FCA and PRA consult on improving diversity and inclusion in financial services

On 25 September 2023, the FCA and PRA published consultation papers setting out proposals to introduce a new regulatory framework on diversity and inclusion (D&I) in the financial services sector. This follows the joint FCA and PRA discussion paper on diversity and inclusion (DP21/2) published in July 2021, which we covered in our August 2021 update. The consultation papers cover new rules on non-financial misconduct; D&I strategies; data disclosure and regulatory reporting; target setting; risk and governance. There is a particular focus on reducing groupthink. The application of the proposed rules varies depending on the type and size of the firm in question, with firms with over 250 employees being subject to the full regime.  

The FCA consultation paper can be found here. 

The PRA consultation paper can be found here. 

Both consultations close on 18 December 2023. The regulators will review feedback and publish policy statements in 2024, with a view to bringing the rules into force 12 months after publication of the policy statements.

FCA publishes speech on the role of regulation in encouraging investment in the City

On 25 September 2023, the FCA published a speech on the role of regulation in encouraging investment in the City, given by Sarah Pritchard, FCA Executive Director of Markets and International. In the speech Pritchard noted that:  

• Proportionate regulation and debate around risk appetite are important for building trust, and therefore competitiveness. 

• Now is a pivotal time for regulatory reform, which could set the rules for the next few decades. 

• The FCA will need industry engagement to ensure the new Smarter Regulatory Framework is "futureproof". 

Financial Ombudsman News issue reveals success of "proactively settled" complaints category

On 20 September 2023, the Financial Ombudsman Service (FOS) published its latest issue of Ombudsman News. The issue shares news about the success of the extended trial of the "proactively settled" complaints category, which has helped to resolve over 900 complaints since its announcement.  

For more information on offers to proactively settle a complaint, please see this webpage. 

FOS will be trialling the category until March 2024.

European Commission publishes guidelines on the application of EU-wide cybersecurity directive to financial entities within the scope of DORA

On 18 September 2023, the European Commission published a communication, setting out guidelines on the application of EU-wide cybersecurity risk-management measures set out in Articles 4(1) and (2) of the NIS 2 Directive. It clarifies the position for financial entities covered by both the NIS 2 Directive and Directive (EU) 2022/2554, also known as the Digital Operational Resilience Act (DORA). 

The communication states that Member States should apply the provisions in DORA, rather than those in the NIS 2 Directive, to financial entities that are within the scope of both Directives in matters relating to: 

• information and communication technology (ICT) risk management (Article 6)

• management of ICT-related incidents, in particular major ICT-related incident reporting (Article 17)

• digital operational resilience testing (Article 24)

• information-sharing arrangements (Article 25)

• ICT third-party risk (Article 28).

Financial Ombudsman Service publishes quarterly complaints data on financial products and services

On 14 September 2023, FOS published its quarterly complaints data for the period April to June 2023 (Q1).

Key points from the data included:

• The top five most complained about products and services were current accounts, credit cards, car or motorcycle insurance, hire purchase (motor), and buildings insurance.

• Overall, it received 73,429 new enquiries and 43,953 new complaints, which was an increase on complaints received during Q1 in 2022. It upheld 37% of the cases it resolved, which was up from 34% in Q1 last year. 

• Complaints about buildings, car, and motorcycle insurance have reached a combined five-year high, with an increase in complaints about insurance claims delays.  

• Current accounts were the most complained about product, with the rise due to fraud and scam complaints. Fraud and scam complaints increased by almost 39% compared to the same period last year. Around 50% of these relate to authorised push payment scams. 

• Travel insurance complaints have doubled in a year, and the Q1 figure for travel insurance complaints is the highest in more than a decade.

FCA Chair delivers speech on international collaboration and modernising UK financial services regulation

On 13 September 2023, FCA Chair Ashley Alder delivered a speech welcoming close international collaboration and the modernisation of UK financial services regulation, addressing the need for global cryptoasset and sustainable finance regulation. 

In the speech Alder noted:

• That the FCA welcomes the UK-EU Memorandum of Understanding on Regulatory Cooperation in Financial Services (please see our July 2023 update) and the first meeting of the Joint UK-EU Financial Regulatory Forum later this year.

• The importance of interconnectivity between the UK's and the EU's financial services sectors, and of international cooperation to avoid regulatory fragmentation. 

• That the FCA co-chaired the International Organisation of Securities Commission's (IOSCO) work on the endorsement of climate reporting standards issued by the International Sustainability Standards Board (ISSB), which aims to limit greenwashing and strengthen the regulatory framework for sustainable finance, and is looking to work with the EU to embed ISSB standards across international capital markets. 

• There will be an FCA consultation in October 2023 on critical guidance for climate transition plan disclosures under a framework developed by the Transition Plan Taskforce (TPT), which will help the TPT to define a good practice transition plan, which is harmonised with ISSB standards. 

• The FCA is keen to coordinate opportunities internationally on tackling crypto regulation due to the cross-border nature of cryptoassets, which makes it easier to evade accountability. 

• The FCA is closely involved in driving work towards a set of concrete policy outcomes for non-bank financial intermediation activity (NBFI), co-chairing a key IOSCO group with the French Autorité des Marchés Financiers to develop a full set of NBFI policy proposals. The FCA will also be contributing to the Financial Stability Board’s (FSB) upcoming Leverage Working Group. 

• That following the passage of the Financial Services and Markets Act 2023 (FSMA 2023), the FCA will ensure any reforms are effective and proportionate. The FCA will also work alongside EU and global partners to pursue an agenda of sustainable economic prosperity, tackl financial sector risks, and reflect on best practice.

FCA publishes blog post on post-Brexit Handbook

On 13 September 2023, the FCA published a blog post to communicate the "collective opportunity" to reshape the FCA Handbook post-Brexit. The FCA notes that it will be looking to implement incremental change, balancing the opportunity to tailor the UK's regulatory regime to the domestic market and the potential disruption to the industry. 

The FCA has already been working closely with the PRA and the Treasury to ensure that the PRA rulebook, FCA Handbook and Government statute book all interact well together. It will continue to consult with stakeholders, including financial services firms and consumers, on the changes it proposes. It aims to ensure that the Handbook is "clear and accessible" and is a "one-stop shop".  It will use existing structures and requirements in the Handbook as much as possible, only creating new sourcebooks where necessary.  It will adopt an "outcomes-based" approach where appropriate and will seek to reduce complexity when drafting provisions and aim to align standards addressing similar issues across files where possible.

The blog concludes by noting that the FCA will keep its website and the Regulatory Initiatives Grid updated with reforms happening across the sector as they occur.

FCA makes improvements to SMCR Form A 

On 13 September 2023, the FCA published a video showing the improvements it is making to Form A, which is used for Senior Management Function and Controlled Function applications. The improved forms will include: 

• a checklist of information an applicant will need to complete the form

• better accessibility and a more user-friendly look and feel

• better help and guidance text throughout

• autofill features where the FCA already holds the applicant's data

• error messages preventing completion of the form without addressing mandatory fields

• the integration of the statement of responsibilities into Form A

• the removal of duplication and the employment history section, as well as the need to attach a CV (for most firms). Where employment history is required, the form will now require a 10-year history

• removal of the “Send Later" function to ensure all information regarding the application is sent at the same time, improving the efficiency of the FCA's assessments

• the option to save the application as a draft. 

The transcript of the video can be found here.

FCA publishes policy statement and information on its new regulatory gateway

On 12 September 2023, the FCA published a policy statement and a new webpage setting out how authorised firms may apply to pass through the FCA's new regulatory gateway in order to obtain permission to approve financial promotions of unauthorised firms ("approver permission"). 

As a result of amendments to the financial promotion restriction in the Financial Services and Markets Act 2000 made by FSMA 2023 and which come into force from 7 February 2024, authorised firms must have FCA permission to approve financial promotions for any unauthorised firms. The three exemptions to this are detailed in the relevant regulations, which state that an authorised person does not need approver permission for their own financial promotions, financial promotions prepared by any unauthorised person in the same corporate group, or financial promotions prepared by their appointed representatives, where the promotion relates to a regulated activity for which the authorised person has agreed to accept responsibility. 

If an authorised firm is not exempt, the webpage notes that it must apply to the FCA for approver permission during the 3-month application window, opening on 6 November 2023 and closing on 6 February 2024. The application form will require that authorised firms explain the types of promotion the firm intends to approve, the expertise they have to approve them, policies they have when approving financial promotions, and their historic approvals. Authorised firms which miss this deadline must stop approving financial promotions for unauthorised firms on 7 February 2024. The ability to approve financial promotions for unauthorised persons will be shown on the FS Register from this date as well. 

The application forms will become available on the webpage or via Connect once the application window opens in November.

FCA communications on new cryptoasset financial promotion regime

On 7 September 2023, the FCA published a letter outlining its expectations of, and support for, firms that intend to communicate or approve cryptoasset financial promotions, ahead of the new financial promotion regime, which comes into force on 8 October 2023 (please see our March 2023 article). 

The letter expresses the importance of the new rules, which aim to help provide consumers with fair and accurate information to prevent them from investing in cryptoassets that are not in line with their risk appetite. It also sets out findings from the FCA's review of preparations cryptoasset firms have been undertaking for the new regime. It found that: 

• Firms faced significant challenges in preparing for the "back end" requirements, such as making operational changes to include personalised risk warnings, a 24-hour cooling off period, and client categorisation systems.

• Firms will have to restructure their businesses to comply with the regime and implement systems and controls in their wider group to prevent promotions to UK customers.

• Firms have not fully understood the scope and nature of the regime and not appreciated that promotional material covers a wide range of customer communications including websites and apps. 

• Firms were not sufficiently considering how their risk summaries and appropriateness assessments should be tailored to the specific cryptoassets being promoted. 

As a result of feedback that it has received, the FCA has decided to introduce a modification by consent for crypto firms registered with the FCA under the Money Laundering Regulations and authorised firms, delaying the application date of certain financial promotions rules in COBS. The modification will give firms an additional three month period to comply with "back end" rules (specifically those dealing with client categorisation, appropriateness assessments, risk warnings and 24-hour cooling off period). Firms are encouraged to apply as soon as possible, via an email in the format set out in the letter to the FCA's Waivers team. The FCA will confirm in writing if the modification has been granted and update the FS Register accordingly. The letter concludes with a warning that the FCA will take robust action against overseas firms who breach the new rules.

On 21 September, the FCA sent out a "final warning" letter to cryptoassets firms marketing to UK consumers.  The FCA noted that while it had had some productive interactions with firms, it was concerned by the poor engagement from many unregistered, overseas cryptoassets firms with UK customers.  It reiterated its expectations of firms, the availability of the modification by consent and its readiness to take appropriate enforcement action.  It also set out its expectations of intermediaries such as social media platforms, search engines, app stores, domain name registrars and payment firms, all of which have a role in enabling firms to target UK consumers.  The FCA reminded intermediaries of their obligations under the Proceeds of Crime Act 2002 and the Money Laundering Regulations (if applicable) and the impact of the Online Safety Bill when in force.

FCA Board discusses AI regulatory landscape

On 7 September 2023, the FCA published Board minutes for the meeting held on 27 July 2023. The discussions were centred around the FCA's emerging approach to AI. 

The key points that were raised included: 

• a mention of the speech made in July 2023 by Nikhil Rathi, the chief executive of the FCA, about Big Tech and AI (see our August 2023 update)

• that the regulatory approach to AI requires global collaboration

• discussions about the ability to comply with the new Consumer Duty and give customers appropriate disclosure in the context of using AI for customer service and to assist with customer decisions

• discussions on the FCA's own resourcing and capability on AI

• the importance of discussing opportunities for achieving good outcomes for customers, market integrity, and efficiencies in firms.

The Board concluded that it should have further discussions on AI in the future. 

FSB and IMF publish joint paper on international cryptoasset policies

On 7 September 2023, the Financial Stability Board (FSB) and the International Monetary Fund (IMF) published a joint paper to synthesise cryptoasset related policy recommendations and standards of the FSB, IMF, and other international standard setting bodies (SSBs). The paper was developed at the request of the Indian G20 presidency, and aims to provide comprehensive guidance to help authorities address the macroeconomic and financial stability risks posed by cryptoasset activities, including stablecoin and decentralised finance related activities. 

The paper notes that the widespread adoption of cryptoassets could undermine monetary policy, capital flow management measures, divert resources available for financing the real economy, and threaten global financial stability. It also notes that the implications could be mutually interactive and reinforcing, putting a strain on fiscal resources internationally. 

Section 4 of the paper presents an implementation roadmap set out by the IMF, FSB, international organisations, and SSBs to ensure effective, flexible, and coordinated implementation of the comprehensive policy response for cryptoassets. The roadmap includes: 

• implementation of policy frameworks

• outreach beyond G20 jurisdictions 

• global coordination, cooperation, and information sharing

• addressing data gaps. 

Following the G20 endorsement of the FSB's principles-based policy recommendations made in July 2023, the FSB will implement these over the next few years, with plans to review the status of the implementations by the end of 2025. The paper also sets out details of a shared workplan for 2023 onwards developed by the FSB and the SSBs, which is available at Annex 3.

IOSCO publishes consultation report on policy recommendations for DeFi

On 7 September 2023, the International Organisation of Securities Commission (IOSCO) published a consultation report to make policy recommendations to address market integrity and investor protection issues in decentralised finance (DeFi). The report follows the IOSCO's recent consultation paper on global regulation of crypto and digital assets (please see our June 2023 article). 

The IOSCO makes nine key recommendations for regulators and authorities looking to apply the IOSCO's standards: 

• Analyse DeFi products, services, arrangements, and activities to assess regulatory responses.

• Identify Responsible Persons.

• Achieve common standards of regulatory outcomes. 

• Require identification and addressing of conflicts of interest. 

• Require identification and addressing of material risks, including operational and technology risks.

• Require clear, accurate and comprehensive disclosures.

• Enforce applicable laws.

• Promote cross-border cooperation and information sharing. 

• Understand and assess interconnections among the DeFi market, the broader cryptoasset market, and traditional financial markets.

Whilst the recommendations are not aimed towards market participants, the IOSCO encourages them to consider the recommendations and the supporting guidance. 

Annex F of the report maps the IOSCO's principles to DeFi activities to examine and identify how DeFi products, services, arrangements, and activities implicate IOSCO Standards.

FSB publishes letter sent to G20 finance leaders ahead of summit about cryptoassets

On 5 September 2023, a letter addressed to G20 finance leaders was published by the FSB, ahead of the summit that was held on the 9 and 10 September 2023 in New Delhi. The letter, authored by Klaas Knot, FSB Chair, sets out the work the FSB has done to address existing vulnerabilities in the financial system and enhance the resilience of the financial system to structural change. The letter notes that cryptoassets warrant close monitoring given the growing links with the traditional financial system, and present macroeconomic risks relating to monetary sovereignty, capital flow volatility, and fiscal policy. The FSB presented a synthesis paper at the summit on the macrofinancial risks that cryptoassets pose, setting out a roadmap for the implementation and supervision of cryptoasset policies worldwide.

TNFD publishes final version of its recommendations for a disclosure framework

On 19 September 2023, the Taskforce on Nature-related Financial Disclosures (TNFD) published the final version of its recommendations for a disclosure framework. It also published additional guidance to help organisations to identify and assess nature-related issues and inform disclosure.  

The recommendations are designed for organisations of all sizes, across all sectors, and along value chains. They are grouped into four pillars, which are governance, strategy, risk and impact management, and metrics and targets. The TNFD will publish annual reports from 2024 to track the voluntary adoption of the recommendations. Early adopters of the recommendations have been invited to join the inaugural cohort of TNFD Adopters, which will be announced at the World Economic Forum at Davos in January 2024.

GFANZ publishes consultation on transition finance strategies

On 19 September 2023, the Glasgow Financial Alliance for Net Zero (GFANZ) published a consultation, alongside supplemental information, on defining transition finance and considerations for decarbonisation contribution methodologies. This follows GFANZ's publication of a final report in 2022 outlining voluntary, pan-financial sector recommendations and guidance to support the transition of the global economy to net zero. GFANZ defines transition finance as "investment, financing, insurance, and related products and services that are necessary to support an orderly real-economy transition to net zero." The consultation seeks input to refine definitions and applicability of GFANZ's key financing strategies, highlight currently available decarbonisation contribution methodologies, and explore potential applications across each of the financing strategies. 

The consultation closes on 2 November 2023.

European Commission publishes consultations on SFDR implementation

On 14 September 2023, the European Commission published both a targeted and public consultation on the implementation of Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR). The consultations focus on how the SFDR is working in practice and the issues in its implementation. The questions pertain to the cost, operation, and success of the SFDR objectives. The consultation also asks about how SFDR interacts with other sustainable finance legislation, the suitability of SFDR for financial market participants, and requests any feedback on the merits of a potential categorisation system for financial products, building on Articles 8 and 9 of the SFDR. 

Both consultations close to comments on 15 December 2023. The Commission has organised an online event to discuss the consultations on 10 October 2023.

Green Technical Advisory Group advises HM Treasury on the development of a UK green taxonomy

On 7 September 2023, the Green Technical Advisory Group (GTAG) published two reports advising HM Treasury on the development of a UK green taxonomy. One report addresses operational considerations for taxonomy reporting, which contains recommendations on how to ensure data gaps are minimised to support more useful taxonomy disclosures without placing undue burden on businesses. Its key recommendations include:

• sequencing mandatory disclosures correctly such that sufficient information is available to those making taxonomy disclosures

• preparing sufficient guidance to support those voluntarily disclosing their taxonomy alignment

• providing a forum to allow stakeholders to raise data issues, challenges, and questions during the voluntary period 

• ensuring data requirements are mindful of global companies

• supporting the use of estimates when disclosure is limited during the voluntary reporting period by providing clarity on how estimates can be used

• considering the development of a reporting template to facilitate consistency in disclosures during the voluntary period. 

The second report addresses the treatment of green financial products under an evolving UK green taxonomy. The GTAG recommends that: 

• The UK Government should provide clarity on how existing green products will be treated when the taxonomy comes into effect, and how taxonomy-aligned products will be treated over time. The GTAG believes this will ensure certainty in the market and reduce the potential negative impact on the development of taxonomy-aligned products. 

• A "grandfathering" clause is implemented, which will provide a set time period for green debt issuers that will ensure taxonomy-aligned debt at issuance will remain aligned until maturity.

• For equity, the "grandfathering" clause outlines a set time period within which alignment to the taxonomy criteria must be met if the criteria changes. 

• If existing green debt is refinanced, an assessment should be made against the taxonomy for the latest, current criteria at the time of refinancing. 

• The UK Government should work closely with the FCA to agree a consistent approach to green and sustainability bonds. 

• The UK Government should publish additional supporting guidance on how to assess complex green investments and projects against the taxonomy.

On 1 September 2023, the GTAG published two reports providing technical advice on the development of a UK green taxonomy. One report addresses how HM Treasury can develop a UK taxonomy that is adapted to the UK's needs in the short and medium term. Its key recommendations broadly include:

• Not to implement an extended taxonomy at this time to avoid complexity in an already highly regulated area, and to instead deliver a green taxonomy that clearly defines "green" economic activities, is credible, robust, and usable. 

• That the UK Government should outline how existing and planned policy initiatives can support the UK's green transition to ensure the case for an extended taxonomy in the near term makes sense. 

• That existing taxonomy design, such as transition activities already included within the EU Taxonomy and any future international taxonomies, should be utilised when the consultation document is developed. 

• That the KPIs that are used and guidance on which entities should report are carefully assessed against existing EU taxonomy. 

The second report addresses implementing an effective reporting regime for the UK green taxonomy. The GTAG has identified challenges with EU taxonomy reporting KPIs for both financial and non-financial companies and offers recommendations to address these issues.

FCA responds to the ISSB's agenda priorities consultation

On 7 September 2023, the FCA published a response to the agenda priorities consultation published by the ISSB in May 2023. The FCA's climate change and sustainable finance webpage has been updated include the response. The FCA believes the ISSB's work for the next two years should be focused on embedding IFRS S1 and IFRS S2 and launching a comprehensive work programme to build out a suite of investor-material sustainability related disclosure standards beyond climate. The FCA notes that there is an urgency to address growing climate and biodiversity challenges. It believes that decision-useful, investor-material information on ESG risks and opportunities will help private actors in the market to make decisions that will aid the transition to a more sustainable economy. The FCA encourages the ISSB to leverage existing work that would enable the development of a thematic standard on nature in the short term. In the medium term the FCA notes the ISSB should have regard to the interdependencies between sustainability topics and to consider a project that jointly develops a thematic standard for reporting on human capital and human rights.

NGFS publishes conceptual framework for nature-related financial risks

On 7 September 2023, the Network for Greening the Financial System (NGFS) published a press release to announce a new technical document outlining a conceptual framework to guide action by central banks and supervisors for nature-related financial risks. This follows the launch of the NGFS Taskforce on Biodiversity-loss and Nature-related Risks in early 2022. The framework includes considerations of climate-related financial risks as well as broader environmental-related financial risks. The framework seeks to create a common science-based understanding of and language for these risks, providing greater clarity on the meaning of key concepts. The framework includes a three-phase principle-based risk assessment framework to capture key elements that central banks and supervisors could consider as part of their nature-related risk assessment. The three phases are as follows: 

• identify sources of physical and transition risk

• assess economic risks

• assess risk to, from, and within the financial system. 

Through this framework, the NGFS aims to draw attention to the considerations that are material from a microprudential, macroprudential or macroeconomic perspective. The NGFS notes that this is a beta version of the framework, and can be refined as further knowledge develops.

NGFS publishes information on climate-related litigation risks and microprudential supervision

On 1 September 2023, the NGFS published a technical document outlining the recent trends in climate-related litigation, following the NGFS 2021 technical document. The document sets out how climate-related litigation has grown in volume, with a wide variety of legal arguments being put forward to claim against private sector companies. Several claims have been brought directly against defendants in the financial sector. The legal arguments advanced have come under tort law, for example to argue a duty to respect human rights, under corporate due diligence legislation, under consumer protection and competition law to challenge "greenwashing", and under company law to challenge directors for breach of fiduciary duties. The NGFS notes that with the recent expansion of regulatory reporting requirements, there is an increased risk that claims will be brought against financial institutions on grounds of breaching climate-related legislation. 

A second report covers microprudential supervision of climate-related litigation risks. The report sets out what the NGFS believes are increasingly relevant microprudential supervision considerations of climate-related litigation risk, in light of rapidly changing climate-related regulation that could result in large losses for firms in legal claims. The report provides a range of supervisory options that range from low to high intensity, for example awareness building exercises, and testing resilience through scenario analysis and regulatory capital considerations.

City of London Corporation and FCA launch authorised push payment synthetic dataset to develop products and services designed to minimise fraud

On 27 September 2023, the City of London Corporation announced that it has launched an authorised push payment (APP) synthetic dataset to develop products and services designed to minimise fraud, in collaboration with the FCA. The dataset provides a foundation to better understand how useful data could be shared to reduce barriers to minimising fraud. It will allow analysis of rare patterns of behaviour to advance the understanding of synthetic data's role as a new regulatory and compliance tool. The dataset will be hosted on the FCA's permanent Digital Sandbox.

PSR publishes consultation on additional changes to proposed measures on APP scam data

On 15 September 2023, the Payment Services Regulator (PSR) published a consultation paper on additional changes to timelines and reporting periods as part of its proposed measures to improve transparency on authorised push payment (APP) scam data. This follows the PSR's March 2023 policy statement on the collection and publication of performance data relating to APP scams. The proposals in this consultation include moving to 12 monthly reporting of Cycle 2 data, instead of 6 monthly reporting. Beyond H2 2023, the PSR notes it will likely need to run a third cycle, and will confirm the timing of this in 2024. 

The consultation closed on 22 September 2023.

FSB provides update on cross-border payments roadmap

On 5 September 2023, a letter addressed to G20 leaders was published by the Financial Stability Board (FSB), ahead of the summit that was held on the 9 and 10 September 2023 in New Delhi. The letter, authored by Klaas Knot, FSB Chair, sets out an update on the G20 cross-border payments roadmap. Knot notes that: 

• The initial set of actions set out in the 2020 roadmap have now largely been completed. 

• In the second phase, the FSB aims to achieve the 2027 targets. 

• The three priority themes for the second phase are payment system interoperability and extension; legal, regulatory, and supervisory frameworks; and cross-border data exchange and message standards. 

• Two new public-private sector taskforces have been established to focus on practical changes and projects to enhance payment systems. 

• The FSB require political support from the G20 leaders and sustained effort by the public and private sectors to meet the 2027 targets. 

FCA reviews later life mortgage promotions and advice, and sets out expectations of lifetime mortgage advisers

On 14 September 2023, the FCA published a webpage summarising the findings of its multi-firm review of later life mortgage advertising and advice, with a focus on the equity release market where complex products are often sold to customers with a higher risk of being in vulnerable circumstances. 

The review found many inaccurate or misleading promotions, with product benefits being highlighted without a balancing description of the risks, and firms using their FCA regulated status in a promotional manner. As a result, almost 400 promotions were removed or amended. 

The review also found evidence that intermediaries were not delivering suitable advice. Examples included firms poorly considering borrowers' financial circumstances, minimising discussions on alternatives, incentivising sales potentially at the expense of quality advice, and steering outcomes in favour of lifetime mortgage products. As a result of the FCA's interventions, all the firms included in the review have changed how they incentivise advisers. 

The FCA further emphasises that firms should assure themselves that they are complying with the new Consumer Duty. 

The webpage concludes with a list of the FCA's expectations, which states that lifetime mortgage advisers must:

• consider the information needs of consumers and communicate in a way which is clear, fair, and not misleading

• assure themselves that consumers get appropriate information about the overall proposition, in a timely and understandable format

• gather all relevant information to tailor advice to the consumer's needs and circumstances

• ensure balanced conversations and disclosures of the availability of alternative options

• ensure that commission received from providers is not prioritised over customers receiving good advice

• have appropriate processes to manage potential conflicts of interest

• monitor the outcomes their consumers are experiencing and take action to address any risks to good customer outcomes.

European Parliament adopts proposed consumer credits Directive at first reading

On 12 September 2023, the European Parliament announced that it adopted the proposed Directive on consumer credits (CCD II) (2021/0171(COD)) at first reading, and published the adopted text. The legislation will cover credit agreements of up to €100,000. The key features of the Directive include:

• The requirement for a creditor to make a thorough creditworthiness assessment of a consumer before the conclusion of a credit agreement to prevent irresponsible lending practices. 

• A measure that protects cancer survivors applying for credit for which insurance is required, providing them with a "right to be forgotten" after a relevant period so their former illness does not affect insurance rates. 

• An admission process, registration, and supervision by national independent authorities for non-bank creditors and credit intermediaries (except micro enterprises and SMEs).

• Caps on charges to prevent consumers being charged excessive interest rates, annual rates, or other charges on credit.

• The right for consumers to withdraw from a credit agreement without reason within 14 days, and a right to early repayment.

The Directive enters into force on the 20th day after its publication in the Official Journal of the EU. Member States will have two years to adopt necessary laws and administrative provisions and  three years to apply them.

On 20 September 2023, the Council of the EU published the text of the proposed CCD II.

FCA publishes general insurance value measures data

On 20 September 2023, the FCA published a webpage on general insurance value measures data for January to December 2022. The data shows that some general insurance firms may be failing to comply with the FCA's rules on offering fair value as required by PROD4, and failing to provide good outcomes for consumers under the new Consumer Duty. The FCA is particularly concerned about guaranteed asset protection (GAP) insurers and has set out its concerns on the webpage. The concerns are stated to potentially have relevance to all value measures products. The FCA has concerns in three main areas, which are: 

• the extent to which insurance firms have implemented and embedded the rules overall

• certain firms and products where data shows that customers may not be receiving fair value, and whether firms are able to show that their value assessment of those products are in line with FCA rules

• that initial indications from the FCA's supervision of firms shows deficiencies in product governance and a lack of adequate management information.

The FCA has given firms a month to propose how they will address their position. Where firms are not able to demonstrate that they are following FCA rules, the FCA states it will consider using its regulatory powers.

FCA publishes report on payment account access and closures

On 19 September 2023, the FCA published a report setting out its initial findings following a data request to banks and buildings societies in August 2023 (please see our September 2023 update). The report gathered information from 34 firms on the number of accounts terminated or suspended, the number and type of consumers declined accounts, reasons for these decisions, and complaints received on this issue. The FCA expects credit institutions and payment firms to consider the findings in the report, and notes that it will take prompt action if it identifies any significant deficiencies in the arrangements of any firm assessed. The FCA also published an accompanying letter to HM Treasury setting out areas the Government may wish to consider, as well as a research note providing an international perspective on account closures.

PRA publishes speech on its growth and competitiveness objective

On 19 September 2023, the PRA published a speech on its growth and competitiveness objective, given by Victoria Saporta, the PRA Executive Director of Prudential Policy. The speech refers to the results of the PRA's pilot survey on secondary competitiveness and growth objective. This follows a discussion paper (DP4/22) on the PRA's approach to policy published in September 2022. 

The speech discusses the three regulatory foundations that, in Saporta's view, will harness the UK's strengths as a global financial centre, which are: 

• maintaining trust in the PRA and the UK prudential framework
• adopting effective regulatory processes and engagement

• adopting a responsive approach to UK risks and opportunities.

Feedback from the conference will provide input to a consultation the PRA plans to publish on its approach to policy making.

PRA publishes policy statement on dealing with insurers in financial difficulties

On 14 September 2023, the PRA published a policy statement on dealing with insurers in financial difficulties (PS12/23). The statement follows the February 2023 consultation paper on these reforms. The final text of a new statement of policy outlines the approach and expectations of the PRA in relation to the giving of consent to an application to court for a write-down order under section 377A of the Financial Services and Markets Act 2000. The statement also outlines the PRA's final policy on policyholder protection, and notification of affected persons. 

The policy changes took effect on 19 September 2023.

FCA publishes portfolio letter on supervisory work programme for wholesale banks

On 8 September 2023, the FCA published a portfolio letter it sent to all active wholesale banks in the UK. The letter sets out key priorities for the sector and the supervisory work programme for the next two years. The supervisory focus includes risk management, standards of control, operational resilience, organisational changes, the LIBOR transition, Consumer Duty implementation, ESG, AI, diversity, equity and inclusion, and non-financial misconduct. Boards of wholesale banks are expected to review the letter, discuss its application to their business, and take action where necessary within two months.  

FCA consults on Future Regulatory Framework

On 5 September 2023, the FCA published a consultation paper on the Future Regulatory Framework relating to the regime derived from the Insurance Distribution Directive (EU) 2016/97 (IDD). The paper notes that HM Treasury plans to repeal the IDD onshored delegated regulations, which form part of retained EU law (REUL). The FCA is therefore consulting on some minor amendments to parts of the FCA Handbook which are intended to replace the delegated regulations being repealed.

The consultation closes on 9 October 2023, and the FCA has stated it will publish its final rules in time for HM Treasury's planned repeal.

FCA publishes findings of multi-firm review of financial promotions for high-risk investments 

On 27 September 2023, the FCA published a webpage outlining the findings of its multi-firm review of how firms offering restricted mass market investments (RMMIs) have complied with new rules on the customer journey. The FCA chose a sample of 13 firms of different sizes from within the P2P and IBCF portfolios for the review. The webpage identifies examples of good and poor practice for the wider sector to consider. The FCA reviewed the approach of the firms to each of the conditions set out in COBS 4.12A, which are incentives to invest, cooling off period, risk warnings, client categorisation, and appropriateness. The FCA expects all firms promoting RMMIs, non-mass market investments (NMMIs), and relevant cryptoassets to UK based consumers to consider the findings of the review.

FCA publishes advertisement to raise awareness of "hype" in high-risk investments

On 25 September 2023, the FCA published a press release announcing its new advertisement, which is designed to help consumers understand the impact that "hype" can have on investment decisions, and encourage consumers to carry out careful research before investing. The advertisement will play in cinemas directly before the feature film "Dumb Money", which chronicles the GameStop short squeeze in early 2021. The advertisement comes as part of the FCA's ongoing InvestSmart campaign, which encourages consumers to make better-informed investment decisions. 

IOSCO publishes consultation on proposed good practices for leveraged loans and CLOs

On 14 September 2023, the International Organisation of Securities Commission (IOSCO) published a consultation report to seek feedback on proposed good practices in the leveraged loan (LL) and collateralised loan obligation (CLO) markets. The report provides an overview of the LL and CLO markets and explains why the vulnerabilities of the markets could impact the IOSCO's objectives of protecting investors, ensuring fair, efficient, and transparent markets, and reducing systemic risk. 

The report describes 12 good practices grouped into five themes: 

• Origination and refinancing based on a sound business premise.

• EBITDA and loan documentation transparency. 

• Strengthening alignment of interest from loan origination to end investors.

• Addressing interests of different market participants throughout the intermediation chain.

• Ongoing disclosure of information.

The consultation closes on 15 December 2023, and the IOSCO intends to finalise the good practices by early 2024.

FMSB publishes compendium on evolution of precious metals markets

On 12 September 2023, the Financial Markets Standards Board (FMSB) published a compendium consolidating insights from the FMSB's three spotlight reviews on the evolution of precious metals markets. The reviews focused on the precious metals market structure, precious metals post-trade, and data and transparency within the precious metals markets. Through the compendium, the FMSB aims to provide an overview of its reviews of the market, raise awareness of current challenges and opportunities for evolution, and offer recommendations for improvements to efficiency, transparency, and market practices.  

Trade associations publish joint statement recommending deletion of proposed active account requirement

On 7 September 2023, several European and international trade associations collectively representing major European end users of derivatives alongside providers of clearing services, published a joint statement recommending the deletion of the proposed active account requirement (AAR). The AAR comes under the European Commission's legislative proposal amending EMIR (648/2012), which aims to mitigate financial stability risks arising from third-country central counterparties (CCPs) and improve the efficiency of EU clearing markets. The joint authors to the statement strongly recommend that the proposed AAR should be deleted as it would: 

• negatively impact EU capital markets by causing regulatory fragmentation and loss of netting benefits, making the EU less resilient to market stresses

• create a competitive disadvantage for EU firms compared to other firms globally that are able transact in global markets without restriction 

• harm European pension savers and investors due to the introduction of quantitative thresholds in the AAR. This would lead to unpredictable price differences between CCPs, significantly increasing the cost and risk of hedging for EU clients

• make the EU one of the only advanced capital markets to have an AAR policy. The statement highlights that US authorities have not sought a similar policy, suggesting that most jurisdictions believe that central clearing markets are global in nature, and that financial stability risks are best addressed through a shared oversight framework between supervisors

• not satisfactorily address ESMA's 2021 recommendations

• challenge the principle of best execution toward the end client.

Bank of England reflects on LIBOR transition process

On 6 September 2023, the Bank of England (BoE) published remarks given by Arif Merali, Senior Advisor for the BoE, at a LIBOR transition panel discussion hosted by Deutsche Bank in London. Merali's work focuses on the Risk-Free Rate (RFR) transition and answered questions about this at the panel.  Some key takeaways from his remarks were: 

• That in the UK, the PRA and the FCA will continue to monitor the progress of supervised firms in engaging relevant counterparties and remediating outstanding LIBOR exposures.

• That the BoE are keeping an eye on ensuring markets adopt robust benchmarks, for example SONIA for sterling, or SOFR for US dollars.

• That market participants should avoid new benchmarks that have the potential to replicate risks like those associated with LIBOR, for example Credit Sensitive Rates. Market participants should also limit the use of RFR-based term rates, particularly in derivative markets.

• That the BoE will continuously monitor underlying transactions to ensure SONIA remains robust, and liquidity in overnight sterling markets is strong.

• That public-private partnerships and international coordination played a vital role in achieving the major shift in financial markets to RFRs, but this level of collaboration should only be used where systemic strategic change is required. Preventing excessive use of wide scale collaboration will prevent diminishing its power. 

FCA publishes webpage on landing slots for funds in temporary marketing permissions regime

On 19 September 2023, the FCA published a webpage stating that it will be in contact with fund operators about landing slots for exiting the temporary marketing permissions regime (TMPR) in the coming months. The FCA encourages UCITS operators in the TMPR to:

• ensure that the FCA holds the correct contact email address, and if not, email recognisedcis@fca.org.uk

• ensure that this contact email is for the operator and not a third-party

• ensure that if a fund registered under the TMPR is no longer marketing in the UK, it is removed via Form TMPR CH

• regularly check the webpage for further information on landing slots.

ESRB publishes issues note addressing risks in corporate debt and real estate investment funds

On 4 September 2023, the European Systemic Risk Board (ESRB) published an issues note on policy options to address risks in corporate debt and real estate investment funds from a financial stability perspective. The issues note describes a high-level approach to addressing risks in investment funds with large exposures to corporate debt and real estate. These are priority areas meriting enhanced scrutiny from a financial stability perspective, as identified by the ESRB. The issues note concludes that:  

• The structural vulnerabilities of investment funds mainly arise from liquidity mismatch and the use of leverage. 

• Investment fund resilience could be improved by adapting policy tools already present in the regulatory framework, for example, mitigating the risks associated with high demand for redemptions by setting up funds with inherently illiquid assets as closed-ended funds.

• The development of new policy tools could be useful in increasing investment fund resilience and financial system stability. The note sets out various options from incremental amendments to structural changes. 

• The ESRB welcomes the July 2023 provisional agreement between the European Parliament and the Council of the EU on the European Commission's Directive proposal to amend AIFMD and UCITS.   

• The ESRB will carry out further work to develop certain policy options after the revised AIFMD and UCITS Directives have come into force.

Advertising Standards Authority finds equity release mortgage product advertisement breached BCAP code

On 13 September 2023, the Advertising Standards Authority (ASA) ruled against Key Retirements Solutions Ltd (trading under the name Key Equity Release) for irresponsibly using an appeal to fear about the potential of high mortgage interest rates to promote an equity release mortgage product, especially in the context of widespread news coverage regarding a cost of living crisis in the country. The ASA also found that Key Equity Release misleadingly implied that the equity release plan was comparable to a normal mortgage, and left viewers with an unbalanced view of the risks and benefits of the product. The advertisement was found to breach rules 1.2 (social responsibility), 3.1, and 3.2 (misleading advertising) of the Broadcast Committee of Advertising Practice (BCAP) code.

Travel rule: JMLSG announces HM Treasury approval for revisions to AML and counter-terrorist financing cryptoasset transfer guidance

On 20 September 2023, the Joint Money Laundering Steering Group (JMLSG) announced that it had received HM Treasury ministerial approval of revisions to Part II Sector 22 of its guidance. This follows the publishing of the revisions in August 2023, which we discussed in our September 2023 update. 

FCA publishes speech on calibrating financial crime controls

On 6 September 2023, the FCA published a speech on calibrating financial crime controls to build confident markets, given by Sarah Pritchard, FCA Executive Director of Markets and International. In the speech Pritchard noted that: 

• Financial crime damages the integrity and reputation of the UK's markets and undermines the UK's international competitiveness. 

• Firms should calibrate their financial crime fighting systems to the right risk level and expect spot checks by the FCA. 

• Domestic PEPs should be treated as lower risk, and the FCA will act immediately if it sees firms persistently acting disproportionately. 

• Firms cannot outsource risk calibration to a third party and dispose of all responsibility for keeping on top of it to external firms. Firms must make sure they have a proportionate and risk-based approach.

• The FCA is increasing testing of firms' risk-based systems and is using data to do so.

• Tackling financial crime and imposing controls is not a "tick box exercise," firms should understand who their clients are, identify the sorts of transactions they would make, and utilise systems to flag suspicious activity. 

• The FCA is increasing its focus on whistleblowing in high-risk sectors, emphasising that whistleblowing must be evidence-led with outcomes in mind. 

• More than 610 financial crime supervision cases were opened last year, representing an increase of more than 65% from the previous year.  

The FCA plans to publish data on firms used for payment fraud in Autumn 2023.

FCA publishes press release announcing review of how firms treat domestic PEPs

On 5 September 2023, the FCA announced via a press release the launch of a review of the treatment of domestic politically exposed persons (PEPs) by firms, and published terms of reference for the review. The review is being carried out to comply with section 78 of FSMA 2023, and will look at firms' arrangements for dealing with PEPs in the UK. It will consider how firms are: 

• applying the definition of PEPs to individuals

• conducting proportionate risk assessments of UK PEPs, their family members and known close associates

• applying enhanced due diligence and ongoing monitoring proportionately and in line with risk

• deciding to reject or close accounts for PEPs, their family members and known close associates

• effectively communicating with their PEP customers

• keeping their PEP controls under review to ensure they remain appropriate.

The FCA will report on the findings of this review by the end of June 2024, and consult on revised guidance if necessary.

The answer to last month's question: approximately 60% of the SMEs from the Digital Sandbox's two pilots have made positive progress (including receiving funding and partnership, launching products or receiving industry rewards and recognitions).

The Financial Ombudsman Service (FOS) regularly publishes complaints data. How many new complaints did the FOS receive in the 2022/23 financial year? 

• 165,149

• 278,033

• 271,468

• 388,392