Financial services update – 36 / 37 观点
The key topics covered in this month's newsletter include the appointment of the FCA's interim Chief Executive, European Commission slides on the future EU-UK relationship on financial services matters, new material from the BoE, FCA and PRA on next steps for LIBOR transition, and the FCA's multi-firm review findings on how asset managers select and use asset management tools.
On 24 January 2020, HM Treasury published a press release announcing the appointment of Christopher Woolard as Interim Chief Executive of the FCA from 16 March 2020, the date on which Andrew Bailey will take up his role as Governor of the Bank of England.
Mr Woolard is currently the FCA's Executive Director of Strategy and Competition and an Executive Member of the FCA's Board. He will remain as Chief Executive until a permanent successor is appointed.
On 23 January 2020, the FCA announced on its webpage that, from 31 January 2020, firms that come under SUP 16.10 reporting requirements will have to check, amend or confirm the accuracy of their firm details annually, using the FCA's Connect portal. Firms must do this within 60 business days of their Accounting Reference Date.
Even if firms' details have not changed from the previous year, they must still log on to Connect to confirm the details are accurate and up to date.
On 21 January 2020, the BoE published a press release announcing that the Bank of Canada, the BoE, the Bank of Japan, the European Central Bank, the Sveriges Riksbank, the Swiss National Bank and the Bank of International Settlements (BIS), have created a group to assess the potential case for central bank digital currency (CBDC) in their home jurisdictions. The group will also coordinate with the Financial Stability Board and the Committee on Payments and Market Infrastructure.
On 13 January 2020, the FCA published the Fees (Cryptoasset Business) Instrument 2020, which confirms the fees payable by persons who wish to make an application to the FCA to be registered as a cryptoasset business. The fees are:
On 10 January 2020, the European Commission published slides on the future of the EU-UK relationship regarding personal data protection and cooperation and equivalence in financial services.
The slides are part of the European Commission's ongoing work in preparing negotiating directives in relation to the future EU-UK relationship. Any recommendations will be presented after the UK formally leaves the EU.
Regarding financial services, the European Commission notes that:
The European Commission also published slides on 16 January 2020 on the future of the EU-UK relationship regarding law enforcement and judicial cooperation in criminal matters.
Among the areas covered is anti-money laundering and counter terrorist financing, including compliance with Financial Action Task Force (FATF) standards, and ensuring existence of public registers for beneficial ownership information for companies and trusts.
On 28 January 2020, the Payment Systems Regulator (PSR) published a "call for input" paper on competition issues that could arise in the UK's New Payments Architecture (NPA).
The NPA will transform the organisation of the clearing and settlement of payments between banks, known as interbank payments, replacing BACS and Faster Payments.
Stakeholder views about competition considerations will help the PSR to develop its NPA regulatory policy.
All interested parties are invited to respond by 24 March 2020, and the PSR will publish a Policy Statement before the end of 2020 to set out its expectations.
For further details of the competition aspects of the Call for Input, please take a look at our special alert.
On 20 January 2020, the PSR published a consultation paper on a proposal to vary its Specific Direction 10 (SD10) on Confirmation of Payee.
SD10 currently allows a Payment Service Provider (PSP) to apply for an exemption where it believes that exceptional circumstances reasonably prevent it from complying with an obligation under the direction. The consultation paper proposes two changes:
Stakeholders are invited to submit responses to the consultation, which closes on 29 January 2020.
On 16 January 2020, the FCA updated its webpage on Strong Customer Authentication (SCA) to include a section on the use of electronic identification, authentication and trust services (eIDAS) certificates.
The new section notes that:
On 15 January 2020, the European Cards Stakeholders Group (ECSG) published version 9.0 of the SEPA Cards Standardisation Volume (the Volume).
The ECSG states that the initiative will help to ensure the interoperability and security of cards in Europe, by defining a set of requirements to enable an interpretable and scalable card and terminal infrastructure across SEPA, based on open international card standards.
Version 9.0 of the Volume includes updates such as:
Version 9.0 takes immediate effect and will apply for a period of three years.
On 16 January 2020, the BoE, FCA and PRA published a series of documents, outlining their priorities and milestones for 2020 on LIBOR transition. Alongside the materials published by the Working Group on Sterling Risk-Free Reference Rates (RFRWG), the FCA, PRA and BoE published two documents intended to facilitate the transition from LIBOR:
The publications represent a comprehensive set of materials that support the RFRWG's priorities and milestones, and will help market participants with a smooth transition away from LIBOR.
The FCA also recently published Q&As on conduct risk during LIBOR transition and a speech on next steps, more details of which can be found in our December newsletter.
On 6 January 2020, the FCA published a letter sent to CEO's of wholesale GI firms setting out its expectations for them on how to tackle non-financial misconduct, which, along with an unhealthy culture, the FCA recognises as a key root cause of harm.
In the letter, the FCA states that:
The FCA expects all firms to review the letter and to share it with their senior executive committee and Board. Firms should act promptly if they identify gaps or shortcomings based on the FCA's expectations.
On 21 January 2020, the FCA published a letter addressed to CEO's of financial advice firms setting out its approach to tackling key areas of concern and summarising the action it expects financial advice firms to undertake.
The letter covers the following issues:
The FCA expects financial advice firms to discuss the letter with fellow directors or the Board and agree what further actions need to be taken. Principal firms should also share the letter with their appointed representatives.
On 21 January 2020, the FCA published a statement on its second Assessing Suitability Review, which looks at the market for pensions and investment advice.
The FCA says that the review will focus on the advice that customers receive around retirement income, since there is now a greater number of options available in retirement planning. A representative sample will be used to build a view of the retirement income advice market, and the FCA intends to publish a report setting out the results of the review sometime in 2020.
Other priorities of the FCA include its ongoing work on defined benefit pension transfer advice, its activities targeting pension and investment scams, and its focus on firms holding adequate financial resources and professional indemnity insurance. The FCA also published a portfolio letter outlining the key risks for financial advisers.
On 13 January 2020, the FCA published the findings of its multi-firm review into how firms in the asset management sector select and use risk modelling and other portfolio management tools. The review also assessed how firms identify and manage relevant risks and their capability to respond to system failures or service interruptions.
The findings are set out in various sections, including:
Overall, the FCA saw some good practice at most firms, although problems were identified in firms' processes and controls, particularly in risk model oversight and contingency planning.
The FCA will continue to look at the operational resilience arrangements in place at firms, including those not covered in its review.
On 21 January 2020, the FCA published a final notice, fining claims management company (CMC) Hall and Hanley Limited (HHL) £91,000 for data breaches and failing to prevent one of its employees from copying customers' signatures.
The final notice follows an appeal to the First Tier Tribunal, which found that HHL had breached the Conduct of Authorised Persons Rules 2014 by negligently failing to take all reasonable measures to avoid purchasing marketing leads generated in breach of the Privacy and Electronic Communications (EC Directive) Regulations 2003, and by negligently failing to prevent one of its employees from copying customers' signatures without their consent on documents submitted to financial institutions. HHL is now in liquidation.
On 14 January 2020, the FCA published a press release announcing its plan to return £2.5 million to compensate victims of a series of unauthorised collective investment schemes.
Between 2005 and 2010, over 800 people invested approximately £32.8 million in unauthorised collective investment schemes which involved unlawful selling of plots of land. These schemes were established and operated by Countrywide Land Holdings Limited, James Kenneth Maynard (trading as Regional Land and Countrywide Land Holdings) and Stephen Ronald Watkins (trading as Consolidated Land UK).
The FCA was able to recover £2.5 million from the liquidation of a related Panamanian company, Paradigm Consultancy SA, which the FCA will distribute to 573 qualifying investors which it has identified. Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, reminded investors that an "investment promising high returns means there is a high risk investors will lose their money".
On 10 January 2020, the FCA published a press release announcing that it has commenced civil proceedings in the High Court against Bright Management Solution Limited (Bright), Soccer League International Limited (Soccer League International), Soccer League UK Limited (Soccer League UK), and senior individuals at these firms. The defendants are alleged to have been carrying on unauthorised deposit taking in relation to different projects, including forex trading and crypto-assets. Senior officials at these companies are also alleged to have been knowingly concerned in Bright's contraventions.
The FCA secured an interim injunction, by consent, which stops these activities from taking place and freezes up to £1.3 million in assets pending a further hearing. Once a further hearing takes place, the FCA seeks to obtain a declaration from the Court that the defendants' actions amounted to unauthorised deposit taking as well as an order preventing them from carrying out this activity in the future. A restitution order will also be sought to return frozen funds to affected consumers.
On 17 January 2020, the Serious Fraud Office (SFO) published new guidance about how it assesses the effectiveness of compliance programmes for organisations that it investigates.
The guidance, set out in a new chapter of the SFO's Operational Handbook entitled Evaluating a Compliance Programme, details some key features of a compliance programme. In particular, compliance programmes should:
The guidance also states that compliance issues are expected to be explored early in investigations, and that prosecutors should assess the state of an organisation's compliance programme for different periods, including the past, present and, in some cases, the future. An assessment of a compliance programme is likely to be framed around the six principles set out in the Ministry of Justice's 2011 Bribery Act guidance: proportionate procedures; top level commitment; risk assessment; due diligence; communication (including training); and monitoring and review.
What is the name of the formal statement a firm may be asked to provide to the FCA to confirm it will take or has taken an action required:
The answer to last month's question is Effective corporate governance – a perennial topic for financial regulators!