The topics covered in this month’s newsletter include:
- reforms to the Financial Promotion regime
- the FCA’s new enhanced Financial Services Register
- the European Commission’s preparedness notices
- LIBOR endgame speech by the Governor of the BoE
- UK Finance paper on cyber incident management
Please also see our separate webpages ‘COVID-19: how the UK financial regulators are responding‘ and ‘COVID-19: how the European financial regulators are responding‘ for the latest regulatory updates in relation to the coronavirus pandemic.
General financial services regulation
FCA launches enhanced Financial Services Register
On 27 July 2020, the Financial Conduct Authority (FCA) launched its updated Financial Services Register. The redesigned register aims to provide: a clearer navigation and design; simpler language; more information on the Register’s purpose, how to use it and how to avoid scams; important information being made more prominent, including past actions against individuals and firms, and consumer protections; and optimisation for some mobile devices. The FCA intends to publish a directory of certified and assessed persons on the register later this year.
Reforms to the Financial Promotion regime
On 20 July 2020, HM Treasury released two consultation papers on the financial promotion regime, covering cryptoasset promotions and the regulatory framework for approval of financial promotions respectively. In the cryptoasset promotions consultation the government seeks views on brining the promotion of certain types of cryptoassets within the scope of the restriction on financial promotions. This is intended to enhance consumer protection while promoting responsible innovation (see our detailed insight article here). The second consultation paper on the regulatory framework for approval of financial promotions discusses the government’s proposal to establish a new regulatory gateway, which a firm must pass through before it is able to approve the financial promotions of unauthorised firms. This aims to strengthen the FCA’s ability to ensure the approval of financial promotions operates effectively as the form and content of financial promotions can have a significant influence over the financial decisions made by consumers. The government is considering two policy options to deliver the new gateway: restrict the general ability for authorised firms to approve financial promotions so these can only be approved by an authorised firm which had obtained consent from the FCA to provide such approval, or to specify the approval of financial promotions communicated by unauthorised persons as a regulated activity under the Financial Services and Markets Act 2000 (FSMA).
Complaints Scheme consultation
The Bank of England (BoE), the Prudential Regulation Authority (PRA) and the FCA published a joint consultation on 20 July 2020 on the wording of the Complaints Scheme to simplify it and make it more accessible, in particular for consumers and small business. The consultation paper also clarifies the policy on making ex-gratia compensatory payments (i.e. goodwill payments) by helping complainants understand what they can and cannot expect from the Complaints Scheme and the circumstances under which the FCA will consider making a compensatory payment.
The consultation closes on Monday 14 September 2020.
FCA’s cancellation of authorisation process
On 20 July 2020, HM Treasury published a policy statement addressing the changes to the FCA’s cancellation of authorisation process. The statement notes that as the FCA’s regulatory population has significant expanded, the current process for cancelling a firm’s authorisation is no longer sufficient to allow the FCA to quickly remove a firm’s authorisation and reflect that in the Financial Services Register. Accordingly, the statement sets out the new procedure the government intends to provide, through which the FCA can cancel the authorisation of firms no longer carrying on FCA-regulated activities. This procedure will be in addition to the existing process as set out under Section 55J of FSMA.
Payment Services and Systems
FCA consultation on branch and ATM closures or conversions
The FCA published guidance consultation on branch and ATM closures or conversions on 16 July 2020. The FCA noted that for many people and small and medium enterprises, access to cash and cash-related services continues to be important for everyday activities. However, firms are facing increasing cost pressures in maintaining their physical infrastructure (e.g. branch or ATM networks). Accordingly, while the FCA acknowledges that these are decisions for the firms, it is consulting to ensure that these decisions are made in a fair manner with an understanding of the customer’s needs.
The FCA welcomes comments from stakeholders by 5pm on Thursday 30 July.
Bank of England RTGS and CHAPS Annual Report and strategy
On 14 July 2020, the BoE published its second annual report for real-time gross settlement (RTGS) system and CHAPS, including the BoE’s strategy for 2020/21. The report highlighted the continued importance for RTGS and CHAPS in the UK. The BoE’s strategy for 2020/21 is focused on ‘augmentation’, with further maturity of its risk management arrangements, enhancing the CHAPS rulebook and seeking to maximise the financial stability benefits of CHAPS being part of the central bank. Its mission is supported by four themes for the delivery of RTGS and CHAPS: safe and resilient, well run, responsive and renewed.
‘Dear CEO’ letter on portfolio strategy for payment services firms and e-money issuers
On 9 July 2020, the FCA published a ‘Dear CEO’ letter to payment services firms highlighting the key areas of risk that firms must take steps to manage. In its 2020/21 Business Plan, the FCA noted the payment services sector as a strategic priority so its supervisory focus and intervention is expected. The FCA expects firms to take actions to ensure compliance with regulatory obligations in the following six key areas where non-compliance with obligations harms consumers and in which issues are widespread:
- prudential risk management
- financial crime
- financial promotions and consumer communications
- governance and oversight
- records management and reporting.
European Commission preparedness notice in the field of banking and payment services
On 7 July 2020, the European Commission published a preparedness notice for the rules in the field of banking, payment and/or e-money services. In the notice, the European Commission advises financial services providers in those fields to assess the impact of the end of the transition period. The European Commission advises firms to take appropriate action including, the transfer of assets and/or activities to the EU to ensure adequate protection of the EU banks, their customers and their funds.
Banking and insurance
PRA’s regulation of new and growing non-systemic UK banks
On 22 July 2020, the PRA published a consultation paper setting out its proposed approach to supervising new and growing non-systemic UK banks. In the consultation paper the PRA proposes to:
- create a new supervisory statement (SS): ‘Non-systemic UK banks: The Prudential Regulation Authority’s approach to new and growing banks’ (Appendix 1)
- reference the new SS in paragraph 5.25 of SS31/15 ‘The Internal Capital Adequacy Assessment Process and the Supervisory Review and Evaluation Process’ (Appendix 2)
- reference the new SS in paragraph 9.45 of the Statement of Policy ‘The PRA’s methodologies for setting Pillar 2 capital’ (Appendix 3).
The PRA states that the purpose is to helps banks understand the PRA’s expectations as they grow, clarify that banks can enter and exit the market and the PRA will operate as resolution authority as necessary and communicate the PRA’s aim for banks to have a positive regulatory relationship.
The PRA invites comments by Wednesday 14 October 2020.
HM Treasury consults on CRD V Directive implementation
On 16 July 2020, HM Treasury published a consultation paper focusing on the UK implementation of the CRD V Directive ((EU) 2019/878) in the UK’s prudential regime before the end of the Brexit transition period. HM Treasury intends to use secondary legislation to implement changes in UK law and will also give the PRA updated powers to implement CRD V and update its rulebook. HM Treasury is seeking views on macro-prudential tools, holding companies and an equal pay framework and enforcement.
HM Treasury requests responses by 19 August 2020.
LIBOR speech by Bank of England Governor
On 13 July 2020, Andrew Bailey, Governor of the BoE, gave a speech addressing the continued importance of the transition from LIBOR, the necessity for change as demonstrated by the volatility in markets as a result of COVID-19, and the alternative benchmark rates. Mr Bailey noted that the BoE will begin publication of the freely available compounded SONIA index rate and from October 220, UK banks should all be offering alternatives to LIBOR. He further stated that after extensive consultation by ISDA, a robust and trusted fallback for derivative contracts will shortly be introduced.
European Commission preparedness notice for (re)insurance services
On 13 July 2020, the European Commission published a preparedness notice for (re)insurance services. In the notice, the European Commission advises service providers in the field of insurance and reinsurance services and insurance distribution to assess the consequences of the end of the transition period (in particular, the effects of the Solvency II Directive no longer being applicable to the UK), duly inform their EU customers, and take appropriate action in a timely fashion.
Update on the Guiding Principles and Action Points for General Insurance Pricing
On 10 July 2020, the Association of British Insurers (ABI) and the British Insurance Brokers’ Association (BIBA) both published separate reports on their review of the implementation of the guiding principles and action points for general insurance pricing (GPAPs). The reports found that members have successfully implemented the GPAPs and this is having a positive impact on the market, businesses and customers.
Funds and Asset Management
Outcome of ESA review of the PRIIPs Delegated Regulation
On 21 July 2020, the Joint Committee of the European Supervisory Authorities (ESAs) published a letter (dated 20 July 2020) to the European Commission informing them about the outcome of the review of the packaged retail and insurance-based investment products (PRIIPs) key information document (KID) following the Consultation Paper published on 16 October 2019 on the draft regulatory technical standards (RTS) to amend Delegated Regulation (EU) 2017/653 (PRIIPs Delegated Regulation). Ultimately, the RTS will not be formally submitted to the Commission as it was only adopted by a qualified majority by two of the ESAs (i.e. the European Banking Authority and the European Securities and Markets Authority (ESMA)). At the European Insurance and Occupational Pensions Authority Board, it did not receive the support of a qualified majority, as members that did not support the RTS they generally argued that a partial revision of the PRIIPs Delegated Regulation is not appropriate at this stage.
ESMA statement on external support under MMF Regulation
On 9 July 2020, ESMA published a statement in relation to the prohibition of providing external support to money market funds (MMFs) within the meaning of Article 35 of Regulation (EU) 2017/1131 (MMF Regulation). ESMA published the statement to promote coordination by national competent authorities in response to the impact of COVID-19 and to clarify the potential interaction between the intermediation of credit institutions and the requirements of Article 35 on external support.
Speech by Interim Chief Executive at the FCA on the role of investment managers
Christopher Woolard, Interim Chief Executive at the FCA, delivered a speech on 8 July 2020 discussing the role of investment managers in the post COVID-19 recovery. Mr Woolard noted that the fund management industry has showed considerable resilience during the COVID-19 pandemic particularly in dealing with market volatility and the suspension of daily dealing in open-ended property funds. He went further to state that the FCA will consult on the best way to ensure liquidity in the market and how to ensure redemption arrangements offer a fair deal to those remaining in the relevant funds as well as those who wish to exit.
European Commission preparedness notice in the field of asset management
On 7 July 2020, the European Commission published a preparedness notice for the rules in the field of asset management. In the notice, the European Commission advises UCITS management companies and Alternative Investment Fund (AIF) managers (AIFMs) to take appropriate action, such as obtaining an authorisation to manage non-EU AIFs, informing investors of the consequences of the end of the transition period and reviewing, when appropriate, the delegation of certain operational functions to providers established in the United Kingdom.
Securities and Markets
HM Treasury statement on transitional period for third-country benchmarks
HM Treasury published a policy statement on 22 July 2020, discussing the government’s reasons for amending the transitional period for third-country benchmarks under the UK Benchmarks Regulation from 31 December 2022 to 31 December 2025. HM Treasury explained that as of June 2020, only a limited number of third-country benchmarks or administrators have been approved to be used within the UK by the deadline due to a lack of clarity around the legal framework in the regulations. To provide the markets with economic and legal certainty, the government has decided to provide the extension.
Council of EU adopts crowdfunding regulations
On 20 July 2020, the Council of EU announced that it has adopted the proposed Regulation on European crowdfunding service providers (ECSPs) for business (2018/0048(COD)) and the related proposed Directive making amendments to MiFID II relating to crowdfunding. The new rules, targeting crowdfunding campaigns of up to EUR 5 million over a 12 month period, provide a high level of investor protection, whilst taking into account compliance cost for providers and will be tailored depending on whether they provide their funding in the form of a loan or an investment. The regulation will now need to be adopted by the European Parliament before it can be published.
FCA and ESMA confirm MoUs on cooperation and exchange of information
On 17 July 2020, the FCA and ESMA confirmed that the agreement of Memoranda of Understanding (MoUs) on cooperation and exchange of information remain relevant and will come into effect at the end of the Brexit transition period.
ESMA’s final report on disclosure requirements under the Prospectus Regulation
On 15 July 2020, ESMA published its final guidelines on disclosure requirements under the new Prospectus Regulation. The guidelines provide guidance to financial market participants regarding the disclosure of financial and non-financial information in the prospectus. They aim to promote consistency across the EU by ensuring that market participants have a uniform understanding of the relevant disclosure required. The guidelines cover various topics including, working capital statements, capitalisation and indebtedness and historical financial information.
European Commission preparedness notice for investment services
On 13 July 2020, the European Commission published a preparedness notice for investment services and activities. In the notice, the European Commission advises investment firms to ensure the necessary authorisations are in place, and that the necessary actions for any relocation, corporate reorganisation or contractual adaptations have been taken. The European Commission stated that investment firms and underlying clients should be ready for no equivalence being in place by the end of the transition period.
Investigations, Enforcement and Dispute Resolution
FCA commences proceedings against LPI, NPI, Daniel Stevens and Anthony Kafetzis
On 13 July 2020, the FCA announced it has commenced civil proceedings against London Property Investments (U.K) Limited (LPI), NPI Holdings Limited (NPI), Daniel Stevens (the sole director and shareholder of both companies) and his father Anthony Kafetzis. The FCA alleges that LPI and NPI carried out regulated activities without FCA authorisation or exemption in relation to regulated mortgage contracts and sale and rent back agreements and that LPI communicated financial promotions without the requisite authorisation or approval. The FCA is asking the court to return ownership of the relevant properties to the affected individuals and is also seeking restitution for the losses suffered.
FCA Decision Notice against Worldspreads CEO for market misconduct
On 3 July 2020, the FCA published a Decision Notice in respect of Conor Foley, the former Chief Executive Officer of Worldspreads, fining him £658,900 for market abuse, as the admission documentation for Worldspreads flotation in August 2007 contained misleading information, and banning him from performing any roles linked to regulated activity. The decision has been referred to the Upper Tribunal to determine what, if any, action is appropriate for the FCA to take. This means that the action proposed in the Decision Notice will have no effect until the case is determined by the Tribunal.
High Court finds against illegal pension introducers, Avacade and others
In a judgment dated 30 June 2020, the High Court rule in favour of the FCA in a civil action against Avacade Limited and Alexandra Associates (UK) Limited for providing regulated activities of arranging and advising on investments without FCA authorisation, making unapproved financial promotions through their websites, promotional material and in telephone calls to consumers and making false or misleading statements. The FCA is now seeking court orders banning the companies from engaging in unauthorised activities and to determine the sums to be paid by way of restitution.
HM Treasury consults on economic crime levy
HM Treasury published a consultation on 21 July 2020 in relation to the introduction of an economic crime levy as part of the landmark Economic Crime Plan published by the governments and the private sector in July 2019. The consultation seeks views on a range of issues including, the design of the levy, how it would operate in practice, how it should be calculated and what the levy will pay for, to ensure it is proportionate and effective. The economic crime levy is being developed to form one part of the sustainable resourcing model to tackle economic crime.
HM Treasury welcomes comments on this consultation until 13 October 2020.
FATF report on revised FATF standards on virtual assets and virtual asset service providers
On 7 July 2020, the Financial Action Task Force (FATF) published a report which sets out the findings of the FATF on the 12-month review carried out on the implementation of the revised anti-money laundering (AML) and counter-terrorist financing (CTF) standards on virtual assets (i.e. cryptoassets) and virtual asset service providers (VASPs) by jurisdictions and the private sector. The report finds that, overall, the public and private sectors have made progress in implementing the revised standards. While FATF notes that there is no immediate need to amend the standards, the fast-moving nature of the virtual asset sector means continued monitoring and engagement between the public and private sectors is necessary.
BCBS guidelines on sound management of risks related to money laundering and financing terrorism
On 2 July 2020, the Basel Committee on Banking Supervision (BCBS) published its updated guidelines on sound management of risks related to money laundering and financing of terrorism. The guidelines specifically target banks and introduce guidelines on cooperation and information exchange among prudential and AML/CFT supervisors for banks. The guidelines are also intended to support the AML and CTF standards produced by FATF and supplement the goals and objectives of the FATF standards.
UK Finance whitepaper on cyber incident management
UK Finance published a whitepaper on cyber incident management on 1 July 2020. The UK financial services sector is one of the main targets for cyber criminals, as such, it is vital that firms assess their cyber incident response processes to effectively manage and respond in the event of an attach. The paper intends to assist firms in reviewing their incident response plans by providing insight on some of the regulatory and operational considerations. The paper specifically addresses issues relevant to the financial services sector, such as, how to contact customers during a cyber attack, how to manage regulatory reporting and what access to cash provisions need to be made.