Those involved in internal investigations and regulator/auditor communications at regulated firms will be interested in the FCA’s recent publication of a First Supervisory Notice in respect of Direct Trading Technologies UK Ltd (the Firm). Some key takeaways as follows but for more details please see our Notice in a Nutshell.
- FCA Supervisory Powers: The restrictions that the FCA has imposed on the Firm are severe including prohibiting it from dealing with its own assets and requiring notifications to clients and on its website. The Notice serves as a reminder that these can be imposed with immediate effect and indefinitely pending the outcome of a formal process allowing the firm to make representations or a reference to the Upper Tribunal.
- Firm/Auditor Communications: Following a number of high-profile recent cases, auditors are alert to potentially suspicious activity and possible fraud red flags. Failures to provide satisfactory supporting documentation and consistent, credible explanations may give rise to a report to the regulator. Firms need to ensure that they have robust governance and oversight over the audit process and information being provided to the auditors and that they deal comprehensively and appropriately with any queries or concerns.
- Conducting Investigations: In certain circumstances, including where senior management may have an involvement in the relevant activities, the FCA expects an investigation to be conducted by an independent third party. A badly conducted internal investigation which does not meet the FCA’s expectations in terms of scope, process and outcome can lead to further regulatory issues. Careful consideration needs to be given to who should conduct the investigation; whether the terms of reference for the investigation are sufficiently broad; and the reporting of the outcome and next steps including adequate remedial actions.
- Internal Escalations, Governance and Regulator Communication: When potential issues arise such as suspected accounting irregularities and/or staff misconduct, consideration needs to be given on an ongoing basis to escalation to the board and reporting to the regulator. Board minutes should record consideration given to such matters and any regulatory notifications should take into account information already provided and explanations in relation to any discrepancies. Firms cannot rely on auditors to make the regulators aware of relevant matters.
If you would like any more information on the issues raised in this blog please do not hesitate to contact either of the authors. For further knowledge resources in this area, please see our dedicated Financial services interventions and investigations hub.