Financial services update – 33 / 33 观点
The key topics covered in this month's newsletter include the appointment of the new Governor of the Bank of England, the PSR's final merchant survey questionnaire, the FCA's call for input on open finance in transforming financial services, and the Bank of England's report on vulnerabilities in open-ended investment funds.
On 20 December 2019, HM Treasury published a press release announcing that Andrew Bailey will succeed Mark Carney as the next Governor of the Bank of England (BoE) from 16 March 2020. The appointment is for an eight-year term.
Mr Bailey has been the Chief Executive of the FCA since July 2016. Prior to this, he held the role of Deputy Governor for Prudential Regulation and CEO of the PRA from 1 April 2013, and served as Chief Cashier of the Bank of England from January 2004 until April 2011. His successor at the FCA will be appointed by the Treasury following the customary recruitment process for public appointments. The press release notes that an interim Chief Executive will be appointed in good time prior to Mr Bailey's departure.
On 5 December 2019, the FCA, PRA and BoE published a shared policy summary and a set of consultation papers on new requirements to strengthen operational resilience in financial services.
The proposals are aimed at building on the concepts in an earlier 2018 joint discussion paper, and are designed to promote stronger and more effective governance of operational resilience and to encourage cooperation and close joint working between firms, financial market infrastructures and industry bodies.
For a more detailed discussion on the proposals, see our client alert.
There have been two significant publications from the European institutions on the future regulation of cryptoassets and stablecoins.
First, on 5 December 2019, a joint statement with the European Commission on stablecoins was published by the Council of Europe. The statement calls for a co-ordinated global approach to tackle the challenges raised by "global stablecoins", and explains that the risks raised by stablecoin arrangements should be subject to clear and proportionate regulatory and oversight frameworks.
Secondly, on 19 December 2019, the European Commission published a consultation document seeking views on the EU regulatory framework for cryptoassets, including stablecoins. The promotion of digital finance and blockchain, and the emergence of stablecoins is also discussed.
The consultation builds upon the publication of the FinTech Action Plan in March 2018, in which the European Commission authorised the European Banking Authority and the European Securities and Markets Authority (ESMA) to assess the applicability and suitability of the existing regulatory framework for cryptoassets. The consultation will inform discussions on whether:
Stakeholders are invited to comment by 12 March 2020 according to the European Commission's webpage.
On 20 December 2019, the FCA published a webpage on what a Brexit implementation period would mean for itself, firms and consumers.
The FCA states that, during the implementation period, EU law will continue to apply until 31 December 2020. Therefore, the current protections and rights consumers have for their financial products and services would not change due to the implementation period.
For regulated firms, passporting rights would continue, although they would need to consider how the end of the implementation period would affect them and their customers, and what action they would need to take to prepare for 1 January 2021.
The FCA will continue to engage with the UK government and regulators, European Supervisory Authorities and European policy makers on shared issues and priorities to prepare for the end of the implementation period.
On 24 December 2019, the Payment Systems Regulator (PSR) published the final version of the merchant survey questionnaire as part of its market review into the supply of card-acquiring services. The market review follows concerns that the supply of card-acquiring services may not be working well for merchants, and ultimately consumers.
The questionnaire will be used to help the PSR assess the factors that might impact how competition in the supply of card-acquiring services operates, including looking at the fees merchants pay for card-acquiring services, relationships with providers, switching and alternative payment channels.
On 17 December 2019, the FCA published a call for input on how open banking could transform the way consumers and businesses use financial services.
Open banking enables customers to consent to third-party providers accessing their payment account information and/or making payments on their behalf. The FCA also wants to consider the transformative benefits of so-called open finance, which refers to the extension of open banking-like data sharing and third-party access to a wider range of financial sectors and products. This stems from the FCA's 2019/20 business plan, where it committed itself to leading the debate on open finance and setting up an external advisory group.
Part of the FCA's vision for open finance includes:
Responses should be submitted by 17 March 2020, which will inform the FCA's discussions with Government and be shared with the Treasury and the Department for Business, Energy and Industrial Strategy, unless respondents request confidentiality.
On 16 December 2019, the BoE published a report setting out the results of the 2019 stress tests of UK banks, which forms part of issue 46 of the BoE's Financial Stability Report (FSR).
The 2019 stress tests shows that the UK banking system is resilient to deep simultaneous recessions in the UK and global economies that are more severe overall than the global financial crisis, combined with large falls in asset prices and a separate stress of misconduct costs. Losses on corporate exposures are higher than in previous tests, reflecting deterioration in asset quality, although all seven participating banks remain above their hurdle rates.
Major banks' capital ratios have remained stable since year end 2018, and at the end of 2019 Q3, their CET1 ratios were over three times higher than at the start of the global financial crisis. Investors should be aware that banks' resilience relies in part on their ability in stress to cut dividend payments, employee variable remuneration, and coupon payments on additional Tier 1 instruments.
The BoE has also published a document on the effectiveness of the stress testing framework and its implementation.
On 23 December 2019, the PRA published a press release and written notice imposing requirements on the Society of Lloyd's regarding its whistleblowing systems and controls after being made aware of issues within the firm.
The Society of Lloyd's self-identified and disclosed to the PRA that aspects of its internal whistleblowing systems and controls had been ineffective for some time, notably that the only anonymous whistleblowing channel provided for staff had not been operational since 1 October 2017, nor had the firm produced the expected annual whistleblowing report. This led the PRA to conclude that these arrangements require enhanced monitoring and scrutiny.
The Society of Lloyd's voluntarily agreed to various additional requirements relating to whistleblowing, and its Whistleblowers' Champion will have to attest to the soundness of its whistleblowing systems and controls annually.
The requirements come at a time where the Society of Lloyd's is seeking to implement measures to drive cultural change, details of which can be found in our October issue.
On 16 December 2019, the BoE reported on vulnerabilities in open-ended funds, which forms part of issue 46 of the BoE's FSR.
The Financial Policy Committee (FPC) judges that there is a mismatch between redemption terms and the liquidity of some funds' assets, providing some investors with an advantage when they redeem ahead of others, particularly in a stress.
As a result, the FPC has concluded that there should be greater consistency between the liquidity of a fund's assets and its redemption terms. To further this, the FPC proposes that:
It is hoped that these proposals will help to enhance financial stability and promote funds' ability to invest in illiquid investments.
On the same day, the FCA and BoE published a press release announcing that the review will now consider how these principles could be implemented. The conclusions will be released in 2020 and the FCA will use these to develop its rules on open-ended investment funds.
On 4 December 2019, ESMA announced that it had updated its Q&As on the application of the Alternative Investment Fund Managers Directive (AIFMD).
ESMA has added one new Q&A on reporting to national competent authorities under Articles 3, 24 and 42 of AIFMD. The Q&A provides clarity on the reporting requirements for liquidity stress tests for closed-ended unleveraged Alternative Investment Funds.
The Q&As are designed to help Alternative Investment Fund Managers by providing clarity as to the content of the AIFMD rules, rather than create an extra layer of requirements.
On 4 December 2019, ESMA published an updated version of its Q&As document on MiFID II and MiFIR investor protection and intermediaries topics.
The purpose of the document is to promote common supervisory approaches and practices in applying MiFID II and MiFIR in relation to investor protection topics. It is aimed at competent authorities and firms by providing clarity on the application of MiFID II and MiFIR requirements.
ESMA has published two new Q&As on:
The content of the document is non-exhaustive and it does not constitute new policy.
On 17 December 2019, the FCA issued a final notice to claims management company (CMC) Professional Personal Claims Limited (PPC), fining it £70,000 for misleading banks and consumers.
This was the first action taken by the FCA since it took over responsibility for the regulation of CMCs from the Claims Management Regulation Unit (CMRU) on 1 April 2019.
PPC was previously investigated and fined by the CMRU for (among other things):
PPC withdrew its appeal against the CMRU's penalty notice and the FCA subsequently imposed the fine for the failings identified.
On 12 December 2019, the FCA issued a final notice to Kevin Gorman, Managing Director of Braemar Shipping Services plc (Braemar), for breaching Article 19(1) of the Market Abuse Regulation (MAR) by failing to notify the FCA of numerous share dealings. Mr Gorman was fined £45,000 and qualified for a 30% discount for agreeing to resolve the matter.
Braemar is a listed company, of which Mr Gorman was a person discharging managerial responsibilities (PDMR). Mr Gorman beached Article 19(1) MAR on three occasions between 31 August 2016 and 24 January 2017, by failing to notify Braemar or the FCA promptly or within three business days of three sale transactions in which he sold Braemar shares. As a result, Braemar could not announce the necessary PDMR notifications to the market in accordance with Article 19(3) MAR. Mr Gorman also failed to seek prior authorisation from Braemar to trade in accordance with Braemar's internal policies.
This is the first enforcement action taken by the FCA for a breach of Article 19(1) MAR.
On 9 December 2019, the European Payments Council (EPC) published its 2019 Payment Threats and Fraud Trends report.
The EPC's objective is to support and promote European payments integration and development, notably the Single Euro Payments Area (SEPA). Each year, the EPC reports on the latest trends in security threats impacting payments, including social engineering and phishing, malware, Advanced Persistent Threats (APTs), mobile device related attacks, (Distributed) Denial of Services ((D)DoS), botnets and threats related to cloud services, big data, Internet of Things (IoT) and virtual currencies.
For each threat, the EPC provides an analysis on the impact, context, suggested controls and mitigations, which is then followed by a section elaborating on fraud related payments instruments (cards, SEPA Credit Transfer and SEPA Direct Debit).
The main conclusions concerning payment fraud and payment threats include:
On 20 December 2019, the Serious Fraud Office (SFO) announced that it had entered into a Deferred Prosecution Agreement (DPA) with Güralp Systems Ltd (Güralp) in October 2019 in relation to bribery offences.
Reporting restrictions on the DPA have been removed following the acquittal of three individuals of conspiracy to make corrupt payments in relation to payments made to a South Korean public official between 2002 and 2015. In the DPA, Güralp accepts the charges of conspiracy to make corrupt payments and a failure to prevent bribery by employees in relation to the payments.
Güralp has agreed to pay £2,069,861 for disgorgement of gross profits to the SFO for onward transmission to the Consolidated Fund. Güralp is also required to cooperate fully and truthfully with the SFO and to review and maintain its existing internal controls, policies and procedures regarding compliance with the Bribery Act 2010.
Director of the SFO, Lisa Osofsky, said that "the DPA is a result of Güralp Systems Ltd’s timely self-reporting and full cooperation, and holds the company to account whilst also promoting positive changes in corporate culture".
On 20 December 2019, the National Crime Agency (NCA) issued a tasking to improve the response to fraud. It was proposed jointly by Graeme Biggar, the Director General of the National Economic Crime Centre, and Commissioner Ian Dyson of the City of London Police.
The voluntary tasking has been made under the Crime and Courts Act 2013 and follows a discussion with Chief Constables and other partners at the National Strategic Tasking and Coordination Group (NSTCG) on 2 December 2019. It applies to all police forces and Regional Organised Crime Units in England and Wales, Police Scotland, the Police Service of Northern Ireland, the SFO, HMRC and the FCA.
Mr Biggar said that the tasking is "focused on improving the intelligence picture on fraud, pursuing offenders causing the highest harm and increasing the priority of fraud across the system." Broader reforms for tackling fraud are being considered in the review of serious and organised crime commissioned by the Government and being led by Sir Craig Mackey.
What was the topic of the FSA's third consultation paper in January 2010?
The answer to last month's question is 33%, which is the control band which applies to limited permission consumer credit firms.