Charlotte Hill

Charlotte Hill


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Daniel Hirschfield

Daniel Hirschfield

Senior Counsel – Knowledge

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Charlotte Hill

Charlotte Hill


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Daniel Hirschfield

Daniel Hirschfield

Senior Counsel – Knowledge

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4 September 2023

Financial services matters - September 2023

  • In-depth analysis

In this month's update:  

  • Government and FCA set out their approach to access to cash 
  • Travel rule comes into force for cryptoasset businesses 
  • Next steps on ISSB standards and UK's Sustainability Disclosure Standards 
  • The impact of FSMA 2023 on the payments industry
  • PSR consults on "customer standard of caution" in APP fraud reimbursement 
  • FCA review of closure of bank accounts 
General financial services regulation

Publication of explanatory notes to the Financial Services and Markets Act 2023

The explanatory notes to the Financial Services and Markets Act 2023 (FSMA 2023) were published on 29 August 2023 on

FSMA 2023 received Royal Assent on 29 June 2023.

Regulatory collaborative group updates its terms of reference

The terms of reference of the Wider Implications Framework (Framework), which was established on a voluntary basis in January 2022 to provide a structure for the core financial regulators to deal with matters that may have wider implications across the financial services industry, have been updated to reflect the new section 415C of the Financial Services and Markets Act 2000.  

This section was inserted by FSMA 2023 and makes it a statutory requirement for the FCA, the FOS and the FSCS to co-operate on issues that have significant implications for each other or the wider financial services market.  Section 415C(3) requires that the FCA, the FOS and the FSCS publish a statement of policy relating to the co-operation duty.  The updated terms of reference now incorporate this statutory statement of policy. The Pensions Regulator and the Money and Pensions Service are also members of the Framework.

HM Treasury publishes policy statement and FCA publishes statement relating to access to cash

On 18 August 2023, HM Treasury published a policy statement setting out its approach relating to access to cash deposit and withdrawal services for certain personal and business current accounts across the UK.  

The policy statement follows HM Treasury’s 2021 consultation (please see our August 2021 update) on its proposed policy approach to developing legislation to protect access to cash and aims to inform the FCA’s approach, including what constitutes “reasonable provision” of cash access services in the UK. This forms part of the FCA’s statutory responsibility created by the Financial Services and Markets Act 2023 to seek to ensure reasonable provision of cash access services.

Key points in the policy include that with respect to personal current accounts, the government’s view is that “reasonable provision of cash access services” means free cash access services, and that the FCA will continue to monitor the coverage of access to cash and will have new powers to collect information from providers of cash access services and other relevant entities.

Alongside this, the FCA also published a statement explaining its new powers to protect access to cash and outlining its next steps. In the statement, the FCA explains that its approach will be balanced, consider the cash needs of consumers and small businesses, and the general consumer preference for digital ways to pay.  The FCA plans to consult on rules that will require each of the banks and building societies designated by the government as subject to the new access to cash regime to conduct assessments of the reasonableness of cash provision when certain changes in local access occur or are proposed. Depending on the outcome of the consultation, the FCA expects any new rules to take effect by summer 2024. 

Bank of England publishes statement of policy on supervisory approach to market oversight for wholesale cash distribution

On 18 August 2023, the Bank of England (BoE) published a statement of policy on its supervisory approach to market oversight for wholesale cash distribution.

The statement of policy follows the BoE’s consultation in December 2022. In addition to the statement of policy, the BoE has published a summary of the responses to the consultation. 

The principles set out in section two of the statement of policy lay the foundation for the BoE’s analysis of the main risk presented to the effectiveness, resilience and sustainability of the market and act as the base of the BoE’s approach. 

As set out in the statement of policy, the BoE intends to consult on its proposals for codes of practice relating to information gathering, third-party arrangements and cash centre closure and market exit in autumn 2023. In the future the BoE may identify other areas where codes of practice are necessary and appropriate. 

FCA publishes authorisation metrics for Q1 2023/24

On 8 August 2023, the FCA published its authorisation metrics for Q1 2023/24.

The FCA publishes its authorisation metrics quarterly to provide greater transparency of its performance. The data covers solo-regulated firms and shows that the FCA continues to make good progress towards meeting all its service level targets, with eight metrics being green, six amber and two red.

In an associated press release, the FCA highlights that three of the amber metrics are improved and are within 1% of becoming green. The FCA also notes that while one metric which was green in Q4 2022/23 is now amber, this is in a low volume area and was due to one application being determined after the statutory deadline. 

The FCA will publish its performance data for Q2 2023/24 in November 2023. 

FCA provides clarification for firms while advice guidance boundary review is ongoing

On 3 August 2023, the FCA published a press release setting out the basis for its joint review with HM Treasury of the advice guidance boundary.

From the early phase of work, key themes and insights have emerged which will guide the next stage of the review. These include: 

  • To provide more support to more people – this will require firms and consumers to manage risk rather than eliminate it, as risk is a key driver of cost to firms and ultimately to consumers which directly impacts on the availability of support. 
  • The review should leverage the Consumer Duty to set clear expectations for the support that firms provide their customers and ensure that consumer protection remains at the core of any future regime. 
  • Any solution will rely on support being provided on a commercial basis – the review will need to focus on outcomes and design a regulatory system where commercially viable models of support can emerge. 
  • The solution to the challenge will not be met by changes to regulated advice alone - people's needs are diverse and vary over their lifetime and firms need to actively engage and provide flexible forms of support that can adapt to different types of financial decisions. 

While the review is ongoing, the FCA has published a new webpage offering clarification for firms seeking to provide greater support to consumers, without providing a personal recommendation. This is particularly relevant in light of the increased cost of living. The clarification reflects the existing framework and does not represent any regulatory change or pre-empt the review's outcome. Instead, the information aims to help firms get closer to the current boundary so that consumers can benefit from support now, pending broader regulatory reform.  

HM Treasury consultation and call for evidence on cold calling ban for consumer financial services and products

On 2 August 2023, HM Treasury published a consultation and call for evidence on a cold calling ban for consumer financial services and products. A draft impact assessment was also published. 

As part of its fraud strategy (please see our June 2023 update), the government committed to extending the pensions cold calling ban to cover cold calling for all consumer financial services and products. The ban will work alongside other government measures to challenge and tackle fraudulent marketing more widely, such as the online advertising programme and the progression of the Digital Protection and Digital Information Bill. The consultation will investigate how best to design and implement the ban. 

The consultation covers scope decisions which will inform the approach the government takes to enact and enforce the ban to maximise its impact in reducing fraud while minimising any unintended consequences on legitimate business activity that is to the benefit of consumers. 

All interested parties are invited to provide feedback and empirical evidence on the potential benefits and unintended effects associated with the ban. The government will use this information to produce its final impact assessment.

The consultation closes to responses on 27 September 2023 at which point the government will assess the responses received. 

BoE, PRA and FCA joint response to Data Standards Commission's recommendation on regulatory reporting published

On 1 August 2023, the Bank of England (BoE) (including the PRA) published a joint response with the FCA on the Data Standards Commission's recommendations on advancing the use of common data standards for regulatory reporting.

The authorities broadly welcome the recommendations and will work with the joint transformation programme to identify ways to take them forward.

The authorities agree that a taxonomy of financial data standards needs to be created to classify and describe the standards currently used in data collection and that the UK needs a standing committee of industry experts with a remit to advise on the use of data standards for reporting to UK financial authorities. The authorities consider that the new Industry Data Standards Commission's (IDSC) remit should be to evaluate, select and advise on the use of existing standards and recommend the development of new standards where existing standards are not adequate. The authorities will work with the IDSC to advise on the development of a framework to measure the costs and benefits arising from developing and adopting standards. 

An update on the scope and timelines in the next phase of the joint transformation programme will be provided in Q1 2024 once the authorities have considered how the work outlined in the response will be funded and resourced. 

House of Lords Economic Affairs Committee publishes letter on BoE's additional regulatory and supervisory responsibilities under FSMA 2023

On 28 July 2023, the House of Lords Committee Office published a letter to Andrew Bailey, Governor of the Bank of England (BoE), from the Chair of the House of Lords Economic Affairs Committee.

Under the Financial Services and Markets Act 2023 (FSMA 2023), the BoE and PRA have increased regulatory and supervisory responsibilities. In the letter the Committee explains that its ongoing inquiry into the operational independence of the BoE has received evidence on the BoE's expanding remit and has questioned whether the BoE is being asked to do too much. 

In light of this, the Committee askes Andrew Bailey to explain how the BoE plans to implement its new responsibilities, manage the balance of the additional responsibilities provided by FSMA 2023 and develop a transparent and efficient decision-making structure to reflect the addition of the new Financial Market Infrastructure Committee created by FSMA 2023. 

Andrew Bailey's response is expected soon.

Fintech and digital assets

Travel rule comes into force for cryptoasset businesses

On 17 August 2023, the FCA published a statement on its expectations for UK cryptoasset businesses complying with the travel rule.

From 1 September 2023, cryptoasset businesses are required to collect, verify and share information about transfers of cryptoassets to another cryptoasset business under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

As set out in the statement, the FCA expects firms to take all reasonable steps and exercise all due diligence to comply with the travel rule. In particular, the FCA expects firms to fully comply with the travel rule when sending or receiving a cryptoasset transfer to a firm that is in the UK or in any jurisdiction that has implemented the travel rule. The FCA states that firms will remain responsible for achieving compliance with the travel rule when using third-party suppliers and suggests that firms should regularly review the implementation status of the travel rule in other jurisdictions and adapt their business processes as appropriate.

The statement sets out what firms should do when sending or receiving a cryptoasset transfer to or from a jurisdiction without the travel rule. 

On 31 August 2023, the Joint Money Laundering Steering Group (JMLSG) announced that it had published final changes to its Part II sectoral guidance for cryptoasset providers and custodian wallet providers. The revised guidance includes a new Annex I to Sector 22 that relates to cryptoasset transfers. The JMLSG consulted on the changes in July 2023 (please see our August 2023 update).

The revised JMLSG guidance is intended help firms put in place the required systems and controls to comply with the travel rule.

BoE and HM Treasury issue open call for interest for academics and researchers wishing to join a newly created CBDC Academic Advisory Group

On 9 August 2023, the Bank of England and HM Treasury issued an open call for interest for academics and researchers wishing to join a newly created CBDC Academic Advisory Group (AAG). It is proposed that the AAG provide expertise during the design phase of the digital pound. 

The jointly issued consultation paper on the digital pound (please see our March 2023 update) signalled that the digital pound is likely to be needed in the future and therefore the BoE's work will move onto a "design phase" despite no decision having yet been made on the digital pound. 

The AAG will be jointly run by the BoE and HM Treasury and will seek to generate expert academic input and promote interdisciplinary discussions on a range of topics related to retail CBDC.

Expressions of interest from academics from a wide range of disciplines and backgrounds with relevant subject matter knowledge, skills and experience are invited. Applications to the AAG closed on 3 September 2023.

EBA report on machine learning for IRB models

On 4 August 2023, the EBA published a follow-up report (EBA/REP/2023/28) to its discussion paper requesting feedback on machine learning used in the context of internal ratings-based (IRB) models.

The report: 

  • Summarises the main conclusions from the discussion paper. 
  • Provides a conclusive picture of the current use of machine learning techniques for IRB models. 
  • Analyses possible obstacles to the implementation of machine learning models in the IRB model space based on practical issues, the experience of the industry so far and the current state of regulatory developments in this area. 
  • Discusses the interaction between prudential requirements on IRB models, GDPR and the Artificial Intelligence Act. 

The EBA notes that, due to the fact this is a developing field, conclusions drawn from the discussion paper should be taken with caution. Conclusions include that financial institutions are using machine learning techniques to a lesser extent for model validation and collateral valuation, but that in the context of credit risk machine learning models might improve predictive power. The report also highlights that the exponential increase in data availability and storing capacity coupled with the improvements in computing power of recent years provides an opportunity to use machine learning models. 

FCA publishes videos on digital sandbox and innovation pathways

On 1 August 2023, the FCA updated its Innovation Services webpage with videos explaining its approaches to various topics, including the Digital Sandbox and its innovation pathways. The Digital Sandbox opened for applications on 1 August 2023 ( please see our August 2023 update).

The FCA also published a webpage describing the two pilots it has held for the Digital Sandbox. 

The first Digital Sandbox pilot ran between October 2020 and February 2021 and focused on challenges impacted or exacerbated by the COVID-19 pandemic. The evaluation report of the first pilot includes a summary of the feedback and the key lessons learned. 

The second Digital Sandbox pilot ran between November 2021 and March 2022 and focused on the testing and development of new products and services in the area of environmental, social and governance data and disclosure. The evaluation report for the second pilot sets out the key lessons learned and the FCA's current thinking for the future of the Sandbox. 


FCA publishes Primary Market Bulletin No 45 

On 10 August 2023, the FCA published Primary Market Bulletin 45

In June 2023, the International Sustainability Standards Board (ISSB) published its first two IFRS Sustainability Disclosure Standards (please see our July 2023 update). The UK government has committed to introducing mandatory reporting against the ISSB standards.

In the bulletin, the FCA states that it intends to consult in the first half of 2024 on proposals to implement disclosure rules referencing UK-endorsed IFRS S1 and IFRS S2 for listed companies. If the government’s endorsement process is completed as envisaged, the FCA will aim to finalise its policy position by the end of 2024 and bring new requirements into force for accounting periods beginning on or after 1 January 2025, with first reporting to start in 2026.

In the bulletin, the FCA also sets out that it will consult on an appropriate scope and design for the new regime and will consult on moving to mandatory disclosure for listed issuers, rather than comply or explain.

The FCA will soon publish its response to the ISSB’s Request for Information Consultation on Agenda Priorities on its future workplan and will continue monitoring the ISSB’s work on developing a digital taxonomy to support machine-readable disclosures.

In the bulletin, the FCA recommends that listed companies can prepare for the potential future introduction of the standards by engaging with the UK endorsement and implementation process for the ISSB standards by, for example, responding to the FRC’s call for evidence and the FCA’s consultation on implementation. 

Government publishes guidance on UK Sustainability Disclosure Standards

On 2 August 2023, the Department for Business and Trade published guidance on the government's framework to create UK Sustainability Disclosure Standards (UK Standards). 

The UK Standards will form the basis of future legislative or regulatory requirements for corporate sustainability reporting and will set out corporate disclosures on the sustainability related risks and opportunities that companies face.

The UK Standards will be based on the ISSB Standards, and it is expected that the UK Standards will only differ from the global baseline if necessary for UK specific matters. The Secretary of State for Business and Trade will consider the endorsement of the ISSB Standards to create the UK Standards by July 2024. 

To assist with the assessment and endorsement of the ISSB Standards and the implementation of the UK Standards, the government has established two committees: the UK Sustainability Disclosure Technical Advisory Committee and the UK Sustainability Disclosure Policy and Implementation Committee. 

European Commission adopts Regulation on first set of EU sustainability reporting standards

On 31 July 2023, the European Commission adopted a Delegated Regulation setting out the first set of EU sustainability reporting standards (ESRS). An associated Q&A and press release were also published.

The requirement for in-scope companies to report against the ESRS was introduced via the amendment made to the Accounting Directive (2013/34/EU) by the Corporate Sustainability Reporting Directive 2022 (CSRD).

The Delegated Regulation sets out the ESRS that apply to all undertakings under the scope of the CSRD, regardless of which sector the undertaking operates in. In June 2023, the Commission consulted on the draft Delegated Regulation which under the CSRD was due to be adopted by June 2023. The Commission modified the draft ESRS by making some requirements voluntary, phasing-in certain reporting requirements and giving companies more flexibility to decide exactly what information is material to their circumstances.

The Delegated Regulation includes two annexes. The first annex contains two sets of cross-cutting ESRS and three sets of specific ESRS on environmental disclosures, social disclosures and governance respectively. The second annex contains the list of acronyms and glossary definitions to be used for the ESRS.

In the second half of August 2023, the European Parliament and the Council will formally scrutinise the Delegated Regulation for two months, extendable by a further two months. They may reject the Delegated Regulation but may not amend it.

The CSRD requires the Commission to adopt sector-specific standards, proportionate standards for listed SMEs and standards for non-EU companies by June 2024. 

Payment services and systems

What FSMA 2023 means for payment services

On 29 August 2023, the Payment Systems Regulator (PSR) published a thought piece by Chris Hemsley, the PSR's Managing Director, on the impact of the Financial Services and Markets Act 2023 (FSMA 2023) on the payment services industry Hemsley draws attention to:

  • The removal of barriers that have previously prevented the PSR from making reimbursement for the victims of authorised push payment (APP) fraud mandatory. The PSR has set out its policy position and has consulted on the legal instruments that will impose new requirements on payment firms. The requirements will take effect in 2024.

  • The FCA's new role as the lead authority for the protection of access to cash. The PSR's powers as the regulator of LINK meant it could only protect the ability to withdraw cash from ATMs. The FCA can now look at solutions that go beyond just ATMs (see our General financial services regulation section above).
  • The provisions in FSMA 2023 that will allow the government to create a regime for regulating stablecoins and the cryptoassets sector. Both the FCA and the PSR will be involved in the regulation of stablecoins. Any payment system that handles stablecoins may be subject to regulation by the PSR.
  • The simplification of regulations that should result from the process of repealing retained EU law and the increased oversight and accountability of the regulators from the government.

He concludes by observing that FSMA 2023 will strengthen the PSR's regulatory scope and enable it to enhance payment services for consumers and businesses and promote competition and innovation.

Payment Systems Regulator consults on consumer standard of caution for APP fraud

On 15 August 2023, the Payment Systems Regulator (PSR) published a consultation paper (CP23/7) on its proposed approach to the consumer standard of caution and the draft guidance it intends to publish alongside it. The consultation builds on the PSR's broader authorised push payment (APP) fraud reimbursement requirements as set out in a policy statement (PS23/3) (please see our July 2023 update).

The PSR proposes that the consumer standard of caution should consist of the following three requirements: 

  • A requirement for consumers to have regard to specific and directed warnings given by their bank, which make clear the intended recipient is likely to be a fraudster. 
  • A prompt reporting requirement where customers who are, or suspect they are, a victim of an APP scam should notify their bank promptly and in any event not more than 13 months after the last fraudulent payment was made. 
  • An information sharing requirement where consumers should respond to any reasonable and proportionate requests for information made by their bank. 

If it can be demonstrated that the consumer has been grossly negligent in not meeting one or more of the above requirements, then they may not be reimbursed. Gross negligence is a very high bar that will depend on the individual circumstances of each case. Gross negligence will never apply where a victim's vulnerability is a factor in them being defrauded.

Comments can be made on the consultation paper until 12 September 2023. 

Payment Systems Regulator consults on APP fraud maximum reimbursement level for FPS and CHAPS

On 15 August 2023, the Payment Systems Regulator (PSR) published a consultation paper (CP23/6) on the value of the excess and maximum reimbursement level for Faster Payments (FPS) and CHAPS. The consultation relates to the PSR's broader authorised push payment fraud reimbursement requirements as set out in a policy statement (PS23/3) (please see our July 2023 update).

In the policy statement the PSR confirmed that sending banks will have the option to apply a claim excess under the new reimbursement requirements, except in cases where the consumer is vulnerable. The consultation paper seeks views on the most appropriate way of structuring a claim excess, including whether it should be a fixed amount, or a percentage of the reimbursement claim amount. 

The PSR also proposed that the maximum reimbursement level should be in line with the Financial Ombudsman Service limit of £415,000 per claim. The consultation paper seeks views on whether the maximum level should apply to vulnerable customers. 

Comments can be made on the consultation paper until 12 September 2023. The PSR expects to publish the final value of the excess and maximum reimbursement level by the end of 2023, with the requirements coming into force in 2024. 

UK Finance updates interpretative guide on UK revised Wire Transfer Regulation

On 9 August 2023, UK Finance published "how to" interpretative guidance on the onshored version of the revised Wire Transfer Regulation (UK revised WTR). In the guidance, UK Finance refers to the UK revised WTR as the 'Funds Transfer Regulation' or FTR.

The guidance intends to provide operational clarity and encourage market harmonisation. The latest guidance updates the guidance on the EU revised WTR published by UK Finance in 2018, and later updated in 2022.

As explained on an associated webpage, the latest amendments focus on new practice issues and regulatory developments raised by members following changes in industry best practice. 

HM Treasury response to consultation on payments regulation and systemic perimeter

On 7 August 2023, HM Treasury (HMT) published a consultation response to its consultation on payments regulation and the systemic perimeter.

The response sets out HMT's policy decisions following its consultation and a summary of the feedback it received. As set out in the response, HMT will legislate to reform the systemic payments perimeter of the Bank of England (as set out in Part 5 of the Banking Act 2009). These reforms will require an Act of Parliament and therefore HMT will publish a further statement on its legislative approach. 

The response also details that HMT will set out its next steps on the extension of the Senior Managers and Certification Regime (SMCR) to e-money institutions, recognised systemic payments entities and authorised payment service providers once its broader review of the SMCR has been concluded.

The response also sets out that HMT will make secondary legislation to reform the Payment Systems Regulator's (PSR) payment system access framework and will publish a policy statement on its legislative approach to the framework for the PSR set out in the Financial Services (Banking Reform) Act 2013. 

HM Treasury publishes post-implementation review of the Financial Market Infrastructure Administration (England and Wales) Rules 2018

On 3 August 2023, HM Treasury published its post-implementation review (PIR) of the Financial Market Infrastructure Administration (England and Wales) Rules 2018.

The Rules form part of the special administration regime (SAR) for certain financial market infrastructures (FMIs), which is also known as the Financial Market Infrastructure Special Administration Regime (FMI SAR). The FMI SAR applies to the operators of recognised payment systems, recognised central securities depositories and key service providers to these operators as designated by HM Treasury.

HM Treasury liaised with the Bank of England and considered how frequently the FMI SAR has been used since its introduction, its impact on FMIs and whether the existing frameworks remain fit for purpose. 

As set out in the PIR, HM Treasury has concluded that the Rules should be maintained as they remain fit for purpose and continue to ensure that the FMI SAR is operationally effective. This conclusion was reached on the basis that: 

  • HM Treasury found that there has been no impact on FMIs to date, as the FMI SAR has not been used and does not impose any requirements on FMIs who have not entered into administration. Consequently, the Rules do not impose significant impact or costs on FMIs in scope. 
  • HM Treasury continues to believe that the regime will enable the continued functioning of in scope FMIs in the event that any of them fail and it is therefore important to maintain the existing regime to ensure there is an effective process in place to manage any future failures of FMIs. 
Consumer credit and mortgages

Bank Underground publishes blog post on Buy-Now Pay-Later

On 23 August 2023, Bank Underground published a blog post on what Buy-Now Pay-Later (BNPL) is and who uses it. Bank Underground is a blog for Bank of England (BoE) staff to share views that challenge, or support, prevailing policy orthodoxies. The views expressed in the blog are those of the authors and are not necessarily those of the BoE.

The blog explains that while it can be difficult to define exactly what BNPL is, BNPL products allow users to defer payment across multiple instalments when buying goods or services. While some BNPL products are exempt from regulation because they do not charge interest on repayments, other BNPL products are regulated. 

The blog notes that as BNPL is relatively new and much of the market is unregulated, there is little publicly available data on its use. A review of unregulated BNPL products released by the FCA in 2021 found that the use of BNPL products quadrupled in 2020 to transactions worth £2.7 billion and that 25% of users were aged 18-24 and 50% were aged 25-36. 

Bank Underground analysed the BoE’s NMG Household survey. The NMG survey is run at the household level and uses weights to be nationally representative. Conversely, the FCA’s data is collected at the user level and therefore the NMG survey results are not directly comparable to the FCA’s results.

On aggregate, the survey revealed the following: 

  • 11% of households, or 3.1 million households, across the UK reported owing money on BNPL. 
  • Among users the mean balance was £866, implying an outstanding aggregate BNPL balance of around £2.7 billion. 
  • The distribution of balances is skewed with many BNPL users reporting balances of a few hundred pounds or less, with a small number reporting much larger balances. 
  • The median balance of users is £300 and the 90th percentile is £2,000. 

The survey also analyses how BNPL use varies depending on age, income, housing tenure and self-reported financial difficulty. Further detail of this analysis is included in the blog post. Key points include that BNPL use is most common among 25-34 year olds, while 35-44 year olds report the highest BNPL balances. In addition, the poorest households are no more likely than average to be BNPL users and BNPL use is currently not as widespread as other forms of consumer credit. 

FCA publishes research note on interest-only mortgages 

On 15 August 2023, the FCA published a research note on maturing interest-only mortgages.

The note sets out the FCA's analysis of its data on the population of regulated interest-only mortgages that existed on 31 December 2022 and consumer research undertaken in 2022 looking at the ability of interest-only borrowers to repay the capital at the end of their mortgage term. The analysis aims to assist the FCA with understanding the characteristics of the current stock of interest-only mortgages.

The note sets out that the number of interest-only (750,000) and part-interest-only (245,000) mortgages has halved since 2015 due to borrowers moving in greater numbers onto repayment loans or repaying earlier than expected. Of the remaining interest-only mortgages, the greatest number are set to mature in 2031 and 2032, with a smaller peak in 2027.

Consumer research shows that 82% of borrowers were confident in their ability to repay the outstanding capital at the end of the mortgage term. However, research shows that this may be overly optimistic as modelling predicts a greater percentage of borrowers will have some shortfall.

The FCA reminds firms that as the Consumer Duty is now in force, they should be thinking about how they will support their borrowers and meet the higher expectations set by the duty.

Financial Ombudsman Service updates webpage on complaints involving problems with goods and services bought using debit or credit cards

On 3 August 2023, the Financial Ombudsman Service (FOS) published a blog outlining how firms can help consumers if they have problems with goods and services bought using a debit or credit card.

In the blog the FOS explains that its complaints data shows a wide range of uphold rates, suggesting that there are inconsistent approaches among financial businesses in relation to complaints concerning section 75 of the Consumer Credit Act 1974 and chargeback.

In response, the FOS has updated its webpage on complaints in this area in order to improve firms' understanding of what it expects to see when complaints reach it. The FOS explains that by following more closely what the FOS expects to see, firms can improve their processes and consequently reduce complaints from consumers. 

Financial Ombudsman Service outlines approach to complaints concerning car finance commission

On 31 July 2023, the Financial Ombudsman Service (FOS) published a blog outlining its approach to complaints concerning car finance commission.

The FOS' annual complaints data for 2022/23 (please see our July 2023 update) showed an increase in complaints about car finance related commission, fees and charges. The FOS were increasingly being contacted by customers about the fairness of commission arrangements relating to car finance agreements. 

The blog sets out that so far, the complaints are not about a single type of credit agreement and there are a number of different commission models and structures in place, as well as different business relationships involved. The FOS note that while each complaint will turn on its own individual merits, they are beginning to see some commonalities in groups of cases. These commonalities will help the FOS further establish its approach to investigating the complaints. 

The blog also sets out that the FOS has been working closely on the issue with industry stakeholders. The FOS has issued some first views and provisional decisions to a number of businesses. Some of these have been uphold views, where there was a difference in charges model in place and the FOS believes this led to customer detriment. 

Banking and insurance

FCA publishes letter to Chancellor confirming review of banks terminating accounts 

On 3 August 2023, the FCA published a letter to the Chancellor, Jeremy Hunt. The letter was sent by Nikhil Rathi, FCA Chief Executive, and was in response to a letter from Mr Hunt on freedom of expression and the provision of banking services.

Under the Payment Accounts Regulations 2015, banks are required not to deny consumers access to a payment account on the basis of a range of characteristics, including legally held political views. In the letter the FCA acknowledges the increased public concern about payment accounts being closed without fair justification.

The letter sets out the FCA's support of the government's plan to increase the required notice period for closing accounts from 60 to 90 days. The FCA also acknowledges that when the amended legislation comes into force the FCA will take action in instances of non-compliance. However, the FCA highlights that they do not adjudicate individual cases and instead consumers with complaints should ask the Financial Ombudsman Service to review their cases.

The FCA has seen a significant increase in the number of accounts being closed. This may reflect increased monitoring by firms to comply with financial crime obligations, but the extent to which banks may be terminating accounts for other reasons (which may be unjustified or breach relevant requirements) is less clear. Consequently, the FCA is carrying out a data exercise to focus on banks and building societies providing payment accounts to consumers and accounts to businesses.

As part of the data exercise, the FCA has requested data from banks on account closures including the number of customers that have been terminated, suspended and denied services, the reasons for such action and the number of complaints banks have received on the issue. A letter has been sent to firms setting out the requested data. Firms have until 25 August 2023 to provide the requested information.

The FCA will provide its initial assessment by mid-September 2023. 

HM Treasury publishes response to consultation on insurer resolution regime

On 2 August 2023, HM Treasury (HMT) published the response to its January 2023 consultation paper on the proposal to introduce a dedicated insurer resolution regime (IRR).

In the response, HMT summarises the responses received to the consultation and sets out its responses for the issues raised. Respondents supported the introduction of the IRR and were broadly in agreement with the proposed framework. However, concerns were raised on a range of issues such as the scope of the regime, how the proposed powers would apply in practice and how the regime would interact with the existing insolvency architecture.

HMT has made some changes to the proposed approach in response to the feedback received and to reflect further policy development. The Bank of England's (BoE) role as a resolution authority will not supersede or replace the PRA's usual prudential supervisory responsibilities. Further guidance will be issued on how the resolution conditions will be evaluated by the PRA, the BoE and other relevant authorities. The IRR should apply equally to all insurers accessing the UK market through a branch, including Gibraltarian insurers.

HMT plans to legislate for the IRR when Parliamentary time allows. Industry will be given sufficient time and notice following legislation being passed to make any necessary changes. 

FCA publishes review of state of competition in cash savings market 

On 31 July 2023, the FCA published a report on its review of the state of competition in the cash savings market.

The FCA conducted the review amid concerns that savers had not been receiving good deals from banks as the bank base interest rate has risen. The review has found that while interest rates on savings accounts have been rising, this has been happening more slowly for easy access accounts. The report also found that there has been significant variance between firms, with smaller firms offering higher interest rates on average than their larger competitors.

The FCA has concluded that competition is delivering better rates for savers who shop around but many longstanding easy access customers are penalised, and while switching is increasing firms can improve the process for customers. The FCA has further concluded that the pace and scale at which firms pass through higher interest rates to savers needs to improve and that firms must do much more to prompt consumers to make use of better savings products. 

In light of the review's findings and the FCA's expectations of firms under the new Consumer Duty, the FCA has identified eight actions that it will take and six actions that it expects firms to take to improve competition in the market and ensure that consumers receive better savings outcomes.  

The FCA intends to conduct a further review of the cash savings market in the second half of 2023, and it will propose further action if insufficient progress is made.  

PRA updates banking and insurance supervision approach documents

On 31 July 2023, the Prudential Regulation Authority (PRA) published updated versions of the following documents, with key changes identified in the annex to each document: 

The documents are intended to articulate what the PRA believes effective supervision looks like and how it intends to deliver it.

The majority of the changes made to the original versions of the documents are evolutionary in nature and aim to capture the ways in which the PRA's approach has developed over the last decade in light of experience, for example to make the PRA's approach more risk-based and flexible.

One area where the context for the PRA's approach has changed more significantly is the PRA's rulemaking role. Under the Financial Services and Markets Act 2023, the PRA's rulemaking role has been significantly expanded to replace functions that, before Brexit, were largely carried out for the UK by EU institutions.

The PRA will continue to evolve its approach in the future and therefore the documents will likely change further over the coming years. 

Securities, investments and markets

FSMA 2023 wholesale markets changes take effect

A series of wholesale markets related provisions in the Financial Services and Markets Act 2023 (FSMA 2023) came into force on 29 August 2023.  These include:

  • The removal of the Share Trading Obligation and Double Volume Cap for equities - see the FCA's update.
  • Aligning the scope of the Derivatives Trading Obligation with the scope of the clearing obligation under the UK version of EMIR – see the FCA's update.
  • The commencement of rulemaking powers for the FCA in relation to two types of financial market infrastructure: recognised investment exchanges and data reporting service providers.

FCA and PRA consult on new securitisation rules 

On 7 August 2023, the FCA published a consultation paper (CP23/17) on proposed new rules to replace the firm-facing provisions from the UK Securitisation Regulation which are being transferred into the FCA Handbook as part of the repeal and replacement of retained EU law. The consultation paper includes a proposed legal instrument and all related technical standards and their annexes. 

The FCA's proposals will largely preserve the current requirements and introduce certain new rules, including rules to align the due diligence requirements for different types of institutional investors and amend and clarify risk retention provisions for the securitisation of non-performing exposures. The FCA plans to consult on changes to the reporting regime in a second consultation. 

On 27 July 2023, the Prudential Regulation Authority (PRA) published a consultation paper on proposed new rules to replace retained EU law requirements in the provisions of the UK Securitisation Regulation for which the PRA has supervisory responsibility. The paper also proposes changes to the related Risk Retention Technical Standards and the Disclosure Technical Standards. 

The new rules largely preserve the existing provisions in current legislation, but some new requirements are introduced, including: 

  • Transparency requirements on manufacturers to increase the information available to investors to support their due diligence. 
  • Risk retention requirements on manufacturers of securitisations to reduce the risk that information asymmetries between manufacturers and investors are exploited when manufacturers select underlying exposures.
  • Due diligence requirements on institutional investors to ensure a proper assessment of the risks of investing in securitisations.
  • Restrictions on resecuritisations to reduce the complexity of securitisations that are marketed to investors. 

It is proposed that the changes will be incorporated into a new Securitisation Part of the PRA Rulebook. Drafts of the revised and new supervisory statements are set out in Appendix 1 and Appendix 2 to the consultation paper.  

Comments are invited on both consultations until 30 October 2023. 

FCA publishes portfolio letter setting out supervisory strategy for principal trading firms

On 4 August 2023, the FCA published a portfolio letter on its supervisory strategy for principal trading firms (PTFs). Firms in the PTF portfolio derive most of their revenue from dealing as principal, which may include algorithmic trading as well as market making. 

In the portfolio letter, the FCA sets out the key drivers of harm it has identified, including operational resilience issues and the risk of market abuse. In the letter, the FCA comments that it has not seen evidence of widespread serious misconduct among PTFs but remains on heightened alert around certain commodity markets.

The FCA identifies and sets out expectations relating to five key areas of focus for its PTF supervisory strategy. The five key areas are algorithmic trading controls, financial resilience, avoiding market disruption arising from commodity market volatility, operational resilience and Brexit impacts. More detail on the key areas is set out in the letter.

The FCA expects all CEOs to have discussed the letter with their firm's directors and to have agreed actions and next steps by the end of September 2023.  

ESMA updates Q&As on Crowdfunding Regulation

On 3 August 2023, ESMA published an updated version of its Q&As relating to the Regulation on European crowdfunding service providers for business (ECSPR or Crowdfunding Regulation).

New Q&As have been added in section 5 on general provisions, section 6 on provisions of crowdfunding services and organisational and operational requirements and section 8 on the authorisation and supervision of crowdfunding service providers. 

ESMA publishes official translations of the guidelines on product governance requirements under MiFID II

On 3 August 2023, ESMA published the official translations, including the English language version, of the guidelines on product governance requirements under the MiFID II Directive.

ESMA published a report on the final version of these guidelines in March 2023. The guidelines will apply from 3 October 2023. 

FCA publishes statement on supervisory flexibility on transaction reporting

On 27 July 2023, the FCA published a statement on supervisory flexibility on transaction reporting. 

The latest temporary measures follow the FCA's implementation of temporary measures for the reporting of the short selling indicator under UK RTS 22 in January 2022. The latest temporary measures relate to reporting of the following fields in transaction reports: 

  • Waiver indicator (field 61). 
  • OTC post-trade indicator (field 63).
  • Commodity derivative indicator (field 64).
  • Securities financing transaction indicator (field 65). 

The FCA confirmed that until its reviews of these fields are determined it will not take action against firms that fail to populate them in accordance with the requirements. 

Transaction reporting validation rules CON-610 and CON-640 will be deactivated from September 2023 to ensure that transaction reports are not rejected as a result of a failure to populate these fields accurately. 

Funds and asset management

FCA publishes multi-firm review findings on AFMs' assessments of funds' value 2023

On 10 August 2023, the FCA published a webpage setting out its findings following a multi-firm review of the processes used by different authorised fund managers (AFMs) when they carry out assessments of value (AoVs) for the funds they operate.

The review was a follow-up to a previous review which found that of the AFMs reviewed, most had not implemented arrangements meeting FCA standards (please see our August 2021 update). Following the latest review, the FCA has found that many firms have a better understanding of the rules and have now fully integrated considerations on AoV into their product development and fund governance processes. However, the FCA warns that action is required in some areas in particular in the context of the Consumer Duty and the FCA's expectation that firms are not solely focused on fund profitability over value for money for investors.

For authorised funds the AoV rules and guidance act in place of the price and value outcome rules of the Consumer Duty. However, the FCA points out that the Consumer Duty is broader than just the price and value outcome and therefore firms should still consider how they meet all other aspects of the Duty.

The FCA expects firms to consider the findings and make improvements where necessary. 

Investment Association guidance on operational resilience and third-party providers 

On 3 August 2023, the Investment Association published member guidance on operational resilience and third-party providers (TPPs).

The guidance aims to provide firms in the investment management sector with an overview of relevant operational resilience issues and a practical framework to guide their interactions with TPPs in this area.

The guidance states that third-party oversight is perhaps the most difficult aspect of the UK operational resilience regime for firms to get to grips with and significant concerns remain over firms' ability to gain assurance over their TPPs' resilience in the level of detail the regulators expect.

The guidance is optional and firms referring to it will need to assess the proportionality of what is suggested for their own specific circumstances and be mindful that not every suggestion will be relevant to every firm. 


FCA publishes financial promotions quarterly data for Q2 2023

On 4 August 2023, the FCA published a webpage containing its financial promotions quarterly data for Q2 2023.

In addition to the data, the FCA sets out a number of examples of how it has intervened and taken action against both authorised and unauthorised firms, including educating "finfluencers" about their obligations when seeking to promote financial services and products. 

FCA wins civil case against Ponzi-like care home investment scheme 

On 1 August 2023, the FCA published a press release announcing that it has won a civil case against a Ponzi-like care home investment scheme.

Between 2016 and 2020, Qualia Care Properties Ltd and Qualia Care Developments Ltd offered investments in care homes run by a third party, Qualia Care Limited. Investors purchased a long-term lease in a room in a care home and then sub-let the room back to the Qualia companies. In total, £57 million was taken from 380 investors who were promised returns of between 8 to 10% of the purchase price over the period of the sublease.

The High Court agreed with the FCA that: 

  • The scheme amounted to a collective investment scheme that was being operated unlawfully without FCA authorisation. 
  • The returns promised to investors were never likely to be achievable. 
  • Robin Forster, director of the Qualia companies, had made false and misleading statements to investors about the sustainability of the scheme.

The Qualia companies are now in administration and the FCA will ask the court to determine the sums that the defendants should be required to pay back to the investors. 

Economic crime

FCA requests information on experiences of PEPs regime

On 15 August 2023, the FCA published a letter that it has sent to political exposed persons (PEPs) inviting them to share their experiences relating to the PEPs regime.

Under the PEPs regime, firms must undertake extra checks on political figures, their families and known close associates due to the possibility that a PEP may be in a position to abuse their public office for private gain and to use the financial system to launder the proceeds of this.

Following feedback received and the requirements of the Financial Services and Markets Act 2023, the FCA is currently reviewing how financial services firms have applied the PEPs regime and whether it needs to amend its 2017 guidance (FG17/6).

The FCA will publish the full terms of reference for the review in September 2023 and will report back by June 2024. 

JMLSG revises guidance on managing impersonation fraud risk

On 1 August 2023, the Joint Money Laundering Steering Group (JMLSG) published a press release announcing a revision to chapter 5 (customer due diligence) of Part I of its anti-money laundering and counter-terrorist financing guidance for the financial services sector.

The JMLSG has revised paragraph 5.3.89 of the guidance. This paragraph provides guidance on managing the risk of impersonation fraud. The text of the revised paragraph, which has been submitted to HM Treasury for Ministerial approval, has also been published. 

This month's question

The answer to last month's question: according to the FCA's 2022/2023 Annual Report, the FCA opened 613 financial crime supervision cases in 2022/23.  This is 65% increase from the previous year. 

The FCA's Digital Sandbox became permanently available on 1 August 2023.  According to the FCA, approximately what percentage of small and medium enterprise participants from the previous two pilots have made positive progress (including receiving funding and partnership, launching products or receiving industry rewards and recognitions)? 

  • 60% 
  • 40% 
  • 80% 
  • 70%
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