December 18, 2018

December 18, 2018

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December 17, 2018

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UK FCA Publishes Dear CEO Letter on Cross-Border Booking Arrangements

On August 8, the UK Financial Conduct Authority (FCA) published a “Dear CEO” letter concerning cross-border booking arrangements.

In the letter, the FCA explains that the UK’s impending withdrawal from the EU has resulted in firms needing to put in place contingency plans that, when executed, will impact current business models, legal entity strategies and booking arrangements. The FCA states that it appreciates the information firms have already provided to it on their plans, and reminds firms of the importance of continuing to provide all necessary information. The FCA further states that firms should not make decisions without first speaking to the FCA.

The FCA expects that firms expanding their presence elsewhere in the EU should ensure that the structures they put in place enable the FCA to supervise the conduct of their UK business effectively. Firms also must ensure continued compliance with the FCA’s Threshold Conditions and assess whether the proposed changes are in their clients’ best interests.

In contrast with some EU supervisors, which have set out specific business model requirements, the FCA states that it is open to a broad range of legal entity structures and booking models. This includes those making use of back-to-back and remote booking models, as long as the associated conduct risks are effectively controlled and managed. The FCA’s stated focus is not on business models, but on understanding the principles and practices involved, and how the conduct risks arising from them are managed. The FCA sets out six principles that booking models should comply with, as follows:

  • Firms should set out a clear rationale for their booking arrangements, document them and have them approved by their boards.
  • Risk management should be appropriate for the firm’s booking activities including hedging arrangements.
  • There should be a broad alignment of risk and returns at the entity level.
  • Firms should have adequate systems and controls in place to ensure that booking arrangements are followed.
  • Firms should consider whether responsibility for oversight of booking arrangements are explicit in statements of responsibilities.
  • Booking arrangements should not be an impediment to the firm’s recovery and resolution.

The FCA expects UK boards and senior managers to ensure that effective governance is in place to identify and mitigate the potential harm that could arise from modified booking arrangements. Firms also should be able to demonstrate to the FCA (whenever requested) how the principles have been observed and implemented.

The FCA’s letter is available here.

©2018 Katten Muchin Rosenman LLP

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John Ahern, Financial Attorney, London, Katten Law Firm
Partner

John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

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Carolyn H. Jackson, International Attorney, Katten Muchin law firm
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Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

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Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
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Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London
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Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

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