Financial services update - June 2019

From consultation on the status of cryptoassets, to increased protections against authorised push payment scams, Taylor Wessing takes a look at the latest regulatory developments in the world of financial services.

Payment services

New voluntary code on authorised push payment scams

The new voluntary code against authorised push payment (APP) scams came into force on 28 May 2019. Customers of banks or payment service providers (PSPs) signed up to the code, can expect to be fully reimbursed if they fall victim to an APP scam.

Thus far, eight PSPs covering some 85% of the APP market have signed up to the voluntary code. The code has created processes to detect, prevent and respond to APP scams, to the benefit of the customer. More PSPs are expected to sign up to the code in the coming months.

PSR consults on implementing confirmation of payee service

The Payment Systems Regulator (PSR) published a consultation paper on 9 May, setting out directions requiring the six largest banking groups to implement a Confirmation of Payee service (CoP).

The PSR regards a CoP as an important tool to combat the rising instances of push payment fraud.

The consultation proposes that the six largest banking groups should be in a position to respond to CoP requests by 31 December 2019.

General Financial Services Regulation

FCA sends 'dear CEO' letter about principals and appointed representatives

On 20 May 2019, the FCA published a webpage setting out the results of its work looking into how principal firms in the investment management sector supervised their appointed representatives.

The results were concerning and prompted the FCA to send a 'Dear CEO letter' to firms in the investment management sector.

The letter reminds firms that the FCA expects principals to have strong governance controls over its appointed representatives, and that many principals are not adequately assessing the risk appointed representatives pose to the principal firm.

Consultation on cryptoassets, DLT and smart contracts

The UK Jurisdiction Taskforce (UKJT) has published a consultation paper in order to identify key issues of legal uncertainty regarding cryptoassets. The Financial Markets and Law Committee published a similar paper last year, and the UKJT's consultation follows from the Taskforce on Digital Assets that received responses last summer.

The UKJT will be holding a public session on 4 June 2019 and the consultation closes on 21 June 2019.

Investment funds

CTI templates published, welcomed by FCA

On 21 May 2019, The Cost Transparency Initiative (CTI) published templates for the disclosure of costs and charges to institutional investors.

The templates can be used by institutional investors to access information about costs and charges in a standardised format, enabling better comparison.

The FCA has welcomed the publication of the templates, with Executive Director of Strategy and Competition, Chris Woolard, noting that the CTI were a key part of the FCA's recent Asset Management Market Study.

Delegated legislation supplementing the European Social Entrepreneurship Funds (EuSEF) Regulation is published

Delegated legislation supplementing the EuSEF legislation was published on 22 May 2019. The delegated legislation sets out requirements regarding conflicts of interest, social impact measurement and information for investors.

A similar piece of delegated legislation, dealing with equivalent areas, was also published to supplement the European Venture Capital Funds (EuVECA) Regulation, though this focussed more heavily on conflicts of interest requirements.

Financial crime

The Cyber-Attacks (Asset-Freezing) Regulations 2019 come into force on 11 June 2019

The Cyber-Attacks (Asset-Freezing) Regulations 2019 (the Regulations) comes into force on 11 June 2019. The Regulations have extra-territorial effect and can be applied to conduct wholly or partly outside the UK that is perpetrated by a UK national or a body incorporated under UK law.

The Regulations follow the format of other EU sanctions legislation and are designed to give effect to Regulation (2019/796) (EU Regulations) which is in regards to restrictive measures against cyber-attacks threatening Member States.

The Regulations have the effect of ensuring that the economic resources of any person listed in Annex 1 of the EU Regulations will be frozen.

Government responds to report on economic crime

The government has responded to the report on economic crime produced by the House of Commons Treasury Committee. The government has adopted many of the recommendations, including a reform of Companies House and by looking to ensure that the UK's commitment to battling economic crime will not diminish after Brexit.

Banking

FSB to evaluate reforms for systemically important banks

The Financial Stability Board announced that it is launching an evaluation of its reforms for systemically important banks. These reforms are known as 'Too-big-to-fail' measures (TBTF).

The aim of the evaluation is to assess the degree and extent of implementation of reforms so far; as well as examining the wider effects on the financial system.

The evaluation will include cross-border and cross-sectoral effects of TBTF policies. The deadline for responding to the evaluation is 21 June 2019.

HM Treasury publishes letter on proposed amendment to CRD IV Directive

The letter explains that CRD V will mean all UK banks will remain subject to the bonus cap. This will extend the remuneration requirement to a further 200 firms.

HM Treasury has concluded that the impact on smaller banks and building societies will be small, owing to the fact that bonuses at these firms tend to fall below the cap.

The UK however will retain certain discretions under the directive to ensure that the impact of the proposals are not disproportionate.

Enforcement and investigations

FCA publishes competition law decision against asset managers

The FCA has published a decision showing that Hargreave Hale Ltd, Newton Investment Management Limited and River and Mercantile Asset Management LLP had breached competition law.

The three firms shared strategic price information with the object of restricting, distorting or preventing competition.

Hargreave Hale was fined £306,300; River and Mercantile was fined £108,000. Newton received immunity from a fine under the FCA's leniency policy.

FCA successful in High Court case against FX firm

The FCA has successfully applied to the High Court to declare that Xcore Capital Limited and Jonathan Chitty had been carrying out an unauthorised investment scheme.

The order declares that Xcore breached section 19 of the Financial Services and Markets Act 2000. The order also requires that Xcore and Mr Chitty pay £917,231 to consumers.

The FCA published its press release on 22 May and it notes that the freezing order and injunction against the respondents obtained in November 2018, remain in force.