13. März 2024
Financial services update – 9 von 59 Insights
In this month's update:
On 21 February 2024, the House of Commons Treasury Committee published the Government's response letter to the Committee's 8 December 2023 report on the Edinburgh Reforms (please see our January 2024 update for more information on the report). The Economic Secretary to the Treasury disagreed with the report's conclusions, stating that he rejects the suggestions that the reforms will not have a substantial impact on the UK economy and the competitiveness of the UK financial services sector, and that the reforms were not being delivered at a fast enough pace. The letter explains that some of the reforms require multiple rounds of consultation, and sets out the further progress that has been made since the report was published. The Economic Secretary states that he remains focused on delivering the reforms, which he believes will bring benefits to consumers.
On 20 February 2024, the FCA published a webpage setting out good and poor practice for the implementation of the Consumer Duty, following the FCA's review of firms' implementation plans, fair value frameworks, and previous communications. The webpage states that firms should review the information provided and continue to make improvements in line with good practice. The webpage is also useful for closed products and services firms, which must ensure compliance with the Consumer Duty by implementation deadline of 31 July 2024. The FCA has also published the results of its Autumn 2023 survey on firms' progress and challenges to implementing the Consumer Duty, alongside a corresponding webpage summarising the survey's findings.
In a speech on 20 February 2024, Sheldon Mills, the FCA's Executive Director of Consumers and Competition, noted that the FCA is ready to work with the industry to meet the closed products and services Consumer Duty implementation deadline. He also noted that while many firms have made significant progress on implementing the Duty, there is still room for improvement. He emphasised that firms should embed the Consumer Duty at every level, with leadership from boards.
On 15 February 2024, the FCA published the key findings of its multi-firm work on claims management companies (CMCs) carrying out unregulated claims activity to assess whether firms were using their FCA authorisation to legitimise unregulated services. The FCA found that some firms had charged considerably higher fees for unregulated claims activity. Among its findings, the FCA noted that where fees for unregulated claims did exceed those charged for regulated claims services, CMCs should bear in mind the spirit of the Consumer Duty, and whether the services they provide represent fair value for the consumer. Where CMCs offer unregulated claims services, they should be clear with consumers about which products and services are regulated and which are not. Firms are required under the Consumer Duty to ensure that communications are likely to be understood by consumers, and that those communications allow consumers to make decisions that are effective, timely and properly informed.
On 14 February 2024, the FCA published its Q4 2023 financial promotions data, alongside its 2023 full-year data. The webpages set out the data resulting from action taken against authorised firms that breached financial promotion rules, as well as investigations and referrals into unregulated activity. Over the course of 2023, the number of amend/withdraw outcomes following FCA intervention increased by 16.6% in comparison to 2022. The FCA also issued more alerts in 2023, at an increase of 21% compared to 2022. The FCA remains concerned about the levels of compliance with financial promotions rules.
On 13 February 2024, the FCA published its authorisations operating service metrics for Q3 2023/24. The metrics reveal that 97.8% of applications across all metric areas were determined within the statutory deadline, and 98.6% of "approved person" status applications under the Senior Manager and Certification Regime were determined within the statutory three-month deadline. The FCA explains that applications that are more complex may lead to determinations outside of the statutory period.
On 12 February 2024, the EBA published a peer review follow-up report. The report assesses the adequacy and effectiveness of actions taken by national competent authorities (NCAs) subject to the August 2021 peer review report, focusing on the 17 NCAs that were assessed as having at least one supervisory benchmark that was not "fully applied". All of these NCAs were found to have responded to the assessment of the initial peer review and most have adopted measures to remedy the identified deficiencies. The EBA highlighted improvements in the areas of assessing the financial soundness of proposed acquirers, and the suspicions of money laundering and terrorist financing issues.
On 8 February 2024, the House of Lords Industry and Regulators Committee published a report on improving the performance, independence, and accountability of UK regulators. The report suggests that an independent "Office for Regulatory Performance" should be created to support Parliament and its committees in holding regulators to account. The report also welcomes the creation of the House of Lords Financial Services Regulation Committee, which we covered in our December 2023 update.
On 8 February 2024, the FCA updated its webpage on applying to approve financial promotions for unauthorised persons to include a reminder that from 7 February 2024, firms will need FCA permission to approve financial promotions for unauthorised persons, unless an exemption applies, or the approving firms applied for the transitional regime. On 7 February 2024, the FCA also updated its webpage on approving financial promotions to reflect the rule change. For more information on this new regulatory gateway, please see our article.
On 15 February 2024, correspondence from the Department for Science, Innovation and Technology to the FCA and the Bank of England was published. This follows the publication of the UK government's response to the consultation on its March 2023 AI white paper. As we reported last month, the response confirmed the government's sector-based approach to AI regulation (at least for now!), informed by five AI principles and noted that regulators would be asked to outline their approach to AI regulation by the end of April 2024. For more information, please see our article.
On 14 February 2024, the FCA published its Q4 2023 financial promotions data on a webpage, as mentioned earlier in this update. The FCA notes that it has used its new powers under the cryptoasset financial promotion regime to focus on illegal cryptoasset promotions to UK consumers, issuing 450 consumer alerts in Q4 of 2023 and is working with tech companies to remove and block illegal promotions, including websites, apps and social media accounts.
The webpage outlines examples of intervention the FCA has taken against firms in this area including:
A firm that offers qualifying cryptoassets had a blog section on its website, and had not realised that many of the posts constituted financial promotions, and the pages did not contain the required risk warnings.
For more information on the cryptoasset financial promotion regime, please see our article.
On 1 February 2024, the Joint Committee of the European Supervisory Authorities (ESAs) published a report which sets out the results of a cross-sectoral stocktake of BigTech subsidiaries carrying out financial services in the EU. The stocktake identified that:
BigTech's direct financial service provision remains limited, compared with previous mapping exercises carried out by the EBA and ESAs in 2021 and 2022.
On 1 February 2024, the FCA published its response to the independent panels' annual reports. According to the Smaller Business Practitioner Panel, instead of applying new rules to the regulation of Artificial Intelligence (AI), introducing guidance which provides an AI focus to the existing regulatory framework would be an appropriate and proportionate approach in keeping with the Consumer Duty. This would also reduce the need for re-writes as the technology evolves.
The FCA is exploring what an effective, proportionate and pro-innovation regulatory framework for complex models, including AI, would look like. It noted that further research may be needed to better recognise how AI is used across the different financial services sectors, and what new and increased risks it is giving rise to.
On 30 January 2024, the EBA published a speech by José Manual Campa, the EBA chair, on Fintech and its priorities relating to digital finance. Points of interest include:
On 14 February 2024, the Council of the EU released the text of the political agreement reached with the European Parliament on the proposed Regulation on the transparency and integrity of environmental, social and governance rating activities.
The text outlines four key areas of focus for ESG rating providers:
Ratings: ESG rating providers may provide separate E, S and G ratings and where a single rating is provided, the weighting of the E, S and G factors should be explicit.
On 7 February 2024, the European Parliament and the Council of the EU confirmed that they had reached a provisional deal on a directive on the time limits for the adoption of sustainability reporting standards for certain sectors and for certain third-country undertakings amending the Corporate Sustainability Reporting Directive. The delay will give more time for companies to prepare for the sectorial European Sustainability Reporting Standards for specific standards for large non-EU companies which will be adopted on 30 June 2026.
On 2 February 2024, the FCA circulated a new webpage on its sustainability disclosure requirements and investment labelling regime.
The webpage outlines guidance on how firms should interpret the regime and, where applicable, how firms can take preliminary measures before the requirements come into effect. The webpage outlines an implementation timeline as well as answers to common queries that the FCA has received in relation to the requirements imposed by the regime.
On 5 March 2024, ECON published a report on the proposed Directive on payment services and electronic money services, and a report on the proposed Regulation on payment services. The reports were adopted on 14 February 2024.
It is expected that the European Parliament will vote on both texts during the first plenary session in April 2024, to be held on 10 and 11 April 2024, and that negotiations between the Parliament and Council will begin after the elections for the European Parliament in June 2024.
On 8 February 2024, the Bank of England published two discussion papers relating to RTGS operating hours and access policies. The first discussion paper concerns longer RTGS and CHAPS operating hours and seeks views on the potential benefits, costs and impacts an extension of RTGS operating hours could create. The second discussion paper concerns RTGS access policy and seeks to understand how the Bank of England can facilitate wider access to RTGS accounts for settlement and settlement services.
Both discussion papers seek feedback by the 30 April 2024.
On 6 February, both the FCA and PSR published documents setting out their approaches to cost benefit analysis (CBA).
Both the FCA document and the PSR document clarify:
The FCA have introduced an industry working group on interest-only mortgages to support and inform the FCA's review of its existing interest-only mortgage guidance. The group is composed of 12 mortgage lenders and administrators who will review the FCA's guidance, and examine customer engagement strategies, as well as the other ways borrowers who cannot repay their mortgage at maturity can be supported.
The group met together for the first time on 8 February 2024.
On 1 February 2024, the FCA responded to the independent Practitioner's Panel suggestion to refine and align the Consumer Credit Act 1974 provisions with current FCA rules concerning consumer credit so that consumers are provided with clear information, at the appropriate level and at the right time, to enable them to make informed decisions.
The FCA have responded by indicating that they will be working alongside the UK Government through their reform process to ensure consumer credit regulation supports a well-functioning and competitive market while maintaining the appropriate degree of consumer protections. The FCA have also detailed that they see an opportunity to update and modernise consumer credit regulation to better align with the Consumer Duty, so that it is suitable for the wide array of modern consumer credit products.
On 21 February 2024, the All-Party Parliamentary Group (APPG) on fair business banking published a report on de-banking.
The report focuses on three key factors that influence a bank's decision-making process as regards to de-banking its customers in cost, reputation and potential exposure to financial crime. The report recommends that:
Banks should have the resources to better police transactions so that suspect monies can be frozen, and then action taken against parties only when any suspicions are found to be valid.
On 21 February 2024, the European Central Bank published a memorandum of co-operation between itself and certain EU national competent authorities that aims to improve the way that third-country banks operating in the EU are supervised.
The memorandum hopes to:
Ensure cooperation by the authorities with the aim that all activities of third-country groups in the EU are subject to comprehensive supervision in accordance with the requirements set out under the CRD IV Directive and the Capital Requirements Regulation.
On the 9 February 2024, the FCA announced that multiple insurance firms (making up to 80% of the market) have agreed to pause sales of Guaranteed Asset Protection (GAP) insurance, following a request from the FCA.
The FCA is concerned that the product is failing to provide fair value to some consumers. In September 2023, the FCA wrote to firms manufacturing GAP insurance products asking them to take immediate action to prove customers are getting a fair deal. After assessing the responses to this request, the FCA agreed a pause in sales of GAP insurance with firms. As part of this agreement, the FCA have committed to make changes to GAP products to provide better value for customers, in line with FCA rules.
On 13 February 2024, the LSB has published a report on the responses received to its consultation on its review of its Standards of Lending Practice for business customers and on its next steps.
In June 2023, the LSB launched a review of the business standards in the lending practice including whether changes in the regulatory, social and economic environment should be taken into account within the LSB's Standards and whether the protection in the Standards continue to reflect industry best practice in terms of emerging areas of focus such as sustainability and inclusion.
The report outlines that feedback to the review did not identify any substantive changes to the current requirements, although it did highlight areas where there would be a benefit in further guidance. In addition, the report identified a gap in good practice to enable firms to better support business customers to achieve their sustainability ambitions and that more could be done to ensure that all customers are able to access and use their products in a way that suits their particular needs.
On 6 February 2024, the FCA has published a letter it has sent to Lloyd's and London market intermediaries and managing general agents, accompanied with a survey requesting information relating to incidents of non-financial misconduct in the firm for 2021, 2022 and 2023. The survey asks questions concerning methods of detection and actions taken to address incidents within firms.
On 20 February 2024, the Council of the EU announced that it has adopted the proposed amendments to the Markets in Financial Instruments Regulation and the MiFID II Directive, which were introduced primarily to improve access to market data and trade transparency.
The proposed amendments:
Include new rules on commodity derivatives.
The proposed amending legislation will enter into force 20 days after their publication in the Official Journal of the European Union.
On 20 February 2024, the FCA published a speech delivered by Ashley Alder, the FCA Chair, at the UK Mission to the European Union. The speech highlighted that:
The 2023 UK-EU Memorandum of Understanding on regulatory co-operation on financial services will enable the FCA to deepen relationships with their EU counterparts as it pursues similar reforms.
On 15 February 2024, the FCA published a statement announcing that it has sent a survey to a number of financial adviser firms requesting information about their delivery of ongoing services, for which their clients continue to be charged after advice has been given.
In its survey, the FCA asks if firms have assessed their ongoing services in response to the introduction of the Consumer Duty, and whether they have made any changes as a result. It also asks for data on the number of clients due a review of the ongoing suitability of the advice as part of the service, how many received that review, and how many paid for ongoing advice but whose fee was refunded as the suitability review did not happen.
On 14 February 2024, the FCA published issue 77 of Market Watch, its newsletter on market conduct and transaction reporting issues, which focused on the trading activities of organised crime groups (OCGs).
In the issue, the FCA sets out:
Actions advisory firms should be aware of to prevent staff being recruited by OCGs as sources of insider information.
On 7 February 2024, the Council of the EU published a press release outlining that it had reached a provisional political agreement on proposals amending EMIR.
The proposed EMIR review contains several legislative measures to improve EU clearing services, notably by streamlining and shortening procedures, improving consistency between rules, strengthening central counterparty supervision and requiring market participants of substantial systemic importance, who are subject to clearing, to have an operationally active account at an EU central counterparty.
The provisional political agreement is subject to approval by the Council of EU and the European Parliament before going through the formal adoption procedure and entering into force.
On 26 February 2024, the Council of EU published a press release announcing that it has adopted the proposed Directive amending the AIFMD and UCITS Directive.
The new rules:
Improve the availability of liquidity management tools, with new requirements for managers to provide for the activation of these instruments.
The amending Directive also:
Introduces enhanced rules for delegation by investment managers to third parties.
The Directive will come into force 20 days after its publication in the Official Journal of the European Union.
On 1 February 2024, the Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024 was published. The regulations support the operationalisation of the Overseas Fund Regime (OFR), a new equivalence regime to recognise overseas funds under section 271A of the Financial Services and Markets Act 2000 which provides that a non-UK authorised fund will be a recognised scheme under the OFR when certain conditions are met.
The Regulations were made on 31 January 2024 and came into force on 26 February 2024.
On 30 January 2024, the House of Commons has published a written statement by Bim Afolami, Economic Secretary to HM Treasury confirming that, following a detailed assessment, the Government has found the EEA states equivalent under the OFR.
The statement details that:
The UK will monitor the equivalence decision on an ongoing basis, taking into account UK and EEA regulatory developments.
The statement also confirms the UK Government will extend the TMPR which was due to expire at the end of 2025 to the end of 2026, to ensure funds are able to smoothly transition to the OFR.
On 27 February 2024, Therese Chambers, joint executive director of enforcement and market oversight at the FCA, delivered a speech about the FCA's approach to enforcement. Key messages included:
The industry and regulators must pull together to stop opportunist market abuse and its corrosive effects.
The FCA's enforcement strategy reflects its strategic aims, which are to reduce and prevent serious harm, and to test and set higher standards. The new enforcement strategy aims to streamline and prioritise operations, to ensure that resources have the greatest impact possible. Industry co-operation will be crucial in achieving this. The new approach will also be more data and technology driven.
The FCA wants to deliver impactful deterrence, increase transparency, quicken its pace and strengthen its focus.
The speech coincided with the publication of a consultation paper, in which it set out proposals for a new approach to publishing enforcement investigations. The FCA proposes to:
Follow a new public interest framework to inform its decision-making. This will be applied to the fact, content and timing of each announcement, and the decision to publish updates and what the updates will include.
The consultation paper closes for comments on 16 April 2024. Following the consultation, the FCA will publish a policy and feedback statement.
On 19 February 2024, the FCA published a press release announcing that an individual pleaded guilty to fraud, following a prosecution brought by the FCA.
Between January 2016 and November 2021, the individual defrauded around 240 investors by making false representations to persuade them to invest around £19 million in an investment scheme operated by him. The Individual made a number of fraudulent claims to investors, including how the scheme was operated, and the profits associated via the scheme.
On 15 February 2024, the FCA published a press release announcing that a former Goldman Sachs International analyst was found guilty of six offences of insider dealing and three offences of fraud following criminal proceedings brought by the FCA.
The Individual came into possession of inside information relating to potential mergers and acquisitions through his role in the Conflicts Resolution Group resulting in the individual obtaining a total profit of £140,486 from his trading of stocks using this information. The trading was partially funded by the individual obtaining loans fraudulently.
On 13 February 2024, the FCA issued a final notice and fined Floris Jakobus Huisamen, a former director of LC&F, £31,800.
LC&F used financial promotions to market minibonds to retail investors that presented a misleading picture of the minibonds and made them appear a far more attractive investment than in actuality. Investors were not told about the true nature of the minibonds, including the presence of hidden charges and the high-risk and unsustainable nature of the lending being carried out by LC&F.
In his compliance oversight controlled function, Mr Huisamen recklessly signed off on LC&F's information memoranda, brochures and website as compliant, even though he was aware of clear risks that they were not compliant. In addition, he failed to obtain evidence of the claims being made, allowed promotions that gave a misleading impression that the minibonds were regulated by the FCA, and continued to approve promotions even when he became aware of inaccurate claims.
On 5 February 2024, the Upper Tribunal published its decision where it refused an application to suspend the requirements of three supervisory notices imposed by the FCA on Nvayo Limited (Nvayo), an e-money institution authorised by the FCA under the Electronic Money Regulations 2011.
Following an investigation and arrest of the ultimate beneficial owner (UBO) of Nvayo by the US Department of Justice (DOJ), the FCA issued Nvayo with three supervisory notices preventing it carrying out new business and restricting dealings of its own assets pending resolution of the FCA's concerns regarding Nvayo's AML controls.
Nvayo argued that the requirements should be suspended as they were disproportionate to the concerns raised by the FCA for a number of reasons, including that Nvayo had swiftly removed its UBO from any managements responsibilities following his arrest, that the sale of his holding was imminent and that that the DOJ charges constituted unproven allegations.
The Upper Tribunal held that it was unable to be satisfied that if the requirements imposed by the Suspension Notices were suspended, the interests of the relevant persons intended to be protected by those requirements, ie consumers would not be prejudiced.
On 30 January 2024, the Bank of England (BoE) and the PRA published a policy statement (PS1/24) on their approach to enforcement.
Between May and August 2023, the BoE and PRA consulted on proposed changes and clarification to their enforcement policies and procedures. The policy statement contains the BoE's feedback to responses received to their consultation paper (CP9/23) and sets out the BoE's final policy in this area. It consists of the following statements of policy:
Amendments to the BoE's Enforcement Decision Making Committee (EDMC) procedures.
The statements of policy generally took effect immediately. However, sections 69(8) and 210(7) of FSMA, and section 198(4) of the Banking Act 2009, require the BoE to consider the policies on imposing penalties, restrictions or suspensions, the amount of penalties, or the period of restrictions or suspensions, which were in force at the time of the relevant misconduct, contravention or failure. Accordingly, if a breach began before 30 January 2024 but continued after that date, two different regimes will apply. The penalty, suspension and restriction regime in place before 30 January 2024 applies to conduct before that date, while the new regime applies to conduct from 30 January 2024 onwards.
On 20 February 2024, the Council of the EU published an information note detailing the final compromise text reflecting the political agreement reached with the European Parliament on the proposed Regulation establishing the AMLA.
On 16 February 2024, Commission Delegated Regulation (EU) 2024/595 relating to the establishment of an AML and CFT database, known as EuReCa, was published in the Official Journal of the European Union. The regulation specifies the materiality of weaknesses, the type of information collected, the practical implementation of the information collection and the analysis and dissemination of the information contained in EuReCa.
The regulation will enter into force on 7 March 2024.
On 14 February 2024, the Council of the EU published the compromise texts for:
The proposed Directive on the mechanisms to be put in place by the member states for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and repealing Directive (EU) 2015/849 (Sixth Money Laundering Directive).
These texts reflect the political agreement between the Council of the EU and the European Parliament.
On 12 February 2024, the Home Office published a response to the Law Commission review of the suspicious activity reports (SARs) regime.
The Law Commission's 2019 report into the SARs regime made 19 recommendations. These included the establishment of a new advisory board and the production of statutory guidance on a number of issues. Most recommendations were wholly or partially rejected. Notably, an amendment to POCA 2002 to impose an obligation on the Secretary of State to issue guidance on the suspicion threshold, appropriate consent and reasonable excuse covering the operation of Part 7 to businesses in the regulated sector was rejected. Consequently, those making SARs remain reliant on sector specific guidance.
Recommendations which were accepted, wholly or partially, are largely in progress. These include:
A consultation on the use of Geographic/Tactical Targeting Orders.
On 8 February 2024, the FCA published a corporate document on reducing and preventing financial crime which, among other things, identifies four areas of focus for the coming year, where the FCA considers further collaborative effort can help "shift the dial" decisively on reducing and preventing financial crime.
The FCA four areas of focus include:
The answer to last month's question: based on data received from major motor finance lenders, 99% of motor finance commission complaints were rejected between January 2019 and the end of June 2023.
According to the FCA's latest data, what percentage of the financial promotions it reviewed in Q4 2023 were from its proactive monitoring approach?
7. November 2024
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