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FCA and PRA Rules Breach Leads to Damages Claim
A recent contravention by an authorized firm of Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) rules has sparked a damages claim, highlighting the importance of adhering to regulatory requirements.
Standard of Care
When dealing with retail customers, financial services firms are subject to a high standard of care, which requires them to treat clients fairly and act in their best interests. This includes:
- Providing clear communication
- Disclosure
- Transparency
Retail clients also benefit from additional protections, such as:
- Financial Ombudsman Service
- Financial Services Compensation Scheme
Ring-Fencing Regime
The UK is introducing a ring-fencing regime around retail deposits held by financial institutions, which aims to separate core banking services critical to individuals and small- and medium-sized enterprises from wholesale and investment banking services. This move is designed to insulate retail customers and smaller businesses from the potential failure of an investment bank.
Breaches of Regulatory Rules
When a firm breaches FCA or PRA rules, it can lead to serious consequences, including damages claims. The courts will look to the scope of regulatory rules to inform the scope of common law duties owed by financial firms to clients. In some cases, customers may be able to bring claims against investment firms in contract or tort where there has been a breach of a regulatory rule or requirement.
International Standards
The UK generally seeks to implement international standards. The FCA and PRA engage regularly with European and international counterparts to enhance cooperation, share best practice, and discuss issues of common interest.
Brexit Uncertainty
The outcome of the referendum on the UK’s membership of the EU has led to uncertainty for the financial services industry in the UK. The government has not published a position paper specifically relating to financial services, but has indicated that it intends to reach agreement on an implementation period. Many financial institutions are considering restructuring their EU business or seeking deposit-taking or other licenses in multiple EU jurisdictions. Brexit could also affect financial services infrastructure, such as access to clearing houses or payment services.
Conclusion
The recent contravention by an authorized firm of FCA and PRA rules highlights the importance of adhering to regulatory requirements. Financial services firms must ensure that they are complying with all relevant regulations to avoid serious consequences, including damages claims. As Brexit uncertainty continues to loom, financial institutions must be prepared for changes in the regulatory landscape and adapt accordingly.