Update

UK Regulatory Reform

	Money Laundering

The FOA continues to discuss with FSA and a working party of member firms the feasibility of establishing a consensual basis whereby executing brokers may be able to rely upon verification of identity by clearing brokers of mutual underlying customers. Difficulties have arisen over the extent to which the executing broker needs to be individually satisfied as to the process of delegation and to check independently the identity records of the clearing broker. Unfortunately, it would appear that the problems stem largely from the statutory regulations – otherwise a much more pragmatic approach could be adopted. The FOA believes that it is absurd to require authorised fit and proper institutions which are required to perform a regulatory function to the same standard deploying largely the same methodology not to be able to rely fully on each other as regards the verification of identity of common customers. As it is, further meetings are being arranged to establish a “final” position, after which the FOA will report back to the membership at large and review what may be the appropriate next steps. Firms may be aware that there are parallel concerns in this area in the US.

In view of the establishment of the high-level Money Laundering Advisory Committee, the growing importance of the JMLSG Guidelines and the need for the Steering Group to be more formally established, the constitution of the JMLSG and the process for producing and ensuring the accuracy of the Guidelines will come under review shortly.

At a high-level roundtable co-ordinated by the FOA and held with the support and sponsorship of the Corporation of London, the FOA took the opportunity of urging the US and UK authorities and the European Commission and CESR to review whether or not their respective money laundering rules could be the subject of greater harmonisation. This would not only facilitate more effective mutual recognition between states, but would enable global institutions to develop effective and workable group policies which could be adopted on a global basis for assisting in the detection and prevention of money laundering. The FOA recognises that there will be differences in regulatory culture and in the overarching legislation which may make this difficult, but believes that that should not prevent the delivery of deeper regulatory consensus in a matter where there is a common international public good and wide international consensus.

	Compliance Fora

The Compliance Fora held by the FOA on 22 April and 14 May respectively comprised two separate interactive “roundtable” workshops on the regulatory processes and procedures in the event of a breach of the Code of Market Conduct and, by Freshfields, on dealing with FSA investigative enforcement procedures through the use of case studies.

The next Compliance forum will be held on Friday 2 August (and not, as originally scheduled, 30th July). Details will be circulated separately to members.

These forum meetings have been supplemented by a workshop on US Money Laundering Rules held on 24 April; an Operational Risk Workshop held on 28 June; a Human Resources Workshop held on 1 July; and an Energy Forum held on 8 July.

	End User Guidelines

The FOA has now completed its revision of the End User Guidelines which are designed to cover good practice by end users in the area of due diligence and putting in place controls and procedures designed to identify, monitor, manage and mitigate areas of risk to which they will be subject in their use of derivatives, principally, market risk, credit risk, operational risk and legal risk. It is anticipated that they will be available by the end of July/early August.

	Consumer Guide

The FOA believes that there is a growing retail focus in the area of leveraged and alternative investment products and financial instruments and is intending to produce, in association with the Association of Private Client Investment Managers and Stockbrokers (APCIMS), a plain English pocket size guide on what can reasonably be expected of retail consumers in terms of undertaking their own due diligence as to product suitability, position monitoring and selection of brokers as well as providing an outline of the key features of the core products that fall into the category of “alternative” or “leveraged” and a balanced description of risk and reward. The publication will include a plain English Glossary of Terms and will also outline to retail investors, albeit briefly, applicable complaints procedures and rights to compensation.

APCIMS and the FOA have agreed to establish an editorial panel to assist with reviewing the draft text. Any organisation interested in participating in some way should get in touch with Anthony Belchambers at the FOA.