2 February 2023
Financial services update – 2 of 39 Insights
In this month's update:
On 26 January 2023, TheCityUK published a report on how the authorisations processes of the FCA and PRA could be improved having undertaken qualitative and quantitative research with a number of firms.
While it acknowledges some of the enhancements the regulators have already taken and further commitments they have made, it has identified a number of inefficiencies in the current system and makes nine recommendations grouped under the following headings:
On 25 January 2023, the FCA published its review of a sample of firms' implementation plans. The FCA selected around 60 of the biggest firms with a dedicated FCA supervision team (fixed firms), which are the firms that pose the greatest risk to consumers and markets. While this exercise consisted largely of a desktop review, in some cases the FCA used its regular supervisory engagement to ask additional questions.
Overall, the FCA found that many of the plans it reviewed demonstrated that firms have:
However, its review also identified that some firms may not be as well advanced in their planning for when the Duty comes into force, which creates a risk that they will not meet the implementation deadlines or may find it difficult to properly embed the Duty across their business.
The FCA has drawn attention to three areas that firms should focus on in the remaining period until the first implementation date of 31 July 2023 (which is when the Duty comes into force for new and existing products or services):
As well as continuing its proactive engagement with fixed firms and board champions at some larger firms, the FCA will shortly be contacting firms to highlight its key expectations regarding the implementation of the Duty and some of the main risks and consumer harms that firms should address. In addition, it will be surveying a sample of firms to help it understand how they are progressing in their implementation of the Duty and will undertake targeted engagement with smaller firms. Between February and June 2023, it will be hosting a series of events for retail investment and mortgage firms.
The FCA has also:
On 24 January 2023 the European Commission published a speech given by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability and Capital Markets Union, in which she referred to the following initiatives, which will be progressed in 2023:
On 24 January 2023, the FCA published a speech given by Jessica Rusu, FCA Chief Data, Information and Intelligence Officer, at the Alan Turing Institute, on building better foundations in artificial intelligence (AI), which:
On 10 January 2023, the Treasury Select Committee held its first 2023 session. Although the session was part of its Crypto Inquiry, it began with a consideration of the Edinburgh Reforms. In particular, the Committee heard about the government's proposed review of the Senior Managers regime, which will involve a call for evidence. Andrew Griffith, Economic Secretary to the Treasury, explained that there was "broad consensus about the validity of having a regime" and indicated that the government wants to ensure that the application of the regime is proportionate and not burdensome for smaller firms.
On 12 January 2023, the PRA and FCA published a consultation paper on the 2023/24 management expenses levy limit (MELL) for the Financial Services Compensation Scheme (FSCS).
The proposed MELL for 2023/24 is £109.8 million, consisting of a management expenses budget of £99.8 million and an unlevied reserve of £10 million.
The management expenses budget increased because of the increase to the FSCS's proposed spend in the area of investments, and the increase in controllable costs (due to increased staff and communication costs that will support efforts to increase awareness of the FSCS).
The proposed unlevied reserve is lower than the 2022/23 reserve as a result of the COVID-19 pandemic causing challenges in accurately predicting claims volumes.
Subject to responses to the consultation (which must be submitted by 9 February 2023), the PRA will issue a policy statement and the FCA will issue a Handbook Notice in order that the final rules can commence on 1 April 2023, the beginning of the FSCS’s financial year.
The Financial Services and Markets Bill 2022-23 (FSM Bill) had its second reading in the House of Lords on 10 January 2023 and the first day of its committee stage in the House of Lords on 26 January 2023.
On 4 January 2023, the EBA published a letter and provisional call for advice dated 21 December 2022 from the European Commission, seeking technical advice from the ESAs on the delegated acts to be adopted under the following articles of the Regulation on digital operational resilience for the financial sector (DORA):
The ESAs must respond by 30 September 2023.
On 1 February 2023, HM Treasury published a consultation paper on how it proposes to regulate cryptoasset activities. It also confirmed its approach to cryptoasset financial promotions. Please see our more detailed article on the announcements.
On 25 January 2023, the FCA provided feedback on the applications it has received in its capacity as the anti-money laundering (AML) and counter-terrorist financing (CTF) supervisor of UK cryptoasset businesses under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
The FCA states that is has received 300 applications for registration under the MLRs since it took up its role in January 2020. As of January 2023, it has determined over 260 of these, which can be broken down as follows:
The FCA has organised its feedback around the key stages of the application process:
One of the core themes from the FCA’s feedback is the importance of providing the FCA with all relevant information when submitting an application. In particular, the FCA notes that:
While the FCA’s feedback is not exhaustive and must be read alongside the MLRs, relevant guidance and other information on the FCA’s website, it should assist current and potential cryptoasset applicants.
On 11 January 2023, UK Finance, the City of London Corporation, Digital Pound Foundation, The Payments Association and TheCityUK formed a new UK Forum for Digital Currencies (UK FDC) and published a joint statement announcing that the UK FDC formed to develop a safe crypto regulation, by:
On 10 January 2023, UNIDROIT, announced a consultation on its Draft Principles and Commentary on Digital Assets and Private Law. The aim of the 19 principles is to ensure all EU states adopt legislation consistent with the principles, to increase uniformity of digital transactions domestically and internationally. The principles cover:
Responses to the consultation will close on 20 February 2023. The Law Commission's consultation on digital assets paper closed on 4 November 2022 – please see our September 2022 update for more details.
On 12 January 2023, the Competition and Markets Authority (CMA), published a decision confirming the completion of the Roadmap of the Open Banking implementation.
Open Banking was one of a number of remedies set out in the Retail Banking Market Investigation Order 2017 (Order), following the retail banking market investigation. The Order required the nine largest UK retail banking providers to establish the Open Banking Implementation Entity (OBIE), tasked with opening customer data using secure data protocols. So far six of the largest banks have met the requirements and OBIE will ensure that they continue to do so as well as ensuring the three remaining banks that have not implemented it also do so.
The Joint Regulatory Oversight Committee (JROC) stated that it will take Open Banking forward by setting out its reforms on the design of Open Banking entity in the first quarter of 2023. See our January 2023 for more on JROC's statement.
On 18 January 2023, the Science Based Targets Initiative (SBTi) published its SBTi Financial Sector and Climate-related Financial Disclosures (TCFD) Reporting Guidance to:
On 19 January 2023, the European Securities and Markets Authority (ESMA) published the advice it received from its Securities and Markets Stakeholder Group (SMSG) on the European Supervisory Authorities’ Call for Evidence on greenwashing. In summary:
On 18 January 2023, FinDatEx published the European ESG Template (EET) Version 1.1.1, which will replace V1.0 and V1.1 from 30 April 2023. The updated template includes supplementary data fields required to reflect amendments to the Sustainable Finance Disclosure Regulation regulatory technical standards relating to pre-contractual, periodic and website disclosure on investments in fossil gas and nuclear.
On 11 January 2022, the EBA published a report on its peer review on how competent authorities have implemented the EBA’s guidelines on authorisation of payment institutions and e-money institutions under the revised Payment Services Directive (PSD2).
The EBA found that:
The report contains follow-up measures for specific authorities, the implementation of which the EBA intends to review in its 2025 follow-up peer review. In addition, the EBA sets out recommendations addressed to the European Commission in the context of its ongoing review of PSD2. The report also recommends that in any future review of the guidelines, the EBA should provide more detailed guidance on how the proportionality principle should be applied in assessing the suitability of shareholders that have qualifying holdings.
On 13 January 2023, HM Treasury published a Review and Call for Evidence on the Payment Services Regulations 2017, which will close for comments on 7 April 2023. For more detail, please see here.
On 12 January 2023, the FCA updated its webpage on industry guidance, to reflect its renewal of the Radiocentre’s guidance on motor finance radio promotions. The FCA’s confirmation of this guidance is now valid until 13 January 2026.
On 24 January 2023, the European Parliament's Economic and Monetary Affairs Committee (ECON) published a press release announcing the adoption of draft reports on the European Commission's legislative proposals for the CRR III Regulation and the CRD VI Directive. ECON proposes changes to the proposals relating to capital requirements, sustainable finance, cryptoassets, governance and third country branches.
On 10 January 2023, the PRA published a Dear CEO letter sent to UK deposit-takers setting out its supervisory priorities:
The PRA will update its published supervisory approach documents during the first half of 2023.
On 11 January 2023, the FCA published a consultation paper on insurance guidance for supporting customers in financial difficulty, which will apply to firms subject to the Insurance Conduct of Business Sourcebook (ICOBS) and the retail and commercial customers of non-investment policies. It will apply to all customers in financial difficulty.
The goals of the guidance are to:
The deadline for comments is 11 March 2023, after which the FCA plans to publish the policy statement in Q2 of 2023 and bring it into force on 31 July 2023.
On 11 January 2023, the FCA published a portfolio letter on its supervisory strategy for wholesale brokers, covering the following four areas:
On 11 January 2023, the FCA published issue 72 of its Market Watch, which is devoted to approved publication arrangements and approved reporting mechanisms referred to collectively as data reporting services providers.
On 6 January 2023, the FCA added a paragraph to its securitisation webpage, in which it shared links to HMT's Policy Note on how it may use powers to be introduced by the FSM Bill and an illustrative draft Statutory Instrument, published as part of the Edinburgh Reforms.
On 24 January 2023, following an almost unanimous vote, the Economic and Monetary Affairs Committee of the European Parliament (ECON) approved its draft report on proposed amendments to AIFMD and the UCITS Directive relating to delegation, financial stability, loan origination, fees and costs, sustainability and depositary services. For further details on ECON’s draft report, please see the Funds and asset management section of our June 2022 update.
ECON has also voted to enter into institutional negotiations with the Council of the EU. The Council’s general approach on the Directive was agreed in June 2022 – see our July 2022 update.
Trialogue negotiations are expected to begin in February or March 2023 at the earliest.
On 16 November 2022, the European Parliament updated its procedure file on the proposed Regulation amending the Regulation on European long-term investment funds, which the Parliament will consider during its plenary session from 13 January to 16 February 2023.
On 25 January 2023, the FCA announced that it had begun criminal proceedings against five individuals for conspiracy to commit insider dealing and money laundering. The FCA alleges that one of the individuals used confidential information accessed as an analyst in their former role at an asset manager to trade in 49 companies through accounts held by the other defendants. The FCA notes that the defendants used contracts for differences in each of the companies, betting that the value of shares would decrease following announcements regarding the companies. This resulted in profits of around £1.5 million. The five individuals are also charged with money laundering offences relating to over 170 cash deposits totalling approximately £200,000.
The defendants will appear in Southwark Crown Court on 22 February 2023 and have all indicated not guilty pleas.
On 10 January 2023, the FCA published its final notice to Guaranty Trust Bank (UK) Ltd (GT Bank), fining it £7.6 million (after qualifying for a 30% early settlement discount) for failures in its AML systems and controls.
GT Bank was found to be in breach of Principle 3 of the FCA’s Principles for Businesses (which relates to management and control) and SYSC 6.1.1R (the requirement that a firm must maintain adequate policy and procedures) and SYSC 6.3.1R (the requirement to maintain a compliance function) by:
In particular, it did not:
On 24 January 2023, the National Crime Agency (NCA) published its Suspicious Activity Reports (SARs) Annual Report 2022, and flagged that in 2022:
On 12 January 2023, the ESAs published a thematic report on national financial education initiatives on digitalisation, with a focus on cybersecurity, scams and fraud. To achieve increase customers’ financial literacy post the COVID-19 pandemic, national competent authorities (NCAs) should:
The answer to last month’s question: 31 policy measures were announced in the Edinburgh Reforms.
What was the total amount of FCA fines for the calendar year ending 2022?
6 March 2023
2 February 2023
13 January 2023
1 December 2022
2 November 2022
7 October 2022
1 September 2022
4 August 2022
11 July 2022
9 June 2022
12 May 2022
7 April 2022
3 March 2022
3 February 2022
13 January 2022
2 December 2021
4 November 2021
7 October 2021
20 September 2021
5 August 2021
1 July 2021
3 June 2021
6 May 2021
1 April 2021
4 March 2021
4 February 2021
14 January 2021
3 December 2020
5 November 2020
1 October 2020
3 September 2020
6 August 2020
2 July 2020
4 June 2020
7 May 2020
2 April 2020
5 March 2020
6 February 2020
8 January 2020
by multiple authors
by Charlotte Hill and Daniel Hirschfield
by multiple authors