作者
Charlotte Hill

Charlotte Hill

合伙人

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Daniel Hirschfield

Daniel Hirschfield

高级专业支持律师

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作者
Charlotte Hill

Charlotte Hill

合伙人

Read More
Daniel Hirschfield

Daniel Hirschfield

高级专业支持律师

Read More

2019年10月3日

Financial services update - October 2019

Among the items covered in this month's update are the results of the FCA's review on MiFID II unbundling reforms, an update from the PSR on the structure of LINK interchange fees, a speech by the FCA Chief Executive on preparing for Brexit in financial services, and details of the first FCA prosecution for destruction of documents.

Payment services and systems

General financial services regulation

Banking and insurance

Wealth management and investment funds

Financial crime

Enforcement and investigations

FS Trivia

Payment services and systems

European Commission publishes FAQs on SCA and competition under PSD2

On 13 September 2019, the European Commission published FAQs in relation to the revised Payments Services Directive (PSD2).

The FAQs provide detailed information on the aims and background of PSD2, along with the benefits it brings to consumers such as:

  • prohibiting surcharging
  • improving the complaints procedure
  • tackling fraud in online payments
  • opening the EU payment market to competition.

The FAQs highlight the requirements for strong customer authentication (SCA), which apply to payment service providers when a payer initiates an electronic payment transaction. They also explain how PSD2 introduces more competition in the payments market by allowing non-bank companies to offer new innovative services to their customers.

PSR summarises roundtable discussion and responds to views on the structure of LINK interchange fees

On 6 June 2019, the Payment Service Regulator (PSR) published a call for views (CP19/5) on the structure of LINK interchange fees. This closed on 5 July 2019, and on 5 September 2019, the PSR published a paper setting out its responses together with a summary of a stakeholder roundtable discussion on this topic. The roundtable discussion focused on:

  • factors surrounding the incentives to provide ATMs
  • the description and framework for considering the costs of providing ATMs and the value they provide
  • observations on the LINK ATM network and interchange fee structure.

The roundtable discussion was attended by various organisations including leading banks, payment service providers, the FCA, PSR, HM Treasury, the Competition and Markets Authority and the Bank of England.

The PSR will use the submissions to both CP19/5 and CP19/6 (which has now closed – see our August 2019 update) along with more roundtable discussions to further its understanding and inform its work. The PSR will continue to update stakeholders on the key focus areas in this space.

General financial services regulation

FCA Chief Executive gives speech on preparing for Brexit in financial services

On 16 September, Andrew Bailey, Chief Executive of the FCA, delivered a Brexit keynote speech at Bloomberg on preparing for Brexit in the financial services industry.

There are a number of issues that require further action, either from the EU or UK. These are:

  • the Share Trading Obligation (STO)
  • the Derivatives Trading Obligation (DTO)
  • clearing
  • uncleared derivatives
  • data exchange
  • progress on contract repapering
  • retail financial services.

Bailey noted that the FCA is ready to enter into dialogue with the EU before the FCA finalises its approach to these issues. Bailey also commented that the FCA will take a pragmatic approach to issues as they arise and "will use forbearance generously but appropriately", to maintain market integrity and protect market participants.

For more information on the impact of Brexit, see the FCA's Brexit webpage, which includes links to the temporary permissions regime and the financial services contracts regime.

FCA calls on firms to update details through Connect

On 13 September 2019, the FCA announced on its webpage that firms that are not currently Connect users will need to register for its online Connect platform.

From January 2020, firms will be required to review and confirm the accuracy of their details annually (also known as a mandatory annual update), in line with their Accounting Reference Date. This must be done through Connect, and firms must still confirm that their details are up to date even if their details have not changed from the previous year.

In preparation, the FCA encourages firms to register as soon as they can.

FCA publishes new webpage and user guide on financial services directory

On 6 September 2019, the FCA published a new webpage on its public directory for checking the details of key people working in financial services.

The directory aims to:

  • Enable customers to verify the identity of those selling or providing advice on financial products to help protect them from scams.
  • Help firms to easily cross-check references, make their staff known to customers and make it more difficult for unsuitable individuals to operate in the UK market.
  • Support the FCA and other professional bodies to monitor the market, build intelligence and target interventions.

Banks, building societies, credit unions and insurance companies are required to submit information between 9 September 2019 and 9 March 2020. For all other firms, information must be submitted between 9 December 2019 and 9 December 2020. The FCA has published a policy statement (PS19/7) that provides a background to the directory and information to help firms prepare submissions.

Banking and insurance

EBA to clarify prudential treatment applicable to CRR own funds instruments

On 9 September 2019, the European Banking Authority (EBA) announced its intention to provide clarity on the appropriate treatment of "legacy instruments" at the end of 2021 after the grandfathering period expires. The aim of the clarification is to preserve a consistent and high quality capital base for EU institutions under the Capital Requirements Regulation (575/2013) (CRR).

When the CRR entered into force, grandfathering provisions were introduced to ensure that institutions had sufficient time to meet the requirements set out by the new definition of own funds. Certain capital instruments that did not comply with the new definition of own funds were grandfathered for a transition period with the objective of phasing them out from own funds.

The grandfathering provisions will end on 31 December 2019, and the EBA intends to provide clarity on the appropriate end-treatment to ensure a high quality of capital for EU institutions and a consistent application of rules and practices.

The EBA will also clarify the interaction with the new grandfathering provisions introduced by the Banking Package and the corresponding amendments to the CRR and the Banking Recovery and Resolution Directive, where relevant for own funds instruments and eligible liabilities.

The EBA aims to communicate with concerned stakeholders on the end-treatment of the 'legacy' grandfathered instruments by mid-2020 so that institutions can adequately prepare once the grandfathering period expires.

PRA proposes updates to the notification regime for regulatory capital instruments

The PRA has recently published a consultation paper in relation to proposed changes to the pre-issuance notification (PIN) regime applicable to banks, building societies and PRA UK designated investment firms, which are subject to the CRR.

See our latest client alert for more information.

PRA issues consultation on Prudent Person Principle under Solvency II

On 18 September 2019, the PRA published a consultation paper (CP22/19) which sets out its proposed expectations for investment by firms in accordance with the Prudent Person Principle (PPP) as set out in Chapters 2 to 5 of the Investments Part of the PRA Rulebook (which transpose Article 132 of the Solvency II Directive (2009/138/EC)). The proposals are relevant to all UK Solvency II firms, mutuals, third-country branches, the Society of Lloyd's and its managing agents.

The appendix to CP22/19 contains a draft Supervisory Statement that sets out the PRA's proposed expectations on management and investment risk in accordance with Rule 3.1 of the Investments Part of the PRA Rulebook. The key issues covered include:

  • management of asset collection risk
  • intra-group loans and participation
  • the development and maintenance of an investment strategy
  • investment in assets not admitted to trading on a regulated market.

The draft Supervisory Statement is intended to highlight inconsistencies that the PRA has identified in the way that different firms understand and apply the PPP.

It also addresses the PRA's concerns that have emerged in the context of recent changes in the insurance sector that require firms to have specific expertise and sophisticated systems in order to identify, measure and manage investment risk.

The PRA invites feedback on the proposals set out in the consultation, which closes on 18 December 2019. It is intended that the expectations in the draft Supervisory Statement will apply from the date of final publication.

Lloyd's of London announces actions to drive cultural change

On 24 September 2019, Lloyd's of London (Lloyd's) announced a series of actions in response to its findings in the largest culture survey ever conducted in the insurance sector. The survey identified deficiencies in the following areas:

  • equal opportunities
  • speaking up
  • wellbeing
  • leadership.

Lloyd's intends to implement new measures designed to make the market a place where everyone can feel safe, valued and respected. The measures include:

  • a gender balance plan
  • setting standards of business conduct
  • introducing a culture dashboard.

Lloyd's will also appoint an independent advisory group comprised of leading experts with experience of successful cultural transformation. A range of further measures will be rolled out through 2019 and 2020 to address the survey's findings, including promotional campaigns and awareness of mental health and wellbeing.

Wealth management and investment funds

FCA publishes findings from review into MiFID II unbundling reforms

On 19 September 2019, the FCA published a webpage summarising its review of how firms have implemented the rules under MiFID II Directive (2014/65/EU) relating to the unbundling of third-party research.

Under MiFID II, asset managers are required to explicitly pay for third-party research, and brokers must price and provide research separately. The main aim of these requirements is to improve accountability over costs passed to customers and improve price transparency.

The FCA conducted a review between July 2018 and March 2019 that included a survey of 40 buy-side firms, and 10 firm visits across the buy-side and sell-side. The FCA also met with 5 independent research providers and engaged with corporate issuers through trade associations.

The review reveals that the new rules have steered the market towards the intended outcomes, although research valuation and pricing are still evolving. Overall, the FCA found:

  • Most buy-side firms can still access the research they need. There was no evidence of a material reduction in research coverage, including for listed small and medium enterprises (SMEs).
  • Asset managers' research valuation models have different levels of sophistication, particularly in evaluating the quality of research. The FCA expects firms to refine models to ensure they are acting in the best interests of clients.
  • Some firms have been uncertain in how the new rules apply, particularly when attending trade association events or marketing research services. The FCA has clarified its expectations in these areas on the webpage.
  • The way most buy-side firms have implemented the new rules has improved accountability and scrutiny over research and execution costs. Firms have chosen to absorb research costs themselves.

Since firms are continuing to develop their arrangements, the FCA intends to conduct further work to assess the impact of these reforms in 2020/2021.

Changes to AIFMs' submission of notification and material change under NPPR

On 3 September 2019, the FCA updated its webpage on the national private placement regime (NPPR) to reflect changes to the submission of NPPR marketing or material change notification by alternative investment fund managers (AIFMs) under the Alternative Investment Fund Managers Directive (AIFMD).

The NPPR allows the marketing in the UK of non-EEA alternative investment funds (AIFs) managed by full-scope UK and EEA AIFMs and any AIFs managed by non-EEA AIFMs.

The changes were introduced on 9 September 2019 and include:

  • AIFMs marketing funds under regulations 58, 59 and, for UK AIFMs only, regulation 57, will need to submit notifications via the FCA's Connect platform.
  • Full scope EEA AIFMs marketing AIFs under regulation 57 will be required to submit notifications using new forms.

Full details of the changes (including how to obtain access to Connect) can be found on the FCA's webpage.

Investment Association publishes updated guidance on authenticity of electronic instructions

On 12 September 2019, the Investment Association (IA) updated its Guidance on reasonable steps to ensure the authenticity of electronic instructions.

The Guidance is directed at authorised fund managers who are subject to the FCA's Collective Investment Schemes Sourcebook and the Open-Ended Investment Companies Regulations 2001 which assist fund managers in determining the steps they should take to ensure the authenticity of electronic instructions.

The IA has updated the name of the Guidance from Paperless renunciation or transfer of units/shares in authorised investment funds to Reasonable steps to ensure the authenticity of electronic instructions.

Some additional changes have been made to the Guidance, including a recommendation for control mechanisms that firms who are responsible for the unit register should employ to ensure that authority has been given to the incumbent holder of the units or someone who has been properly appointed to act on their behalf.

The objective is to permit more automated and efficient processing for investors while providing protection to the firm and to investors against fraud.

The Guidance was prepared taking into account the FCA's policy on the confirmation of industry guidance, and the FCA has updated its website on confirmed industry guidance to reflect the changes.

Financial crime

Sentence of five years and eight months' imprisonment for money laundering and contempts linked to insider dealing

On 3 September 2019, Southwark Crown Court sentenced Richard Baldwin to a combined term of five years and eight months' imprisonment (in the defendant's absence).

Baldwin, a dealer in luxury watches, was at the centre of a £1.5 million laundering scam between October 2007 and November 2008, with the proceeds being a conspiracy to insider deal by co-conspirators Martyn Dodgson and Andrew Hind. This followed a separate admission of contempts of court in relation to breaches of a restraining order imposed in 2011.

The conviction arose out of Operation Tabernula, the FCA's largest and most complex insider dealing investigation to date. Baldwin was identified as a recipient of over £1.5 million during an investigation which looked the trading activity associated with an employee of various investment banks.

Dodgson and Hind had funnelled the funds through offshore accounts run by Baldwin to conceal their involvement in insider dealing. Baldwin then dissipated the majority of the £1.5 million sum offshore through other bank accounts of his Panama-based companies. These firms acted as buffers and concealed the true source of the funds.

Baldwin's contempts of court arose out of his failure to comply with the terms of a restraining order preventing him from dealing in assets and his failure to repatriate assets that he had dealt with in breach of that order.

Co-conspirators Dodgson and Hind were made subject to prohibition orders under section 56 of FSMA in November 2018.

MEPs pass resolution on implementation of AML rules

On 19 September 2019, Members of the European Parliament (MEPs) passed a resolution stating that anti-money laundering (AML) rules need to be better coordinated and implemented in a timely manner.

The Fourth Anti-Money Laundering Directive (4AMLD) was implemented in June 2017, and the Fifth Anti-Money Laundering Directive (5AMLD) is to be transported by January 2020. MEPs are concerned that the deadline for 5AMLD of 10 January 2020 will not be met by Member States, and have urged them to take immediate action and speed up the transposition process by implementing the already agreed AML rules into national law.

This includes accelerating preparations on meeting the deadlines of 10 January 2020 and 10 March 2020 for the beneficial ownership registers for corporate and other legal entities, and for trusts and similar legal arrangements respectively.

MEPs suggest that lack of co-operation and poor information sharing between national authorities and intelligence units are barriers to implementing the legislation speedily. Calls have also been made for the European Commission to assess whether a regulation would be a more appropriate legal act than a directive, to provide for a more harmonised, directly applicable AML framework.

Enforcement and investigations

First FCA prosecution for destruction of documents

On 6 September 2019, the FCA published a press release announcing that it has brought a prosecution against former banker Konstantin Vishnyak in relation to one count of destroying documents which he knew or suspected were or would be relevant to an investigation.

This is the first time the FCA has brought a prosecution under s.177(3) of FSMA. The FCA was investigating Mr Vishnyak for suspected insider dealing offences. It is alleged that Mr Vishnyak deleted the WhatsApp application on his mobile phone after he was required to provide it as part of the investigation.

The FCA reports that Mr Vishnyak appeared at Westminster Magistrates' Court where he pleaded not guilty. Mr Vishnyak will now appear at Southwark Crown Court at a hearing scheduled for 4 October 2019.

FCA announces further details of independent investigation of interest rate hedging products

On 20 June 2019, the FCA announced that it had appointed independent reviewers for the lessons learned reviews commissioned by the FCA's board.

The FCA has now issued a press release (dated 16 September 2019) announcing that John Swift QC has his full independent support team in place to conduct an investigation into the FCA's implementation and oversight of the Interest Rate Hedging Products (IRHP) Redress Scheme.

The review is expected to last 15 months, and John Swift QC will be engaging with interested parties, to address the issues which are relevant to his investigation. John Swift QC said the exercise will "provide an assessment of the FCA's actions relating to the redress exercise and set out the lessons, if any, that should be learned from the review".

Individuals or represented parties affected by the Scheme are invited to contact the Independent Review team by sending an email. Updates to the independent investigation can be found on the Review of IRHP webpage, which also includes the protocol for the conduct of the investigation.

FS trivia

What is the name of the FCA's online system for collecting and storing regulatory data from firms?

  • Reginald
  • Ernest
  • Constantine
  • Gabriel

The answer to last month's question: the third objective, promoting the development of and innovation in financial systems, is a statutory objective of the Payment Services Regulator.

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