Financial services update – 24 / 39 观点
The topics covered in this month's update 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 and PRA Release Operational Resilience Policy Papers
The regulators released the long-awaited policy papers on operational resilience for financial services firms and the use of third-party outsourcing in regulated financial services on 29 March 2021. Please see our dedicated update on the operational resilience policies for a summary of these policy papers.
FCA transitions to new online fees portal
The current FCA online portal for fees will remain open until 31 March 2021. The new portal will open on 12 April 2021, so there will be a gap between services being available. Users should also note that the new portal will not contain their previous invoices, so these should be downloaded from the current portal before it closes. Users should log in to the new portal using their Connect account.
Financial Services Bill 2019-21 progress
The Bill has completed its second reading in the House of Lords and started its report stage on 24 March 2021.
The government intends that the Bill will establish a new prudential regime for investment firms, empower the FCA to oversee the move away from LIBOR, open up the ability for overseas investment funds to market themselves to UK investors, secure ties with Gibraltar for financial services firms and a host of smaller changes to allow the UK's financial services regulatory regime to continue after Brexit.
FCA: Why diversity and inclusion are regulatory issues
Nikhil Rathi, CEO of the Financial Conduct Authority, delivered a speech on 17 March 2021 which outlined the benefits of the HM Treasury Women in Finance Charter in promoting equality. His angle – and therefore, presumably, that of the FCA – is that diversity reduces conduct risk, as firms that fail to reflect society run the risk of poorly serving diverse communities. The FCA is working with the PRA to formalise a regulatory approach towards diversity and inclusion, after which we can expect the regulators to set out their expectations for firms.
Senior advisor to the FCA: From regulator to firm to consumer
Georgina Phillippou, the Senior Advisor to the FCA on the Public Sector Equality Duty, spoke at the launch of the report Building Ethnic Diversity and Inclusion in Investment Management on 16 March 2021. Her theme was clear: diversity grants financial rewards, yet there is significant progress to be made in investment management. To solve this, she proposes that leadership should promote diversity, cascading from the regulator to firms, ultimately allowing access to a broader range of diverse and included customers.
Council of EU adopts the conclusions of the Commission's Retail Payments Strategy
The Council of the European Union adopted the conclusions of the European Commission in its paper Retail Payments Strategy for the European Union on 22 March 2021. As a result, the Council has set out four "pillars" of strategic action on payment solutions:
Pay.UK invites comments on its strategic trends white paper
Pay.UK published its paper on the future of retail payments on 8 March 2021. Titled Strategic trends: Retail payments in a future world, the paper hopes to predict the future of consumer behaviours as fintech and AI become part of everyday life.
Comments can be submitted online through registrations for the Pay.UK Portal.
FCA publishes policy statement on amendments to contactless payment thresholds
As confirmed in its policy statement on 3 March 2021, the strong customer authentication exemption for contactless payments has been raised to £100 (from £45) for single card payments or £300 (from £130) for cumulative transactions. The FCA intends to ensure that the regulation of payment services gives industry flexibility to respond to changing consumer behaviour.
Court of Appeal: unfair credit agreements and deliberate concealment
The recent judgment in Canada Square Operations Ltd v. Potter  EWCA Civ 339 confirms that claimants for unfair concealment of terms could rely on either of sections 32(1)(b) or 32(2) of the Limitation Act 1980. This means that if the claimant's right of action has been deliberately concealed or if a credit firm deliberately breaches its duties to customers in a way that will not be discovered for some time, the six-year limitation period will begin from the point where the claimant learns about the breach. In this case, the parties had ceased to have a relationship over six years before the claim was brought, after the claimant had learned that Canada Square had received a 95% commission on the Payment Protection Insurance which they had sold her. The claim was brought under sections 140A and B of the Consumer Credit Act 1974.
The key features of the deliberate concealment were a concealment of facts and that the party concealing these facts should have revealed them but decided not to.
PRA: Holding company regulatory transaction fees
In the Policy Statement PS3/21 released on 17 March 2021, the PRA confirmed that it had received no responses to its consultation on requiring holding companies to pay a regulatory transaction fee of £2,500 when applying for approval or exemption under a new application regime to be introduced into FSMA by the Financial Services Bill. The Fees section of the PRA rulebook has been amended with effect from 19 March 2021 to include this £2,500 fee.
PRA: speech on the changing nature of UK insurance sector regulation
On 16 March 2021 Sam Woods, Deputy Governor for Prudential Regulation at the Bank of England and CEO of the PRA, delivered a speech advising firms that the regulation of the insurance sector is about to change. Post-Brexit, the UK will see more rulemaking being conducted by the regulators. This means insurance firms will need to focus more on changes to the PRA Rulebook than changes in law.
FCA: LIBOR settings end dates confirmed
The FCA confirmed on 5 March 2021 that LIBOR settings will either no longer be provided by any administrator or bot be representative, as follows:
On the same day, the FCA also updated its web pages on its proposed new powers under the Benchmarks Regulation. It has published Statements of Policy and Feedback Statements on:
Designating an unrepresentative benchmark using new powers under proposed Article 23A (and a Feedback Statement).
Requiring changes to a critical benchmark, including its methodology, using new powers under proposed Article 23D (and a Feedback Statement).It is planning to consult in Q2 2021 on its approach to the exercise of its powers under the proposed Article 21A and Article 23C and to consult later in 2021 regarding any decision to exercise the proposed Article 23D power in relation to LIBOR.
Working Group's Best Practice Guide for GBP Loans
The Working Group on Sterling Risk-Free Reference Rates updated its best practice guide for GBP loans on 18 March 2021, adding a new appendix that builds on the convention recommendations and relevant information from previous Working Group publications. In addition to the revised guide, the Working Group published updates slides and a spreadsheet on SONIA loan conventions.
FCA: speech on future regulation of wholesale financial markets
Edwin Schooling Latter, Director of Markets and Wholesale Policy at the FCA, spoke on 16 March 2021 about potential scope for the regulator to amend the current wholesale securities market regime post-Brexit, with a view to aligning prospectus requirements and simplifying or removing some of costs arising out of requirements in the MiFID II regime to suit UK-based markets, without a material loss of benefits.
Financial Markets Law Committee: recommending safe harbour provisions for LIBOR transition
The FMLC has responded to HM Treasury's consultation on 15 March 2021 about the wind-down of critical benchmarks. Their open letter urges that "safe harbour" provisions be enacted which will protect legacy contracts which do not contain provisions for the drawdown of LIBOR or other benchmarks from being frustrated.
Lord Hill's Listing Review Report welcomed by the FCA
The FCA revealed on 5 March 2021 that Lord Hill's report, which recommends a review of the current listing and prospectus regime, has been warmly received by the regulator. The FCA will seek to make relevant rules, such as consulting on changes to the Listing Rules, by late 2021. This is subject to consultation feedback and FCA Board approval.
FCA campaign to prevent investment harm
The FCA is concerned that some investors are being tempted to buy higher-risk products that are unlikely to be suitable for them and has commissioned its own research to look into it. The website allows interested parties to subscribe to updates by e-mail.
International Organisation of Securities Commissions to look at liquidity risk for Collective Investment Schemes
Following on from its 2018 publication on liquidity risk management for CISs, IOSCO has announced a thematic review of how these recommendations are put into practice. This is due in autumn 2022 but responsible entities are invited to participate in a survey that closes on 16 April 2021.
ESMA: report published on advice to the European Commission over Article 8 of the Taxonomy Regulation
The report, published on 26 February 2021 and which is focused on how to be more specific about Key Performance Indicators, is now available for non-financial undertakings and asset managers looking to comply with their disclosure obligations under the Non-Financial Reporting Directive (2014/95/EU).
FCA MiFID II product governance review
The FCA has looked at product governance in a sample of 8 asset management firms and published a report on 26 February 2021. The report suggests that some asset managers are not undertaking activities in line with MiFID II's PROD regime. For example, defining a negative target market proved difficult for firms, and stress testing of products seemed to vary in approach across firms. As a result, the FCA will continue to review how it provides product rules and guidance with a view to reducing potential harm to investors.
Independent review of FCA intervention on Interest Rate Hedging Products
The FCA confirmed on 11 March 2021 that John Swift QC's review has now been completed and is expected this summer. The FCA commissioned Mr Swift to conduct its "lessons learned" review into its supervisory review of Interest Rate Hedging Products in 20 June 2019, however COVID-19 made procurement of documents and conduct of the review more difficult than initially anticipated.
Market making trader banned for wash trades
The FCA fined Mr Adrian Geoffrey Horn on 3 March 2021 for the sum of £52,500 (after a 30% resolution discount) and placed a ban on him for undertaking any regulated activity. This follows an investigation for trading of shares in McKay Securities plc without change of ownership or risk, intending to provide misleading signals to the market about demand for these shares.
FCA: speech on locking down market abuse
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, briefed the Expert Forum on 25 February 2021 about the FCA's initiatives to crack down on market abuse. The highlights were:
FCA brings first prosecution against a bank under the Money Laundering Regulations 2017
The FCA announced on 16 March 2021 that it has begun criminal proceedings against NatWest plc in relation to alleged offences under the Money Laundering Regulations 2017. It alleges that NatWest failed to adequately monitor and scrutinise significant cash deposits into the account of a corporate customer. No individuals have been charged. The bank is due to appear in court on 14 April 2021.
UK Government: guidance on monetary penalties for breaching financial sanctions
HM Treasury's Office of Financial Sanctions Implementation has released fresh guidance in its 10 March 2021 update on how parties that deal with UK-sanctioned individuals, organisations and countries are to be fined for non-compliance.
Financial Action Task Force: mitigating the unintended consequences of FATF standards
The FATF has started an outreach and problem-solving project in February 2021 to mitigate the unintended consequences that have emerged from incorrect implementation of the FATF Standards. Contributions and inputs to the Phase One of the project (research and engagement) should be submitted by 20 April 2021.
The Woolard Review of unsecured credit market regulation was one of the big news items in last month's newsletter. How much did the review estimate that Buy Now Pay Later products were worth in the UK?
The answer to last month's question is: 10% of banks reported a large increase in the importance of machine learning and data science for future operations to the Bank of England.