Listen to the Article: Implicit "Sanctions" from FCA - Behind Capital.com's Suspension of UK Clients

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Fazzaco reported that as of March 15, the UK-based online trading brokerage Capital.com has pressed pause on its new UK client onboarding​. Attempting to open a new account on the Capital.com website now prompts UK users with a message popup stating, "we have decided to pause onboarding new clients in the UK for now." However, existing UK clients retain full access to their accounts and can continue trading uninterrupted.

With Capital.com offering minimal explanation beyond the popup window and no punitive notices issued by the Financial Conduct Authority (FCA) either, this situation likely stems from an implicit "sanction" initiated by the FCA. Similar situations have occurred previously, notably with Plus500.

Sections 55L and S.166 of the Financial Services and Markets Act 2000

The regulatory framework governing the UK's financial markets traces back to the Financial Services and Markets Act 2000 (FSMA 2000), enacted by the UK Parliament, which legitimizes the powers vested in the FCA. So, why don't we start from two provisions we found interesting from this Act?

Firstly, under Part 4A of FSMA is Section 55L, "Imposition of Requirements by FCA," which authorizes the watchdog to invite firms suspected of non-compliance or insufficient compliance with regulatory standards (e.g., inadequate systems and risk control measures) to apply for a Voluntary Requirement (VREQ). This is usually the first step they take.

Should a firm decline a VREQ, the FCA may proceed to impose an Own Initiative Requirement (OIREQ), taking their actions to step two.

In cases where the FCA deems a firm's actions detrimental or potentially detrimental to investors, further alterations to its granted permissions may occur, necessitating escalated measures.

Additionally, under Part XI of the FSMA, namely "Powers to Gather Information," is the S.166, an amendment made to the provision. It amends the Regulations on Reports by Skilled Persons, granting the FCA to obtain an independent assessment of aspects of a firm's activities of concern or necessitating further analysis.

Did Capital.com Get VREQ'ed or S.166'ed?

In 2014, Plus500 received a VREQ application form from the FCA, which they opted to complete, voluntarily ceasing new client onboarding until issues related to anti-money laundering (AML) were adequately addressed. While Plus500's incident is nearly a decade old, its publicized nature due to the obligatory disclosure of VREQ renders it comparable to recent events involving Capital.com. Although the latter's suspension resembles a VREQ scenario superficially, the absence of any official statements leads to the presumption that it's more likely an S.166 situation.

The triggers for invoking S.166 vary, making it challenging to ascertain the specific cause. However, historical precedents often point to deficiencies in Know Your Customer (KYC) and AML procedures. Admittedly, KYC/AML deficiencies have plagued the industry for some time, exacerbated by the advent of AI-driven solutions, which regulators like the FCA view skeptically, such as utilizing AI-powered APIs to navigate KYC/AML processes.

Implicit and Voluntary: FCA is Trying Not to Embarrass You

The term "implicit" is used in this article because at this stage, it seems that FCA is inclined to not embarrass a firm suspected of non-compliance in front of the public. After all, opting for a "voluntary" AML inquiry and rectifying identified issues before resuming business may preserve a semblance of reputation. Conversely, mandatory public enforcement carries graver implications, and that often leads to more serious situations.