Financial services update – 11 / 15 观点
The topics covered in this month's newsletter include:
Please also see our separate articles COVID-19: how the UK financial regulators are responding and COVID-19: how the European financial regulators are responding for the latest regulatory updates in relation to the coronavirus pandemic.
FCA warns firms to be responsible when handling client data
On 18 November 2020, the FCA published a statement reminding firms to handle their client data lawfully and responsibly, especially when firms leave the market or merge with other firms. Firms that intend to transfer or receive personal client data must be able to demonstrate how they have considered the fair treatment of consumers and how their actions comply with data protection and privacy laws.
The FCA also reminded firms that at the end of the Brexit transition period, the GDPR provisions will form part of retained EU law, with amendments made by exit regulations under the European Union (Withdrawal) Act 2018. The FCA also referred firms to an ICO guidance on data protection.
FCA speech on facing the future
On 12 November 2020, Nikhil Rathi, the FCA Chief Executive, delivered a speech on the future challenges and priorities for the FCA. The highlights from Mr Rathi's speech include:
FCA speech on the end of the transition period
On 12 November 2020, Nausicaa Delfas, the Executive Director of International at the FCA, delivered a speech on the end of the transition period. The speech states that the FCA's Brexit preparations, alongside those made by other UK authorities and firms, have led the Financial Policy Committee (FPC) to conclude in its latest October report that most risks to the UK financial stability at the end of the transition period had been mitigated. However, the FPC did not rule out market disruption as the UK transitions to new trading arrangements with the EU. Therefore, the FCA shall continue to prepare ahead of the UK’s exit and to support firms to do the same. The speech also states that the FCA will ensure that its regulatory approach to financial services remains effective and appropriate. The FCA will also build on the UK's global role outside the EU, whilst demonstrating continued commitment to open markets, free trade, and the highest international standards of regulation.
Chancellor's statement on the future of financial services
On 9 November 2020, HM Treasury published a statement made by Rishi Sunak, the Chancellor of the Exchequer, in the House of Commons on the future of financial services. The statement sets out the government initiatives and decisions relating to equivalence, access to UK markets, payments and FinTech as well as sustainable finance.
In relation to the equivalence framework, the Chancellor announced that the government has decided, on a unilateral basis, to make a set of financial services equivalence decisions relating to the EU and EEA member state. A guidance document on the UK's equivalence framework for financial services has been published on 9 November 2020.
In relation to access to UK markets, HM Treasury will:
On payments and digital currencies, HM Treasury will:
In relation to sustainable finance, the Chancellor announced that the government intends to:
On the same date, Nikhil Rathi, the Chief Executive of the FCA, responded to the Chancellor's statement. He said that the Chancellor set out important steps to ensure that the UK remains a global financial centre with high regulatory standards and that the FCA will continue working with the government and the BoE to deliver on the measures announced.
FCA responds to Treasury announcement on equivalence
On 9 November 2020, the FCA published further information for financial services firms on the equivalence decisions outlined by the Chancellor (mentioned above). The equivalence decisions will come into effect at the end of the transition period. The decisions cover various sectors and will provide certainty to firms and their clients as well as counterparties. The decisions where the FCA is the lead regulator are:
The FCA stated that it is important that firms check the potential impact of these decisions on their business. In some instances, the decisions will enable EEA firms to continue to access the UK market. In some cases, firms will have to take actions to benefit from the equivalence provisions. In other cases, including where there is a transitional regime to allow continued access after the transition period, firms might not need to take any action at this stage.
Payment Services and Electronic Money (Amendment) Regulations 2020 published
On 16 November 2020, the Payment Services and Electronic Money (Amendment) Regulations 2020 (SI 2020/1275) were published on legislation.gov.uk, together with an explanatory memorandum. The Regulations were made on 12 November 2020 and will come into force on 8 December 2020. The Regulations amend the Electronic Money Regulations 2011 (SI 2011/99) (EMRs) and the Payment Services Regulations 2017 (SI 2017/752) to apply certain sections of the Banking Act 2009 to authorised electronic money institutions, small electronic money institutions, authorised payment institutions and small payment institutions. The Regulations will allow HM Treasury to create new insolvency regulations and rules for the payments and e-money sector, including setting up a special administration regime for payments and e-money institutions.
Pay.UK paper on consumer protections in payments
On 5 November 2020, Pay.UK published a paper providing an overview of the research findings into the UK’s payments landscape, as well as insights into the real-time payments in the Netherlands, Singapore and Australia.
One of the key findings in the paper is that, as Faster Payment System (FPS) was originally intended to be used for bank-bank transactions, there is no official consumer protection relating to disputed transactions in relation to the purchase of goods and services. Most consumer protection work to date has been centred on creating strong and secure customer authentication, implementing credit recovery in cases of errors and combating fraud. Furthermore, as an industry, there is limited understanding regarding the consumers' expectations and awareness of the protections they are afforded when making payments.
Pay.UK's ongoing research project will continue to focus on consumer perception of consumer protection. The research will be fed into Pay.UK's policy work on the topic, which is expected to follow by the end of 2020.
FCA policy statement on amendments to open banking identification requirements
On 3 November 2020, the FCA published a policy statement on amendments to the open banking identification requirements (eIDAS certificate). The FCA has also published a statement about the amendments. The amendments will permit UK third-party providers to continue accessing customer data and initiating payments by using alternatives to the eIDAS certificates. The FCA urged firms to review the changes immediately and to implement any necessary changes as soon as possible although the FCA will provide a transition period until the end of June 2021 for complying with the rules.
FOS's general approach to complaints about consumer credit
On 19 November 2020, the Financial Ombudsman Service (FOS) published issue 155 of ombudsman news, which features a webpage that provides an overview of the FOS's general approach to complaints about consumer credit. More specifically, the webpage provides information and case studies on how the FOS will approach specific types of consumer credit complaints including complaints regarding home credit and logbook loans as well as complaints on debt collecting.
FCA call for input on the review into unsecured credit market regulation
On 2 November 2020, the FCA published a call for input on its review into change and innovation in the unsecured credit market. The call for input focuses on the following four themes:
The deadline for comments was 1 December 2020.
Christopher Woolard is chairing the review and will be assisted by an advisory panel. He will present his report and recommendations to the FCA Board in the New Year.
FCA statements amending the UK Benchmarks Regulation
On 18 November 2020, the FCA published a statement on its proposed approach to exercising some of the new powers that are to be granted to it under the Benchmarks Regulation (BMR) as amended by the Financial Services Bill, which have been introduced to allow the FCA to address issues in relation to LIBOR transition.
The FCA states that it would not envisage using the powers where:
The FCA's view is that there would be a case for using the proposed new powers to require a change to the LIBOR methodology where:
The FCA has also published consultations about its proposed policy in relation to:
These consultations should be read alongside the FCA's overview document which provides background to the amendments to be made to the BMR and the FCA's powers.
Joint statement on the implementation of prudential reforms in the Financial Services Bill
On 16 November 2020, HM Treasury, the PRA and the FCA issued a joint statement on the implementation of prudential reforms contained in the Financial Services Bill 2019-21. The joint statement updates on the planned timelines for implementing the UK’s Investment Firms Prudential Regime and the Basel 3 reforms which make up the UK equivalent to the outstanding elements of the EU’s 2nd Capital Requirements Regulation. The target implementation date will be 1 January 2022 for the two regimes. The target date is set following feedback from industry. Industry raised concerns about the general volume of regulatory reform in 2021.
FCA portfolio letter on supervisory strategy for price comparison websites
On 16 November 2020, the FCA published a portfolio letter it has sent to firms operating price comparison websites (PCWs), including PCWs who conduct comparisons for regulated products on their own site and PCWs who outsource their comparison services to other firms. In the FCA's view, PCWs have responded well to the challenges posed by COVID-19 but should keep in mind the following key harms and drivers of harm which are heightened by the impact of COVID-19:
The FCA reminded PCWs that they are expected to:
PRA speech on simpler prudential regime for small banks and building societies
On 12 November 2020, the BoE published a speech given by Sam Woods, the Deputy Governor for Prudential Regulation at the BoE and the CEO at the PRA. Mr Woods noted that the current UK prudential requirements impose the full weight of Basel prudential regulation on deposit-takers of all sizes and the approach gives rise to a proportionality problem. The costs of understanding, interpreting and operationalising prudential requirements, which have become more complex since the 2007-08 crisis, may exceed the associated social benefit for small firms.
Overseas Funds Regime in the Financial Services Bill
On 9 November 2020, HM Treasury published a summary of responses to its March 2020 consultation paper inviting views on the overseas funds regime (OFR). The consultation paper focused on creating a new process for allowing investment funds domiciled overseas to be sold to UK investors (see our April 2020 newsletter for more details). The government subsequently brought forward legislation as part of the Financial Services Bill 2019-21. The summary of responses document summarises the responses to the consultation and explains the government’s approach to legislating for the OFR after considering the responses.
Investment Association principles of executive remuneration for 2021
On 16 November 2020, the Investment Association wrote to chairs of remuneration committees of FTSE 350 companies setting out changes to the principles of remuneration from the November 2019 version (see our December 2019 newsletter for more details). The letter highlights the main changes to the principles, which clarify investor expectations on the following topics:
FCA Primary Market Bulletin No 31: Prospectus Regulation, corporate governance disclosures
On 11 November 2020, the FCA published its Primary Market Bulletin No 31. The Bulletin highlights the FCA's approach to assessing eligibility and listing applications for cannabis-related companies. Further, the Bulletin provides updates on the implementation of the European Single Electronic Format, COVID-19 related temporary policy measures on corporate reporting and recent changes to the Prospectus Regulation. The Bulletin also reminds issuers and their advisors of their continuing obligations on the primary market specialist supervision function. The Bulletin also includes two articles. The first article is on corporate governance disclosures by listed issuers and the second article is about the delayed disclosure of inside information notifications.
FCA sets out its approach to the share trading obligation
On 4 November 2020, the FCA confirmed its approach to the share trading obligation at the end of the Brexit transition period, if mutual equivalence is not agreed. The FCA will use the temporary transitional power to avoid disruption and to allow firms to continue trading all shares on EU trading venues and systematic internalisers. This means that UK market participants will continue to be able to access any EU trading venue from the end of the implementation period, providing the venue has the relevant regulatory permissions.
HM Treasury clarifies UK approach on European crowdfunding service providers
On 3 November 2020, the Cabinet Office published a letter from John Glen, the Economic Secretary to the Treasury, to the Chair of the House of Lords European Union Select Committee about the UK government's approach to the EU Regulation on European crowdfunding service providers for business ((EU) 2020/1503). Mr Glen's letter responds to an October 2020 letter in which the Committee sought clarification about certain matters (see our November 2020 newsletter for more details).
The Committee asked for further detail on the government's assessment of whether similar changes in UK law would enhance the competitiveness of the UK's crowdfunding sector. In response, Mr Glen stated that the government has found no evidence to suggest that implementing the changes would result in a material benefit to the UK crowdfunding sector. The government believes the final EU text shares key similarities with existing UK regulation, which is partly due to the prominent role the UK assumed in shaping the core aspects of the text itself.
The Committee also asked the government to assess the desirability or otherwise of coming under the EU Regulation as a third country and of the effect of such a move on the UK sector's competitiveness. In response, Mr Glen stated that the government does not envisage it being necessary for the EU to apply third country rules to the UK sector in this space. The UK's approach has been to follow international norms in line with the expectations of the industry and to continue achieving the same outcomes as in the EU Regulation but with small adjustments to reflect the UK markets in specific areas.
FCA brought High Court proceedings concerning alleged unauthorised activity relating to collective investment schemes
On 11 November 2020, the FCA published a press release announcing that the FCA has commenced High Court proceedings against two individuals and a company concerning alleged unauthorised activity in relation to collective investment schemes. The investors were given misleading statements and/or impressions about the financial sustainability of the schemes, including an unrealistic level of return of between 8% and 10% a year. The FCA is seeking an injunction and a declaration from the High Court that their actions amounted to unauthorised activity and will seek a restitution order to return funds to consumers who were affected by the alleged breaches.
FCA fines £3.44 million for market misconduct
On 23 November 2020, the FCA published a press release announcing that the FCA has fined an FX options broker £3.44m for communicating misleading information to clients. The broker communicated to the clients that a trade had occurred at a particular price and/or quantity when no such trade had actually taken place. The broker agreed to resolve this case with the FCA, thereby qualifying for a 30% discount to the overall financial penalty imposed. Without the discount, the FCA would have imposed a financial penalty of £4.92 million.
UK Finance review of UK sanctions statutory instruments
On 5 November 2020, UK Finance published a document which aims to assist financial institutions and other firms with a responsibility to comply with UK sanctions legislation either in the UK or overseas. The document covers statutory instruments passed in application of the Sanctions and Anti-Money Laundering Act 2018 and replacing regulations made under the European Communities Act 1972, as well as new regimes such as the Global Human Rights Sanctions Regulations (SI 2020/680). The document focuses on financial sanctions and related trade sanctions that could impact financial institutions and firms in international trade.
Government response on the call for evidence on corporate liability for economic crime
On 3 November 2020, the government published its response to the call for evidence on corporate liability for economic crime. The response document concludes that there was no clear consensus from respondents on what corporate liability offence should be created if the identification doctrine was replaced. Equally, some responses disclosed significant opposition to reform given the potential adverse impact of new criminal liability on growth and competition. Others questioned whether there was a need for further criminal sanctions at all in the already heavily regulated financial services sector. In general, however, although a range of divergent and often conflicting views was expressed, there was no new or significantly persuasive evidence submitted to support the case for a change to the law.
What is the name of the power that HM Treasury has given to the UK financial regulators to help firms adapt to certain requirements applying from 1 January 2021 as a result of the onshoring process?
The answer to last month's question is: 6.