This is a transcript of the podcast episode Ben Blackett-Ord on SMCR, KYC, and crypto between GRIP’s senior reporter Carmen Cracknell and Bovill founder Ben Blackett-Ord.
[INTRO]
Carmen Cracknell: Hello listeners. I’m joined in this episode by Ben Blackett-Ord. He founded the consultancy Bovill in 1999 and led the company as CEO for 23 years. Ben began his regulatory career not long after the enactment of the Financial Services Act in 1986. He now uses his experience to support clients through regulatory change. It’s great to have you here. I like to start by allowing the guests to introduce themselves in their own words. So please tell us a bit about you, your professional background, and your role at Bovill.
Ben Blackett-Ord: Thank you very much. My name is Ben Blackett-Ord. I am currently chair of Bovill, a company that I founded 24 years ago and ran until July last year prior to stepping back as CEO and taking on the chair role. Prior to setting up Bovill, I was originally a regulator a long, long time ago. starting back in 1988. I then undertook a couple of in-house compliance roles. So I guess I’ve been in the regulatory compliance world a frighteningly long time, something like 34 years, I think. But anyway, less about my age.
Carmen Cracknell: This is off the topics that I had, but just interested to know what’s the biggest difference between in-house and other roles in your experience?
Ben Blackett-Ord: I think in terms of my career, obviously, I’ve been a regulator, I’ve been in-house, and obviously I spent a long time as a consultant. I suppose to me, the big difference with being in-house is that you are a cost to the organization. Whereas either as a regulator or as a consultant, you’re what the organization is all about. So I think it still remains the case that in-house compliance people are back office functions, not front office functions, and therefore they are a cost to the organization. And I think that in some instances that can create a burden.
Carmen Cracknell: Okay, interesting. We might talk a bit more about that later. I’m going to start with a question about crypto. Obviously, there’s a lot going on right now with that, the proposed ETF that might happen in January, it’s all come back into the spotlight. So the government’s approach to regulating the financial promotion of crypto is flawed, in your view, if I’ve interpreted that correctly. Can you just talk a bit about why?
Ben Blackett-Ord: I will attempt to do so without getting into too much technicality, which may be difficult. But in essence, there are two ways in which financial promotions can be promoted to the public. They can either be promoted by FCA authorized firms, or they can be promoted by non-FCA authorized firms under exemptions in the financial promotion order. And until the latest government proposals, those two regimes were totally separate. They didn’t overlap. Either you were in a regulated firm promoting under FCA rules, or you were unregulated promoting under exemptions set out in the financial promotions order. And in essence, what the government has achieved by its new proposals is considerable muddling by creating a regime which kind of straddles both sides. It’s all about unauthorized firms complying with some of the FCA rules, which is not, I think, a sensible or logical way to go and has got the potential to cause a huge amount of uncertainty and confusion in the eyes of the people doing this stuff is promoted, where actually what is really required is clarity as to the regulatory regime that applies to those activities. There’s confusion.
Carmen Cracknell: Yeah, in the first 24 hours of the new regime coming in, 146 alerts were issued by the FCA. So I mean, what does that actually mean to a layperson?
Ben Blackett-Ord: Clearly, the FCA exists to, at least partly, to ensure that consumers are not being missold stuff and policing advertisements that go out there over the internet is very much something that the FCA does. And I think this is a reference to their policing activity. But as soon as the new rules came into effect, the policing element of the watchdog identified, as I say, this 100, whatever it was, 143 examples of promotions that were being done unlawfully. And it therefore, obviously, closed them down or communicated with the promoters to tell them to stop communicating it, etc.
Carmen Cracknell: Do you think this kind of action and the confusion around firms that are registered or not is harming competition in the UK by not allowing crypto firms to operate?
Ben Blackett-Ord: No, in a word. I mean, I think that by putting this regime in place, the government is saying, well, actually, you know, crypto can be promoted, but it’s got to be done, you know, within appropriate rules that protect consumers. And that is, in my mind, you know, a sensible thing to have done, not the sounding they seem to have gone about it in a peculiar way. I think that the, you know, at least they’ve got a regime in at least they’ve got a regime in place, which will go some way to, yeah, will go quite a long way, I think, to simply preventing a kind of Wild West where, you know, crypto promoters were not subject to any rules and could do what they wanted.
Carmen Cracknell: Yeah, moving on to the FCA’s permissions regime. So you’ve said that they have a kind of use it or lose it approach. They’ve written to 762 firms suspected of not carrying on regulated activities.
Ben Blackett-Ord: That seems to be what they’re saying.
Carmen Cracknell: Yeah. So what what’s the biggest kind of issue with this?
Ben Blackett-Ord: I think, starting with the positives, I think that the the FCA’s permission regime is a good thing. You know, the idea that firms should have permission to do ABCD and not EFG is a sensible, you know, it’s a sensible regime and it has worked pretty well for years. And indeed, it is a regime which I think other regulators, you know, could could successfully emulate and it it. Yeah, it’s sensible.
The difficulty, I think, is that the the FCA has always had a pretty opaque window on the activities that firms actually undertake. Yes, it gets lots of data from firms, but actually, short of really sitting down with the CEO and having a conversation about what firms really do, I think it’s difficult for them to get a really accurate view of, you know, of what firms do.
I think the other, you know, the other difficulty is that the some of the permissions are pretty technical in nature. And and it may well be that firms aren’t using a particular permission at this moment in time, but they expect that they will be quite soon or it may be that they’ve used a particular permission in the past and they know that circumstances will arise where they will need it again. So I think simply taking a sort of broad brush view of, oh, you haven’t used this for for a year, so we’re going to take it away, is, you know, is, as I said in my article is too is too black and white.
I think in terms of the the the the 700 firms or whatever that the FCA has written to suggesting that they don’t need to be authorized at all. Again, it’s sort of it kind of begs the question of how have the FCA come to that conclusion? Because again, short of sitting down with the with with their CEOs and having a detail conversation about what they’re doing, which I suspect they haven’t done, you know, it is I don’t know how they’ve come to that conclusion because yes, they will get lots of data from firms.
But again, I mean, the boundaries between regulated activities and unregulated activities are complicated and gray in some areas. And if you’re a firm, and there are plenty of them out there, but have sort of have got a perfectly legitimate business, but which sort of operates slightly in the gray zone between is this a regulated activity or isn’t it a regulated activity, then given that acting without authorization is a criminal offense, any sensible firm is going to seek authorization. So, you know, it’s which is a sensible, sensible thing to do.
Carmen Cracknell: Do you think there’s any attempt by the FCA to be more organized in its approach to this?
Ben Blackett-Ord: Again, you know, the FCA talks very much about being a data-led regulator. And I suspect that this initiative, along with, you know, I think other things that we’ve that we’ve seen will over time, as their data gets better, they will be able to make better decisions around this kind of stuff. But I think that that at the moment, I suspect their data is not sufficiently robust. And as I said, going back to the example I gave earlier, actually, what real data does the FCA have on precisely what activities a firm undertakes on a day to day basis? Well, it doesn’t have very much, you know, so I think that the because the FCA is getting imperfect data, it is, you know, there are real dangers with kind of rushing to these sort of conclusions that it’s that it’s making in this area, as it’s, you know, as its data improves, then hopefully things will improve.
Carmen Cracknell: Moving on to the James Staley case and senior management conduct rules. What’s the importance of that case? And why has the FCA not been enforcing SMCR in the way it should?
Ben Blackett-Ord: Well, I think the the, I guess, first thing to say on the James Staley case is that it is an important decision from the FCA, but it is also a decision which has gone to the upper tribunal. So it is not yet finalized. But stepping back from that, I mean, since the the FCA was created, there has been this a lot of talk about the importance of having a regulatory regime, which enabled the regulators, the FCA, to hold senior individuals to account and you know, and that goes right back to the right back to the financial crisis. And I think we’re now in a position where we have seen the FCA put in place two regimes that were designed to hold senior individuals to account.
First, you had the, you know, the approved persons regime. And now we’ve got the senior managers regime. And with very few exceptions, and I think Jes Staley is really currently the only exception, there is very little evidence that the FCA has been able to hold senior executives, and particularly senior executives in large organizations to account. And I think that if you look at the instances where individuals have been disciplined, or band, or whatever, they tend to be from the smaller organizations. And, you know, and it appears that the, you know, the larger organizations are kind of getting off.
Now, it may be that it may be that those bigger organizations can afford better laws. It may be that actually, the governance arrangements, and the structures within those organizations are so complex that actually, it is very difficult for the FCA to single out particular individuals for, you know, to demonstrate that a particular individual didn’t act with integrity or whatever it is. But I think it is a significant failure. And it is a failure which definitely undermines the credibility of those regimes. And I think until we see the regulators, you know, kind of really using their teeth in this area, and genuinely, you know, either fining senior individuals or chucking them out, then, you know, I think that that sort of slight lack of credibility will continue.
And of course, at the same time, you’ve got, you know, references from the government about the importance of competitiveness and sort of, you know, hints in the Edinburgh reforms that somehow a degree of watering down perhaps of SMCR might be appropriate. But I think that the, you know, that is not a direction of travel that the regulators are likely to want to go in. And I think, you know, I think rightly so, to be honest. I mean, I think that, you know, until it can be demonstrated that the regulators are using the powers that they’ve got, any talk of any talk of sort of watering down or kind of letting people off the hook in some way is totally, totally inappropriate.
Carmen Cracknell: Yeah. My next question is kind of related to this, because it’s in a way about conduct scrapping banker bonuses, which I guess is seen as quite a good thing in the city. You said the size of the bonus is less important than the behavior it’s based on. The ability to claw them back is a powerful tool that’s underutilized. How can firms make more use of clawbacks? How hard is it to implement that?
Ben Blackett-Ord: I think that I mean, I think putting aside legal difficulties, and there may be legal difficulties, but I’m sure that those legal difficulties are surmountable. I don’t think that’s the problem. I think it is. I think it’s the will of whether it’s boards or remuneration committees or whatever to actually, again, to sort of use what are seen as fairly draconian, fairly draconian tools. And my sense is, there’s sort of a general uncomfortableness of using those sort of measures. And maybe, you know, maybe there’s an element of, I don’t know, of CEOs thinking, well, you know, do I really want to use this measure? Could it be used against me one day? I’m not sure. But I think that, I think there is a, I think there’s a kind of mindset issue whereby, as I say, boards and REMCOS are not happy using those, using those provisions.
And I think, I think that’s a tricky one for the, for the FCA to deal with. But I think, you know, particularly if we do see bonuses increasing again, then that will create an environment where use of malice and clawback will only become more important. And again, maybe, maybe it will require the FCA to shine a greater spotlight on, you know, the activities of, of REMCOS and actually start providing a bit of challenge where they’re not seeing, you know, that clawback being used in circumstances where perhaps it should be.
Carmen Cracknell: So next question was about KYC rules. How should banks adapt KYC rules? And how should the government review its domestic peps regime, which you talked about in your piece?
Ben Blackett-Ord: I think the, on the PEPs issue first, I think, you know, for a long time, there have been higher due diligence requirements on politically exposed persons. And I think that, that that regime very much, I’m sure, had it had at its heart when it was created overseas peps, and maybe there was sort of thinking in the background that somehow, you know, overseas, politically exposed persons were going to be more like more open to, I don’t know, bribery or acting in some way that they shouldn’t, etc. And I think what that created was a, because financial institutions here had to impose the same requirements on UK peps as on overseas peps, then sort of, I think the requirements here became disproportionate.
And actually, institutions here were almost being asked to almost assume that the UK peps were sort of, I’m not going to say exactly, dodgy in some way, but, you know, more, more likely to be, well, as I say, the whole idea of sort of equating them with overseas peps, I think was, was, was kind of wrong. And the requirements in relation to UK peps, therefore, probably got a bit over the top. I think that, you know, the wider issue, and it, and I think it does depend a bit on how a bank sets out its stall in terms of kind of who are the sort of customers it is targeting. And I think that, you know, there is a range of organizations from your, if you like, high street bank, who, you know, broadly speaking, I think is, is, is largely expected to provide bank accounts for pretty much anybody who asks for them, unless there’s some fundamental reason why not. To, you know, where, where actually you’re looking at much more the sort of the private bank environment and the more kind of bespoke arrangements.
And I think in, in that situation, institutions have got far more choice as to which customers they want to, they want to take on and, you know, and, and, and for years, I think those sort of organizations have been, well, a lot of financial institutions have been looking at their customer base and saying, well, actually, is there anybody here that, that we think for whatever reason, we don’t want to continue to provide services for. And I think that very activity is one that has been encouraged by regulators over the years, you know, you need to know your customer, you need to, you know, make sure that your customers are still the people that you thought they were when you, when you took them on and, and, and, you know, and aren’t going to harm your organization or whatever it is. But clearly, simply getting rid of somebody for their political views is absolutely not the right thing to do.
But however, if an organization decides that somebody is a, a significant risk to that organization in some way, and that could include a reputational risk, then, then those sort of reasons would seem to be reasonably valid. But of course, as ever, you’ve got a gray line, gray ground in the middle.
Carmen Cracknell: Yeah. Do you have any other sort of regulatory predictions for next year? What will be the biggest topics?
Ben Blackett-Ord: I think that there will be continued focus on governance arrangements within financial services firms. And I think, you know, and I think the whole sort of SMCR, integrity, remuneration, all those things kind of, I think, feed into, feed into that space. So I think that will continue to be a theme. I think that the, hopefully, the, the FCA will continue to make progress on the quality of data that it is collecting and, and improve the way it is making decisions based on that data. And hopefully, in the past, in the future, we will see less talk of the FCA, you know, putting two and two together, and making, and making five, which we have seen a certain amount of. And I think that, that finally, we will continue to see a divergence from EU rules.
But also, by the same token, sort of developing the UK’s rules, very much with it, with the idea of the UK remains a global player in relation to, you know, financial services and markets, and therefore, it needs to, you know, to continue to develop its rules in a, on a sort of global, on a kind of global basis, and with a view to the fact that firms are increasingly global and wanting to act in different jurisdictions, etc., etc. You know, and for example, that, you know, the new consultation paper on the sort of recognition of overseas, overseas fund schemes, for example, I think is a good, is a good example of that kind of direction of travel.
Carmen Cracknell: Cool. Well, that wraps up my questions. Yeah, was there anything I missed that you?
Ben Blackett-Ord: I think, I think that we know one should watch out for going forward and sort of again, whether it’s going to be this government or the next is potential tension, or, or even conflict between kind of, you know, what the government wants regulators to achieve and what regulators want regulators to achieve. And I think that sort of, you know, the competition agenda possibly, possibly falls into that. And it may well be that that we see compromises emerging as a result of that tension.
Carmen Cracknell: Well, thank you for joining me, Ben.
Ben Blackett-Ord: Not at all. Thanks then. see you.
