Financial services update – 3 / 21 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.
House of Commons Treasury Committee: FCA regulation of London Capital & Finance plc
On 24 June 2021, the Treasury Committee published its report titled The Financial Conduct Authority's Regulation of London Capital & Finance plc. The report made recommendations and comments for the FCA and the Treasury, on:
FCA: new proposals on climate-related disclosure rules
On 22 June 2021, the FCA released two consultation papers that build on the Taskforce on Climate-Related Financial Disclosures (TCFD) recommendations, which led to the introduction of climate-related disclosure rules for premium-listed companies in December 2020. The intent is to make markets and investors better able to make decisions on the climate change impact of their investments. These are covered in the Securities, investments, and markets and Funds and asset management sections below. Both consultations are open for feedback until 10 September 2021.
HM Treasury: response to financial promotions proposed changes
On 22 June 2021, HM Treasury published its response to its consultation on Regulatory Framework for Approval of Financial Promotions, which we covered in our August 2020 update. The consultation sought to address government concerns that there is currently no specific assessment which firms must undergo before they are able to approve financial promotions of unauthorised firms under section 21 of the Financial Services and Markets Act 2000 (FSMA). This creates the following potential risks: a lack of expertise in relevant approver firms relating to the particular product being promoted, a lack of due diligence by approver firms, and regulatory oversight challenges for the FCA. As a result of the consultation, the Treasury confirms that the government intends to amend section 21(2)(b) FSMA so that the general ability to communicate financial promotions that have been approved by authorised firms is restricted to authorised firms that have obtained the FCA's consent to provide such an approval through a "regulatory gateway" process. A "Financial Promotion Requirement" will be applied to the permission of all firms which will prohibit them from approving the financial promotions of unauthorised persons. New and existing authorised persons will be able to apply to the FCA to have the requirement varied or cancelled. This will be done under the existing process for the variation of a requirement. The government intends to bring forward legislation when parliamentary time allows and the FCA will consult on its proposals to implement the gateway in due course.
FCA: increase in cryptoasset ownership among UK adults
On 17 June 2021, the FCA released a consumer research note. The note reported an increase in the percentage of UK adults who hold cryptoassets from 3.9% in 2020 to 4.4% in 2021 (representing up to 2.3 million people) and a significant increase in the percentage of UK adults who are aware of cryptoassets (from 42% in 2019 to 78% in 2021). However, only 10% of those who had heard of cryptoassets were aware of consumer warnings on the FCA's website.
PRA: Annual Report 2021
On 17 June 2021, the PRA published its annual report for 1 March 2020 – 28 February 2021. The report sets out:
Members of the public are invited to make representations about the report to the PRA until 14 September 2021.
FCA: report on artificial intelligence in financial services
On 14 June 2021, the FCA-commissioned report AI in Financial Services was published by the Alan Turing institute. The report considers the potential benefits and harms of using artificial intelligence and machine learning in financial services, ethical and innovation challenges, and the role of transparency in the use of such systems to promote trust and responsible use. While the report does not assess the adequacy of regulation, it should be useful for firms planning to employ such technology in financial services.
PSR: five-year strategy consultation
On 10 June 2021, the Payments Services Regulator (PSR) published its consultation paper on its proposed strategy for the next five years.The strategy rests on four strategic priorities:
These four priorities in turn support four intended outcomes for payment services:
The consultation is open until 5pm on 10 September 2021 and the PSR hopes to have a final strategy published by the end of the year.
Bank of England: discussion on new forms of digital money
On 7 June 2021, the Bank of England published its discussion paper New forms of digital money. The paper, which sets out the Bank's thoughts on a possible Central Bank Digital Currency (CDBC), considers:
The discussion paper is open for comment until 7 September 2021 and feedback will support the work of the CDBC Taskforce, which was established in April 2021. We reported on the CDBC Taskforce in our May 2021 update.
HM Government: response to House of Lords Liaison Committee on tackling financial exclusion
On 16 June 2021, the government published its response to the House of Lords Liaison Committee follow-up report Tackling Financial Exclusion: A country that works for everyone?. The government states that it is committed to tackling financial exclusion and answers the 102 items raised in the report. Interesting points for firms include:
FCA: consultation on changes to CONC
On 4 June 2021, the FCA published quarterly consultation 32, which included proposed changes to the Consumer Credit sourcebook (CONC) rule 6.7.4R. Under this proposal, consumer credit firms would no longer have to apply for a modification under CONC 6.7.4R when they receive consumer money in payment for instalment plans, when that payment goes against the normal rule of attributing received money to the higher interest debt first. There would also be a new rule that firms cannot offer a consumer an instalment plan unless they reasonably conclude that it would be in the consumer's best interest, and new guidance to define what counts as a "fixed instalment plan". The consultation extends until 2 August 2021.
A minor change to CONC, proposed in the same consultation, would see high-cost short-term credit lenders and peer-to-peer lending platforms being required to send out new versions of the statutory information sheets to consumers who fall into arrears or default. The consultation extends until 5 July 2021.
PRA: speech on Solvency II review process
On 15 June 2021, the PRA published a speech by Anna Sweeney (Executive Director, Insurance), which outlined a planned assessment on the impact of prudential policy changes as part of the Solvency II review and provided an update on the PRA's plans for stress testing firms in 2022. The PRA intends to conduct a quantitative impact study over the summer of this year that will cover the matching adjustment and risk margin, as well as elements of the transitional measure on technical provisions.
PRA: statement on authorising Temporary Permissions Regime (TPR) firms
On 14 June 2021, the PRA published an update statement on considering the applications of TPR firms that apply for authorisation. The regulator expects to process authorisations on a case-by-case basis as resources allow and notes that the timing of the granting of authorisations does not indicate the PRA's view of the risk profile of individual institutions. The regulator has a dedicated webpage on its approach to TPR.
Bank of England and Bank for International Settlement (BIS) launch new Innovation Hub
On 11 June 2021, the Bank of England and BIS announced the launch of the new BIS Innovation Hub London Centre. This is the fourth new Innovation Hub Centre which BIS has launched in the last two years. The Innovation Hub's work programme is focused on six areas:
Basel Committee: consultation on prudential treatment of cryptoassets
On 10 June 2021, the Basel Committee on Banking Supervision published its consultative document Prudential treatment of cryptoasset exposures. The proposal is that cryptoassets are divided into two groups when included on the balance sheets of banks, based on the volatility of the asset. In Group 1 are the stablecoins and other tokens which are secured by a tangible asset, which are expected to be treated in the same way as other securities and the underlying assets. Group 2 concerns cryptoassets that do not have these stability mechanisms, such as utility tokens like Bitcoin and Ethereum and derivatives of these. Group 2 assets are to be given a 1250% risk weighting for prudential purposes, so that banks can lose the entirety of the Group 2 assets without depositors suffering a loss. The Basel Committee is open to responses until 10 September 2021.
Bank of England: 2021 Climate Biennial Exploratory Scenario
On 8 June 2021, the Bank of England launched its Climate Biennial Exploratory Scenario (CBES). With participation from UK banks, building societies, life insurers and general insurers, the exercise sets out three scenarios, which test risks to firms from the transition to a carbon net zero economy and to a global warming scenario with no policy changes made. Submissions are due mid-October 2021 and the Bank will declare whether a second round will be held or material from this round published at the end of January 2022.
Consultation paper CP21/18: Enhancing climate-related disclosures by standard listed companies and seeking views on ESG topics in capital markets
The first of the two TCFD-aligned papers mentioned in the General Financial Services regulation section above. This paper proposes to bring into scope of TCFD-aligned disclosure schemes standard listed equity shares but excludes standard listed investment entities and shell companies. Listing Rule LR 9.8.6R(8) would apply to equity shares in such companies via the incorporation of a similar rule into LR14. The consultation also requests views on requiring the central elements of Use of Proceeds (UoP) bonds to be published clearly in the prospectus. The FCA is concerned that UoP bonds may contain language that limits liability to a "best endeavours" basis, and that investors might be made more aware of this if regulation intervened, although the regulator accepts that part of the problem is that there is no universal standard for Environmental, Social and Governance securities.
FCA and PRA: Dear Chief Risk Officer (CRO)
On 21 June 2021, the FCA and PRA published a letter from David Bailey (PRA Executive Director, International Banks Supervision), Sarah Breeden (PRA Executive Director, UK Deposit Taker Supervision) and Edwin Schooling Latter (FCA Director, Markets and Wholesale Policy) to CROs. This letter encourages firms to incorporate good practices witnessed in relation to delivery versus payment clients risk management. Such practices include:
The regulators will request an update from firms on the steps which they have taken following this letter by the end of the fourth quarter in 2021.
Global Financial Markets Association (GFMA): global principles for climate finance taxonomies
On 16 June 2021, GFMA published Global Guiding Principles for Developing Climate Finance Taxonomies. The paper calls on global policymakers, standard setters and market participants to agree on a minimum set of guiding principles and definitions to create globally aligned taxonomies. GFMA suggests five principles:
The intention is that by following global guiding principles, international efforts can be aligned with the Paris Agreement goals.
FCA and Bank of England: call to participants in the US dollar interest rate swaps market
On 16 June 2021, the FCA and Bank of England published a press release, encouraging liquidity providers in the US dollar linear interest rate swaps market, to move from LIBOR to Secured Overnight Financing Rate (SOFR) from 26 July 2021. This supports the US-led 'SOFR First' initiative. However, screens for LIBOR swaps and LIBOR-based swap spreads are expected to remain for information purposes only until 22 October 2021.
Consultation paper CP21/17: Enhancing climate-related disclosures by asset managers, life insurers, and FCA-regulated pension providers
The second of the two TCFD-aligned papers mentioned in the General Financial Services regulation section above. This paper applies to investment portfolio managers, UCITS management companies, full-scope Alternative Investment Fund Managers (AIFMs), small scope AIFMs, life insurers and non-insurer FCA-regulated pension providers. The main components of the proposed regimes would be the introduction of entity-level disclosures on how firms take climate-related risks and opportunities into account; and product or portfolio-level disclosures, which would be published in a TCFD product report or made available on request.
EU: Commission Implementing Regulation laying down ITS under Regulation on cross-border distribution of investment funds published in the Official Journal
On 15 June 2021, the Commission Implementing Regulation (EU) 2021/955 laying down 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) was published in the Official Journal of the European Union. This relates to the publication of national rules about marketing requirements for funds and the regulatory fees charged to fund managers for cross-border activities, which are published on the websites of national competent authorities, and to the notification by these authorities to ESMA for the establishment and maintenance of an UCITS and AIF database. The Implementation Regulation will generally enter force on 5 July 2021, although Articles 1 and 3(1) apply from 2 August 2021 and Article 5 applies from 2 February 2022.
HM Treasury: extension of PRIIPs exemption for UCITS funds
On 1 June 2021, HM Treasury announced that the current exemption for Undertakings for the Collective Investment in Transferable Securities (UCITS) funds from the normal requirements of the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation will be extended until 31 December 2026. UCITS funds currently produce a Key Investor Information Document under the UCITS Directive, but the UK PRIIPs Regulation would require the production of a Key Information Document instead.
FCA: refusal for part 4A permission to a firm for incomplete application
On 8 June 2021, the FCA published a final notice to Sportz Commercials Ltd, refusing to award part 4A permission for limited permission credit broking on the grounds of failing to submit a complete application. The FCA had been in touch with the firm six times since the initial application submission to request further information, but ultimately was not sure that the firm will satisfy and continue to satisfy the relevant conditions for the regulated activity. Accordingly, its part 4A permission was refused.
FCA: first notice for firm unable to monitor appointed representatives
On 24 May 2021, the FCA published a first supervisory notice for Marshall Sterling Investment Management Ltd, imposing requirements on its use of appointed representatives. The firm was ordered to terminate its appointed representatives agreements and prevented from hiring further appointment representatives without prior written consent from the regulator, on the grounds that the firm does not have appropriate non-financial resources to monitor compliance or control the onboarding and ongoing monitoring of appointed representatives.
FCA: objection to change in control due to poor fitness of planned controller
On 11 May 2021, the FCA published a final notice for Ms Sherrie Jean Thackray, objecting to her proposed control over the firm Transfer Gurus Limited on the grounds of personal fitness. Ms Thackray acquired sole ownership of the firm on 1 September 2019 but submitted the appropriate notification to the FCA for the proposed change in control on 25 August 2020 and subsequently failed to cooperate with the requests of the regulator. As a consequence, the FCA had grounds to: doubt Ms Thackray's integrity and professional competence under section 186(a) of the Financial Services and Markets Act 2000 (FSMA); doubt her knowledge, skills and experience as sole controller under section 186(b) FSMA; and to believe that there was an increased risk of money laundering by the firm under section 186(f)(ii) FSMA. Accordingly, the FCA has used its powers to object to the change in control.
Law Commission: discussion paper on corporate criminal liability
On 9 June 2021, the Law Commission published a discussion paper titled Corporate Criminal Liability. The paper intends to improve on criticisms of the current law of corporate criminal liability, and particularly the identification doctrine from the case of Tesco v. Nattrass  AC 153, which simply asks in corporate criminal cases "whose acts are those of the company?". The Law Commission believes that the identification doctrine has the following issues:
A consultation has commenced concurrently to this paper and closes on 31 August 2021.
FCA: Temporary Registration Regime (TRR) extended for cryptoasset businesses
On 3 June 2021, the FCA announced an extension until 31 March 2022 for existing cryptoasset businesses to continue trading under the TRR. Cryptoasset firms are required to register with the FCA for anti-money laundering and counter terrorist financing supervision. The regulator states that many businesses are failing to meet the standards under the Money Laundering Regulations, which has resulted in an "unprecedented number of businesses withdrawing their applications."
EBA: consultation on co-operation between prudential supervisors, Anti Money Laundering/ Countering Financing of Terrorism (AML/ CFT) supervisors and Financial Intelligence Units
On 27 May 2021, the European Banking Authority (EBA) published a consultation paper on draft guidelines on co-operation and information exchange between prudential supervisors, AML/ CFT (anti-money laundering and countering financing of terrorism) supervisors and financial intelligence units (FIUs) under the CRD IV Directive (2013/36/EU), as amended by the CRD V Directive ((EU) 2019/878). The draft guidelines are designed to allow the various agencies to co-operate practically together, which they are expected to do under Article 117(6) of the amended CRD IV Directive, by helping them to exchange information in a clear and structured manner. The consultation is open until 27 August 2021, after which the EBA will seek to finalise the guidelines.
London is the site of a BIS Innovation Hub Centre. Which of these cities does not currently have an Innovation Centre Hub?
Answer to last month's trivia: the Banking Standards Board rebranded in April this year to the Financial Services Culture Board.