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Charlotte Hill

Charlotte Hill

Partner

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Daniel Hirschfield

Daniel Hirschfield

Senior Professional Support Lawyer

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Autoren
Charlotte Hill

Charlotte Hill

Partner

Read More
Daniel Hirschfield

Daniel Hirschfield

Senior Professional Support Lawyer

Read More

1. September 2022

Financial services update – 3 von 35 Insights

Financial services regulatory update - September 2022

In this month's update:

  • FCA launches diversity, equity and inclusion innovation initiative.
  • FCA's policy statement on improvements to the Appointed Representatives regime.
  • Law Commission's digital assets consultation paper.
  • UK government's response to international sustainability disclosure standards.
  • FCA warns Buy-Now Pay-Later firms about misleading adverts.
  • FCA's portfolio letter on its supervision strategy for alternative investment firms.
 
General FS regulation

FCA: diversity, equity and inclusion initiative 

On 24 August 2022, the FCA published a webpage announcing it has launched its diversity, equity and inclusion innovation spotlight initiative. This initiative aims to promote diverse and inclusive culture and governance across the FinTech industry, and the FCA notes the importance of FinTech in driving financial inclusion.  

Applications are open for firms that wish to apply to the regulatory sandbox and innovation pathways: 

  • The regulatory sandbox enables firms to use a live market with real consumers in a controlled environment to test innovative products and services.
  • Innovation pathways is a tool for earlier stage firms to understand how the FCA's regime applies to them, but which are not ready to test their products and services.  

In particular, the FCA is interested in firms with an innovative focus on consumer credit, debt advice, investment advice, robo-advice or guidance models, insurance, pensions, financial education, and enhancing customer journeys including for vulnerable consumers. Applications are also welcomed for other sectors.  

The FCA is actively encouraging applications from a diverse group of founders, and is keen to support applications from firms with business models which address the need to improve financial inclusion and target underserved, or unrepresented consumers.  

The FCA has also provided a link for further information on how it has supported firms since the launch of the Innovation Hub in 2014, which we cover in the FinTech and Cryptoassets section of this update. 

FCA: landing slot allocation for TPR firms 

On 12 August 2022, the FCA published its updated webpage on the considerations for firms leaving the temporary permissions regime (TPR). The webpage confirms that all firms in the TPR applying for full authorisation should have received a formal direction confirming their "landing slot".  If the FCA is not expecting a firm to apply for full authorisation, it may not have confirmed a landing slot direction.  

Where a firm is intending to apply for full authorisation but has not received a landing slot, the firm can still apply. However, any application must be received before the end of 31 December 2022. Any applications received after this date will be considered invalid. 

BoE: letter to the Treasury Committee on the Future Regulatory Framework for financial services 

On 11 August 2022, the BoE published a letter from Andrew Bailey, Governor of the BoE, to the Treasury Committee, dated 27 July 2022. The letter follows queries that Mr Bailey received from members of the committee relating to the Financial Services and Markets Bill (the Bill). 

The letter confirmed that the BoE welcomes the Future Regulatory Framework (FRF) measures contained in the Bill. In particular, the BoE affirms its support of regulators gaining increased responsibility for setting regulatory requirements, acting within a strong policy and accountability framework set and overseen by Parliament. 

Mr Bailey emphasises that regulatory independence is important and that anything that would weaken that independence would undermine the aim of the reforms – a clear reference to a so-called "call-in" power, which would enable the government to intervene in regulatory decisions when it was in the public interest. This power was not included in the Bill; the government has said that it is considering its use further.   

The letter also confirms the intention of the PRA to publish a discussion paper in September on the BoE's vision for the current framework and is ready to discuss the Bill as it progresses.  

FCA: policy statement on improvements to the Appointed Representatives regime

On 3 August 2022, the FCA published its policy statement on the improvements to the appointed representatives (AR) regime, following the consultation which was published in December 2021 (for further information on this, see our previous update).  

For those proposals which received wide-ranging support, the FCA is adopting the approach it consulted on. It is making some amendments in the final rules to other proposals in light of feedback. The amendments, minor clarifications, updates, and the FCA's response to feedback are detailed at chapters 2 and 3 of the policy statement.  

The new rules require principals to: 

  • Apply enhanced oversight of their ARs. This includes ensuring an AR has adequate systems, controls and resources.  
  • Monitor and assess the risk the activities of their ARs present to consumers and market integrity.
  • Annually review the activities, business and senior management of their ARs and have clarity on the circumstances in which they should terminate their relationship with an AR.
  • Notify the FCA of new AR appointments 30 calendar days before the appointment takes effect.
  • Submit complaints and revenue information for each AR to the FCA annually.  

Appendix 1 contains the made rules (legal instrument) which will enter into force on 8 December 2022. The rules will not apply to firms under the TPR or financial services contracts regime. In its webpage on the AR regime, the FCA states that in connection with its enhanced reporting requirements, it intends to send a data request to principals in December 2022. 

For some of the new rules, the FCA is putting in place transitional periods, particularly where firms are required to submit information on an on-going basis and to review their ARs annually.

Chapter 4 provides an overview of the responses the FCA received to the discussion chapter of the consultation paper (Chapter 5). The FCA notes that is has collaborated and will continue to work closely with HMT on its Call for Evidence on the overall scope of the regime and that it expects to publish its response to the discussion topics separately in 2023.  

FCA: expectations for authorisation applications 

On 28 July 2022, the FCA published its updated webpage on authorisations, including setting out expectations of applicants in respect of the new Consumer Duty (see last month's update).  

The implementation period for the new Consumer Duty ends on 31 July 2023 for new and existing products, and 31 July 2024 for closed products or services. However, the FCA expects applicants for authorisation to be able to comply with the new rules and to demonstrate they can meet the requirements.  

Fintech and cryptoassets

FCA: Innovation Hub market insights 

On 23 August 2022, the FCA published a webpage on market insights from the Innovation Hub. This webpage sets out data on the firms which have been supported by the regulatory sandbox and innovation pathways service.  

The data provides a breakdown showing sector focus, technology and area of innovation, and locations. For example, DLT and blockchain has been the main technology focus of firms using the regulatory sandbox. 

Since the launch of the Innovation Hub in 2014, the FCA has received over 2,400 applications and has supported around 850 firms, including 165 firms and products in the regulatory sandbox. The Hub has allowed the FCA to better understand use cases for new technology, inform its policy and understand barriers to access faced by new business models. 

FCA: change in control notification forms 

On 11 August 2022, the FCA published its updated webpage on change in control notification forms. The update adds the following forms for use in change of control scenarios for FCA registered cryptoassets firms: 

Prior approval from the FCA approval is required for any person who wishes to acquire 25% or more control of an FCA registered cryptoassets firm. The relevant persons must comply with the change of control regime set out in the Financial Services and Markets Act 2000, as modified by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended – see the Economic crime section below).

Advertising Standards Authority: complaints relating to an advertisement for fan tokens and cryptocurrency 

On 10 August 2022, the Advertising Standards Authority (ASA) published its ruling regarding a Facebook and website advert posted by Arsenal Football Club plc.  

The adverts encouraged fans to download the Socios app to use fan tokens ($AFC) to vote on song requests, and the Arsenal website included a webpage that stated to buy the $AFC tokens, a user needed to purchase the cryptocurrency Chiliz.  

The ASA upheld the complaints, and it was found that the Facebook post did not include a risk warning to make consumers aware that paid-for fan tokens were unregulated cryptoassets. It also considered that the risk warning on the webpage was not prominent. Both adverts were deemed misleading, and in breach of rules in the relevant advertising code.  

Adverts must be sufficiently clear on the value of investments in fan tokens, and that cryptocurrency is unregulated in the UK. 

UK Jurisdiction Taskforce: digital securities consultation 

On 3 August 2022, the UK Jurisdiction Taskforce (UKJT) published its consultation paper on issuance and transfer of digital securities under English private law. The paper confirms the UKJT's intention to publish a legal statement on digital securities in due course. The consultation aims to gain insight into the questions that the proposed statement can most usefully answer. 

The consultation observes that other jurisdictions have introduced tailored legislative frameworks to facilitate the commercial use of blockchain and DLT under their respective legal systems, and the industry is responding by seeking out these jurisdictions when structuring projects. The UKJT wishes to address concerns that English law is comparatively less supportive of digital securities and promote the choice of English law for digital securities arrangements. 

Broadly, the consultation aims to address any material concerns held by stakeholders in relation to the issuance and transfer of digital securities under English private law.  

The consultation closes on 23 September 2022 and the legal statement is expected to be published in December 2022. 

Law Commission: digital assets consultation paper 

On 28 July 2022, the Law Commission issued its consultation paper on digital assets, setting out recommendations to ensure that the law recognises and protects digital assets, including crypto-tokens and cryptoassets.  

A key point of interest is the recommendation of a third category of personal property (data objects) which are distinct from things in possession and things in action. The Law Commission sets out the following requirements for a digital asset to be a data object: 

  • it is composed of data represented in an electronic medium, including in the form of computer code, electronic, digital or analogue signals. 
  • it exists independently of persons and exists independently of the legal system.
  • it is "rivalrous", meaning that the data asset's use by one person prevents the ability of others to make equivalent use of the asset at the same time.  

The paper throughout chapters 6 – 10 applies proposed criteria to each of the following data objects: digital files and records (chapter 6), email accounts and in-game digital assets (chapter 7), domain names (chapter 8), carbon emissions trading schemes (chapter 9), and crypto-tokens (chapter 10).  

The Law Commission suggests developing the concept of control of data objects through common law, following feedback that that the possession and possessory concepts are inappropriate for data objects. In consultation question 17, the Law Commission suggests that the person in control of a data object can exclude others from the use of the data object, use it to effect a passing of, or transfer of, that control to another person, or divestiture of control, and identify themselves as the person able to do so.  

The paper also discusses various issues surrounding cryptoassets, such as crypto-token collateral arrangements, law reform proposals on the custody of crypto-tokens, and non-fungible tokens.  

The consultation closes on 4 November 2022.  

ESG

Glasgow Financial Alliance for Net Zero: consultation of the draft report for measuring portfolio alignment 

On 9 August 2022, the Glasgow Financial Alliance for Net Zero published its consultation on the draft report on measuring portfolio alignment. The draft report sets out guidance and illustrative quantitative and practitioner case studies for financial institutions looking to develop and use portfolio alignment metrics. The consultation aims to seek feedback on the draft report ahead of publication of the final report.  

The guidance aims to provide clarity and consistency on best-practice methods and increase transparency on underlying assumptions. The recommendations and guidance have been designed to apply broadly across various types of financial institution. The report notes that there is scope for further development to the Key Design Judgement framework.  

The consultation closes on 12 September 2022. The final report is anticipated in Autumn 2022, ahead of COP27.  

UK government: response to the International Sustainability Standards Board exposure draft consultation 

On 1 August 2022, the government published its response to the International Sustainability Standards Board (ISSB) exposure drafts: IFRS S1 and IFRS S2. For further information of the IFRS standards, please see our previous update

The government's response strongly welcomes the ISSB exposure drafts, and sets out four high-level and strategic points to support the development of the final standards, suggesting that the ISSB should: 

  • Set an accessible baseline standard for global use. 
  • Implement S1 and S2 proportionately and in a scalable way to accommodate the circumstances of different organisations and jurisdictions and ensure that the standards are principles-based. 
  • Give precise definitions and be clear on what is required to achieve compliance.  

The government has asked the relevant UK regulators to provide substantive comment letters on the exposure drafts due to their critical importance. 

The consultation on the exposure drafts closed on 29 July 2022. The new standards are anticipated by the end of 2022.  

FCA: review of TCFD-aligned disclosures by premium listed commercial companies

On 29 July 2022, the FCA published its review of TCFD-aligned disclosures by premium listed commercial companies. The FCA undertook a high-level quantitative review of the climate-related disclosures by 171 premium listed commercial companies, which published disclosures by 30 April 2022 and a more detailed assessment of the consistency of disclosures with the TCFD framework for 31 of those companies. The findings include: 

  • Over 90% of companies self-reported that they had made disclosures consistent with the TCFD governance and risk management pillars. The figure was less than 90% for the strategy and metrics and targets pillars.  
  • 81% of companies indicated that they had made disclosures in line with all seven recommended disclosures the FCA would expect a company to comply with.  
  • Some companies indicated that they had made disclosures consistent with the recommended disclosures but the disclosures seemed to be very limited in content. The FCA is considering these in more detail and may take action as appropriate. 
  • The number of companies making disclosures that are either partially or mostly consistent with the TCFD framework has significantly increased compared with 2020.  

Whilst the findings are mostly positive, the FCA reiterates its expectations of premium listed companies.  

The FCA also reported on its work with IOSCO to develop a common global baseline sustainability- related report standard under the ISSB (see above).  Final standards are anticipated by the end of 2022, and the FCA expects the government to consult in due course on the implementation mechanism to adopt the ISSB's standards in the UK. For its part, FCA will consult on how to adapt its TCFD-aligned climate-related rules for listed companies to reference the final standards. It also considers that this would be an appropriate time to consult on changing the compliance regime for listed companies from a "comply or explain" approach to a mandatory disclosure basis. 

Alongside the FCA's review of TCFD-aligned disclosures, the Financial Reporting Council (FRC) has published its complementary analysis, which is an in-depth review of the climate-related disclosures for a sample of 25 premium listed companies.  

Payment services and systems

PSR and FCA: Joint Regulatory Oversight Committee appointment of Strategic Working Group Chair 

On 9 August 2022, the PSR published a press release confirming that the PSR and FCA, in their capacity as co-chairs of the Joint Regulatory Oversight Committee (the Committee), have appointed Bryan Zhang as the chair of the Strategic Working Group (SWG) for the development of Open Banking.  

Mr Zhang's responsibilities will include selecting and appointing SWG members, convening and facilitating SWG meetings, collating stakeholder views in response to committee queries, and providing updates to the committee. He will be directly accountable to the co-chairs. 

The SWG will be made up of industry representatives, experts, and other stakeholders. It aims to be a non-decision-making forum for industry consultation to facilitate shared views and input ideas for the future roadmap of Open Banking.  

The SWG will operate between August 2022 until December 2022. The Open Banking Implementation Entity will provide the SWG with administrative support.   

European Commission: Delegated Regulation amending RTS on strong customer authentication and common and secure open standards of communication

On 3 August 2022, the European Commission adopted a Delegated Regulation amending the RTS on strong customer authentication (SCA) and common and secure open standards of communication (CSC) under PSD2. The amendments include: 

  • A new mandatory exemption that has been introduced from the requirement to apply SCA that requires account providers not to apply SCA where customers use an account information service provider (AISP) to access payment account information, where certain conditions are met.  
  • A limit on the scope of voluntary exemption in Article 10 of the RTS to instances where the customer accesses the account information directly.  Payment service providers that had applied the Article 10 exemption before the application of the Delegated Regulation are allowed to continue applying the exemption up to 90 days from the last time SCA was applied. 
  • The renewal of SCA has been extended to every 180 days, both when information as accessed via an AISP or directly by the customer.  

The Council of the EU and European Parliament will scrutinise the Delegated Regulation. Where no objection is made, it will enter force 20 days after publication in the Official Journal of the European Union and apply seven months after the date of its entry into force.

Consumer credit and mortgages

FCA: Buy-Now Pay-Later firms warned about misleading adverts

On 19 August 2022, the FCA published its press release warning Buy-Now Pay-Later (BNPL) firms about misleading adverts. The FCA warns that: 

  • Unauthorised firms may be committing a criminal offence if their financial promotions are not approved by an FCA-authorised firm. 
  • Authorised firms selling unregulated or exempt BNPL products must comply with the relevant financial promotion rules, unless an exemption applies.  

The FCA has raised concerns that it has seen BNPL financial promotions on websites and social media that do not comply with financial promotion requirements and could mislead consumers such as not including fair and prominent warnings of risks relevant to consumers including: 

  • Taking on debt that consumers cannot afford to repay. 
  • Consequences of missed payments. 
  • Other adverse consequences, such as impact on a consumer's credit file.
  • Information about when the charges become payable.  

The FCA has set out its concerns in more detail in letters to BNPL providers and the British Retail Consortium respectively. It also recently held a roundtable with BNPL providers to discuss upcoming regulation and called for more support to be given to borrowers in financial difficulty.  

The FCA will continue engagement with BNPL firms and will proactively monitor to ensure expectations are met. Criminal and regulatory enforcement action will be taken where necessary.

Supreme Court: Goodinson v PRA Group (UK) Ltd [2021] EWCA Civ 957 

The Supreme Court's updated permission to appeal tracker for May and June 2022 (published on 11 August 202) notes that the Supreme Court refused the permission to appeal the Court of Appeal's decision in Goodinson v PRA Group (UK) Ltd [2021] EWCA Civ 957 on the basis that the applicant did not raise an arguable point of law.  

The Court of Appeal ruling held that a deputy judge was entitled to find that a creditor had served a valid default notice under the Consumer Credit Act 1974, where only a reconstitution notice had been provided.  

FCA: switching in the mortgage market

On 11 August 2022, the FCA published its update on switching in the mortgage market. It notes that: 

  • The number of mortgage borrowers not switching their mortgage deal when they could save money has significantly declined since 2016. 
  • Approximately 370,000 mortgage borrowers could save an average of £1,240pa for 2 years by switching to a 2-year fixed rate with their existing lender.  
  • Given the cost-of-living crisis, it is important that borrowers consider their options, and switch if they can meet their needs. Lenders and mortgage intermediaries should support customers to do this. 
  • The FCA no longer sees the same poor pricing practices that used to be prevalent in the general insurance markets.  

Along with the details of the recent findings, the statement also provides actions mortgage borrowers should take, the FCA's expectations of lenders, and the actions the FCA will take.  

Banking and insurance

House of Commons Treasury Sub-Committee: strong and simple framework

On 10 August 2022, the House of Commons Treasury Sub-Committee on Financial Services Regulations (the TSC) published its letter to the PRA, regarding the strong and simple framework consultation. The TSC held a meeting taking evidence from two challenger banks, and representatives from the banking and building society sectors. In the session, the witnesses raised the following concerns: 

  • Firms did not know whether the regime's thresholds were appropriate due to a lack of clarity on the PRA's overall strategy when developing the Strong and Simple framework. 
  • The £15 billion balance sheet cap for a Simpler-regime firm should be at least brought into line with the minimum requirements for own funds and eligible liabilities £25 billion balance sheet threshold. This would reduce additional complexity. 
  • Upper limit thresholds would create "cliff-edges" and it is not clear how firms transition between layers in the framework.
  • The 85% requirement of a firm's obligors to be based in the UK for a firm to qualify may lead to existing overseas customers being "de-banked" by their lender or prospective customers having fewer lenders with which to secure a mortgage or loan.  

The TSC requests that the PRA respond by 2 September 2022. 

Financial Markets Law Committee: the definition of "similar contracts of guarantee" 

On 9 August 2022, the Financial Markets Law Committee (FMLC) published its report on the words "similar contract of guarantee" in the definition of "a contract of insurance" in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). 

This report is concerned with one specific type of contract created by the definition of Article 3(1) RAO, which brings "fidelity bonds, performance bonds, administration bonds, bail bonds, customs bonds or similar contracts of guarantee” within scope of insurance regulation. The FMLC is concerned that it is unclear which contracts fall under the description, which may lead to legal uncertainty and impact firms party to affected contracts. As such, the FMLC has established a working group to consider this issue, and recommends three possible means to resolve the uncertainty: 

  • PERG 6.7 is updated to clarify the scenarios in which the definition applies.  
  • The definition of contract of insurance in the RAO includes a new activity-based exclusion available to UK and non-UK investment businesses.
  • The legislation is amended to make clear the ways in which a contract of guarantee needs to be similar to the instruments listed in the RAO.  

PRA: policy statement to the March 2022 occasional consultation paper

On 8 August 2022, the PRA published its policy statement following its March 2022 occasional consultation paper. The consultation paper proposed minor amendments to the PRA's rulebook, supervisory statements, and other supervisory materials. The policy statement is relevant to various firms as follows: 

  • Chapter 2 – UK Solvency II firms. 
  • Chapter 3 – Capital Requirements Regulation (CRR) firms and CRR consolidation entities. 
  • Chapter 4(a) – banks, building societies, and PRA-designated investment firms. 
  • Chapter 4(b) –CRR firms and CRR consolidation entities.
  • Chapter 4(c) – banks, building societies, and PRA-designated investment firms. 
  • Chapter 5 – CRR firms, CRR consolidation entities, and UK insurers. 
  • Chapter 6 – banks, building societies, and PRA-designated investment firms. 
  • Chapter 7 – banks, building societies, and PRA-designated investment firms.
  • Chapter 8 - CRR firms and CRR consolidation entities.

The PRA received no responses to its proposals in the consultation paper. As such, the PRA has published the final policy material with minimal amendments. The implementation date for policy changes relating to IFPR was 12 August 2022, all other changes come into force on 1 September 2022. 

FCA: remuneration approach 

On 2 August 2022, the FCA published its Dear Chair of the Remuneration Committee letter to proportionality level one banks, building societies and PRA designated firms. The letter aims to set out the FCA's expectations for determining firm's remuneration outcomes for the year. The letter is split into the following sections: 

  • Culture and accountability. 
  • The new Consumer Duty. 
  • The rising cost of living. 
  • Operational resilience. 
  • Environmental, Social, Governance.
  • Diversity and Inclusion. 

Firms with an accounting date of later than 31 December should submit their remuneration policy statement no later than eight months after the end of the preceding financial year. 

Securities, investments, and markets

FCA: Investment Firm Prudential Regime and Senior Managers and Certification Regime

On 16 August 2022, the FCA published its statement on the Investment Firm Prudential Regime (IFPR) and eligibility for enhanced Senior Managers and Certification Regime (SMCR) status as a significant SYSC firm.  

When implementing IFPR in January 2022, the FCA renamed and moved the definition of "Significant IFPRU firm", used as part of the criteria for identifying Enhanced Firms under SMCR. Subsequently, various firms have raised concerns to the FCA that the new definition of a "Significant SYSC firm" could result in more firms being brought under enhanced scope than was the case under the previous definition.  

The FCA plans to consult and make necessary changes to clarify that only firms that would have been significant IFPRU firms and IFPRU investment firms under the pre-IFPR arrangements should now fall under the new "Significant SYSC firm" definition.  

FCA: LIBOR-linked bonds 

On 16 August 2022, the FCA published its statement encouraging market participants to continue the transition of LIBOR-linked bonds. It is strongly encouraged that issuers of the remaining LIBOR-linked bonds (or those that may have a future LIBOR-linked dependency) issued under English or other non-US laws that enabled consent solicitation, to schedule consent solicitation processes for conversion to fair alternative rates. The relevant risk-free rate and agreed spreads have been used successfully in consent solicitation exercises to date. It is noted that the responsibility for initiating this process sits with the bond issuer.  

It is also encouraged that holders of bonds without robust fallbacks or other mechanisms to remove reliance on LIBOR engage with the relevant issuer(s) or agent(s) and request initiation of the conversion process. 

ESMA: memorandum of understanding between ESMA and South Africa's Financial Sector Conduct Authority

On 10 August 2022, ESMA published the memorandum of understanding (MoU) that it has entered into with South Africa's Financial Sector Conduct Authority (FSCA), Prudential Authority and the South African Reserve Bank regarding central counterparties (CCPs) established in South Africa. The cooperation agreements between the authorities are set out in the MoU with regards to the CCPs established in South Africa that have applied to ESMA for recognition under Article 25 of EMIR.  

The MoU also aims to provide sufficient tools to ESMA to monitor ongoing compliance of the CCPs. This agreement will be effective from the date of signing by the authorities.  

ESMA: Central Securities Depositories Regulation 

On 4 August 2022, EMSA updated its Q&As on the implementation of Regulation (EU) No 909/2014 (CSDR) on improving securities settlement in the EU and on central securities depositories. The updates include: 

  • an amendment to Settlement Discipline question 3 on the cash penalties calculation; and 
  • the addition of Settlement question 10 on the bilateral cancellation facility. 
Funds and asset management

FCA: alternatives supervisory strategy

On 9 August 2022, the FCA published a portfolio letter on its alternatives supervisory strategy. The FCA acknowledges that since the 2020 portfolio letter, several significant events (such as COVID-19, Brexit, and the cessation of LIBOR) have impacted the asset management industry. Whilst the market has been generally resilient, these affected the work the FCA focused on, and therefore several priorities remain consistent with the 2020 priorities. Among other things, the portfolio letter notes that: 

  • Whilst a ban on mass marketing of speculative investments has led to a reduction in harm, inappropriate distribution and marketing processes by firms targeting mainstream investors remains a concern. 
  • Understanding the culture of firms is central to the FCA's supervisory approach given its direct influence on business practices.  
  • The FCA has previously observed that market abuse controls need improvement across the sector. Where the FCA identifies firms do not comply, the FCA will consider criminal, civil, or supervisory sanctions to provide deterrents.
  • ESG remains a priority area to the FCA and the FCA will continue to assess authorised fund applications with an ESG or sustainability focus. Firms offering these products should expect to be subject to review to ensure marketing materials accurately describe their product.  

Firms within this portfolio should discuss with their board or executive committee and consider areas the firm and its assurance functions should focus on.  

European Central Bank: proposed amendments to the Alternative Investment Fund Managers Directive and UCITS Directive 

On 9 August 2022, the European Central Bank (ECB) published its opinion on a proposal by the European Commission for a Directive amending the Alternative Investment Fund Managers Directive (AIFMD) and UCITS Directive, with regards to delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by alternative investment funds (AIFs). The ECB suggests it would have welcomed the proposed Directive had it covered issues which are not addressed by AIFMD, for example, the operationalisation and development of macroprudential tools applied ex ante as a means of reducing risks to the financial system that are posed by AIFs, as well as ensuring details data on individual AIFs are made available to the EC and other relevant central banks.   

The ECB sets out its views on the following areas: 

  • Liquidity management and macroprudential tools. 
  • Reporting.
  • ESCB access to detailed data on the AIF sector. 

The ECB also sets out a technical working document with its proposed amendments to the Commission's draft text.  

FCA: broadening retail access to the long-term asset fund

On 1 August 2022, the FCA published its consultation paper on broadening retail access to the long-term asset fund (LTAF). LTAF is a new category of authorised open-ended fund, which has been designed to enable investors to invest in long-term illiquid assets via an authorised fund vehicle. 

Promotion of LTAFs is currently restricted to professional investors, certified and self-certified sophisticated investors, and certified high net worth individuals. However, the FCA recognises that some retail investors seek out non-traditional investments for diversification or higher returns and that LTAFs may enable that greater diversification, which is managed to the appropriately high standards. This consultation proposes the broadening of distribution of LTAFs to retail investors, with certain restrictions. These proposals include: 

  • Treating an LTAF as a restricted mass market investment. 
  • Increase the amount of exposure that some other authorised retail funds can have to an LTAF.  
  • To align some LTAF rules with investor protection rules.
  • Remove 35% restrictions on illiquid assets in unit-linked products, where the investor is a qualifying default pension scheme.  

All firms that manufacture, manage, or distribute an LTAF to retail investors and retail clients must comply with the consumer duty. 

Annex 1 contains the questions in this consultation, and Appendix 1 contains the draft handbook text.  

The consultation closes on 10 October 2022, and the final policy statement and handbook rules are anticipated in early 2023. 

FCA enforcement action

FCA: fine Citigroup Global Markets Ltd for failing to properly implement EU Market Abuse Regulation requirements 

On 19 August 2022, the FCA published its final notice that it issued to Citigroup Global Markets Ltd (CGM) for failings in properly implementing trade surveillance requirements under the trade surveillance requirements of Article 16(2) of the EU Market Abuse Regulation (Regulation 596/2014) (MAR). 

CGM has been fined £12,553,800 for breach of Principle 2.  

The fine was subject to a 30% stage 1 discount from £17,934,030, pursuant to the FCA's executive settlement procedures.

FCA: individual pleads guilty to carrying on regulated activities without authorisation 

On 10 August 2022, the FCA published its statement confirming that an individual has pleaded guilty to two counts of carrying on regulated activities without authorisation. The charges relate to the provision of advice and arrangements made in respect of a series of regulated mortgage contracts during the period of June 2014 – March 2018.  

The individual is an unauthorised person and is prohibited from providing regulated financial services. The individual is also charged with committing fraud, which is denied. This trial is scheduled for 23 October 2023. 

Sentencing for the offences of unauthorised activities will take place after the trial for the fraud offence is concluded.

FCA: former non-executive chair of ConvaTec Group Plc fined for unlawfully disclosing inside information

On 5 August 2022, the FCA published its final notice that it issued to Sir Christopher Gent, former non-executive chair of ConvaTec Group Plc, who in his capacity as Chairman, disclosed inside information in breach of Article 14(c) of EU MAR.  

Sir Christopher has been fined £80,000, pursuant to section 123 of the Financial Services and Markets Act 2000.  

The FCA and Sir Christopher did not reach an agreement to settle, and as such no discount was applied to the fine. 

FCA: public censure imposed on Carillion Plc (in liquidation) and three former executive directors

On 28 July 2022, the FCA published a press release and accompanying decision notices issued to Carillion Plc (in liquidation) and its three former directors, for failing to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with obligations under the Listing Rules.  

The three former directors have referred their respective decision notices to the Upper Tribunal, who will decide whether to uphold the fines imposed by the FCA, which are as follows: 

  • Mr Howson, former CEO: £397,800. 
  • Mr Adam, former finance director: £318,000.
  • Mr Khan, former finance director: £154,400.  

The FCA has decided to impose a public censure on Carillion rather than a financial penalty due to the firm's insolvency and liquidation. Otherwise, the FCA would have imposed a penalty of £37,910,000. 

Economic crime

Wolfsberg Group: best practice guidance on transaction monitoring request for information 

On 23 August 2022, the Wolfsberg Group published its best practice guidance on requests for information (RFI) primarily focused on inquiries as a result of transaction monitoring. The guidance includes: 

  • Benefit and value of RFIs. 
  • Drivers for RFIs. 
  • Roles and responsibilities. 
  • Timelines and expectations. 
  • Actions on insufficient/non-responses.
  • Guidance on RFI questions and expected responses. 

The RFI process allows a correspondent to identify how a respondent's anti-money laundering programme works. 

Joint Money Laundering Steering Group: revised guidance on the prevention of financial crime and terrorist financing in motor finance credit application processing

On 12 August 2022, the Joint Money Laundering Steering Group (JMLSG) published its revised guidance on the prevention of financial crime and terrorist financing in motor finance credit application processing.  

The guidance sets out the approach required by full finance and leasing association motor finance members to customer due diligence when consider a credit application, and acceptable methods for conducting these checks.  

Money Laundering and Terrorist Financing Regulations: 2022 amendments

On 21 July 2022, the Money Laundering and Terrorist Financing (Amendment) (No2) Regulations 2022 (SI 2022/860) were made and will come into force in stages. 

In particular:

  • Regulation 5, which deals with cryptoasset transfers, comes into force on 1 September 2023. 
  • Regulation 12, which deals with change in control requirements for registered cryptoasset businesses, came into force on 11 August – see our item on the FCA's change in control notification forms in the Fintech and Cryptoassets section of this update. 
FSR trivia

By what date should boards of firms have agreed their implementation plans for the FCA's new Consumer Duty?

  • 31 October 2022.
  • 30 April 2023.
  • 31 July 2023.
  • 31 July 2024.

The answer to last month's trivia: answer c is correct. 

 

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