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Charlotte Hill

Charlotte Hill

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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

2021年1月14日

Financial services update – 10 / 22 观点

Financial services update - January 2021

The topics covered in this month's newsletter include:

  • Regulatory change for firms following the end of the Brexit transition period
  • FCA letter to mainstream consumer credit lenders
  • First FCA consultation paper on implementation of the Investment Firms Prudential Regime
  • Independent investigation into the FCA's regulation of London Capital & Finance plc
  • Temporary FCA registration regime for cryptoasset businesses

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.

General financial services regulation

End of the Brexit transition period: Regulatory change for firms

On 31 December 2020, the FCA published a statement stating that as of 11 pm on 31 December 2020, the transition period ended and EU law no longer applies in the UK.

Passporting between the UK and EEA states has ended and the temporary permissions regime (TPR) has now come into effect for those firms and funds that notified the FCA that they wanted to enter the TPR. Alongside the TPR, the government has created the financial services contracts regime (FSCR). This allows, for a limited period, EEA passporting firms not in the TPR to continue to service UK contracts entered into prior to the end of the transition period (or prior to when they enter FSCR).

The FCA has also become the UK regulator of UK-registered and certified credit rating agencies (CRAs). This means that any UK legal entity that wishes to issue credit ratings publicly or by subscription will now need to be registered or certified as a CRA with the FCA.

Quarterly Consultation Paper No. 30

On 4 December 2020, the FCA published its 30th quarterly consultation paper. The consultation invites comments on a number of policy proposals and changes to the FCA Handbook.. Chapter 2 of the consultation paper is a joint FCA and PRA consultation on their expectations for firms to notify regulators of when a senior manager takes temporary leave for longer than 12 weeks. Among others, the FCA and PRA propose to require firms notifying them that the individual is on long term leave via Form D (Changes to personal information/application details and conduct breaches/disciplinary action related to conduct). The FCA and PRA propose to clarify their expectations through new rules and guidance in the FCA Handbook, the PRA Rulebook and updated supervisory statements (Strengthening individual accountability in banking (SS28/15) and Strengthening individual accountability in insurance (SS35/15)).

The closing date for comments on Chapter 2 is 4 February 2021.

BoE speech outlines three key actions for firms ahead of LIBOR cessation

On 9 December 2020, the BoE published a speech by Andrew Hauser, the Executive Director for Markets at the BoE, on firms' preparations for LIBOR cessation at the end of 2021. The speech identifies three key actions for market participants:

  • move all new business off LIBOR - whether a firm is a lender or a borrower, it must be ready to transact any new or refinanced lending on a non-LIBOR basis before 2021. In sterling swaps, firms should work towards ceasing all new LIBOR use by the end of March 2021.
  • adopt the International Swaps and Derivatives Association Inc (ISDA) fallbacks protocol – 1,700 legal entities around the world had adopted the protocol. The BoE wishes to see more banks and stakeholders in the investment community adopting the ISDA protocol.
  • reduce the legacy of post-2021 LIBOR-linked contracts - where such contracts in other markets are expected to remain outstanding, the best chance of avoiding risks lies in active conversion to another rate before the end of 2021. For sterling, the Working Group on Sterling Risk-Free Reference Rates has encouraged all market participants to complete, by the end of March 2021, a full assessment of their LIBOR contracts extending beyond the end of 2021.

FCA publishes evaluation of its work on the financial advice market

On 3 December 2020, the FCA published an evaluation of the impact of the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR). Both reviews aim to improve the distribution of retail financial services products. The key findings of the evaluation include:

  • The financial advice market is improving, albeit slowly.
  • Many consumers are still holding money in cash that could be invested to provide potentially higher returns. While the use of support services has increased slightly in recent years (up from 26% in 2017 to 28% in 2020), many consumers do not use the services that are available in the market.
  • There are particular challenges to consumers’ engagement with automated services (which have only been used by 1.3% of UK adults in the last 12 months). Automated advice services only provide a small proportion of advice services and do not provide competitive pressure to the more traditional advisory services.
  • Evidence from international markets suggests that beneficial innovation and greater transparency of charges and services can lead to increased consumer engagement.
Payment Services and Systems

APP scam: extension of victim compensation and implementation of warnings provision

On 9 December 2020, UK Finance announced that a group of signatories to the voluntary Authorised Push Payment (APP) Contingent Reimbursement Code has agreed to extend until 30 June 2021 the interim funding to compensate eligible victims of APP scams. The interim funding is provided to ensure customer reimbursement takes place while regulators and the government work to deliver a long-term, sustainable funding arrangement.

On 10 December 2020, the Lending Standards Board published a report on how firms have implemented the effective warnings provision of the contingent reimbursement model code for APP. The report found that firms had taken the provision of effective warnings as a key tool to prevent APP scams from taking place. All participants acknowledged that warnings could be improved and enhanced, but that warnings could not prevent all occurrences of customers falling victim to scams.

Consultation on new special administration regime for payment institutions and electronic money institutions

On 3 December 2020, HM Treasury published a consultation to seek views on the introduction of a new special administration regime for payment institutions and electronic money institutions. The new regime aims to help protect customers when a payment or electronic money institution goes into insolvency. The special regime is intended to have the following key features:

  • an explicit objective on the special administrator to return customer funds as soon as reasonably practicable
  • a bar date for client claims to be submitted to speed up the distribution process
  • a mechanism to facilitate the transfer of customer funds to a solvent institution
  • a post-administration reconciliation to top-up or drawdown funds to or from the safeguarding process
  • provisions for continuity of supply to minimise disruption rules for treatment of shortfalls in the institutions’ safeguarding accounts rules for allocation of costs
  • an explicit objective on the special administrator for timely engagement with payment systems and authorities.

The consultation closes on 14 January 2021.

BoE's future priorities in its supervision of financial market infrastructures

On 3 December 2020, the BoE published the 2020 Annual Report on its supervision of financial market infrastructures (FMIs). The BoE has outlined five future priorities:

  • promote FMIs’ financial and operational resilience
  • examine the procyclicality of margin calls and the resilience of non-bank liquidity when faced with margin calls
  • contribute to international work and to learn the lessons from 2020's market volatility
  • ensure innovation in payment
  • develop an approach to recognition and supervision of incoming central counterparties.
Consumer Credit

FCA letter to mainstream consumer credit lenders

On 2 December 2020, the FCA published a Dear Board of Directors letter it sent to mainstream consumer credit lenders (MCCLs). The key drivers of harm for MCCLs, as set out in the letter, are:

  • Affordability checks firms perform are inadequate, leading to or exacerbating the overindebtedness of customers.
  • Firms fail to establish and implement clear, effective and appropriate policies and procedures for customers in arrears resulting in unfair or inappropriate outcomes for those in financial difficulties.
  • Potential unfair treatment of customers as firms embed and respond to the FCA's credit card persistent debt regulatory remedies.
  • A potential lack of transparency in the pricing structures and features of consumer credit products which has the potential to lead to adverse customer outcomes.

The FCA expect MCCLs to reflect on the issues highlighted in the letter, and to consider the degree to which they present these risks, as well as their mitigation strategies.

FCA evaluation of its rent-to-own price cap

On 2 December 2020, the FCA published an evaluation paper summarising its evaluation of the 2019 price cap intervention in the rent-to-own (RTO) market. The FCA evaluated two key aspects of the RTO price cap:

  • effect of the price cap’s benchmarking requirements on product prices - the FCA expected the benchmarking requirement to reduce the gap between RTO base prices and those of products sold by other retailers
  • effectiveness of the FCA's rules preventing revenue recovery through insurance, arrears and other charges.

In the FCA's view, the results estimate that the price cap’s benchmarking requirements have brought RTO prices much closer to the high-street average. The FCA also has not seen evidence to suggest that RTO firms raised the prices of add-ons and connected goods or services to recoup revenue lost because of the price cap.

Banking and insurance

PRA policy statement on Capital Requirements Directive V

On 28 December 2020, the PRA published a policy statement (PS29/20) setting out its final policy on the implementation of the Capital Requirements Directive V (CRD V) and its final policy on the designation of firms within certain consolidation groups. PS29/20 confirms that the policy published as near-final in PS26/20 on the implementation of the CRD V has now been finalised. The PRA's final policy is set out in the appendices to PS29/20. The policy is relevant to UK banks, building societies, and PRA-designated investment firms, as well as UK financial holding companies, and UK mixed financial holding companies.

PRA policy statement on transposing BRRD II Directive

On 21 December 2020, the PRA published a policy statement (PS28/20) on transposing the Bank Recovery and Resolution Directive II (BRRD II)). PS28/20 provides feedback to responses that the PRA received on its Consultation PaperPS28/20 also contains the amended Contractual Recognition of Bail-in (CROB) Part of the PRA Rulebook (Appendix 1) and the amended Stay in Resolution (Stays) Part of the PRA Rulebook (Appendix 2). The policy is relevant to Bank Recovery and Resolution Directive (BRRD) undertakings to which the CROB and Stays Parts apply.

Future priorities of the International Association of Insurance Supervisors

On 8 December 2020, the International Association of Insurance Supervisors (IAIS) published a press release, setting out the IAIS's four overarching priorities for the coming years:

  • risk assessment and the maintenance of financial stability
  • delivering on key post-crisis reforms, including further refinement of the insurance capital standard during the current five-year monitoring period and the consistent implementation of the holistic framework for the assessment and mitigation of systemic risk in the insurance sector
  • addressing the risks and opportunities of key trends, especially those accelerated by the COVID-19 crisis, like technological innovation, cyber risk, climate risk and financial inclusion to address the protection gap. Diversity and inclusion and helping emerging market and developing economies to shift to risk-based supervision will also factor heavily in IAIS work.
  • implementation support and assessment, specifically reinforcing extensive programme of member support to help insurance supervisors understand and implement IAIS standards.

These priorities will be codified in the IAIS Roadmap 2021-2022, which will be published in early-2021.

PRA speech on the use of stress tests in preparing the insurance sector

On 3 December 2020, the PRA published a speech by Charlotte Gerken, the Executive Director of Insurance Supervision at the PRA. The speech focus on the importance of the insurance sector being prepared for a world of high risk and the benefits of stress testing. Ms Gerken stated that set piece tests enhance the PRA's understanding of the structure and sensitivities of firms’ balance sheets, while generic stress tests provide a guide to resilience under a diverse set of systemic shocks regardless of the circumstances of a particular event.

Additionally, Ms Gerken also mentioned two future stress tests:

  • The BoE will be using the 2021 biennial exploratory scenario to explore the financial risks posed by climate change.
  • The BoE will run another comprehensive insurance stress test in 2022, which amongst other things will include a dedicated scenario for general insurers underwriting cyber risk, reflecting the BoE's view that firms still need to improve the way they assess and manage their cyber exposures.
Funds and Asset Management

IOSCO survey on exchange traded funds

On 22 December 2020, the International Organization of Securities Commissions (IOSCO) issued a voluntary questionnaire for industry participants on exchange-traded funds (ETFs), including asset managers, liquidity providers and market-makers. The purpose of the survey is to support the IOSCO's ongoing ETF project by enhancing its understanding of certain aspects of ETFs, including during the market volatility in March/April 2020 due to the COVID-19 pandemic and, in particular, issues related to fixed-income ETFs.

 

The deadline for responses is 1 March 2021.

 

ESMA final guidelines on outsourcing to cloud service providers

 

On 18 December 2020, the European Securities and Markets Authority (ESMA) published its final report on guidelines on outsourcing to cloud service providers.The guidelines complete the guidance from the European Supervisory Authorities on the use of cloud services, following earlier guidelines from the European Banking Authority and European Insurance and Occupational Pension Authority. However, despite some similarities, the guidelines may not represent the level of cross-sector harmonisation that some might have hoped for (see our article for a more detailed analysis). 

 

The guidelines enter into force on 1 January 2021 and will apply to all cloud outsourcing arrangements firms enter into, renew or amend on or after 30 June 2021. For existing cloud arrangements, ESMA expects firms to review and amend those arrangements by 31 December 2022.

 

ESMA final guidelines on assessing leverage risk under the AIFMD

 

On 17 December 2020, ESMA published its final report on guidelines under Article 25 of the Alternative Investment Fund Managers Directive, which requires competent authorities to identify the extent to which the use of leverage contributes to the build-up of systemic risk in the financial system, risks of disorderly markets or risks to the long-term growth of the economy. The guidelines, which are in Annex III to the report, provide national competent authorities with a set of indicators to consider when performing their risk assessment and a set of principles that they should take into account when calibrating and imposing leverage limits. 

 

The guidelines will now be translated into the official EU languages and published on ESMA's website and will apply two months after the publication of the translations.

Securities and Markets

ESMA Q&As on MiFID II Directive and MiFIR

On 22 December 2020, ESMA published an updated version of its Q&As on investor protection and intermediaries under MiFID II and the Markets in Financial Instruments Regulation (MiFIR). The Q&As provide responses to a range of questions including questions regarding recording of telephone conversations and electronic communications, record keeping, information on costs and charges, underwriting and placing as well as client categorisation.

Change of notification thresholds under UK Short Selling Regulation

On 15 December 2020, HM Treasury announced that it intends to lay a statutory instrument under the retained EU law version of the Short Selling Regulation amending the initial notification threshold under Article 5(2) for the reporting of net short positions to the FCA, in relation to the issued share capital of a company that has shares admitted to trading on a trading venue, from 0.2% to 0.1%. The change will come into force on 1 February 2021.

The FCA has updated its webpage to reflect the change.

First FCA consultation on implementation of Investment Firms Prudential Regime

On 14 December 2020, the FCA published the first out of three consultation papers on the implementation of the Investment Firms Prudential Regime (IFPR) (CP20/24) in relation to a new UK prudential regime for investment firms authorised under MiFID II. In the FCA's view, the IFPR will streamline and simplify the prudential requirements for solo-regulated investment firms in the UK.

The key proposals that are covered in the consultation paper include:

  • categorisation of investment firms
  • prudential consolidation
  • own funds and own funds requirements
  • reporting requirements.

The closing date for the comments on the first consultation paper is 5 February 2021. The second and third consultation papers will respectively be published at the start of Q2 and Q3 2021.

Investigations and Enforcement

Independent investigation into the FCA's regulation of London Capital & Finance plc

On 17 December 2020, HM Treasury published a report of the Dame Elizabeth Gloster's independent investigation into the FCA's regulation of London Capital & Finance plc (LC&F). The report concluded that the FCA did not discharge its functions in respect of LC&F in a manner which enabled it to effectively fulfil its statutory objectives. The bondholders were entitled to more protection from the regulatory regime in relation to an FCA-authorised firm than that delivered by the FCA. The report made nine recommendations on how the FCA may address the significant gaps and weaknesses in its policies and practices in relation to analysing regulated firms' business activities. Among others, the FCA should:

  • direct staff responsible for authorising and supervising firms, in appropriate circumstances, to consider a firm's business holistically
  • have appropriate policies in place that clearly state what steps should be taken or considered following repeat breaches by firms of the financial promotion rules
  • take steps to ensure that:
    • all information and data relevant to the supervision of a firm is available in a single electronic system such that any red flags or other key risk indicators can be easily accessed and cross-referenced; and
    • system uses automated methods to generate alerts for staff within the Supervision Division when there are red flags or other key risk indicators.

In its response, the FCA states that it will fully incorporate the recommendations into its ongoing transformation programme.

Additionally, Nikhil Rathi, the Chief Executive at the FCA, also outlined a series of key actions that the FCA will take in the next 6 months in light of the report's findings. Among others, the FCA will:

  • take steps to become a more data-enabled regulator
  • enhance training for all frontline supervisory, authorisation and enforcement staff
  • recruit additional prudential specialists to act as quality assurance and to assess firms with complex business models
  • tackle scams advertised and promoted on online platforms
  • step up the FCA's consumer campaigns.

£26 million fine over treatment of customers in financial difficulty

On 15 December 2020, the FCA published the final notice it has issued to Barclays Bank UK plc, Barclays Bank plc and Clydesdale Financial Services Ltd for failures in relation to their treatment of consumer credit customers who fell into arrears or experienced financial difficulties. The FCA found that they failed to treat customers fairly or to act with due skill, care and diligence. Specifically, they:

  • failed to follow customers’ contact policies for customers who fell into arrears
  • failed to have appropriate conversations with customers to help understand the reasons for the arrears
  • failed to properly understand customers’ circumstances leading it to offer unaffordable, or unsustainable, forbearance solutions.

The FCA stated that it will continue to focus on the fair and appropriate treatment of customers experiencing financial difficulty and that firms should ensure there is appropriate investment in their staff who work in collections and recoveries, including in training and effective management of information, to allow firms to monitor customer outcomes and take appropriate action where needed.

FCA fines and prohibits hedge fund Chief Investment Officer for market abuse

On 15 December 2020, the FCA published the final notice that it issued to a former portfolio manager, partner and Chief Investment Officer at a hedge fund. The FCA found that the former Officer engaged in market abuse by creating a false and misleading impression as to the supply and demand for equities. The FCA therefore levied a £100,000 fine and prohibited the former Officer from performing any functions in relation to regulated activity.

The FCA also stated that market manipulation is corrosive of market integrity, undermining clean, efficient and fair markets and that the FCA has increased its capability to detect and to take robust action against the harm to shareholder value.

Financial crime

National risk assessment 2020: money laundering and terrorist financing

On 17 December 2020, HM Treasury and the Home Office published the 2020 national risk assessment (NRA) of money laundering and terrorist financing. The NRA sets out the key money laundering and terrorist financing risks for the UK, how these have changed since the UK’s second NRA was published in 2017, and the action taken since 2017 to address the risks.

The key findings include:

  • the traditional high-risk areas of money laundering remain, including financial services, money service businesses, and cash.
  • cash-based money laundering is still heavily characterised by the use of cash intensive businesses to disguise criminal sources of wealth, or by smuggling large amounts out of the UK.
  • the transposition of Fifth Anti-Money Laundering Directive recognised the risk cryptocurrencies pose
  • art market participants and letting agency businesses have been assessed as posing a high risk of money laundering for their ability to conceal the beneficial owners
  • professional services remain attractive to criminals as a means to create and operate corporate structures, invest and transfer funds to disguise their origin, and lend layers of legitimacy to their operations
  • the UK's terrorist financing threat continues to involve low levels of funds being raised by UK individuals for the purpose of lifestyle spending and low sophistication attacks.

Temporary FCA registration regime for cryptoasset businesses

On 16 December 2020, the FCA announced that it has established a Temporary Registration Regime for cryptoasset businesses. The Regime is for existing cryptoasset businesses which have applied for registration before 16 December 2020, and whose applications are still being assessed. The Regime enables those existing businesses to continue to trade on 10 January 2021 until 9 July 2021, pending the FCA’s determination of their application.

The FCA stated that firms that did not apply by 15 December 2020 will not be eligible for the Regime. They will need to return cryptoassets to customers and stop trading by 10 January 2021. Firms that do not stop trading by that date are at risk of being subject to the FCA’s criminal and civil enforcement actions. The FCA also advised customers of cryptoasset firms which should have applied to the FCA, but have not done so, to withdraw their cryptoassets or money before 10 January 2021. 

Additionally, the FCA stated that it does not have consumer protection powers for the cryptoasset activities of firms. Even if a firm is registered with the FCA, the FCA is not responsible for ensuring cryptoasset businesses protect client assets.

FSR trivia

According to a recent PRA report evaluating the SMCR, in the approximately 4.5 years leading up to October 2020, how many conduct notifications did the PRA receive in respect of senior managers:

  • 1,286
  • 104
  • 16
  • 785

The answer to last month's question is: Temporary Transition Power.

本系列内容

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Financial services update - February 2021

In-depth analysis

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Financial services update - December 2020

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Financial services update - November 2020

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Financial services update - October 2020

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Financial services update - August 2020

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Financial services update - July 2020

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Financial services update - June 2020

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Financial services update - May 2020

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Financial services update - April 2020

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Financial services update - March 2020

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Financial services update - January 2020

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