5 March 2020
Financial services update – 37 of 39 Insights
Among the items covered in this month's newsletter are the FCA's annual Sector Views, further publications from the BoE on LIBOR, EIOPA's final report on outsourcing guidelines to cloud service providers, ESMA's strategy on sustainable finance, and the European Commission's consultation on the review of MiFID II.
On 18 February 2020, the FCA published its annual Sector Views document that provides an overall analysis of how each financial sector is performing, the way the financial environment is changing and the impact of these changes on consumers and market effectiveness. The FCA's findings will help it to shape its 2020/21 Business Plan.
The FCA identified four drivers of change that are having the greatest impact on the sectors it regulates:
The remaining chapters cover all the markets the FCA regulates: retail banking and payments; retail lending; general insurance and protection; pensions savings and retirement income; retail investments; investment management; and wholesale financial markets.
The FCA and Bank of England (BoE) have updated their webpages to include information on how the Temporary Transitional Power (TTP) will be used and on transitioning to post-exit rules and standards, during the Brexit transition period:
The FCA has also updated its webpage outlining considerations for UK firms after the transition period.
The FCA set out a list of questions firms should consider in order to determine whether they conduct business in the EEA. Firms that do will need to understand on what legal basis their business is undertaken, including whether they rely on any passporting rights. The FCA has also set out considerations relating to:
On 14 February 2020, the Payment Systems Regulator (PSR) published a policy statement on Confirmation of Payee and varying Specific Direction 10 (SD10) following a previous consultation on 20 January 2020 (as discussed in our February newsletter).
The PSR has decided to give SD10 in the varied form proposed in the consultation:
Alongside the policy statement, the PSR also published responses to the consultation along with the varied SD10.
On 4 February 2020, Pay.UK published a consultation paper setting out its proposals for the adoption of ISO 20022 and other key standards for the clearing and settlement capability which will be enabled by the New Payments Architecture (NPA) infrastructure.
The consultation is broken down into three sections:
The deadline for stakeholders to submit responses to the consultation is 31 March 2020.
Andrew Hauser, Executive Director for Markets, gave a speech on 26 February 2020 titled "Turbo-charging sterling LIBOR transition: why 2020 is the year for action – and what the Bank of England is doing to help".
Hauser used his speech to unveil two BoE initiatives, which will help the transition to risk-free rates:
On 7 February 2020, the European Insurance and Occupational Pensions Authority (EIOPA) published its final report setting out its finalised guidelines on outsourcing to cloud service providers.
EIOPA identified that the use of cloud outsourcing is a practice common to all financial undertakings, and the risks it presents is similar across sectors. As such, EIOPA issued guidelines under Article 16 of the EIOPA Regulation (1094/2010), which cover:
The guidelines apply from 1 January 2021 to all cloud outsourcing arrangements entered into or amended after that date.
On 3 February 2020, the European Banking Authority (EBA) published a benchmarking report on diversity practices in credit institutions and investment firms.
The Capital Requirements Directive (CRD) introduced a requirement that institutions must take into account the diversity of the management body when recruiting new members and implement a diversity policy. 'Significant' institutions are also required to set targets to achieve balanced gender representation and implement measures to achieve this.
From the data obtained, the EBA found that a large proportion of institutions (41.61%) have not adopted a diversity policy. Other key findings from the report include:
The EBA has said it will continue to monitor diversity in management bodies and issue periodic benchmark studies on diversity and on gender-neutral remuneration.
On 13 February 2020, the FCA published a letter sent to directors of credit broking firms on its supervision strategy and the key risks they could pose to consumers and the market.
The FCA examined a range of information and data to assess how credit brokers could cause harm. The key drivers of harm the FCA found include:
The FCA's supervision strategy for credit brokers runs to March 2022. During that time, the FCA will prioritise its supervisory work in various areas, including:
On 27 February, the FCA wrote to regulated asset management firms setting out what action it expects them to take in preparation for the end of LIBOR. It expects firms to take all reasonable steps to ensure the end of LIBOR does not lead to market disruption or consumer detriment, and to support industry initiatives.
The FCA also highlights the importance of:
On 17 February 2020, the European Commission launched a public consultation on the review of the MiFID II/MiFIR regulatory framework.
The consultation document is split up into three sections: Section 1 aims to gather views from stakeholders on the experience of two years of application of MiFID II/MiFIR; Section 2 will seek stakeholder views on technical aspects of the current MiFID II/MiFIR framework; and Section 3 invites stakeholders to detail any further regulatory aspects or identified issues.
Part one of Section 2 of the consultation sets out the Commission's priority areas for review, which include:
The consultation is open until 20 April 2020 and complements ESMA's consultation on elements of the MiFID II/MiFIR framework. The output of both consultation processes will feed into the Commission's reports to the European Parliament and the Council of the EU, which may include legislative proposals.
On 6 February 2020, the FCA issued a Dear CEO letter setting out its approach to supervision for platform firms, including its key concerns, expectations and areas of focus. The letter focuses on:
Platform firms are expected to take account of the expectations set out in the letter, and should take all necessary action to ensure they are met.
On 6 February 2020, the European Securities and Markets Authority (ESMA) published its strategy on sustainable finance, setting out how it will place sustainability at the forefront of its activities by embedding Environmental, Social, and Governance (ESG) factors in its work.
The key priorities for ESMA include:
ESMA set up a Coordination Network on Sustainability in 2019 to help deliver its strategy, which will be supported by a consultative working group of stakeholders.
On 17 February 2020, the FCA issued a final notice imposing a fine on car finance provider Moneybarn Ltd (Moneybarn) £2.77 million for failing to treat customers fairly when they fell behind on loan repayments in relation to short-term repayment plans.
Moneybarn had breached Principle 6 (Customers' interests) of the FCA's Principles for Businesses for various reasons, including:
Principle 7 (Communication with clients) was also breached as Moneybarn failed to communicate the likely financial consequences of failing to keep up with payments to customers in a way which was clear, fair and not misleading.
Moneybarn agreed to resolve the matter and qualified for a 30% discount.
On 12 February 2020, the FCA published a speech by Mark Steward, FCA Executive Director of Enforcement and Market Oversight, on financial penalties, remediation and the FCA's Principles for Businesses (the Principles).
Steward highlighted the following issues:
On 4 February 2020, the Joint Money Laundering Steering Group (JMLSG) published a press release announcing that it has published proposed amendments to its guidance on the prevention of money laundering and terrorist financing.
The proposed amendments have been marked-up within the current guidance under parts I, II and III:
Stakeholders have until 3 April 2020 to submit comments on the revisions.
What is the name of the international organisation of regulators that is focused on financial innovation and was formally launched in January 2019?
The answer to last month's question is attestation.
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by multiple authors
by Charlotte Hill and Daniel Hirschfield
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