and the US is stronger than the sceptics would lead you to believe – at least that is the case for the UK Financial Conduct Authority and the US Securities and Exchange Commission. 

Co-operation between financial regulators is essential in the increasingly globalised financial services market. Much like the hurricane-inducing butterfly, pressing the enter key on a trade in one jurisdiction can cause ripples on markets halfway across the world.

Nowhere is this more relevant than in the world’s two largest financial centres, New York and London.

While the cities might be some 3,600 miles apart with an ocean in between, with today’s technology, traders could not be closer if they were in adjoining rooms. It is therefore unsurprising to learn that the financial regulators on either side of the Atlantic have a long and well-established history of co-operation and collaboration. 

The framework

Way back in the mists of time, even before the birth of the FCA’s predecessor the Financial Services Authority, the SEC executed a memorandum of understanding with the UK Department of Trade and Industry that set out the means by which both sides would co-operate on the regulation of securities and commodity futures.

Since then, the relationship between the two regulators and their successors has blossomed, each recognising that information sharing and collaborative working is vital to ensure the strong and efficient governance of the global marketplace.

Most recently, in March 2019, the FCA and the SEC reaffirmed the importance of the united approach to supervision and enforcement by signing two revised MOUs intended to bolster the two agencies’ co-operation, oversight and information sharing practices.

Key points

  • There is a special relationship between the SEC and the FCA
  • The two institutions recently signed MOUs to bolster co-operation
  • The two regulators worked together on the London 'Whale'

As SEC chairman Jay Clayton commented at the time of signing: “The SEC and FCA have a long history of effective co-operation on supervisory and other matters.”

While these latest MOUs continue to provide an important method of information sharing, both agencies continue to wield their own wide-ranging statutory powers that allow them to assist each other on a discretionary basis.

The enabling statutes on both sides – the US Securities Exchange Act of 1934 and the UK Financial Services and Markets Act 2000 for the FCA – permit confidential information to be shared with overseas regulators, provided the disclosure is for the purposes of enabling or assisting the recipient to discharge its functions.

They also allow for the agencies to conduct investigations and gather information on behalf of foreign regulators, including exercising their powers to compel individuals to attend for interview (or be subpoenaed) and provide all and any relevant documents, even if the compelled individual is not themselves a regulated person.

In the UK, the threshold for providing assistance to overseas regulators is relatively low.

The FCA does not have to critically examine such a request and may choose, when deciding whether to exercise its discretionary power to assist, to take into account criteria such as:  

  • Whether the request relates to a breach of law or regulation of which there is no close parallel in the UK;
  • Whether corresponding assistance would be given by the foreign state to the FCA;
  • The seriousness of the case; and
  • Whether it is in the public interest to provide the requested assistance.

Crucially, the FCA is not obliged to satisfy itself of the merits of the underlying investigation, or the relevance of the information requested.