作者
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2月4日

Financial services update – 14 / 19 观点

Financial services update - February 2021

  • In-depth analysis

The topics covered in this month's newsletter include:

  • FCA reminder to regularly review regulatory permissions
  • HM Treasury consultation on the regulation of cryptoassets and stablecoins
  • United Nations report on insurers and climate change
  • ESMA reminder regarding MiFID rules on reverse solicitation

Please also see our separate webpages '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

On 26 January 2021, FCA published a speech by Edwin Schooling Latter, the Director of Markets and Wholesale Policy at the FCA, on being ready for life without LIBOR from the end of 2021. The speech highlights that: 

  • 12,500 firms have signed the International Swaps and Derivatives Association Inc (ISDA) fallbacks protocol, representing a major reduction in risk for the system as a whole
  • the ISDA protocol is still open for signature and the importance of signing the protocol is unchanged
  • ICE Benchmark Administration (IBA) consultation on proposed end-dates for LIBOR has now closed, opening the way to determining and announcing the future path for all 5 LIBOR currencies simultaneously
  • users of LIBOR should press ahead with transition plans, in their new business and their legacy LIBOR books.
 

Half of reporting firms moved to FCA’s new data collection platform

On 21 January 2021, the FCA published a press release announcing that 50% of firms who have previously submitted their regulatory reporting on Gabriel are now using RegData. The FCA stated that it will continue to move firms across to RegData over the next few months and urged firms that are still using Gabriel to register for RegData. It is also inviting firms to complete a short survey on their experience of the move and the system so far.

FCA reminds firms to regularly review regulatory permissions

On 18 January 2021, the FCA published a statement reminding firms of their obligation to regularly review regulatory permissions to ensure they are up to date and removed where they are not needed. The FCA expects firms to notify it of material changes and apply to make any necessary changes in a timely way. It stated that, the new powers in the Financial Services Bill 2019-21 will enable it to act more quickly where it considers a firm is no longer carrying out regulated activities. In particular, where it believes that a firm is not carrying on a regulated activity, it will be able to serve notice on the firm, asking for a written response within 14 days. If the firm does not respond, it can publish a second, public notice stating that it appears that the firm is not carrying on a regulated activity. It can then vary or cancel the firm’s permissions after 1 month.

MoUs with European authorities in the areas of securities, investment services and asset management, insurance and pensions, and banking

On 14 January 2021, the FCA updated its webpage on memorandums of understanding (MoUs) it has entered into with the European authorities in the areas of securities, investment services and asset management, insurance and pensions and banking. The webpage includes texts of the following MoUs:

The webpage also states that individual MoUs with EU and EEA NCAs covering supervisory cooperation and information-sharing arrangements in the field of banking can be found on the Prudential Regulation Authority (PRA) website

The MoUs came into effect on 1 January 2021.

LIBOR transition: updates from Working Group on Sterling Risk-Free Reference Rates

On 11 January 2021, the FCA published a press release announcing that the Working Group on Sterling Risk-Free Reference Rates has published an update to its priorities and roadmap. The FCA stated that, the Working Group’s top priority is for markets and their users to be fully prepared for the end of sterling LIBOR by the end of 2021. In particular, the Working Group has recommended: 

  • from the end of March 2021, sterling LIBOR is no longer used in any new lending or other cash products that mature after the end of 2021
  • firms no longer initiate new linear derivatives linked to sterling LIBOR after the end of March 2021, other than for risk management of existing positions or where they mature before the end of 2021.

The press release also mentions that the BoE and the FCA will continue to work closely with firms to secure a smooth transition. In particular, senior managers with responsibility for the transition should expect close supervisory engagement on how they are ensuring their firm’s progress relative to industry milestones.

Payment Services and Systems

FCA consults on changes to SCA technical standards and to payments and e-money approach document

On 28 January 2021, the FCA published a consultation paper, proposing amendments to the FCA's Technical Standards on Strong Customer Authentication and Common and Secure Methods of Communication, with the aim of removing identified barriers to continued growth, innovation and competition in the payments and e-money sector (including open banking), while making the sector more resilient and protecting consumers if firms fail.

The deadline for responses to the FCA's proposals relating to contactless payments in Chapter 3 (questions 5 and 6) of the consultation paper is 24 February 2021. The deadline for responses to the FCA's other proposals is 30 April 2021.

HM Treasury consultation on the regulation of cryptoassets and stablecoins

On 7 January 2021, HM Treasury (HMT) opened a consultation on the regulation of cryptoassets and stablecoins (see our article for more detail). The consultation paper proposes an incremental, phased approach to regulatory adjustments, to ensure that the regulatory approach focuses on risks and opportunities that are most urgent or acute. The consultation seeks to define the general scope and objectives of the phased approach, rather than focusing on precise requirements. Instead, the detail will be left to the UK's independent regulators, which will be required to consult and use their agile powers to issue rules or codes of practice, within the regulatory perimeter, objectives and principles set by the government. This approach will allow the regime to keep up with developments and the rapid pace of change in this space.

The consultation closes on 21 March 2021.

FCA directions and notifications forms under the post-Brexit UK regulatory regime

On 31 December 2020, the FCA published a series of new directions and notification forms, which it and firms will need to use now following the end of the Brexit transition period.

The notifications forms that the FCA published include:

  • Supervised run-off (SRO) notification form - SRO forms part of the Financial Services Contracts Regime (FSCR).It allows EEA authorised payment institutions, EEA authorised e-money institutions and EEA registered account information service providers to provide the payment and e-money services that they were providing in the UK in the exercise of a passport right to continue servicing pre-existing contracts with UK customers.
  • Contractual run-off (CRO) notification form – CRO forms part of the FSCR. It allows EEA or Treaty firms that, immediately prior to the UK’s withdrawal from the EU, qualified for authorisation to undertake regulated activities in the UK, to continue performing regulated activities within the scope of their previous passport in the UK, mainly to the extent necessary to continue to perform pre-existing contracts with UK customers.

In relation to the SRO and CRO notification forms, the FCA also published the following directions under the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018:

Consumer Credit

FCA letter to debt firms

On 18 January 2021, the FCA published a letter sent to debt purchasers, debt collectors and debt administrators. The letter identified three main areas that the FCA will be prioritising:

  • Customer treatment - the FCA continues to see some firms fail to treat customers fairly. With growing numbers of people in vulnerable circumstances, it is particularly relevant that firms recognise and respond to their needs.
  • Litigation and unenforceable debts - where litigation is pursued and costs or interest are added to a claim, firms should consider how fair it is to pursue litigation without fully exploring other more proportionate options.
  • Firms’ prudential resources - firms prudentially-regulated by the FCA play an important role in supporting the integrity of the UK financial system. The FCA uses several data sources to monitor indicators of potential harm and will engage with firms where it considers regulatory obligations have been breached.

Insolvency Service Guidance on Debt Respite Scheme (Breathing Space)

On 24 December 2020, the Insolvency Service published the guidance on the Debt Respite Scheme (Breathing Space) which will come into force on 4 May 2021. The guidance comprises two documents:

Banking and Insurance

PRA consults on branch and subsidiary supervision

On 11 January 2021, the PRA published a consultation paper (CP2/21) on its proposed approach to supervising the UK activities of PRA-authorised banks and designated investment firms that are headquartered outside of the UK, or are part of a group based outside of the UK. The purpose of the proposals is to provide clarity on the implications of the different ways the banks and firms may choose to structure their operations. The proposals also aim to explain how the PRA would assess them against its threshold conditions. The proposals would result in a new Supervisory Statement (SS) ‘International banks: The PRA’s approach to branch and subsidiary supervision’, which will supersede SS1/18 ‘International banks: the Prudential Regulation Authority’s approach to branch authorisation and supervision'.

The consultation paper closes on 11 April 2021. The PRA intends to implement the final policy in Q2 2021.

BoE 2021 stress test

On 20 January 2021, the BoE published a new webpage on the 2021 stress test. The webpage states that the stress test aims to use periods when the economy is growing to build up banks’ buffers of capital, ready to be drawn on to support a stressed economy. This is achieved by stress testing banks against a broad, severe and hypothetical stress scenario that gets tougher as debt and other vulnerabilities that can amplify a recession builds up. The webpage further states that the eight banks and building societies taking part in the stress test account for around 75% of lending to the UK real economy.

United Nations report on insurers and climate change

On 19 January 2021, a group of insurers and reinsurers convened by the United Nations Environment Programme Finance Initiative issued a report discussing what climate change means to the insurance business, what the key challenges are, and what can be done to better understand, manage and disclose climate-related risks and opportunities efficiently and effectively.

The report classifies the potential climate change-related risks and opportunities that insurers could face into three categories:

  • physical risks related to changes in weather patterns, temperature and hydrological conditions
  • transition risks towards a net-zero emissions economy and related fundamental changes in, for example, energy, food and transport systems
  • potential litigation risks pertaining to climate change and breach of underlying legal frameworks on both the business and corporate levels.

The report also sets out methodologies that insurers can use to implement the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosure.

Funds and Asset Management

On 26 January 2021, HM Treasury published a call for input on its review of the UK funds regime, seeking input on issues across both tax and regulation as part of its review of the UK funds regime. In particular, chapter 3 of the call for input sets out the UK's approach to funds regulation. It provides examples of reforms including the asset management market study (AMMS) and the creation of private fund limited partnerships (PFLPs). HM Treasury stated that it heard from stakeholders that there are gaps in the range of fund structures available in the UK, particularly to facilitate investment in long-term, illiquid assets and to meet the needs of alternative investment funds (AIFs) for professional investors. Chapter 3 of call for input is therefore focusing on:

  • Fund authorisation
  • Speed to market
  • Qualified Investor Scheme
  • Operational efficiency

 

The call for input closes on 20 April 2021.

 

ESMA letter on Sustainable Finance Disclosure Regulation

 

On 14 January 2021, ESMA published a letter from Steven Maijoor, the Chair of the Joint Committee of the European Supervisory Authorities (ESAs), to John Berrigan, the Director General for Financial Stability, Financial Services and Capital Markets Union at the European Commission, about the Sustainable Finance Disclosure Regulation (SFDR).

 

Mr Maijoor stated that the ESAs have encountered several important areas of uncertainty in the interpretation of SFDR and have identified a few priority issues that would benefit from urgent clarification to facilitate the orderly application of the SFDR from 10 March 2021:

 

  • application of the SFDR to non-EU alternative investment fund managers (AIFMs) and registered AIFMs
  • application of the 500-employee threshold for principal adverse impact reporting on parent undertakings of a large group
  • meaning of "promotion" in the context of products promoting environmental or social characteristics
  • application of Article 9 of the SFDR (transparency of sustainable investments in pre-contractual disclosures)
  • application of SFDR product rules to portfolios and dedicated funds.

ESMA common supervisory action with NCAs on supervision of costs and fees of UCITS

On 6 January 2021, ESMA published a press release announcing it is launching a common supervisory action (CSA) with national competent authorities (NCAs) on the supervision of costs and fees of Undertakings for the Collective Investment of Transferable Securities (UCITS). The CSA will be conducted during 2021. The aim is to assess the compliance of supervised entities with the relevant cost-related provisions in the UCITS framework, and the obligation to not charge investors undue costs. The NCAs will take into account ESMA's June 2020 supervisory briefing on the supervision of costs in UCITS and alternative investment funds (AIFs). The CSA will also cover entities employing Efficient Portfolio Management (EPM) techniques to assess whether they adhere to the requirements set out in the UCITS framework and ESMA Guidelines on exchange traded funds and other UCITS issues.

Securities and Markets

ESMA reminds firms MiFID rules on reverse solicitation

On 13 January 2021, ESMA published a statement reminding firms of the requirements under the MiFID II Directive on reverse solicitation in the context of the end of the Brexit transition period. ESMA stated that, following the end of the transition period, there have been questionable practices by firms around reverse solicitation. For example, some firms appear to be trying to circumvent MiFID II requirements by including general clauses in their terms of business, or through the use of online pop-up "I agree" boxes, where clients state that any transaction is executed on the exclusive initiative of the client. ESMA reminds firms of recital 111 of MiFID II, which provides guidance on what "own exclusive initiative of the client" means. It also reminds firms that every communication means used, including press releases, advertising on the internet or phone calls, should be considered in determining whether the client, or the potential client, has been subject to any solicitation, promotion or advertising in the EU on the firm's investment services or financial instruments.

UK and Switzerland cooperation on financial services

On 13 January 2021, the Markets in Financial Instruments (Switzerland Equivalence) Regulations 2021 were published on legislation.gov.uk, together with an explanatory memorandum. The Regulations specify that the legal and supervisory framework for stock exchanges in Switzerland meet at least equivalent outcomes to the UK’s corresponding regime. The Regulations will allow UK investment firms, who subject to the trading obligation set out in Article 23(1) of the Markets in Financial Instruments Regulation, to trade shares that fall within scope of the share trading obligation on Swiss trading venues that have been recognised as equivalent.

The Regulations were laid before Parliament on 13 January 2021 and will come into force on 3 February 2021.

On 28 January 2021, HM Treasury published a press release announcing that the UK and Switzerland will move forward with negotiations on the ambition of delivering a comprehensive mutual recognition agreement that would reduce costs and barriers for UK firms accessing the Swiss market, and vice versa. The negotiations are expected to cover a wide range of sectors such as insurance, banking, asset management and capital markets, including market infrastructure.

HM Treasury clarifies aspects of EMIR 2.2

On 12 January 2021, HM Treasury published a letter from John Glen, the Economic Secretary to HM Treasury, to Lord Kinnoull, the Chair of the European Union Committee. The letter provides clarification on the following aspects of EMIR 2.2 ((EU) 2019/2099):

  • changes to delegated acts on central counterparty (CCP) recognition
  • impact on comparable compliance
  • supervisory co-operation between the BoE and ESMA.
Investigations and Enforcement

FCA consumer investments data review 2020

On 18 January 2021, the FCA published the summary of its work to tackle consumer harm in the investment market. Between 1 January and 31 October 2020, 1,542 supervisory cases involving scams or higher risk investments were opened. During this period, 1,042 cases were closed. 68% of these cases were closed in supervision following investigation, 19% were referred to other parts of the FCA (including enforcement) or other agencies (including law enforcement agencies) for ongoing investigation and 13% were closed following regulatory action. Regulatory action includes firm visits or communications, mandating action to senior management or making use of the FCA's powers under the Financial Services and Markets Act 2000, such as varying permissions.

FCA and PRA impose requirements relating to whistleblowing systems and controls

On 14 January 2021, the FCA and the PRA jointly issued a written notice to Tokio Marine Kiln Insurance Ltd and Tokio Marine Kiln Syndicates Ltd (TMKs), in which they set out a list of requirements that they are imposing on TMKs relating to whistleblowing systems and controls.

By way of background, in December 2019, TMK disclosed to the PRA and the FCA the outcome of its investigation into whistleblowing allegations including potential shortcomings in the operation of its whistleblowing systems and controls. Following discussions with the PRA and the FCA, TMK applied for the imposition of new requirements and the regulators have decided to grant the applications.

The regulators' requirements include a written report detailing the steps that TMK has taken to enhance awareness of whistleblowing processes, and its methodology for assessing the effectiveness of these steps.

TMK must also provide written confirmation for each of the calendar years 2020, 2021 and 2022, providing information such as:

  • number of whistleblowing reports received during the year
  • number of whistleblowing cases opened or investigated during the year, and how many involved allegations against a senior manager or director
  • the results of any Staff surveys or third-party assurance as to the effectiveness of the training and non-training initiatives relating to whistleblowing during the year.
Financial crime

PRA consults on depositor protection identity verification

On 20 January 2021, the PRA published a consultation paper on depositor protection identity verification. The paper sets out its proposed rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS). It also proposes amendments to Supervisory Statement (SS) 18/15, including a new expectation that Insolvency Practitioners should carry out identity verification in the event that a firm has failed to do so by the compensation date.

The implementation date for the changes, as proposed by the PRA, is 24 March 2021. The consultation closes on 17 February 2021 (although the PRA's webpage states that the closing date is 15 February 2021).

Joint Money Laundering Steering Group highlights areas in its guidance impacted by Brexit

On 14 January 2021, the Joint Money Laundering Steering Group (JMLSG) published a press release highlighting areas within the JMLSG's anti-money laundering and counter-terrorist financing guidance that are impacted by Brexit. The guidance is based on the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Areas within the guidance that are affected are:

  • the definition of a ‘third country’ has become a country other than the UK, as opposed to outside the European Economic Area (EEA)
  • the same level of information is to be provided by UK Payment Service Providers, regardless of whether funds are being transferred to/from EEA countries or any other third country
  • specific references to observing European Supervisory Authority (ESA) guidelines within the Guidance are no longer appropriate
  • with regard to correspondent relationships involving the execution of payments, firms should take cognisance of the effectiveness of the AML/CTF regime of any third country when determining the extent of the EDD measures to apply to respondents in that country.

Financial Services Bill 2019-21: revised text and first reading in House of Lords

On 13 January 2021, the House of Commons held the report stage and third reading of the Financial Services Bill 2019-21.

The House of Lords held the first reading of the Bill on 14 January 2021, and held the second reading on 28 January 2021.

revised version of the Bill, together with revised explanatory notes, has been published on the UK Parliament website. Among others, the Bill has been amended to:

  • bring payment and e-money institutions within threshold amount provisions concerning defence against money laundering suspicious activity reports
  • extend the scope of account freezing and forfeiture powers to include accounts held at payment and e-money institutions.
FSR trivia

In February, 28 teams will be participating in the Digital Sandbox Pilot (launched by the FCA and the City of London Corporation) to test innovative products and services in response to challenges arising out of the COVID-19 pandemic. Which one of the following is not one of the areas that the pilot is focusing on?

  • Fraud & scams
  • Robot advice
  • Vulnerability
  • SME lending

The answer to last month's question is: 16.

Interactive webinar on the Senior Managers and Certification Regime

04 February - 16:00 - 17:00 GMT

Last chance to join our experts for an interactive webinar on the Senior Managers & Certification Regime (SMCR).

With the help of a number of case studies, we will discuss how firms should approach the following aspects of the SMCR, which must be undertaken by solo-regulated firms by 31 March 2021:

  • Assessing the fitness and propriety of Certified Persons
  • Carrying out Conduct Rules training for staff
  • Submitting information about Directory Persons to the Register

We will also consider issues arising out of the lockdown, such as how these processes are best managed remotely.

Register here

本系列内容

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Financial services update - January 2020

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Financial services update - March 2020

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Financial services update - April 2020

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Financial services update - May 2020

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Financial services update - June 2020

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Financial services update - July 2020

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Financial services update - August 2020

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Financial services update - October 2020

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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 - February 2021

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作者 Charlotte Hill, Daniel Hirschfield

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