FCA reviews implementation of Consumer Duty price and value outcome rules

On 18 September 2024, the FCA published a webpage with its findings following a review of firms' implementation of the price and value outcome under the Consumer Duty.

The specific focus of the price and value outcome rules is to ensure that the price a customer pays for a product or service is reasonable compared to the overall benefits they receive (referred to as fair value). The FCA expects firms to think about price when assessing fair value, but it should not be the sole consideration. Its rules do not set prices, require prices to be low or require firms to charge the same as competitors. However, the FCA requires firms to assess whether they are providing fair value and act if they are not.

The review focused on cash savings accounts, guaranteed asset protection (GAP) insurance and cash balances held by platforms. The fair value assessments reviewed across these markets have informed the good and poor practice examples outlined on the webpage. The findings should be considered by all sectors. The FCA also understands that some sectors may face difficulties when assessing the value of their products and services.

The FCA's key messages to firms are to:

• Consider Consumer Duty outcomes holistically.

• Effectively identify target markets as this helps in assessing impacts on different customers.

• Analyse cross-subsidies, where relevant, to help identify where different consumer groups may be at risk of not receiving fair value.

• Use evidence proportionately for fair value assessments.

• Take prompt action if fair value assessments show consumers are at risk of not receiving fair value.

The FCA will intervene when firms do not improve as a response to feedback, or if firms' products and services are clear poor value outliers when compared to similar offerings. The FCA recognises that small firms have limited resources and therefore it separately highlights how they might take a reasonable approach to the requirements of the price and value outcome.

FCA review identifies good practice and areas of improvement for principals' oversight of appointed representatives

On 6 September 2024, the FCA published a webpage outlining its findings from its review of how principal firms have been embedding the FCA's rules for overseeing appointed representatives (ARs), which were introduced in December 2022. 

The FCA found that some firms were embedding the rules, noting that good practices include:

• Principals using clear documentation to show compliance with the enhanced rules.

• Using a broad range of checks and information to oversee and monitor Ars' activities. 

The FCA also found that other principals were failing to embed the rules, adopting a 'bare minimum approach'. In particular:

• Some firms adopt a tick-box approach to compliance, relying on basic information (such as website checks or using self-declarations from their ARs) to demonstrate effective oversight.

• The quality and completion of self-assessments and annual reviews requires improvement. A fifth of principals did not carry out the required self-assessment or annual review of their ARs and nearly half of the principals did not regularly review their AR agreements.

• A third of principals did not use data or management information to ensure ARs act within the scope of AR agreements.

• Most firms had not updated their AR onboarding or termination procedures since the rules were introduced.

The FCA expects every principal firm to have completed its annual reviews and signed off a self-assessment at least once (unless it became a principal less than 12 months ago).

Having followed up directly with firms in the review, the FCA will continue to monitor compliance with a focus on annual reviews, self-assessments and the quality of oversight of ARs.

FCA publishes Complaints Commissioner’s final reports

On 5 September 2024, the FCA updated its Complaints Commissioner’s final reports webpage, including eight final reports by the Complaints Commissioner. These final reports were made between 5 August and 22 August 2024.

FCA annual report 2023/24 says authorisation processes significantly improved

On 4 September 2024, the FCA published its 2023/24 annual report highlighting its key achievements and progress. The FCA noted significant improvement in its authorisation service, with 98% of cases being assessed within the deadline, up from 89% in Q1 of 2022/23 and that it had cancelled the authorisation of 1,261 firms in 2023/24, double that of the previous year. 

The report outlines the FCA's progress in meeting the 13 cross-cutting commitments that are set out in its 2022-2025 strategy, which relate to three areas of focus:

• Reducing and preventing serious harm

• Setting and testing higher standards

• Promoting competition and positive change.

The FCA also published the following additional reports:

• Prescribed Persons Annual Report 2023/24, reported in our September 2024 update.

• FCA Enforcement data 2023/24

• Operating Service Metrics 2023/24

• Market cleanliness statistics 2023/24

• FCA positive impact 2024

• FCA climate-related financial disclosure 2023/24

• Modern Slavery & Human Trafficking Statement 2023-24

• FCA pay gap data 2024.

The annual report and accounts were discussed at the FCA's annual public meeting on 26 September 2024, during which there was an opportunity for questions to be posed to the Chair, Chief Executive, executive directors and the Board of the FCA.

ECB speech on banks' operational resilience considers cloud outsourcing risk

On 4 September 2024, the ECB published a speech by Frank Elderson, executive board member and vice-chair of its supervisory board, discussing banks' operational resilience and cloud outsourcing risk. Key points include:

• ECB's Banking Supervision has been conducting on site inspections of cloud service providers (CSPs) to better understand risk controls at CSPs.

• Operational incidents may become more correlated among financial institutions that outsource critical functions to a common critical service provider. The drive towards digitalisation may result in an increase in market concentration. The ECB advises prudential supervisors and other supervisory authorities (such as competition authorities) to work together to ensure this does not undermine financial stability.

• The ECB has recently consulted on a draft guide for banks on outsourcing cloud services to CSPs. This guide will include good practice for managing cloud outsourcing risks once finalised.

• Cloud outsourcing risk affects multiple jurisdictions, the ECB is working with other prudential authorities to conduct a joint review into cloud outsourcing practices. This allows them to understand how banks are adopting cloud technology and its associated risks, focusing on third-party risk management practices, business continuity plans (BCPs), and their exit strategies, including stressed exits.

• Banks must continue investing in operational resilience. This includes updating legacy systems with state-of-the-art IT infrastructure, including in the areas of IT risk management and cyber hygiene. Banks must also ensure BCPs and third-party dependency management are implemented consistently.

• Building operational resilience also involves investing in human capital. Banks must ensure that employees at all levels possess appropriate skills. Recent ECB analysis of the effectiveness of banks' management bodies indicates some boards lack sufficient IT expertise, potentially which may ultimately call into question the board's collective suitability. The ECB expects all boards to have a sound understanding of IT and cyber to assess their impact across various banks' business areas.

FOS highlights Q1 2024/25 data showing fraud and scam complaints at highest ever level

On 3 September 2024, the Financial Ombudsman Service (FOS) published its latest quarterly complaints data on financial products and services for the period 1 April to 30 June 2024 (Q1 2024/25). The data reveals that fraud and scams complaints have reached their highest ever quarterly level.

The FOS published its annual complaints data and insights for 2023/24 in July 2024, reported in our August 2024 monthly update. Consumers made 8,734 complaints about fraud and scams during this period, over half of which were in relation to authorised push payment (APP) scams. By comparison, in Q1 2023/24, there were 6,094 fraud and scam complaints.

The FOS attributes this rise to several factors, including:

• Increasing numbers of multi-stage frauds where funds pass through several banks before reaching the fraudster. This is particularly prevalent in cryptocurrency investment scams and "safe account" scams (where people are cold-called by fraudsters posing as a trusted entity, like their bank, and persuaded to transfer money to another account). Consumers may file multiple claims due to the number of firms involved.

• A significant rise in complaints where consumers fall victim to fraudsters on social media posing as investment opportunities. Complaints rose to 1,500 from around 1,100 complaints in Q1 2023/24.

• An increase in online fraud cases brought by professional representatives, including claims management companies (CMCs) (this amounted to around 44% of fraud and scam complaints in Q1 2024/25).

The FOS receives and resolves around 500 fraud and scam complaints weekly. Although banks have improved their fraud detection methods, the uphold rate remains high at 44% of fraud and scam complaints upheld in Q1 2024/25, compared to the average rate of 37% across all products and services complaints. The FOS expects firms expects firms apply the lessons learn from upheld complaints and to future customer interactions.

Digital Securities Sandbox opens

On 30 September, the Bank of England and FCA announced the opening of the Digital Securities Sandbox (DSS) and published a joint policy statement and final guidance, in response to its April 2024 consultation (see our May 2024 update).

The DSS will provide firms the opportunity to explore new technologies in traditional financial markets such as the use of distributed ledger technology (DLT).  DLT is likely to improve the efficiency of wholesale markets and reduce costs, which will benefit both industry and investors.

A dedicated webpage has been established with more information on the support available through the DSS and how to apply to join it.

The DSS will be operational until December 2028, with the window for applications expected to close in March 2027 in order that regulators can prepare for a possible permanent regime, if the new technologies have been implemented successfully.

AI in Financial Services 

Our latest monthly round-up looks at:

• ICMA's response to EU Commission's consultation on AI in the financial sector.

• The use of AI in banking supervision.

• The launch of a new Bank of England AI Consortium.

• AI and the Bank of England's role in delivering monetary and financial stability.

Property (Digital Assets etc) Bill published

On 12 September 2024, the Property (Digital Assets etc) was published, alongside Explanatory Notes and additional information. The Bill, which had its first reading in the House of Lords a day earlier, takes forward one of the key recommendations of the Law Commission's June 2023 Final Report on digital assets by establishing in statute the common law position that certain digital assets can constitute property, even though they are neither a thing in possession nor a thing in action. The Bill will apply to England and Wales and will come into force two months after being passed. The second reading is yet to be scheduled. For further background on the Bill, see Crypto matters: what is a thing?

The government has also accepted the Law Commission's recommendation to establish an expert group on the control of digital assets through the involvement of the UK Jurisdiction Taskforce (UKJT) chaired by the Master of the Rolls. The UKJT produces non-binding guidance on areas of legal uncertainty, with a specific focus on the interaction between law and technology. HM Treasury is currently reviewing some of the Law Commission's other recommendations, including statutory amendments to the Financial Collateral Arrangements Regulations, with an update expected in due course.

The Law Commission believes that major statutory reform is unlikely to resolve all the issues associated with the digital asset laws, and further development should be primarily driven by common law. However, as the common law takes time to develop, uncertainty will remain in some areas until the courts address relevant issues.

FCA charges individual for running illegal crypto ATMs

On 10 September 2024, the FCA announced that it had charged an individual with unlawfully running a crypto ATM without the required FCA registration.

Crypto ATMs allow customers to buy or convert funds into cryptoassets. Under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLRs 2017), firms operating crypto ATMs must be registered with the FCA. . There are currently no legal crypto ATM operators in the UK.

The accused operated Crypto ATMs, processing £2.6 million in crypto transactions across multiple locations between December 2021 and September 2023.

The individual faces charges with two offences under regulations 86 and 92 of the MLRs 2017 for operating without FCA registration and with two offences under the Forgery and Counterfeiting Act 1981 relating to false documents created and used during this activity. Additionally, they were also charged with possession of criminal property under the Proceeds of Crime Act 2002 relating to the suspected proceeds of the crypto ATM business.

On 30 September 2024, the FCA announced that the individual pleaded guilty to all five offences.  Sentencing for the offences will take place at Southwark Crown Court at a date to be confirmed.

This marks the FCA's first criminal prosecution concerning unregistered cryptoasset activity under the MLRs 2017 and its first charges brought against a person accused of running a network of crypto ATMs in the UK. Separately, in August 2024, Kent Police brought the first charge against an individual in the UK for running a single crypto ATM without FCA registration.

ECB opinion on proposed FIDA Regulation

On 3 September 2024 the European Central Bank (ECB) published an opinion (CN/2024/49) on the proposed Regulation on a framework for financial data access (FIDA Regulation or FIDA).

The ECB welcomes the objective of the proposed Regulation particularly introducing a framework for access to and use of customer data. Nevertheless, it expressed concerns about its prudential oversight authority under the proposed Regulation, seeking clarification on several points:

• The proposed Regulation assigns the ECB supervises significant credit institutions' compliance with it. The ECB is concerned that these supervisory tasks are consumer-protection related rather than prudential.

• The proposed Regulation pursues the objective of consumer protection rather than ensuring the safety and soundness of credit institutions. The ECB notes that supervising significant credit institutions' compliance with the requirements set out in the proposed Regulation falls outside the scope of the ECB's prudential supervisory competences under the Treaty on the Functioning of the European Union (Treaty) and the Regulation establishing the Single Supervisory Mechanism (1024/2013) (SSM Regulation).

• The ECB emphasises the need for a clear legal basis to ensure co-operation, including facilitating relevant information exchanges between the ECB and the competent authorities designated under the proposed Regulation.

• The ECB suggests amendments to Articles 3(4) and 17(4), Article 18(1)(b)(v), and Article 26(1) of the proposed Regulation align with its competences conferred on it by the Treaty and the SSM Regulation. It has set out its specific drafting proposals in a technical working document, found at the end of the opinion.

Financial data access is the access to and processing of business-to-business and business-to-customer data, across financial services and products at customer request. FIDA aims to enable such data sharing and third-party access in line with EU data protection and consumer protection rules.

FCA announces temporary measures on naming and marketing sustainability rules

On 9 September 2024, the FCA announced temporary measures for firms on its naming and marketing sustainability rules.

Firms within the scope of the sustainability disclosure requirements (SDR) regime, are reminded to take all reasonable steps to ensure compliance with the naming and marketing, and disclosure rules which will come to force in December 2024.

Whilst the FCA is encouraged by firm's progress on compliance with the rules, it is clear that is taking longer than anticipated for some firms to comply. Therefore, due to the importance of getting the SDR right for investors, the FCA is providing further support to firms that may require additional time to operationalize any changes required.

Firms have been granted limited temporary flexibility to comply with these naming and marketing rules (ESG 4.3.2R to ESG 4.3.8R) as they have until 5 PM on 2 April 2025 in relation to a sustainability product that is a UK authorised investment fund. The flexibility where the firm:

• Has submitted a completed application for approval of amended disclosures in line with ESG 5.3.2R for that fund by 5 pm on 1 October 2024.

• Is currently using one or more of the terms "sustainable", "sustainability" or "impact" (or a variation of those terms) in the name of that fund and is intending either to use a label, or to change the name of that fund.

The FCA notes it has received queries about the authorisation of mergers, wind-ups, or terminations before 2 December 2024 and intends to take a supportive, proportionate, and outcomes-based approach in these instances. Firms with questions or difficulties complying with SDR rules or guiding principles for out-of-scope funds should contact their supervisor for case-by-case discussions.

ECB's Frank Elderson discusses legal implications of nature-related risk

On 6 September 2024, the European Central Bank (ECB) published a speech by Frank Elderson, executive board member and vice-chair of its supervisory board, discussing the legal implications of nature-related risk for central banks, supervisors and financial institutions. He highlighted the growing trend of nature-related litigation, and the importance of considering these risks within the mandates of central banks and supervisors.

Elderson warned that the degradation of nature increases vulnerability for economies, companies and financial institutions. Building on their successes in climate litigation, litigants are now addressing biodiversity crisis, carbon sinks, deforestation and loss of ocean habitats, and ecosystem degradation in court cases.

The ECB views nature-related risks as drivers for each traditional type of risk reflected in the Capital Requirements Directive, rather than a standalone risk. This ranges from credit risk, reputational and operational risk including legal risk, to market and liquidity risk. He discussed specific responses the ECB and global bodies are making to the various risks involved.

FCA proposes changes to the safeguarding regime for payment and e-money firms

On 25 September 2024, the FCA published a consultation paper (CP24/20) proposing changes to the safeguarding regime for payment and e-money firms.

The consultation paper addresses concerns previously raised by the FCA in March 2023 about the safeguarding and wind-down arrangements of firms in this sector (see our April 2023 update). The FCA continues to observe poor practices and has opened supervisory cases relating to around 15% of firms that safeguard. 

CP24/20 outlines proposals to strengthen its safeguarding rules and to make them clearer for payment and e-money firms, which will facilitate a timely return of funds to customers in the event of a firm's insolvency.

The FCA proposes replacing the existing safeguarding regime with a system similar to CASS, to be introduced through two stages:

• Interim stage: Interim rules will enhance compliance with existing safeguarding requirements set out in the Electronic Money Regulations 2011 (EMRs) and the Payment Services Regulations 2017 (PSRs). These interim rules will be largely housed in a new chapter of CASS, chapter 15, with additional rules in the Supervision manual, in the form of a new chapter, SUP 3A containing new audit requirements, and a new sub-chapter in SUP 16, requiring the monthly submission of new regulatory return. Where interim rules overlap with the guidance in chapter 10 of the FCA's Approach Document, the guidance will be removed or amended to match the new rules.

• End-state stage: This stage will replace the safeguarding requirements mentioned in the EMRs 2011 and PSRs 2017 with a CASS-style regime requiring relevant funds and assets to be held on trust for consumers. Amendments will be made to CASS 15 along with consequential updates to the Approach Document, including the removal of chapter 10. The proposed end-state rules also introduce a statutory trust over "relevant funds" as specified in the proposed rules.

The FCA plans to give firms time a transition period to implement the rules following the publication of the final version of the rules for each of the stages. For the interim stage, it proposes a transition period of 6 months and for the end-stage, a transition period of 12 months.

The CP closes for comments on 17 December 2024. The FCA expects to publish final interim rules together with a policy statement in H1 2025.

PSR confirms maximum reimbursement levels for victims of APP scams 

On 25 September, the PSR confirmed that the maximum reimbursement level for victims of APP scams would be set as £85,000 for Faster Payments. The limit was formally confirmed in the PSR's Specific Requirement 1: Faster Payments APP scam reimbursement rules – Notice of maximum reimbursement level value, published on the same day.  A policy statement is expected to be published shortly.

The PSR has also confirmed that the Bank of England has decided that this limit should apply to CHAPS and that the Bank is committed to review this within 12 months.

PSR updates powers and procedures guidance

On 20 September 2024, the Payment Services Regulator (PSR) published an updated version of its powers and procedures guidance. The guidance, made under section 96 of the Financial Services (Banking Reform) Act 2013 (FSBRA) explains:

• PSR's role and ways of working.

• FSBRA legal and regulatory framework under which the PSR operates.

• PSR's regulatory action powers under the FSBRA, decision-making processes and appeal processes against regulatory action.

• Enforcement action powers under the FSBRA for compliance failure, enforcement decision-making processes, and appeal processes against a decision to impose a penalty or publish details of any compliance failure.

The guidance was originally published in 2015 and last updated in 2020, the PSR consulted on revisions to reflect changes in the PSR's management structure in October 2023. A response paper to this consultation explaining additional amendments has been published.

PSR consults on statement of policy on cost benefit analysis framework

On 18 September 2024, the PSR published a consultation paper on its draft statement of policy (SoP) on its cost benefit analysis (CBA) framework (CP24/12).

This outlines its approach to:

• The purposes of and potential limitations of its CBAs.

• The legislative framework for the PSR's CBAs and the typical circumstances in which the PSR develops and publishes CBAs.

• The methodology for its CBAs.

• The development of CBAs as part of the PSR's policy cycle, including the circumstances in which the PSR will consult with the CBA Panel.

Comments are due on the draft SoP by 3 November 2024. The PSR intends to publish the final SoP before the end of 2024.

The PSR is required by section 104H of the Financial Services (Banking Reform) Act 2013 (FSBRA), which was inserted by the Financial Services and Markets Act 2023 (FSMA 2023), to develop and maintain an SoP on its CBA framework. A draft version was initially published in February 2024.

FCA guidance consultation on APP fraud and a risk-based approach to payment processing

On 9 September 2024. The FCA published guidance on authorised push payment (APP) fraud and enabling a risk-based approach to payment processing (GC24/5).

HM Treasury will lay the Payment Services (Amendment) Regulations 2024 before Parliament. These amendments to Payment Services Regulations 2017 (SI 2017/752), allowing payment service providers (PSPs) to delay payment transaction where they have reasonable grounds to suspect fraud or dishonesty. 

GC24/5 proposes changes to the FCA's guidance in its payment services and electronic money approach to explain how PSPs should apply these legislative changes to minimise the impact on legitimate payments. The FCA is also consulting on changes to the Approach Document that explain how PSPs should address suspicious inbound payments while maintaining efficient payment processes. The FCA aims to: 

• Minimise impacts on legitimate payment transactions, such as uncertainty about how long the execution of a payment order will take.

• Offer additional clarity and detail on issues such as the threshold for delays, as well as the treatment of inbound payments so that firms adopt a similar approach.

• Monitor sector trends, to understand the effect of the payment delays legislation, to identify outlier PSPs and to make targeted supervisory interventions where needed.

Annex 3 to GC24/5 contains the revised text of the Approach Document with additions underlined. Comments are due by 4 October 2024. The revised Approach Document is expected by the end of 2024.

CMA confirms full completion of Open Banking implementation roadmap 

On 9 September 2024, the CMA published a letter to Open Banking Limited (OBL) confirming that all nine relevant banking providers have fully completed the implementation phase of the Open Banking Roadmap.

Open Banking was established as a remedy in the Retail Banking Market Investigation Order 2017 (the Order), requiring the nine largest retail banks in the UK open up customer data using secure data protocols. 

As the CMA has now determined the Roadmap to be complete, OBL will continue its duties under the Order, including monitoring of standards conformance, performance and availability, enforcement where necessary, maintenance of standards, and making the standards widely available through reasonable promotion of Open Banking in the retail banking markets including support for industry adoption. The Joint Regulatory Oversight Committee will oversee further development of Open Banking beyond the scope of the Order.

PSR confirms policy on CHAPS APP scam reimbursement requirement

On 6 September 2024, the Payment Services Regulator (PSR) published a policy statement, confirming its approach to introducing a CHAPS authorised push payment (APP) scam reimbursement requirement (PS24/5).

The statement includes feedback received from its May 2024 consultation with Bank of England (BoE) on its proposals (CP24/8). The policy starts on 7 October 2024, aligning with BoE's CHAPS reimbursement rules and the Faster Payments reimbursement policy. In-scope payment service providers (PSPs) must register in accordance with the CHAPS reimbursement rules by this date (however this does not apply to PSPs that have already registered with Pay.UK under the Faster Payments reimbursement rules) and confirms the compliance and monitoring metrics PSPs will need to report to the BoE every month.

The PSR also published Specific Direction 21 (SD21): CHAPS APP scam reimbursement requirement, which the PSR recommends is read alongside BoE's CHAPS reimbursement rules and the PSR's CHAPS Compliance Data Reporting Standard.

PSR annual report 2023/24 highlights work on payments, innovation and competition 

On 5 September 2024, the Payment Service Regulator (PSR) published its 2023/24 annual report and accounts, highlighting its work on payments, innovation and competition. This includes progress updates on its full programme of work during 2023/2024, including around digital payments, maintaining free access to cash and enforcing its powers.

Key highlights include:

• Publishing the first set of authorised push payment (APP) fraud statistics.

• Moving forward its plans to incentivise payment firms to make greater strides in preventing fraud and improving outcomes for victims.

• Setting deadlines for firms to implement Confirmation of Payee, the name-checking service. The first group completing by October 2023 and the second by 31 October 2024, covering 99% of Faster Payments.

• Establishing the Variable Recurring Payments (VPP) Working Group in June 2023, as a member of the Joint Regulatory Oversight Committee (JROC). The group developed a blueprint for implementing VRPs for financial services, utilities, and government payments. Additionally, consulted on Faster Payments proposals for phased VRP rollout.

• Developing proposals for a ‘Future Entity’, to oversee the development of new open banking regulatory standards with the FCA. These proposals were published by JROC in in April 2024 for consultation.

• Publishing interim reports for its two market reviews: cross-border interchange fees, and the scheme and processing fees. Both reports highlighted where action could be taken and set out the regulator’s next steps.

FCA confirms extension to motor finance complaint handling

On 24 September 2024, the FCA confirmed that following its consultation in July 2024 it was extending the pause on the 8-week deadline for motor finance firms to provide a final response to customer complaints regarding the past use of discretionary commission arrangements (DCAs), which it had introduced in January 2024 and which was due to end on 25 September 2024 (see our February 2024 update and our August 2024 update), until 4 December 2025.  

The FCA said that it will set out the next steps in its review into the past use of DCAs in May 2025. By this time, it expects its analysis will be completed and that it will have assessed the outcome of the Barclays Partner Finance judicial review of the Financial Ombudsman Service's decision to uphold a complaint relating to its use of a DCA (which is due to be heard in mid-October 2024) and other relevant cases in the Court of Appeal.

The extended pause gives the FCA time, if required, to introduce an alternative way of dealing with DCA complaints, such as a consumer redress scheme. While the FCA notes that it is too early for it confirm that this is how it will intervene, it has indicated that based on its work to date, it is "more likely" than when it started its review.

The FCA's policy statement (PS24/11) can be found here.

FCA consults on new regulatory reporting return for consumer credit firms

On 12 September 2024, the FCA published a consultation paper (CP24/19) proposing a new regulatory reporting return for consumer credit firms engaged in one, or more, of the regulated activities of credit broking, debt adjusting, debt counselling and providing credit information services. 

The FCA aims to improve the information it collects from firms to gain a better insight into their consumer credit activities and pro-actively supervise firms to identify and prevent risk of harm to consumers earlier. If introduced, the new return will replace the existing one and include the following questions, which are mandatory for all firms:

• permissions

• business model

• marketing 

• revenues

• employees.

Firms will also be presented with tailored and specific questions about the relevant permissions they hold. These questions should make it easier firms to complete the form.

As part of the consultation, the return form prototype will be shared with in-scope firms and emailed before the end of September. The prototype will allow firms to view the return in a similar way to how they will be required to submit the data in the future. Submission is voluntary but will help the FCA access whether the data it intends to collect meets the needs set out in CP24/19.

Comments on CP24/19 are due by 31 October 2024, with a policy statement responding to comments expected in spring 2025.

CP24/19 is part of the FCA's multi-year plan to review and replace its regulatory returns for consumer credit regulated activities, contributing to its goal of becoming a more data-led regulator. This follows PS24/3, which introduced three new product sales data returns into SUP 16. The FCA intends to replace further returns for firms undertaking other consumer credit activities. The multi-year plan stages will gradually replace all existing consumer credit reporting returns.

HM Treasury policy update on applying FSMA model to UK CRR

On 12 September 2024, HM Treasury published a policy update on applying the Financial Services and Markets Act 2000 (FSMA) model to the UK Capital Requirements Regulation (575/2013) (UK CRR).

In the policy update, HM Treasury outlines plans to revoke the remainder of the UK CRR and the restatement of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 (SI 2014/894) (Capital Buffers Regulations) using its FSMA 2023 powers. It also considers how the PRA and the Bank of England (BoE) will replace revoked provisions in the UK CRR and the Capital Buffers Regulations with rules and statements of policy.

PRA consults on restating CRR requirements on definition of capital in PRA Rulebook

On 12 September 2024, the PRA published a consultation paper (CP8/24) proposing to restate, and in some cases modify, the requirements relating to the definition of capital in the Capital Requirements Regulation (575/2013) (CRR) in the PRA Rulebook. This follows HM Treasury's intention to revoke most UK CRR requirements relating to the definition of own funds. The PRA proposes to restate most of these requirements in the PRA Rulebook without substantive change, but proposes the following changes:

• Improving proportionality in the pre- and post-issuance notification (PIN) regime.

• Including interim profits in Common Equity Tier 1 (CET1) capital resources.

• Reducing Additional Tier 1 (AT1) and Tier 2 instruments.

• Clarifying the regulatory capital treatment of non-CET1 shares.

• Requiring PRA permission for additional forms of capital reduction.

• Permitting the terms governing CET1 instruments to reflect the possibility of (but not commit to) a future capital reduction.

The proposals will be implemented through amendments to the Own Funds and Eligible Liabilities (CRR) Part and the Definition of Capital Part of the PRA Rulebook, found in the draft PRA Rulebook: CRR Firms: Own Funds and Definition of Capital Instrument [2025]. Additionally, the PRA is proposing a new statement of policy on its approach to waivers and permissions under the Own Funds (CRR) Part 2) and amendments to its supervisory statement on the definition of capital for CRR firms (SS7/13).

Comments on CP8/24 are due by 12 December 2024. The PRA will consult on the implementation date when consulting on other UK CRR provisions' reinstatement.

Some of the draft rules in CP8/24 may need updating following the restatement of other UK CRR provisions in the PRA Rulebook. PRA will consult on any such changes as part of its consultation on the restatement of those provisions in due course.

HM Treasury has separately published draft regulations on the revocation of provisions in the UK CRR relating to the definition of capital.

Second PRA policy statement on near-final rules on implementation of Basel 3.1 standards

On 12 September 2024, the PRA published a policy statement on the second set of near-final rules on the implementation of the Basel 3.1 standards (PS9/24). See our January 2024 update for the PRA policy statement on the first set of near-final rules, which was published in December 2023. 

The policy statement sets out its policy on the implementation of the Basel 3.1 reforms relating to the standardised approach (SA) to credit risk, the internal ratings based (IRB) approach to credit risk, credit risk mitigation (CRM), the output floor, disclosure, reporting and the impact of the reforms on its Pillar 2 regime and the introduction of the interim capital regime for firms meeting the small domestic deposit taker (SDDT) criteria.

Final rule instruments are pending until HM Treasury make a statutory instrument to revoke relevant provisions in the UK CRR.

The PRA will publish the final rules and related supervisory material in a single final policy statement on the Basel 3.1 reforms after HM Treasury revoked the relevant provisions in the UK CRR that will be replaced by PRA rules. The implementation date for the reforms is set for 1 January 2026, with a transitional period expiring on 1 January 2030.

PRA consults on updating UK policy framework for capital buffers

On 12 September 2024, the PRA published a consultation paper (CP10/24) proposing updates to the UK policy framework for capital buffers under the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations (SI 2014/894) (CBR).

The CBR outlines the statutory framework for various buffers including the countercyclical capital buffer (CCyB), capital conservation buffer (CcoB), global systemically important institutions (G-SII) buffer, other systemically important institutions (O-SII) buffer and the systemic risk buffer (SRB).

The PRA and HM Treasury are proposing amendments to the UK framework on capital buffers that will remove some regulatory material on the UK capital buffers framework and replace it with PRA policy material. The PRA proposes maintaining its current policy approach for implementing capital buffers.

Responses are due by 12 December 2024.

HM Treasury has also published a draft statutory instrument proposing further amendments to other parts of the CBR, including the CCyB, CcoB and SRB. The PRA proposes that CP10/24 proposals implementation date coincides with the date the new statutory instrument comes into force, which is expected in Q2 2025.

PRA consults on simplified capital regime for small domestic deposit takers under strong and simple framework

On 12 September 2024, the PRA published a consultation paper (CP8/24) on the simplified capital regime for small domestic deposit takers (SDDTs) under the strong and simple framework. This framework is a set of prudential requirements, which applies to UK banks and building societies that are not systemically important or internationally active.

The regime has been developed by the PRA, in two phases:

• Phase 1: Focuses on prudential requirements unrelated to capital, mainly liquidity requirements.

• Phase 2: Addresses capital requirements for the SDDT regime, including Pillar 1, Pillar 2 and buffer requirements.

Initial thoughts on Phase 2 were shared in its April 2021 discussion paper (DP1/21). In December 2023, the PRA published its policy statement on the final rules and supervisory materials for Phase 1 (PS15/23) - see our January 2024 update. 

Responses to CP7/24 are due by 12 December 2024. The PRA aims to implement most of the changes by 1 January 2027. The PRA will consider extending these proposals to a wider range of firms and will engage with the Financial Policy Committee (FPC) where relevant.

PRA modification by consent for leverage ratio requirements

On 10 September 2024, the PRA published a direction for modification by consent (MbC) relating to the the Leverage Ratio: Capital Requirements and Buffers Part of the PRA Rulebook (LR Part), alongside a press release relating to the MbC.

The direction disapplies the entire LR Part. The MbC is available to a firm that:

• Did not meet the criteria set out in Rule 1.1 of the LR Part before 10 September 2024.

• Expects to meet the criteria after their next accounting reference date or any accounting reference date before 31 December 2025.

The Rule 1.1 sets out the leverage ratio requirement thresholds (the firms to which the LR Part applies). Firms subject to the LR Part include banks that have retail deposits equal to or greater than £50 billion and banks with non-UK assets equal to or greater than £10 billion.

The PRA provides information on waivers and modifications of rules on how firms should apply for the MbC on its webpage.

In its press release, the PRA confirms that it is reviewing the leverage ratio requirement thresholds, aiming to and that the purpose of the review is to disapply the LR Part until the review is complete.

The MbC will cease effect on 30 June 2026 but may be revoked earlier following completion of the review.

The PRA stated in a policy statement (PS21/21) published in October 2021 that it would keep the application thresholds for the LR Part under review.

FCA follow-up report on payment account access and closures

On 4 September 2024, the FCA published a report of its findings from follow-up work on UK payment account access and closures, building on its September 2023 report, which detailed the findings of an initial review of issues relating to payment account access for both individuals and organisations. Key findings include:

• Basic bank account (BBA) customer journeys varied widely, leading to different rejection rates. Firms were poor at making customers aware of BBAs.

• Data on account access was limited or unclear.

• There was no evidence found of political beliefs or other lawfully expressed views being used to deny, suspend or terminate accounts.

• "Reputational risk" is used in varying ways by different firms to deny or close accounts.

Feedback from stakeholders (including consumer groups and charities) indicated that financial controls by some firms' posed difficulties for consumers, particularly vulnerable customers.

In the report, the FCA summarises its expectations of payment account providers, including in respect of the consumer duty. It identifies a number of areas for improvement and expects firms to take note of its detailed findings, expectations and proposed next steps. Firms will need to review their approach to account access and, if necessary, make improvements. In the coming months, the FCA expects firms to be able to evidence that the areas in respect of which the report raises concerns have either been addressed or will be addressed within a reasonable timeframe.

Additionally, the FCA published research on financial exclusion. The FCA commissioned independent, qualitative research on the experiences of the most financially excluded consumers when accessing and using financial products and services. In a related press release, the FCA states that the research report will help industry and consumer groups understand how the right support can help these consumers effectively access services.

The recommendations only cover customers to whom the consumer duty and other regulatory requirements apply, leaving where no regulatory measures exist. Introducing a legal right to a payment account is for government and Parliament to consider.

FCA final announcement about end of LIBOR

On 5 September 2024, the FCA issued a final announcement on the end of LIBOR.

Firms were reminded that after their final publication on 30 September 2024, the 1-, 3- and 6-month synthetic US dollar LIBOR settings ceased permanently. The FCA referred to its June 2024 decision requiring ICE Benchmark Administration Ltd (IBA) to continue publishing these settings until the end of September 2024, under Article 21(3) of the UK Benchmarks Regulation ((EU) 2016/1011) (UK BMR). It confirms that it will not compel IBA to publish settings beyond this date.

Firms with outstanding US dollar LIBOR exposures must continue their active transition efforts ahead of this deadline. The cessation of LIBOR settings marks final transition away from LIBOR.

On 1 October 2024, the Bank of England, the FCA and the Working Group on Sterling Risk-Free Reference Rates (Working Group) regulators published a joint press release looking back on the transition from LIBOR.  As the Working Group has now achieved its objective it will be wound down with effect from 1 October 2024.

FCA consults on Q&As for trade repositories under UK EMIR

On 4 September 2024, the FCA published a new webpage seeking feedback on draft guidance to help trade repositories (TRs) implement updated reporting requirements under Article 9 of UK EMIR (648/2012). The guidance, in the form of Q&As, addresses TRs' operational specific requests, including on how to validate certain fields in industry-submitted reports.

The consultation closes on 25 September 2024. The FCA will incorporate feedback into the final guidance, which will be published on its Trade Repositories webpage.

The Q&As relate to changes to the derivatives reporting framework introduced by the FCA and the Bank of England (BoE) in a joint policy statement (PS23/2) from February 2023. The new requirements come into effect on 30 September 2024, with a transitional period for certain rules.

The FCA and BoE also published Q&As on the new reporting requirements in May and July 2024.

HM Treasury and FCA statements on retail disclosure reforms and forbearance on investment trust disclosures

On 19 September 2024, HM Treasury and the FCA published statements on reforms to retail disclosure requirements and related FCA forbearance on investment trust disclosure requirements.

Background

HM Treasury intends to develop a new UK retail disclosure framework for consumer composite investments (CCIs) to replace the UK PRIIPs Regulation (1286/2014). In November 2023, it published a policy note on the new framework, alongside a draft version of the Consumer Composite Investments (Designated Activities) Regulations 2024 (CCI Regulations), which will replace the UK PRIIPs Regulation.

Industry has raised concerns on the application of the current retail disclosure framework, particularly provisions in the UK PRIIPs Regulation and the UK Commission Delegated Regulation (EU) 2017/565 (MiFID Org Regulation) that require investment trusts to report costs in the same format as unlisted open-ended funds.

In May 2024, the FCA responded to concerns raised by the House of Lords Financial Services Regulation Committee on this issue. The FCA disagreed with industry concerns that the UK's application of this framework to investment trusts was unusual compared to EEA member states and stated it would consult on the CCIs regime by autumn 2024. In November 2023, the FCA previously issued forbearance intended to give investment trusts greater ability to explain their costs and charges to consumers. 

HM Treasury statement

HM Treasury states that it will lay legislation as soon as possible to provide the FCA with appropriate powers to develop the framework.

It will also lay legislation to exempt listed investment trusts from the UK PRIIPs Regulation, as well as make other necessary amendments to other retained EU law. (In its statement on forbearance, the FCA clarifies that this will apply to closed-ended UK-listed investment funds and also exempt these funds from parts of Articles 50 and 51 of the MiFID Org Regulation.) This will be an interim measure that will remain in effect until the start of the new UK retail disclosure framework, as HM Treasury intends for investment trusts to be included within the scope of the new framework.

FCA statement 

The FCA is applying new regulatory forbearance with immediate effect for investment trusts to provide certainty ahead of the relevant statutory instrument taking effect.

From 19 September 2024, closed-ended investment funds whose ordinary shares are admitted to trading on a UK regulated market or a UK multilateral trading facility (MTF) may choose not to follow the requirements of the UK PRIIPs Regulation and associated technical standards, as well as Article 50(2)(b) and Article 51 of the MiFID Org Regulation. The FCA will not take supervisory or enforcement action if a fund chooses not to follow those requirements.

Despite this forbearance, the FCA cannot repeal or disapply the law, and firms may need to consider any business implications of not complying with the legislation. The FCA also expects firms to comply with other relevant rules and regulations, including consumer duty and Principle 7, which requires fair, clear, and not misleading communications. Firms should also comply with COBS 2.1.1R to act honestly, fairly, and professionally in clients' best interests.

Next steps 

The FCA expects that, in H2 2024, HM Treasury will lay legislation (presumably the CCI Regulations) on the additional powers required to deliver the new framework and at the same time lay legislation to exempt closed-ended UK-listed investment funds from the requirements of the current PRIIPs Regulation and parts of Articles 50 and 51 of the MiFID Org Regulation. The FCA's regulatory forbearance will end when this exemption legislation takes effect.

HM Treasury anticipates that the new retail disclosure framework will be in place in H1 2025, subject to Parliamentary approval and FCA consultation. The FCA intends to consult on proposed rules for the CCI regime in autumn 2024 with a goal of finalising rules by H1 2025.

FCA advises on approach to recognition of funds under overseas funds regime

On 12 September 2024, the FCA published an information document for applicants when making an application for an overseas investment fund to be recognised under the overseas funds regime (OFR).

The documents outline the application processes, criteria for recognition under FSMA 2000. It specifies the required information, the process following submission for both successful and unsuccessful applications, and its expectations of overseas recognised funds and of their operators.

The FCA has also published the following "How to" guides:

• Connect user guide: Recognition of a qualifying standalone overseas collective investment scheme (CIS) under the OFR.

• Connect user guide: Recognition of a qualifying standalone overseas CIS under the OFR (Temporary marketing permissions regime (TMPR) scheme).

• Connect user guide: Recognition of a qualifying umbrella overseas CIS under the OFR.

• Connect user guide: Recognition of a qualifying umbrella overseas CIS under the OFR (TMPR scheme).

• Connect user guide: Recognition of a qualifying sub fund(s) of an umbrella overseas CIS under the OFR.

FCA also published a document providing information on enhanced disclosures relating to consumer redress schemes and potential lack of access to the Financial Services Compensation Scheme (FSCS) and Financial Ombudsman Service (FOS), alongside application form questions and guidance.

Listed Investment Companies (Classification etc) Bill 2024-25: publication and first reading in House of Lords

On 5 September 2024, the Listed Investment Companies (Classification etc) Bill 2024-25 had its first reading in the House of Lords. The UK Parliament has published the text of the Bill.

Introduced by Baroness Bowles, the Bill concerns listed closed-ended investment companies (LCICs) and requires regulator (like the FCA, and Pension Regulator) to adhere to specified characteristics and classification of LCICs when making rules, guidance, directions etc, and interpreting legislation, related to LCICs.

The Bill amends costs disclosure requirements in Article 50(2) and Annex II of the retained EU law version of Commission Delegated Regulation (EU) 2017/565 (UK MiFID Org Regulation).

FCA speech on evolving approach to enforcement

On 23 September 2024, the FCA published a speech given by Therese Chambers, its Joint Executive Director of Enforcement and Market oversight, on the FCA's evolving approach to enforcement. 

Key points include:

• The FCA's Cyber Forensics Unit is equipped with advanced technology and expertise for complex digital forensic tasks. The unit's capabilities are continually improving. The FCA will focus on a data and technology driven approach. The FCA encourages firms to collaborate with it in achieving this.

• The FCA recognises that timely enforcement action is more effective. Investigations closed in 2023/24 averaged 42 months to complete. There are good reasons for these timelines. However, the FCA believes it can improve on this and significant improvements have been made: 24 outcomes so far for 2024, compared to 26 for all of 2023.

• The FCA is streamlining its caseload by prioritising high-risk cases to maximise harm and deterrence. This approach aims to achieve a greater number of outcomes and greater impact from its enforcement activity, despite fewer investigations.

• The FCA recognises that its proposals for greater transparency around investigations were met with strong opposition from the firms it regulates.  At the same time, it acknowledges that there is support for its proposals among consumer groups, whistleblowers and some other regulators. Later this year, the FCA will engage with stakeholders to explore how it can develop the proposals, focusing on the new public interest test. It will also, provide greater detail on how the proposals could work in practice, publishing case studies examining how the criteria might apply and what announcements could look like, as well as more information on the number of cases that might be affected. Firms will have opportunities to offer feedback on these proposals.

FCA final notice rejects application for approval of chief executive following Upper Tribunal decision 

On 6 September 2024, the FCA published a final notice issued to Saranac Partners Ltd and Thomas Llewellyn Kalaris confirming the refusal of Mr Kalaris' an application to perform the senior manager functions of SMF1 (Chief executive function) and SMF3 (Executive director function).

This followed a decision notice to Saranac in November 2022, notifying the firm of its decision to refuse the application on the grounds that Mr Kalaris was not a fit and proper person. Saranac subsequently referred this decision to the Upper Tribunal (Tax and Chancery Chamber).

The Tribunal dismissed the reference in August 2024 having found that Mr Kalaris was not candid in answers to questions asked by the FCA in an interview in 2013 and that he dishonestly responded to interview questions in 2014.

This final notice confirmed FCA's refusal of Saranac's application.

OFSI Frozen Assets Reporting 2024

The HM treasury conducts an annual review of Frozen Assets to update records and capture changes during the reporting period. All persons holding or controlling funds or economic resources belonging to, owned, held or controlled by a designated person must submit a report to OFSI by Monday 11 November 2024.

The report must set out details of all:

• Funds or economic resources frozen in the UK

• Overseas funds or economic resources subject to UK financial sanctions legislation.

The report must include the value of these assets as of close of business on Monday 30 September 2024. Where the funds or economic resources relate to shares, securities, or other debt or payment instruments, the GBP value should be included.

Reports must be completed using the specified template available on the OFSI website and sent to ofsi@hmtreasury.gov.uk.

OPBAS finds improvements needed amongst anti-money laundering supervisors

In its fifth report, the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), a body housed within the FCA and responsible for supervising 25 professional body AML supervisors (PBS), found that whilst most PBS comply with money laundering regulations, their supervision is not consistently effective. No PBS assessed was fully effective in all areas.

Key weaknesses include: 

• How PBSs used enforcement powers and tools to supervise members, with a decline in the number and value of fines issued on the previous year.

• Inconsistent proactive information and intelligence sharing with regulators and law enforcement.

OPBAS has used an increasing range of supervisory tools to hold PBSs accountable, directing two PBSs to remedy their money laundering shortfalls.

FCA speech on frameworks for effective fraud prevention measures

On 17 September 2024, the FCA published a speech by Andrea Bowe, its director of the specialist directorate, outlining frameworks for effective fraud prevention measures.

Noteworthy points include:

• Recent statistics indicate that losses from fraud are stabilsing. While a fraud-free financial services landscape remains very distant, Ms Bowe notes that if this positive trend continues, this would show that the global fight against fraud is having an impact.

• Collaboration and a collective effort are vital for fighting fraud. Partnerships that share ideas, learning, data and intelligence, are essential to strengthen defences and stay ahead of evolving threats. The FCA emphasises the importance of a co-ordinated national response, involving various public and private organisations.

• In 2023, the FCA and the National Crime Agency (NCA) hosted a three-day investment fraud tech sprint. This saw regulatory, intelligence and law enforcement agencies get together to test tactical, cross-agency collaboration, and it led directly to the development of solutions that participants are continuing to explore. Additionally, the FCA, in partnership with the Payment Systems Regulator (PSR) and the Corporation of the City of London, has organised similar events with payment providers to combat push payment fraud, including using synthetic data.

• Ms Bowe highlights the importance of stopping the cash-out of the proceeds of fraud through money mule activity. Firms must adopt a collaborative approach, prioritising swift action and information sharing of suspected mules.

• The FCA recognises that technology is transforming cross-border fraud and money-laundering detection. Cyber and identity fraud are increasing in scale, sophistication and impact as AI becomes more widespread. Although deepfake scams are relatively new, the financial services industry cannot afford complacency about their potential threat. As threats evolve and criminals exploit regulatory gaps, it is crucial for the FCA to maintain an open dialogue with the government about needed powers to protect consumers and market integrity.

Sarah Pritchard discusses the FCA’s approach to tackling financial crime

On 5 September 2024, the FCA published a speech by Saraah Pritchard, its executive director for markets and executive director for international, outlining the FCA's  ‘targeted and outcomes-based approach’ to tackling financial crime. This strategy includes collaborations with other regulatory and law enforcement partners like the National Crime Agency. 

Pritchard said the aim of this approach is to highlight the importance of having the FCA ‘at the table alongside industry and law enforcement to answer the question: what will the regulator think of this?’. She also notes that in the last year, the FCA has ‘taken a leading role in influencing Big Tech companies to stop scams and illegal ads from appearing on their platforms’.

The FCA charged 21 individuals with financial crime offences this year – its highest number in any year. In 2023, it secured three times as many freezing orders compared to  2022, over £21m in assets of individuals under investigation.

The FCA is also tackling fraud faster by scanning approximately 100,000 websites every day to identify those that appear to be scams. Likewise, over 10,000 potentially misleading adverts were either amended or withdrawn because of FCA action in 2023—an increase of 17% on 2022.

The FCA have established a dedicated financial crime function within its Consumer Investments department, using its supervisory reach. The team has been carrying out unannounced spot visits, gathering evidence and intervening to prevent harm. Which includes placing requirements on firm’s permissions, imposing asset restrictions and, in certain cases, stopping firms providing financial services altogether.

The answer to last month's question: According to the EBA and ECB's 2024 report on payment fraud, the total value of fraudulent credit transfers sent from PSPs in the EU/EEA and received worldwide in the first half of 2023 was €1.1 billion.

This month's question: Which of the PSR's Specific Directions requires in scope payment services providers to comply with reimbursement rules in relation to APP scams from 7 October 2024?

• Specific Direction 21

• Specific Direction 17

• Specific Direction 19

• Specific Direction 20.