2 November 2023
Financial services update – 1 of 47 Insights
In this month's update:
In a letter dated 6 October 2023 and published on 25 October 2023, Jeremy Hunt, the Chancellor of the Exchequer, provided an update on the implementation of the Edinburgh Reforms, which he announced in December 2022 (see our article). The letter was in response to an enquiry from Harriet Baldwin, Chair of the Treasury Committee on the delivery of the reforms.
Of the 31 measures that make up the package of reforms, 18 are marked as "delivered". Among those which are "in progress" are the:
Boundary between advice and guidance – the government continues to engage with the FCA on this and is holding sessions of industry and consumer working groups; a policy paper is "upcoming".
On 23 October 2023, HM Treasury published a joint statement with the European Commission on the first meeting of the EU-UK Financial Regulatory Forum (Forum), which took place on 19 October 2023. The Forum was established as part of the memorandum of understanding on financial services co-operation between the UK and the EU (MoU), which was signed in June 2023 (see our July 2023 update).
The Director General for Financial Services on behalf of HM Treasury and the European Commission Director General for Financial Stability, Financial Services and Capital Markets Union co-chaired the meeting. A number of regulatory bodies were represented including the Bank of England, the FCA, the European Supervisory Authorities, the European Central Bank and the EU Single Resolution Board.
The meeting addressed organisational and practical arrangements for the future of regulatory cooperation under the MoU and the UK and EU participants provided updates on their respective financial services regulatory reforms and agendas. Other topics covered included:
Work relating to the implementation of the Basel 3 standards.
The UK and EU agreed to take forward topics discussed ahead of the next meeting of the Forum, which is due to take place in spring 2024 in Brussels.
On 18 October 2023, the Bank of England (BoE) published a speech given by Elisabeth Stheeman, External Member of the Financial Policy Committee (FPC), on cyber risks and operational resilience. In the speech, Stheeman noted:
The key lessons from the 2022 cyber stress test were: the need to consider contingencies; prepare suitable mitigating actions; co-ordinate with other firms and financial market infrastructures; and communicate throughout the incident.
The speech concludes that operational resilience is a medium-term priority for the FPC, and notes that the FPC continues to identify and monitor the channels through which operational risks could affect financial stability.
On 17 October 2023, the FCA published a speech by Nikhil Rathi, Chief Executive of the FCA, focusing on the new secondary objective to support international competitiveness and growth of the UK economy over the medium to long term. In the speech Rathi noted that:
Building competitiveness should be achieved with long-term vision, rather than short-term tactics.
On 12 October 2023, the FCA published a webpage detailing how it is making improvements to the application process for authorisation. The FCA notes that it has received feedback on the forms that firms must use during this process. The first form it has improved and begun to roll out is Form A, used for Senior Management Functions and Controlled Functions applications. The FCA aims to have clearer signposting on its forms to help firms understand which fields are mandatory, which will prevent delays to the application process caused by omitted information.
On 11 October 2023, the Financial Stability Board (FSB) published its 2023 annual report assessing global financial stability. The report was given to G20 Finance Ministers and Central Bank Governors in advance of their meeting in Marrakesh. The report sets out an overview of the work that the FSB has been doing to assess and address global financial vulnerabilities, including:
Working to enhance cross-border payments through practical projects, including strengthened partnerships with the private sector.
The FSB notes that it will continue to promote approaches that will enhance global regulatory cooperation.
On 11 October 2023, Financial Ombudsman Service (FOS) published complaints data from H1 2023. In this period, FOS received a total of 93,114 complaints between 1 January and 30 June 2023. This figure is significantly higher than the figure from the second half of 2022, where FOS received 79,921 complaints. FOS notes that this is due to building and motor insurance complaints hitting a five-year high in the most recent quarterly data, partly due to insurers delaying in paying out on claims, while at the same time contractor availability impacted the speed of repairs. Banking and credit complaints have also risen with fraud and scam cases making up around half of that increase. For more on FOS’ latest quarterly complaints data, please see our October 2023 update. In the first six months of this year, FOS upheld 37% of complaints in the consumers' favour, compared to 34% in the second half of 2022. FOS also published data on funeral planning complaints for the first time, which saw 144 new complaints in H1 2023.
On 4 October 2023, the Joint Committee of the European Supervisory Authorities (ESAs) published its work programme for 2024. The ESAs comprise of the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA). The European Commission and the European Systemic Risk Board also participate in the Joint Committee. The Joint Committee will be focusing on the following matters in 2024:
Exchange of information on fit and proper assessments. The ESAs will finalise the implementation of the joint guidelines and other policy work facilitating the use of the IT solution, and the delivery and roll-out of the IT solution for the information exchange.
On 4 October 2023, the FCA held its annual public meeting to discuss its 2022/23 Annual Report and Accounts. The FCA warned businesses that they must do more to collect and analyse data to achieve good outcomes for consumers under the new Consumer Duty, which came into force in July 2023. Sheldon Mills, the consumers and competition director, stated that firms should be looking more into additional charges in contracts of which consumers may not be aware. Mills also reiterated the FCA's concerns over the marketing of equity release products, which we covered in our October 2023 update. In terms of enforcement, the FCA has imposed £46 million in fines so far in 2023, and 24 individuals are due to appear in courts over the next two years for alleged offences. The FCA stated that going forward, it is keen to develop its whistleblowing system.
On 29 September 2023, HM Treasury published a joint statement by the UK-US Financial Regulatory Working Group (FRWG), following its eighth meeting which took place on 6 September 2023. The statement covers the topics that were discussed at the meeting. The key themes of the meeting were economic and financial stability outlook; international banking issues; developments in the non-bank sector; climate related financial risks and sustainable finance; international engagement; and digital finance.
The next FRWG meeting is expected to be held in 2024.
On 28 September 2023, the FCA circulated its monthly Regulation Round-up with a reminder that from 1 December 2023, all principal firms will need to send the FCA regular data about their Ars. For more information about what to report, please see our August 2023 update and this webpage.
On 30 October 2023, HM Treasury published a response to its February 2023 consultation paper on the future financial services regulatory regime for cryptoassets. The government has decided to expand the list of ‘specified investments’ in the Regulated Activities Order so that firms undertaking relevant activities relating to cryptoassets will be required to be authorised by the FCA.
The activities are broadly as proposed in February: issuance activities; exchange activities; investment and risk management activities; lending, borrowing and leverage activities; and custody activities.
In its response, the government said that firms registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) will not be automatically grandfathered into the new authorisation regime as such firms will need to be assessed against a broader range of measures than the set of measures which apply to firms registered under the MLRs. The FCA will provide more details on the assessment it will undertake in due course.
The government expects to lay secondary legislation in 2024 subject to Parliamentary time.
On 30 October 2023, HM Treasury published an update on plans for the regulation of fiat-backed stablecoins, following its April 2022 consultation response. The plans outline that the government will bring fiat-backed stablecoins into the regulatory perimeter for financial services. It notes that the aim is to minimise potential for customer harm and mitigate the conduct, prudential, and financial stability risks arising from fiat-backed stablecoins, particularly when used for payments. The Treasury intends to regulate the issuance and custody of fiat-backed stablecoins, and the use of stablecoins in payment chains. The update will inform the BoE's, PSR's and the FCA's approaches to regulating digital settlement asset payment systems and service providers.
On 25 October 2023, the FCA provided an update on the new crypto financial promotion regime, which has applied since 8 October 2023.
The FCA has drawn attention to some of the things it has seen with crypto financial promotions since the regime went live:
firms are failing to provide customers with adequate information on the risks associated with specific products being promoted.
While the FCA has emphasised that where a firm has engaged with the FCA in good faith towards achieving compliance it is taking a proportionate approach to implementation, it has reiterated that it will take appropriate regulatory action where firms are illegally promoting cryptoassets to UK consumers.
Since the regime went live, the FCA has issued 221 alerts. Authorised firms that approve financial promotions are reminded to take their regulatory obligations seriously and of the consequences of not doing so. The FCA is engaging with social media platforms, app stores, search engines and domain name registrars to remove or block illegal promotions and is also working with payments firms to reduce the exposure of UK consumers to illegal promotions. The FCA reminds consumers to check the Warning List before investing in any crypto. The list sets out the details of unauthorised firms and individuals and may help consumers to make a more informed investment decision.
For more background on the new crypto financial promotion regime, please see the Fintech and Digital Assets section of our October 2023 edition.
On 10 October 2023, the FCA published a statement noting that it has used its powers under section 55L of FSMA to impose restrictions on rebuildingsociety.com Ltd, preventing it from approving cryptoasset financial promotions. A full list of the restrictions is set out on the company's entry on the FCA Register. The statement explains that consumers who have invested with an unregistered cryptoasset firm who has had its promotions approved by rebuildingsociety.com Ltd will still be allowed to receive communications about their existing assets. These will allow consumers to withdraw, transfer or sell the assets, but not invest further.
The new cryptoasset financial promotion regime, which came into force on 8 October 2023 (please see our March 2023 article) requires firms that wish to promote cryptoassets in the UK to become authorised or registered by the FCA, or have their promotions approved by an authorised firm. Cryptoasset promotions must be clear, fair, and not misleading and must not improperly incentivise consumers to invest.
On 8 October 2023, the Advertising Standards Authority (ASA) announced that the FCA is the new regulator of "qualifying cryptoassets" advertisements in non-broadcast media from 8 October 2023. "Qualifying cryptoassets" are cryptoassets that are transferable and fungible. This transfer follows the new cryptoasset financial promotion regime. The ASA must now refer complaints about the technical aspects in non-broadcast advertisements to the FCA. The CAP's advice and guidance has been updated to reflect this remit change.
On 6 October 2023, the FCA updated its webpage on the cryptoasset anti-money laundering (AML) and counter terrorist financing (CTF) regime, setting out feedback on good and poor quality cryptoasset business registration applications made to the FCA under money laundering regulations. The webpage provides advice for current and potential cryptoasset applicants before and during the preparation of the application, when submitting an application, and while the FCA are assessing the application. The FCA observed:
The FCA will not approve an application where the sanctions policy is generic and there are no procedures to ensure that the applicant is kept up to date with changes to the sanctions regime.
The FCA emphasises that becoming registered is not a tick-box exercise without further obligations to the FCA, the applicant must ensure there are processes in place to comply with the requirements of the money laundering regulations.
draft EBA and ESMA Guidelines on the suitability assessment of shareholders and members, whether direct or indirect, with qualifying holdings in issuers of asset-referenced tokens and in crypto-asset service providers.
The EBA invites interested stakeholders to join a virtual public hearing taking place on 11 January 2024, with registration available here. The consultation closes on 22 January 2024.
On 17 October 2023, ESMA published a statement to clarify the timeline for the implementation of MiCA, and encourage market participants and NCAs to begin preparations for the transition. ESMA emphasises in the statement that the MiCA rules on the provision of cryptoasset services will not apply until December 2024, and until then holders of cryptoassets and clients of cryptoasset service providers will not benefit from EU-level regulatory safeguards or recourse mechanisms. Even after MiCA comes into force, member states can grant cryptoasset business entities up to an additional 18-month transitional period within which they can operate without a MiCA license. MiCA also encourages market participants to make adequate preparations to reduce the risk of business disruption. The statement concludes with a note that ESMA and NCAs will continue to promote supervisory convergence during the MiCA implementation and transitional phases.
On 5 October 2023, ESMA published a second consultation paper on regulatory technical standards (RTS) and implementing technical standards (ITS) under MiCA. ESMA invites cryptoasset issuers, cryptoasset service providers, financial entities dealing with cryptoassets, and any stakeholders that have an interest in the market for cryptoassets to respond to the consultation paper. The consultation covers the following RTS and ITS:
Technical means for the appropriate public disclosure of inside information.
Annex II of the paper sets out the proposed text of the draft Delegated Regulations. ESMA will consider all responses to the consultation received by 14 December 2023.
On 29 September 2023, the EBA published technical advice in response to the European Commission's (EC) December 2022 Call for Advice on two delegated acts under MiCA concerning certain criteria for the classification of ARTs and EMTs as significant, and the fees that are to be charged by EBA to issuers of significant ARTs and EMTs. MiCA creates an EU-wide supervision framework for ARTs and EMTs which are determined to be significant by the EBA. The advice on the delegated acts relates to:
Advice on supervisory fees to be charged to issuers of significant ARTs and EMTs. The advice covers scope of the fees for the EBA's supervisory tasks, method of calculation of the fees payable by issuers of significant ARTs and EMTs, and practical issues related to the payment of fees.
The provisions in MiCA relating to issuers of ARTs and EMTs come into force on 30 June 2024.
Please see our special article here.
On 6 October 2023, the FCA published a speech on the responsible adoption of AI in the financial services industry. The speech focuses on the four key areas where the FCA believes it has the responsibility to decide how AI should be integrated, which are: the broader issues relating to digital infrastructure; growing reliance on the cloud and other third-party tech providers; the important role that good quality data plays in the adoption of AI; and how all this impacts consumer safety. The speech emphasises the importance of:
The role of regulation and governance.
The FCA concludes that it is keen to ensure the right guardrails are in place to aid beneficial innovation.
On 2 October 2023, the IRSG published its response to the AI white paper that was published by the Department for Science, Innovation and Technology (DSIT) and Office for Artificial Intelligence (OAI) in March 2023. The white paper sets out a principles-based approach to regulating AI to drive responsible innovation and maintain public trust. The IRSG's key observations and recommendations include:
On 12 October 2023, the FCA published a response to the Competition and Markets Authority's (CMA) guidance on the application of Chapter I of the Competition Act 1998 to environmental sustainability agreements. The response notes that under section 243J of FSMA, the FCA has concurrent powers to enforce competition law in the financial services sector and will have regard to the CMA's guidance in its application of these powers. The FCA draws attention to its November 2021 strategy for positive change with respect to its ESG priorities. The response further notes that it welcomes the CMA's guidance and will continue its collaboration with the CMA.
On 12 October 2023, the TCFD published its sixth and final status report before the ISSB assumes responsibility for monitoring companies' progress on climate-related disclosure in 2024. The report sets out the challenges that companies have faced in making climate-related financial disclosures and describes how significant data gaps remain. The report notes that to address these gaps, the Net-Zero Data Public utility was developed, which is an open repository for climate transition-related data. The key findings of the TCFD as set out in the report include:
In a 2022 TCFD survey, asset managers and asset owners indicated the top challenge to climate-related reporting is a lack of sufficient information from investee companies.
The report concludes that the progress in climate-related financial disclosures is promising, but the TCFD remains concerned that too few companies are disclosing decision-useful information.
On 12 October 2023, the FSB published its 2023 progress report on climate-related disclosures. The FSB delivered the report to the G20 Finance Ministers and Central Bank Governors ahead of the meeting that took place on 11 and 12 October 2023. The key points to note from the report are:
All FSB jurisdictions have requirements, guidance, or expectations in respect of climate-related disclosures currently in place or have taken steps to put them in place.
On 10 October 2023, the European Parliament published a speech given by Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability and Capital Markets Union, discussing the European Commission's review of the Sustainability Finance Disclosure Regulation ((EU) 2019/2088) (SFDR). The key points from the speech include:
In practice the lack of binding thresholds has led to uncertainty, and an increased risk of greenwashing.
The Commission wants feedback on how the SFDR interacts with the sustainable finance framework, the wider financial regulatory landscape, and the international context, which is why it launched consultations on 14 September 2023 (please see our October 2023 update). These consultations close to comments on 15 December 2023.
On 9 October 2023, the UK Transition Plan Taskforce (TPT) published its final version of the disclosure framework for the climate transition plans and accompanying implementation guidance. The framework is based on the draft launched for consultation in November 2022 (please see our December 2022 update). The framework recommends disclosures under the headings of foundation, implementation strategy, engagement strategy, metrics and targets, and governance. The framework is intended to build on the International Sustainability Standards Board's (ISSB) final climate-related disclosure standard, and Glasgow Financial Alliance for Net Zero's (GFANZ) framework for transition planning.
On 5 October 2023, the Green Technical Advisory Group (GTAG) published a report on creating an institutional home for the UK Green Taxonomy. The report notes that there are unanswered questions surrounding the long-term governance arrangements for the UK Green Taxonomy, including how and who should update it, and how the question of whether it is appropriate to develop a 'Transition Taxonomy' will be answered. The report examines how the form of the disclosure approach will inform the institutional home options and considers: disclosures implemented by the Companies Act; changes to the FCA Handbook; and a voluntary approach. It also analyses the potential institutional home options, which are either a statutory decision-making body, an advisory body to the government, or a fully independent body. The GTAG recommends that:
The Financial Reporting Council/Audit, Reporting and Governance Authority (FRC/ARGA) would be the most appropriate for this role. The FRC is already supporting the Department for Business and Trade (DBT) on ISSB implementation in the UK and has experience of bringing in technical experts to develop new policy areas.
On 3 October 2023, ESMA announced that it will launch a Common Supervisory Action (CSA) with NCAs on the integration of sustainability in firms' suitability assessment and product governance processes and procedures in 2024. The CSA's goal will be to examine progress made by intermediaries in the application of key sustainability requirements following the MiFID II Delegated Acts amendments. ESMA believes that the CSA and related sharing of practices across NCAs will ensure consistent application of EU rules and increase investor protection.
On 2 October 2023, ESMA published a trends, risks, and vulnerabilities (TRV) risk analysis report on ESG names and claims in the EU fund industry. The report focuses on constructing and exploiting several unique datasets to examine the basis for concerns surrounding greenwashing, within the context of EU investment funds. The analysis found that funds are increasingly using ESG-related language in their names, and that investors showed a preference towards these funds. It also found that funds with ESG-related language in their names tend to make more extensive ESG disclosures in their investment strategy and documentation than other funds. There was also evidence of the fund industry adapting its ESG communication depending on the type of document, and the report compares language used in marketing material and regulatory documentation. ESMA states that it will continue to scale up the monitoring and supervision of greenwashing in the future, given the rapid growth and important role of the market for ESG investing.
On 24 October 2023, the Payment Systems Regulator (PSR) published guidance for those payment services providers (PSPs) that are required to publish data on APP fraud as a result of Specific Direction 18 (SD18) (see our April 2023 update) on the content and format of data and the timescales that must be adhered to.
SD18 applies to the 12 largest UK banking groups and the two biggest independent banks in Northern Ireland, calculated by reference to the number of payments sent across Faster Payment System. The 20 brands that make up the population of directed PSPs are listed in Annex 3 to the guidance.
There is no requirement on non-directed PSPs to publish data but if a non-directed PSP does so, it must be consistent with the guidance.
On 13 October 2023, the PSR published a revised penalty statement, alongside a related press release. The PSR has powers to impose sanctions in respect of a failure to comply with a regulation or a direction it enforces. It can publish details of a compliance failure, impose a financial penalty, and publish details of a financial penalty. The revised penalty statement sets out the principles the PSR will apply when deciding whether or how to exercise its powers. In this revised statement, the PSR has made several clarifications, altered the way in which it considers the length of a compliance failure, and changed how it considers revenue when calculating penalties.
On 11 October 2023, PSR published a speech given by Chris Hemsley, the Managing Director of PSR reflecting on how well UK payments is doing and what PSR should be focusing on next. The speech outlines:
PSR are keen to focus on authorised push payment scams and the opportunities presented by Open Banking in the future.
On 9 October 2023, the FSB published a 2023 consolidated progress report on the G20 roadmap for enhancing cross-border payments, as well as a complementary 2023 report on Key Performance Indicators (KPIs). The progress report sets out key insights from the KPIs report; the progress that has been made on priority actions outlined in the update of the cross-border payments roadmap endorsed by the G20 earlier in 2023; and examples of improvements that have been made or are in progress. The progress report notes that if the public and private sector work together, the roadmap can be achieved and provide wide-reaching benefits.
On 4 October 2023, the FCA published an undertaking given by Wirex Limited under the CRA 2015 that states it has committed to make changes to its e-money contracts. In the undertaking, Wirex Limited agrees to remove the following three terms from its e-money contracts with consumers from 1 January 2024, and not to use them in its future contracts with consumers:
Exclusion of commitments that may be implied by law.
Compensation available to consumers will now no longer be limited to how much consumers had paid to Wirex Limited in the past 12 months.
On 3 October 2023, PSR published a consultation paper on proposed revisions to its Powers and Procedures Guidance. The PPG principally relates to the processes and procedures that the PSR will apply in relation to its regulatory functions under the Financial Services (Banking Reform) Act 2013. The consultation's proposed revisions are set out in Annex I and relate to PSR's conduct when opening an enforcement case.
The consultation closed on 23 October 2023, and PSR expects to make final decisions on the content of the PPG before the end of 2023. It aims to publish its finalised, updated PPG before early 2024.
On 2 October 2023, HM Treasury published a policy statement on payment service contract termination rule changes, setting out implementation, timings, and next steps. The policy statement is intended to provide clarity on the implementation of the planned reforms to payment service contract termination rules, as set out in HM Treasury's July 2023 policy statement. The statement notes that HM Treasury intends to publish a draft statutory instrument by the end of 2023 and make the relevant amendments to the Payment Services Regulations 2017 as soon as possible.
On 9 October 2023, the Council of the EU announced that it has adopted the proposed Directive on consumer credits (CCD II) (2021/0171(COD)) which aims to increase protection for European consumers applying for credit. The new legislation repeals and replaces the 2008 Directive on consumer credit. The Council notes the new Directive will:
Give consumers a 14-day termination right for credit agreements and give cancer survivors a right to be forgotten.
The Directive will be published in the Official Journal of the European Union and will enter into force on the 20th day after its publication.
On 4 October 2023, the Supreme Court overturned the Court of Appeal's judgement in Smith and another v Royal Bank of Scotland  UKSC 34. The case concerns the six year limitation period applicable to unfair relationship claims under sections 140A to C of the Consumer Credit Act 1974. The Court of Appeal had ruled that the claimants' claims were both time-barred as the "unfair relationship" ended when the PPI policy ended, and not when the relationship arising out of the credit card agreement ended. The Supreme Court unanimously held that the "unfair relationship" did in fact end when the credit card agreement ended, and therefore both claims were brought forward within the time limit. Following the outcome of this case, lenders going forward should be aware that PPI actions are only time barred where claims are issued over six years after the end of the relevant credit agreement.
On 28 September 2023, the FCA circulated its Regulation Round-up which invites mortgage intermediaries, via an email from their case officer, to apply for limitations on their permissions. The limitations will prevent firms broking second charge mortgages and lifetime mortgages where this is not included in their business plans. The FCA register will be updated with the limitations.
On 27 September 2023, the FCA published a consultation paper on product sales data (PSD) reporting for consumer credit firms. The consultation seeks views on the FCA's proposals to introduce three new PSD returns into Chapter 16 of the Supervision manual, which are sales PSD, performance PSD, and back book PSD. This will require firms to provide detailed information on the initial sale, and ongoing performance, of individual agreements which will assist the FCA in understanding how firms operate. The FCA also proposes to collect core agreement data; borrower and affordability data; charges and fees; and arrears and forbearance. The proposals are outlined in appendix 1 of the consultation paper. The consultation closes on 15 November 2023.
On 24 October 2023, the PRA and FCA published a joint policy statement, confirming that the ratio between fixed and variable pay (the "bonus cap") would be removed.
The regulators consulted on the removal of the bonus cap at the end of 2022 (see our January 2023 update) and have only made small amendments to their original proposal including additional guidance on factors for firms to consider when determining an appropriate ratio between fixed and variable pay.
The requirements took effect on 31 October 2023 with the changes applying to a firm's performance year that is ongoing on that date and to future performance years.
Amending Forms C and D relating to the Senior Managers and Certification Regime under the new Consumer Duty rules.
The consultation closes on 13 November 2023. The implementation date for the changes resulting from this consultation paper is stated to be December 2023.
On 10 October 2023, the FSB published a report setting out Q1 2023 bank failures and preliminary lessons learnt for resolution. The bank failures of Q1 2023 are the first real test at a large scale of the international framework established by the Key Attributes of Effective Resolution Regimes for Financial Institutions after the 2008 global financial crisis. The report sets out the preliminary lessons learnt regarding the FSB Key Attributes' framework for resolving a global systemically important bank, and the resolution of systemically important banks more broadly. The report also outlines a number of issues to be further explored, including operationalisation of bail-in, post-stabilisation restructuring, and others. The FSB notes that it will continue to work with other standard-setting bodies as they work on lessons learnt from their perspectives.
On 5 October 2023, the Basel Committee on Banking Supervision (BCBS) published a report on the 2023 banking turmoil. The Committee undertook a stocktake of the regulatory and supervisory implications of the turmoil with a view to learning lessons. The report provides an assessment of the causes of the banking turmoil, the regulatory and supervisory responses, and the initial lessons learnt. The report is comprised of three sections:
An outline of some of the initial lessons learnt and regulatory takeaways from the turmoil.
On 4 October 2023, the PRA published a consultation paper on its proposals to consolidate and formalise existing PRA policy on overseas insurers that write business in the UK through a third-country branch, and to offer more clarity on the expectations of these third-country branches. The proposals include introducing a new statement of policy that would replace supervisory statement (SS) 2/18, amending SS44/15, and amending SS20/16. The consultation closes on 10 January 2024, with the final policy documents implementing proposed changes expected to be published by Q2 2024.
On 2 October 2023, the FCA published the findings of a multi-firm review of terminal illness benefits within life insurance protection products, alongside good practice and compliance expectations. The review was conducted in response to the FCA being made aware of individual cases where terminally ill individuals experienced outcomes they considered unfair. It assessed whether insurers were acting to deliver good customer outcomes, alongside the FCA's Consumer Duty. The FCA found that firms are not routinely delivering poor customer outcomes for terminal illness benefits, and there was no evidence of significant numbers of declined terminal illness claims. Reported terminal illness claims acceptance rates were also within the range of other life industry products. Nevertheless, the review sets out guidance for firms to deliver improved customer outcomes.
On 27 September 2023, the PRA published a press release on the timings of Basel 3.1 implementation in the UK to support firms in their planning processes. The implementation date of the final Basel 3.1 policies is now 1 July 2025, and the PRA intends to reduce the transitional period to 4.5 years. The PRA intends to split publication of its near-final Basel 3.1 policy statements into two. The first will be published in Q4 2023, and the second in Q2 2024.
On 16 October 2023, the FCA published an addendum to the August 2023 consultation paper on new securitisation rules (CP23/17). The addendum amends the definition of occupational pension scheme, paragraph 4.1 (application and interpretation) and paragraph 4.4 (institutional investor delegation). Due to the amendments, the consultation period has been extended only in respect of chapter 4 of the consultation paper, to 20 November 2023. The closing date for the rest of the paper remains 30 October 2023.
On 16 October 2023, the minutes of the 28 June 2023 meeting of the Central Counterparty (CCP) RLP were published. The function of the CCP RLP is to provide advice to HM Treasury regarding the effect of the CCP resolution regime on CCPs, those who do business with CCPs, and on financial markets. This includes advice on secondary legislation made under FSMA 2023 and the CCP resolution regime code of practice. The minutes contain:
A discussion on cash call, deferment, and safeguarding policies as well as consequential amendments.
On 13 October 2023, ESMA published updated Q&As on MiFID II and MiFIR market structure topics. The Q&As now feature two new Q&As in section six, which are questions eight and nine, that relate to access to CCPs and trading venues. The answer to new question eight explains the extent to which a trading venue can apply different fee schedules to CCPs under Article 36 of MiFIR. The answer to new question nine explains whether a trading venue that has already granted access to a CCP can charge new fees, whether one-off or ongoing, that were not agreed in the access arrangement, and if so, under which circumstances.
On 4 October 2023, the Economic and Monetary Affairs Committee (ECON) of the European Parliament published a draft report on the proposal for a regulation of the European Parliament and of the Council amending the packaged retail and insurance-based investment products Regulation No 1286/2014 (PRIIPs) as regards the modernisation of the key information documents. The draft report includes a draft European Parliament legislative resolution and an explanatory statement. The rapporteur notes that she welcomes the Commission's proposal and sets out the further adjustments she believes should be made.
On 4 October 2023, the ECON published a draft report on the proposal for a Directive of the European Parliament and of the Council amending Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and (EU) 2016/97 as regards the Union retail investor protection rules. The draft report includes a draft European Parliament legislative resolution and an explanatory statement. The Rapporteur states that she shares the objectives of the EC's proposals for the Retail Investment Strategy. She believes that the new rules to protect and empower retail investors must provide for clear and transparent information and ensure that the financial advice is in the best interest of the retail investor. She also sets out the amendments she believes should be made to the proposals.
It has been reported that Mhairi Jackson, asset management policy lead at the FCA, gave a speech on 19 October 2023 discussing information on the UK overseas funds regime (OFR). The OFR regime will follow the TMPR, and will allow some overseas funds with equivalent regulatory regimes to be marketed to UK retail clients. Key points to note from the speech include:
HM Treasury has not yet determined if funds will be subject to additional requirements as part of the equivalence regime. The FCA is considering carefully the valuations of assets in funds.
On 11 October 2023, Ashley Alder, FCA Chair, gave a speech discussing the FCA's priorities for updating and improving the UK regime for asset management. In the speech Alder noted that:
The FCA recognises the role the sector has to play in mobilising domestic savings to fund productive investment in the UK.
In terms of next steps, the FCA will be consulting on amending the AIFMD regime and re-evaluating the AIFMD rules for non-UCITS retail funds in 2024. It will also be reviewing the regulatory reporting regime in 2025.
On 10 October 2023, the FCA updated its webpage with information on landing slots for funds in the TMPR. The page notes that the process of exiting the TMPR and the notification of landing slots is still under review, and updates UCITS operators on what they should do. Whilst the Treasury considers whether to make regulations under section 271A FSMA, operators of UCITS in the TMPR should ensure that the FCA holds the correct contact email address as this will be used when it sends out details of the process and landing slot. If you need to update your firm or fund details, the FCA notes to email email@example.com. The FCA also reminds funds registered under TMPR but are no longer marketing in the UK that they should notify the FCA via Form TMPR CH. More information will be published on the website as it becomes available.
On 13 October 2023, the FCA published a final notice issued to Equifax Limited, a credit reference agency and data, analytics and technology business, for breaches of Principles 3, 6, and 7 of the Principles for Businesses. In 2017, Equifax Limited's parent company, Equifax Inc, was subject to one of the largest cybersecurity breaches resulting in unauthorised access to personal data in history. The FCA views this breach as preventable, and notes that Equifax had failed to put in place an appropriate risk management framework that allowed it to identify, manage, monitor, and mitigate the risks inherent in outsourcing the processing of data to its parent, Equifax Inc. The FCA imposed a £11.2 million financial penalty. This figure included a discount of 30% under the FCA's executive settlement procedures due to Equifax Limited agreeing to resolve the matter. The FCA reminded firms in a press release that the new Consumer Duty makes it clear that firms should raise their standards.
On 12 October 2023, the FCA published the 30 May 2023 decision notice that was issued to James Edward Staley, the former CEO of Barclays Bank. The decision notice alleges that Mr Staley acted recklessly and with a lack of integrity in breach of 2.1.1 of the FCA's Code of Conduct sourcebook (COCON), when he approved a letter sent to the FCA containing two misleading statements about the nature of his relationship with Jeffrey Epstein and their last point of contact. The decision notice imposes a £1.8 million financial penalty and makes an order prohibiting Mr Staley from performing any senior management or significant influence function in relation to any regulated activity carried on by an authorised person, exempt person, or exempt professional firm. Mr Staley has referred the decision notice to the Upper Tribunal (Tax and Chancery Chamber).
On 11 October 2023, the FCA published a final notice censuring London Capital and Finance plc (LC&F) for its unfair and misleading minibond financial promotions, in breach of the FCA's Conduct of Business sourcebook (COBS) 4.2.1(1)R. This follows the 2018 supervisory notice where the FCA raised concerns about LC&F, and directed the firm to withdraw its minibond promotional material. The final notice does not impose a substantial financial penalty on LC&F despite the FCA noting that the case involved serious failings, as LC&F is currently in administration and it already has significant liabilities to its creditors. The final notice sets out that LC&F's minibond promotions were misleading and made minibonds look like a better investment than they were. The FCA also alleges that LC&F's actions had the effect of enticing retail investors into investing in high-risk products. LC&F is also being investigated by the Serious Fraud Office for fraud and money laundering offences.
On 11 October 2023, the Serious Fraud Office (SFO) announced that it had opened a criminal investigation into suspected fraud at funeral plan provider Safe Hands Plans Limited and its parent company, SHP Capital Holdings Limited, after they went into administration in 2022. Approximately 46,000 plan holders had paid toward funeral plans before Safe Hands Plans' collapse, which cost up to £4,000 per plan. The investigation may result in a criminal prosecution conducted by the SFO. Individuals affected by the collapse of Safe Hands Plans can liaise with its administrators via a webpage.
On 11 October 2023, the PSR published a response to the Which?, Age UK, National Trading Standards and Victim Support's joint letter regarding the PSR's work on APP scams. The consumer organisations were concerned about the PSR's proposals on APP scam claims, and asked the PSR to deliver a system of reimbursement that better supports APP scam victims and incentivises the payments industry to prevent all types of fraud. The PSR's response states that the overriding standard that firms will need to apply is whether a customer acted with gross negligence. The PSR notes that this is a very high bar, and that it expects the vast majority of cases will be reimbursed on this basis. The PSR also stresses that the burden of proof falls exclusively on the PSP to demonstrate that a consumer has acted with gross negligence. The PSR notes that any position the PSR takes at this stage will be monitored and reviewed, and subject to change if necessary. The PSR plans to set out its final position in the coming weeks.
On 28 September 2023, the PSR published a consultation paper on its proposed specific direction on Faster Payments participants and implementing the reimbursement requirement. The direction will require PSPs to follow the rules and reimburse victims of APP scams subject to the PSR's reimbursement requirement policy. The PSR notes that the purpose of this proposed specific direction is to ensure that all PSPs who provide a payment account in the UK to their payment service users, which can send or receive Faster Payments, comply with the new reimbursement rules. The consultation closed on 19 October 2023. The PSR intends to finalise and publish all three legal instruments which it will use to implement the reimbursement requirement policy, before the end of 2023.
On 20 September 2023, the Personal Investment Management and Financial Advice Association (PIMFA) published a press release noting that it welcomes the Online Safety Bill after it passed its final reading in the House of Lords. The Online Safety Act subsequently received Royal Assent on 26 October 2023. PIMFA notes that it will continue campaigning to ensure the public is properly protected from fraud. In particular, it will campaign for the FCA to have a role in helping Ofcom manage its new position as an internet regulator, with the hope that it will help stop fraudsters from gaining access to potential victims.
The answer to last month's question: the Financial Ombudsman Service received 165,149 new complaints in the 2022/23 financial year.
From 1 December 2023, principal firms will be required to report to the FCA regular data about their appointed representatives.
Which form should firms complete via RegData for ongoing reporting on their appointed representatives?
1 December 2022
2 November 2022
7 October 2022
1 September 2022
4 August 2022
3 February 2022
13 January 2022
2 December 2021
4 November 2021
7 October 2021
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5 August 2021
by multiple authors