Financial services update – 21 / 35 观点
The topics covered in this month's newsletter include:
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.
FCA survey on the impact of COVID-19 on the financial situation of consumers
On 11 February 2021, the FCA released its latest Financial Lives survey (FLS) which looks at the impact of the COVID-19 pandemic on consumers' financial situations. The survey also shows how the pandemic has impacted the financial products consumers are choosing and their experiences of engaging with financial services firms. The FLS shows that there are now 27.7 million adults in the UK with characteristics of vulnerability such as poor health, low financial resilience or recent negative life events. This figure is up 15% since the FCA completed its FLS in February 2020, when 24 million displayed characteristics of vulnerability.
House of Commons EU Scrutiny Committee confirms files that it will continue to scrutinise following the end of Brexit transition period
On 11 February 2021, the House of Commons European Scrutiny Committee published a letter (dated 10 February 2021) from Sir William Cash, the Committee Chair, to Michael Gove, the Chancellor of the Duchy of Lancaster. The letter states that, in light of the end of the Brexit transition period and the UK-EU trade and co-operation agreement, the European Scrutiny Committee intends to continue to scrutinise a limited number of files which the Committee considers to be legally and/or politically important. The files are detailed in the Annex to the letter. These are files that, among other concerns, satisfy one or more of the following:
The files include the Taxonomy Regulation and the proposed Regulation on Markets in Cryptoassets.
BoE speech on the UK as an open financial system
On 10 February 2021, the BoE published a speech, given by Andrew Bailey, the Governor at the BoE. The speech outlines the benefits of a global financial system, and the UK’s current and future role in it. In Mr Bailey's view, the public goods of an open financial system and the stability of that system are global, not regional, in nature. The UK is one of the world’s largest global financial centres, and its financial stability is therefore a global public good. The UK’s financial markets and its financial system are therefore open for trade to all who will abide by UK laws.
The speech also focuses on the issue of EU equivalence. The EU has pursued the approach of so-called equivalence, which on the face of it calls for deferring to other authorities where appropriate. Mr Bailey said that it would be reasonable to think that a common framework of global standards combined with a common basis for the rules (as the UK has transposed EU rules) would be enough for the EU to base equivalence on. He also said that the EU has argued that it must better understand how the UK intends to amend or alter the rules going forwards. In Mr Bailey's view, this means that UK rules should not change independently of those in the EU.
Further, Mr Bailey stressed that none of the UK plans for reform should or will create a low-regulation, high-risk, financial centre and system.
Mr Bailey also said that co-operation between the authorities in different countries is crucial. The UK already has 36 Memoranda of Understanding agreed between the BoE and PRA with supervisors across the EU. Mr Bailey welcomed the joint declaration on financial services that was contained in the TCA and said that the MoU to be agreed by March 2021 will enable discussions on how to move forward on equivalence determinations.
FCA report on practices to reduce consumer harm caused by failed technology changes
On 5 February 2021, the FCA published a review which looks at how firms implement technology change, the challenges caused when changes fail, and steps firms can take to protect consumers from harm and disruption in the market. The FCA found that changes made by firms with strong governance and risk management strategies are more successful, that robust testing is an important part of the change process, and while testing automation has benefits it also presents challenges. The FCA also found that pairing subject matter expertise with a clear understanding of a firm’s strategy is vital. The FCA stated that it is very important for firms to understand how technology change activity can affect the services they provide, and invest in their resilience to protect themselves, consumers and the markets. Such resilience measures are especially important as firms increasingly use remote and flexible working.
FCA approach to international firms
On 3 February 2021, the FCA published its approach to the authorisation and supervision of international firms. The publication explains how the FCA will assess international firms when they apply for authorisation to operate in the UK market having considered responses to a consultation published last year. In the FCA's view, international firms serving UK customers can sometimes pose different risks to consumers compared to UK firms because of the way their businesses are structured and operate. The approach document therefore sets out how these risks may be mitigated, and the factors that will be taken into account when deciding whether it may be more appropriate for an international firm to seek authorisation as a UK incorporated firm for all or part of its business.
Two PSR calls for views on increasing protection for customers using payment systems
On 11 February 2021, the Payment Systems Regulator (PSR) published two calls for views on increasing protection for customers using payment systems; one focuses on authorised push payment (APP) scams and the other considers consumer protection in interbank payments.
In its Call for views CP21/3, the PSR proposes three measures to help reducing APP fraud and improving protection for victims. The measures are:
Call for views CP21/4 focuses on consumer protection in interbank payments. The PSR is exploring how it, and the industry, can ensure that consumers and businesses are not disproportionately harmed when something goes wrong with their interbank payment (including faults with goods or services purchased). The PSR is considering measures that make it easier for consumers to make a claim when something goes wrong, as well as measures that benefit businesses by providing certainty about what happens when a payment is disputed.
Both calls for views close on 8 April 2021.
PSR consults on New Payments Architecture
On 5 February 2021, the Payment Systems Regulator (PSR) published a consultation paper (CP21/2) on the delivery and regulation of the New Payments Architecture (NPA). The PSR is concerned that the risk that the NPA programme will not provide value for money and could delay or prevent competition and innovation. The PSR is seeking views on narrowing the scope of the initial contract for delivery of the NPA services that will provide an enhanced immediate payments service, and enable Faster Payments transactions to move to the NPA. The PSR is also seeking views on the appropriate way to secure the contract and on reducing risks to competition and innovation in the NPA.
The consultation closes on 5 May 2021. Responses received will inform a policy statement that the PSR plans to publish in Q4 2021.
CMA publishes summary of borrowing template for use in complying with Payday Lending Market Investigation Order 2015
On 11 February 2021, the CMA published the template of a summary of borrowing statement to be used to comply with obligations in the Payday Lending Market Investigation Order 2015. The Order prohibits lenders from supplying payday loans unless customers are provided with a summary of the cost of borrowing so that customers are aware of the fees and charges associated with the loan product. The template sets out the information that a payday lender must provide in the summary.
FCA to regulate buy-now-pay-later credit products
On 2 February 2021, the FCA published a report following the review conducted by Christopher Woolard CBE, the former Interim Chief Executive at the FCA, on the change and innovation in the unsecured credit market. The report sets out how regulation can better support a healthy market for unsecured lending, taking into account the impact of the COVID-19 pandemic, changing business models and new developments in unregulated buy-now pay-later (BNPL) unsecured lending. Amongst other things, the report highlights that:
Following the publication of the report, HM Treasury published a press release announcing that interest free BNPL products are to be regulated by the FCA.
UN report on climate risk management tools for financial institutions
On 17 February 2021, the United Nations Environment Programme Finance Initiative issued the following three reports on climate risk management tools for financial institutions.
These three reports on climate risk analysis complement previous guidance on the topic which also covered climate risk disclosure practices as well as high-level transition-risk heatmapping and sectoral analysis.
PRA letter to iNEDs of banks and insurers
On 16 February 2021, the PRA published a letter it has sent to independent non-executive directors (iNEDs). The letter follows the PRA's pilot programme of virtual meetings last year between its senior advisors and iNEDs from around 40 PRA-regulated banks and insurers. These meetings aim to provide an informal opportunity to discuss issues and risks that were on board agendas. The letter shares some of the key themes emerging from the meetings, which include:
The PRA also encourages iNEDs to share the summary with their board colleagues to help inform them of the risk issues discussed.
PRA consults on implementation of remaining Basel III standards
On 12 February 2021, the PRA published a consultation paper (CP5/21) on the implementation of outstanding Basel III standards that remain to be implemented in the UK. The consultation sets out a proposed new PRA CRR rule instrument, which includes parts of the onshored CRR that will not be changing.
The consultation closes on 3 May 2021.
ABI speech on regulating the insurance industry
On 10 February 2021, the Association of British Insurers (ABI) published a speech delivered by James Dalton, the Director of General Insurance Policy at the ABI. The speech focuses on the future of the UK insurance industry after the Brexit transition period and lessons learned during the COVID-19 pandemic. Mr Dalton said that the global pandemic has highlighted an acute expectation gap between customers and insurers. The focus now is for insurers to support their customers, through the swift payment of valid claims, making interim payments, and providing clear and prompt answers to customer questions. He expressed that the industry needs to address the expectation gap between what a customer thinks an insurance product provides for and what the insurer intends to cover. In his opinion, the industry must redouble its efforts to engage in solutions to help tackle the hardest elements of risk to cover. Mr Dalton identified five key opportunities:
Council of EU adopts proposed Directive amending MiFID II Directive
On 15 February 2021, the Council of the EU announced it has adopted the proposed Directive amending the MiFID II Directive to help the EU's economic recovery from the COVID-19 pandemic. The Council has also published the adopted text of the amending Directive (see our COVID-19 page for more background). The MiFID II rules have been amended to simplify information requirements in a targeted manner, while ensuring investor protection. The changes reduce, for instance, the information on costs and charges that must be provided to professional investors and eligible counterparties. Paper-based investment information will also be phased out, except for retail clients who request it.
The Directive is expected to be published in the Official Journal of the European Union before the end of February 2021 and will enter into force on the day after its publication. Member states will be required to transpose the Directive into national law within nine months of that date. The measures will become applicable 12 months after the entry into force of the Directive.
Council of EU adopts proposal to amend Prospectus Regulation
On 15 February 2021, the Council of the EU adopted the proposed Regulation amending the Prospectus Regulation with regard to an EU Recovery prospectus and other amendments to facilitate the recapitalisation of companies affected by the COVID-19 pandemic. The proposed regulation temporarily provides a significant reduction in regulatory hurdles to recapitalisation by issuers and creates additional option for issuers to raise equity capital more easily via secondary issuances of shares.
The amending regulation is expected to be published in the Official Journal before the end of February 2021 and will enter into force on the twentieth day following its publication.
UK Productive Finance Working Group discusses barriers and initial deliverables
On 5 February 2021, the BoE published the minutes of the first meeting of the steering committee of the Productive Finance Working Group held on 26 January 2021. The Working Group aims to propose concrete solutions to barriers to long-term investment. During the meeting, the Working Group discussed:
ESA draft final report on RTS amending PRIIPs KID Delegated Regulation
On 3 February 2021, the European Supervisory Authorities (ESAs) announced that they have submitted to the European Commission a draft final report following consultation on the draft Regulatory Technical Standards (RTS) amending Commission Delegated Regulation 2017/653 on Key Information Documents for Packaged Retail and Insurance-based Investment Products (PRIIPs). The amending RTS include proposals in the following main areas:
Following the submission to the European Commission, the draft RTS is now subject to adoption. If adopted by the European Commission, the RTS would be subject to non-objection by the European Parliament and the Council of the European Union.
ESMA final report on draft implementing technical standards under the Regulation on crossborder distribution of funds
On 1 February 2021, ESMA published a final report (dated 29 January 2021) on draft Implementing Technical Standards (ITS) produced under Articles 5(3), 10(3) and 13(3) of the Regulation on the Cross-Border Distribution of Investment Funds ((EU) 2019/1156). The report follows the consultation on the proposed draft ITS relating to the publications to be made by NCAs on their websites and related only to the bilateral relationship between NCAs and ESMA for communication of information. The draft ITS have been submitted to the European Commission for endorsement. From the date of submission, the European Commission shall take a decision on whether to adopt the proposals within three months, although the Commission may extend that period by a further month.
Statement from the FCA Director of Enforcement and Market Oversight
On 16 February 2021, Mark Steward, the Director of Enforcement and Market Oversight at the FCA, published a statement setting out its position in relation to Neil Woodford's comments on his future business plans. The FCA confirmed that it is investigating the events that led to the suspension of the LF Woodford Equity Income Fund. The statement states that it is vital that the FCA investigates thoroughly and investigations are not limited at their outset.
BoE statement on London Capital & Finance plc
On 10 February 2021, the BoE published a statement on the investigation into the FCA's regulation of London Capital & Finance plc (LC&F) (see our January newsletter for an overview). The BoE's statement relates to the appearance of Andrew Bailey, the Governor at the BoE, before the House of Commons Treasury Select Committee, which is currently taking evidence on the FCA's regulation of LC&F. The statement states that, as the Governor made clear when he gave evidence before the Committee, his legal representations were made in the context of a draft report which was not clear on the distinction between personal culpability or blame, and responsibility. In the BoE's view, if that had been made clear in the draft report, the Governor would not have needed to make the representations.
FCA secures interim restitution order against illegal deposit takers
On 3 February 2021, the FCA announced that it has secured an interim restitution order of just over £676,000 against five of the seven defendants accused of carrying on unauthorised deposit taking by accepting money for projects including forex-trading and crypto-assets without FCA authorisation. The restitution order means the FCA can take steps to repay some of the money to investors before the full case is heard by the court. The court also made declarations that the fundraising involved unauthorised deposit-taking and ordered permanent injunctions against the five defendants.
The FCA will contact all investors for further information about their investments in due course.
FCA commences criminal proceedings against brothers for insider dealing and fraud
On 16 February 2021, the FCA announced that, following an investigation, it has commenced criminal proceedings against two brothers for insider dealing and fraud while working respectively in an investment bank and a law firm. The proceedings relate to six offences of insider dealing, contrary to section 52(1) of the Criminal Justice Act 1993, and three offences of fraud by false representation, contrary to section 1 of the Fraud Act 2006.
FCA commences criminal proceedings against individuals for insider dealing
On 11 February 2021, the FCA announced that it has commenced a criminal prosecution against two individuals for insider dealing. The alleged offending took place between 2 May 2016 and 10 June 2016 and involved trading in shares ahead of an announcement of an acquisition. The individuals in question appeared before Westminster Magistrates’ Court on 11 February 2021 but the FCA cannot provide any further comment or information at this time.
SFO section 2(3) powers to compel production of documents do not have extra-territorial effect
On 5 February 2021, the Supreme Court, in R (on the application of KBR, Inc) (Appellant) v Director of the Serious Fraud Office (Respondent) UKSC 2018/0215, held that SFO's powers under section 2(3) of the Criminal Justice Act 1987 do not have extra-territorial effect. Under section 2(3) of the Act, the director of SFO has the power to issue a notice requiring persons to produce documents and other information for the purposes of an SFO's investigation into serious or complex fraud. The judgment suggests that the powers Parliament confer on a law enforcement body should operate within national borders unless expressly stated, and that material held overseas under the control of parties outside the jurisdiction should be obtained through the relevant mutual legal assistance channels.
The BoE recently published results of a survey of PRA regulated banks, which considered the impact of COVID-19 on machine learning (ML) and data science (DS) in the UK banking sector. What percentage of banks reported a large increase in the importance of ML and DS for future operations?
The answer to last month's question is: Robot advice