FCA still expresses doubt and warns about investing in Crypto currency (11 January 2021)

The FCA still has serious doubts about the safety of Crypto currencies as an investment vehicle - and I must admit, I agree about this wholly unregulated, and volatile investment medium.

The FCA says:

"FCA is aware that some firms are offering investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns. Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money. If consumers invest in these types of product, they should be prepared to lose all their money."

 See their detailed warniing here: https://www.fca.org.uk/news/news-stories/fca-warns-consumers-risks-investments-advertising-high-returns-based-cryptoassets

Statement from BIS on crypto assets 19 March 2019

Statement on crypto-assets

The past few years have seen a growth in crypto-assets. While the crypto-asset market remains small relative to that of the global financial system, and banks currently have very limited direct exposures, the Committee is of the view that the continued growth of crypto-asset trading platforms and new financial products related to crypto-assets has the potential to raise financial stability concerns and increase risks faced by banks.

While crypto-assets are at times referred to as "crypto-currencies", the Committee is of the view that such assets do not reliably provide the standard functions of money and are unsafe to rely on as a medium of exchange or store of value. Crypto-assets are not legal tender, and are not backed by any government or public authority.

Through this newsletter, the Basel Committee is setting out its prudential expectations related to banks' exposures to crypto-assets and related services, for those jurisdictions that do not prohibit such exposures and services.

Crypto-assets have exhibited a high degree of volatility and are considered an immature asset class given the lack of standardisation and constant evolution. They present a number of risks for banks, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering and terrorist financing risk; and legal and reputation risks. Accordingly, the Committee expects that if a bank is authorised and decides to acquire crypto-asset exposures or provide related services, the following should be adopted at a minimum:

Due diligence: Before acquiring exposures to crypto-assets or providing related services, a bank should conduct comprehensive analyses of the risks noted above. The bank should ensure that it has the relevant and requisite technical expertise to adequately assess the risks stemming from crypto-assets.
Governance and risk management: The bank should have a clear and robust risk management framework that is appropriate for the risks of its crypto-asset exposures and related services. Given the anonymity and limited regulatory oversight of many crypto-assets, a bank's risk management framework for crypto-assets should be fully integrated into the overall risk management processes, including those related to anti-money laundering and combating the financing of terrorism and the evasion of sanctions, and heightened fraud monitoring. Given the risk associated with such exposures and services, banks are expected to implement risk management processes that are consistent with the high degree of risk of crypto-assets. Its relevant senior management functions are expected to be involved in overseeing the risk assessment framework. Board and senior management should be provided with timely and relevant information related to the bank's crypto-asset risk profile. An assessment of the risks described above related to direct and indirect crypto-asset exposures and other services should be incorporated into the bank's internal capital and liquidity adequacy assessment processes.
Disclosure: A bank should publicly disclose any material crypto-asset exposures or related services as part of its regular financial disclosures and specify the accounting treatment for such exposures, consistent with domestic laws and regulations.
Supervisory dialogue: The bank should inform its supervisory authority of actual and planned crypto-asset exposure or activity in a timely manner and provide assurance that it has fully assessed the permissibility of the activity and the risks associated with the intended exposures and services, and how it has mitigated these risks.
The Committee continues to monitor developments in crypto-assets, including banks' direct and indirect exposures to such assets. The Committee will in due course clarify the prudential treatment of such exposures to appropriately reflect the high degree of risk of crypto-assets. It is coordinating its work with other global standard setting bodies and the Financial Stability Board. 

Cryptocurrency 6/2/19. You CAN take it with you!


It seems that if you do not unlock your bitcoin account before you go you have, in effect, taken your capital with you!


This must be a major blow for the "imaginary" currency, as it must be a major blow to confidence in what has become a very worrisome market. Even the banks must be fuming, as, because it is not in any bank, they do not get to keep hold of the "dormant" (more like extinct!) account - which would have earned them money, even if eventually passed over to "good causes".


Would you leave all your passwords with your kith and kin? Even so, there is no explicit procedure for a relation of the account holder to claim the account.


It appears a bitcoin account can die with its holder.


Watch this space!

Cryptocurrency 31/12/17

Good to see the Bank of England is taking a sensible approach to cryptocurrency and using the blockchain technology for a sterling-backed model for its digital currency. This should have everything that the Bitcoin and others lack - a measurable supporting baseline (Sterling), trackable and verifiable transactions, and hedging mechanisms (via Sterling, or other currency, futures).

I suspect that this will end the speculative nature of Bitcoin, (with its potential for hiding the proceeds of crime and money laundering) and develop its nature as a fully secure electronic/digital currency, moveable around the world via the internet.

It is right that the BoE has taken its time and waited until the Blockchain technology has been tested for its robustness before launching its own facility.

Cryptocurrency 22/12/17.

First sign of a dip already! Might this be because the new futures contracts add transparency to the market and are bring out the short sellers? But, what is the hedge of the short seller?

Cryptocurrency 17 Dec 2017

I have noticed of late many "junk" emails appearing all offering ways to get into this "high performing market" with "guaranteed profits". I have been involved in derivative and exotic markets for many years, and have never seen such a bandwagon effect. That drive from the "junk market bring  is a sure sign to me that this is a very dangerous market, especially at this stage of its existence.

Cryptocurrency 8 Dec 2017

Now we are seeing the direction of travel. Current reports are focussing on "Initial Coin Offerings" (ICOs) which are raising money for companies - but, isn't that what IPOs used to do?

Will regulators accept that quasi-shares are being offered without controls, without an exchange, without any reference as to how "share/coin" value will relate to the company balance sheet?

We are entering a regulatory, and trading, minefield. We all know the way IPO's in "fringe" markets behaved through the 80s and beyond - will there be another "Vancouver Exchange" to trade "penny Crypto-coins"?

CryptoCurrency/Bitcoin Regulation 6 Dec 2017

It is about time, but what will we regulate? There are no custodians to verify what is held by whom; the valuation structure is more complex than any of the derivative structures which contributed to the 2007/8 melt down, and is locked behind complex computer paradigms - the elusive Block Chain; we cannot even say in which country the positions are held, and, finally, there is no underlying asset which may form any residual value.

My own view on this is that we are lining up to see the next "dot com" bubble burst......or is it just the next big Ponzi scheme, with the last ones in left holding the baby (the multi-billion $ baby!)?

Market Abuse Directive 

The FCA has fined a trader for breach of the Market Abuse Directive. Details can be seen here: https://www.fca.org.uk/publication/final-notices/paul-axel-walter-2017.pdf

The activity of a Bank of America Merrill Lynch trader was deemed to be market abuse by creating a false and misleading impression as to supply and demand in the market. What surprised me in the FCA report of the case, was that the FCA did not find Mr Walter knew his conduct amounted to market abuse, but considered he was negligent in not realising this.

What has happened to Regulatory Training - and in particular, training in the Market Abuse Directive?

Training in compliance with all Market Directives is essential.  This lapse, which has been attributed to a lack of knowledge as much as a breach of rules, is a surprising admission that traders are not being trained properly.

Are YOUR traders fully trained in the requirements of all Directives as they apply to their activity? - If not, you might expect a visit from the FCA!

GAP Insurance - Is this the next PPI?

April 2017.

I recently listened to a sales pitch for GAP insurance. I was in a car showroom (where most of these policies are sold to the public) observing a sale of a car. The salesman started correctly by saying the showroom was answerable to the FCA (he made no personal claim to be registered!) and that they were aware of the need to "treat customers fairly". Then he went on to present a batch of "add-ons" which included GAP, but most of which covered cosmetic enhancement of the car and would be of no interest to the FCA.

Point 1. He was using the FCA protection as a catch all for everything they sold!

But, then he went on to GAP and how it was essential to protect your asset. At this point, I must add, he was selling a 3 year old car. He went into a spiel about how much a car might lose in value over its first 5 years, and how an insurance company would evaluate the worth of a write-off car by its book value at the time of the claim, and drew a (very rough) graph of a line falling at 45 degrees between Y1 and Y5, indicating how much you could lose, with a confident assessment as to how a premium of £360 a year would alleviate that.

There was never a correlation made between the second hand sale price and the book value of the car at that time (which the insurance company would take). There was also no reference to the steep fall in value in the first 3 years, and then a slowing down.

Point 2. He was presenting what looked like a scientific analysis, but which was merely a seat of the pants (and incorrect) guess of how much GAP was worth.

He made no reference to the fact that the buyer was a cash buyer (mentioned right at the start of the conversation) and that GAP was originally conceived as a way to protect potential shortfall between the book value of a written-off car and the liability to repay outstanding finance at that time. He also appeared to claim that the GAP insurance refund would be paid, without question, to return the full initial cost of the car.

Point 3. He was selling a "bet" that in the event of the car being written off in the next 3 years all costs of the initial purchase would be covered by the insurance company. He gave no warning as to how claims are not certain to be paid in full, or that the insurance company might not even look at GAP on a car that had no finance outstanding, or that the 'cost' of a second hand car may not relate to the insurance 'book value' at that time

In this short assessment of a real situation I have looked only at some elements that would constitute a mis-sale. But looking closer, there are a whole raft of areas where this insurance product sold at the point of sale by, possibly, an unqualified and only slightly trained individual would give the buyer problems which had not been fully or properly explained.

Sellers of this kind of product need to be aware that they are selling a regulated product, they need to know the difference between selling a regulated product and an unregulated one, and separate the two. They should have, if it is appropriate to sell this product at all, a professional, technical presentation to display, with all warnings appropriately flagged, and available to be taken away and studied.

Finally, in my view, they should not even offer this product for anything other than a new car (or similar asset) which is being financed at the time of purchase.

"GAP" is "PPI" under another name - and the problems are still there!

Contracts for Difference (CFD)

The FCA today (6 December 2016) announced that it is proposing stricter rules for firms selling ‘contract for difference’ (CFD) products to retail customers to improve standards across the sector and ensure consumers are appropriately protected.

This is important as CFDs carry leverage risk, and need fast response time. However, a CFD is one of the more simple derivatives, and so care should be take not to exclude customers from this market unnecessarily. What is important to establish is that customers are fully informed, well advised and able to enter into transactions without delay. 

What has been missing from the CFD "broker" service is a full and workable advisory service, whereby customers are able to take advice on executions, on market activity, and on underlying share research. That is, a private client needs a named private client advisor who understands the client’s risk profile, and, based on that, is able and qualified to give guidance and monitoring on a CFD portfolio at all stages - and, of course, is mandated to have liability for that advice and a commitment to "Treat Customers Fairly" when it comes to executions.  


                                                                                                             The Senior Managers and Certification Regime (SMCR)

"Firms must take ownership of the regime and embrace the opportunities it presents" Tracy McDermott, former CEO, FCA

"We should have nothing to fear from high standards" Martin Wheatley, former CEO, FCA

"With great power comes great responsibility" (Uncle Ben to Spiderman)

Thanks to Anthony Browne of BBA for reminding us of that last quote. It is very apt when looking at the requirements of the SMCR. For the larger institutions the regime begins on Monday 7 March 2016, with other institutions being phased into the regime over the following 12 months. PRA and FCA require all financial institutions to review their senior staff in a "Fit and Proper" test, and certify (with annual reviews) to FCA that they have done so - and then Senior staff must take full responsibility for the  actions of all staff, with special reference to a "Significant Harm Function"(SHF).

Are you ready? Do you know what is required? Do you need help in SYSC review or in creating a training regime?

Find out more, our contact details are keenan.regulatory@btinternet.com

MiFID II - it's on its way

 Do you need an update to help you prepare for MiFID II? Call KRC (See contact page)


MiFID II will be an important extension of MiFID, and it is essential that trading firms understand the changes planned. When MiFID II is introduced, firms will be expected to be fully prepared and to have adapted systems to comply with the new framework of regulation


 It is essential that key senior executives are informed on the changes coming to the regulatory framework across Europe, understand the changes required, are able to commence work on change, and are able to bring their firms to a state of readiness for MiFID II.


KRC can help you prepare with a training course or briefing that will look at the key elements of MiFID II, including:

Commodity Derivatives

The revisions to MiFID are adapting some elements of the existing directive and introducing a new regime of position limits and position reporting. Key details of these provisions will be determined through ‘Level 2’ implementing measures.

Firms trading commodity derivatives who are not currently authorised under MiFID will need to examine whether they can continue to remain exempt from authorisation. Trading venues and members of trading venues (and their clients) will need to consider how the implications of the regime of position limits and position reporting.


The existing pre and post trade transparency regime in MIFID applies only to shares admitted to trading on a regulated market. That regime is being revised and a regime will be applied to non-equities. The details of the equity and non-equity transparency regimes will be determined through ‘Level 2’ implementing measures.

Trading venues will need to implement the rule and systems changes necessary to comply with the transparency requirements.  Members of trading venues will have to consider what impact the revised transparency regime will have on their trading activities.

High frequency trading

The revised MiFID will introduce specific provisions designed to ensure that high frequency trading (HFT) does not have an adverse effect on market quality or integrity. The details of the provisions will be determined through ‘Level 2’ implementing measures.

They have implications both for members of trading venues and for the venues themselves. They will require systems changes and, for firms, enhanced governance of HFT activities.

Market structure

The revisions to market structure are designed to produce comprehensive regulation of secondary trading that is fair, efficient and safe. Detail of these provisions will be set out in Level 2 implementing measures.

Firms currently operating multilateral trading systems will need to decide how they fit into the new trading landscape. This will include firms whose systems are not currently regulated as a trading venue, and firms operating MTFs which involve discretionary and non-discretionary trading processes. Firms currently operating bilateral trading systems will need to consider whether their activity will lead to them becoming SIs. Market participants will need to consider the impact of the two trading obligations on their trading activity.

Organisational requirements

The revised MiFID will introduce expanded requirements in respect of the management of firms, explicit organisational and conduct requirements relating to product governance arrangements and a prohibition on title transfer collateral agreements involving retail clients.

All investment firms will be affected by the provisions relating to management bodies and will need to consider how their existing governance arrangements match up to them. Most investment firms will be affected by the product governance and remuneration requirements and will need to review their existing arrangements in these areas.

Trade reporting

The provisions in the revised legislation on trade reporting are designed to resolve problems with the quality and availability of data that have been observed since the original directive was introduced. Level 2 implementing measures will provide more detail on how these provisions will work.

Firms who are currently offering consolidated data services will need to decide whether or not to become authorised under the CTP regime.  TDMs will need to decide whether they wish to become APAs and investment firms will need to decide of those firms who become APAs which they want to use to publish their transactions.

Conduct of business rules

The revised legislation seeks to enhance the levels of protection granted to different categories of clients. A lot of the detail of the provisions will be provided in Level 2 implementing measures.

The main impact of the new restrictions on inducements is likely to be on portfolio managers, who are not currently subject to the RDR unless they offer advisory services. Firms offering execution-only services will need to review their offerings in the light of the changed list of products that can be sold on an execution-only basis. Brokers will also need to develop the systems to publish information on the execution venues they use.

Transaction reporting

The scope of the transaction reporting obligation is being extended, the scope of the reports is being introduced.

Investment firms who execute transactions will need to review their transactions to understand whether they will need to report a wider range of transactions than they currently do and how, if necessary, to report the wider range of information required.

A Definition of misselling from the web:

"The ethically questionable practice of a salesperson misrepresenting or misleading an investor about the characteristics of a product or service. In an effort to make a sale to a potential customer, a financial products salesperson could leave out certain information or describe a financial product as something the investor urgently needs, even though sound financial judgment would come to the opposite conclusion."

Read more: http://www.investopedia.com/terms/m/misselling.asp#ixzz2BBA5IOHD
But is that the only definition?
Does intent have to be proved?
Are salespeople (or advisers, or relationship managers) trained to match client with suitable (and appropriate) products - or do they just sell what they are told to sell to clients on the bank's client list?
Think about it.



US Foreign Account Tax Compliance Act (FATCA)

Are your systems ready? Do you know how long you have to get ready?

This will affect all accounts of US Citizens. The industry must ensure that internal procedures are FATCA-compliant by the middle of 2014, but the tougher challenge will be going through pre-existing accounts above $50,000 to find those that could be held by US citizens.

Do you need help?

FSA fines and bans hedge fund Compliance officer £14,000 for failing to act with due skill, care and diligence

See FSA website:


The CO did not do anything wrong, per se, but did not investigate wrong-doing by dealers. The FSA says:

"Various investors raised concerns that (the investment) was of doubtful provenance and legitimacy, and (the Firm's)Prime Broker resigned as a result of its concerns. (The CO) failed to consider the reasons for the Prime Broker resigning and despite being aware of the investors´ concerns about (the investment)failed to properly investigate those concerns or act upon the information."

What is YOUR compliance function like? Do they investigate thoroughly? Are your SYSC policies in place to ensure thorough and diligent investigations by Compliance?


MiFID II New Regulations are coming.
Europe is moving toward a revamp of the Markets in Financial Instruments Directive along with the Markets in Financial Instruments Regulation, but industry experts suggest that the proposed rules could force business outside the euro zone. One area of real concern is the extension of transparency rules for share trading to apply to bonds and commodities.
Is your business ready?
UBS.........Do You Know What the Traders Are Doing?
Compliance officers around the world are frustrated that they are regarded as the "Business Prevention Unit" and so are kept in the dark by the business. Is this happening where you are?
It has happened at UBS, it happened 3 years ago at Societe Generale, it happened at Barings.....it will carry on happening until Systems and Controls are in place that include review from outside the business line, preferably by Compliance.
Internal Audit has a role to play, but their role is always behind the times, runs to a known schedule, and trusts the systems that the traders are able to manipulate. It requires expensive forensic training and major changes to be effective.
Compliance Officers, these days, are usually on the trading floor and have the daily contact with traders, they understand SYSC, and so, if given the tools and the access, will understand how to monitor for SYSC compliance. Compliance Monitoring already has a strong presence in banks, and is easily extended to incorporate SYSC.
If you want to hear more, and see how a brief consultation can direct you you to where training and a few changes can have dramatic results, email the address on the contact page.
You do not want to be the "next UBS...or SG.....or Barings"
Regulation of Hedge Funds
Recent regulatory change resulting from international legislation, including the Dodd-Frank Act, CESR OTC Clearing and Short Selling proposals, and the approval of the AIFMD by EU finance ministers, has led to an update in the requirements covered by the Certificate in Hedge Fund Regulation.
The following topics are now covered on the Certificate in Hedge Fund Regulation:

EU Regulatory Evolution/ US Regulatory Evolution

The Concept and Purpose of Regulation
Justifications and Rationales for Regulatory Intervention
Approaches to Regulation
Methods of Regulation

The History of Hedge Funds
Hedge Fund Characteristics
A Definition of ‘Hedge Fund’
Hedge Fund Structures
Hedge Fund Risks
Hedge Fund Benefits

The UK Regulatory Environment
The US Regulatory Environment
Jurisdictional Issues for Fund and Manager Domicile

Depositaries / Custodians / Trustees/ Prime Brokers

The Development of UCITS
The UCITS III Structure
Why Hedge Funds Use the UCITS Structure
The Future – UCITS IV

The European Approach: The Hedge Fund Standards Board
The US Approach: The President’s Working Group
International Initiatives: The work of IOSCO

EU Developments
US Developments

Are your training resources up to the current standard?
In  a recent Final Notice of the penalty imposed for a "mis-selling" enforcement case, the FSA pointed out that one of the reasons for its action in imposing a fine on the firm as well as staff involved in the mis-selling was:
"..the failings related not only to suitability and customer communication but also to compliance monitoring, record-keeping, the collation of sufficient management information and competence monitoring procedures."

This means that the firm not only had to pay the penalty for the inappropriate behaviour of sales staff, but also had to pay an additional penalty for the lack of compliance support. This is a new nuance in the way the FSA is now attributing blame in enforcement cases.

We at KRC are able to help you assess the suitability of your Compliance resource and provide advice as to how you might best meet the FSA expectations.


July 2010
The Goldman Sachs case, along with the record fine imposed, indicates Regulators are sharpening their teeth. Are your procedures and processes sufficiently well documented, and is your training up to date so you can be sure that your staff are acting ethically at all time when seeking customer business?
Is it time for a review?
May 2010
The FSA has set out its agenda for 2010 indicating its new regulatory approach to suit the changing financial environment. (http://www.fsa.gov.uk/pubs/other/markets.pdf)
Heavy focus on technology and post-MiFID controls. Have yours been reviewed?
The days of light touch regulation are over, firms will have to be prepared for more intensive supervision, and visits from FSA's thematic review teams as the Regulator shows its determination to be proactive in the new post-crisis financial world.