Financial services regulatory update - May 2022

FCA: speech on critical issues in financial regulation

On 26 April 2022, Nikhil Rathi, Chief Executive Officer of the FCA, gave a speech at City Week 2022, outlining the critical issues in financial regulation.  The key takeaways are: 

• As a result of the cost of living crisis, consumers are more reliant on financial services and exposed to risk. 
• The new consumer duty aims to provide "good outcomes" for consumers and ultimately reduce costs on firms. 
• The FCA will support innovation by extending an early oversight scheme to provide growing firms with guidance on regulatory issues and through the CryptoSprint event that is taking place this month (see 'Fintech and cryptoassets' section below). 
• Post-Brexit, if a firm is predominantly a UK business, the regulated entity should be in the UK.  

Rathi highlighted some of the achievements of the FCA over the last year including its proactive engagement strategy as illustrated by its work with Google, who voluntarily agreed to only permit financial promotions by FCA registered firms. This year, Meta has agreed to implement the same policy. 

FCA: update on revised scheme for complaints against the UK financial services regulators

On 21 April 2022, the FCA updated its webpage on the joint consultation for complaints against the regulators, confirming that the regulators intend to revise the complaints scheme and will publish the joint policy statement shortly, although no date for the delayed publication has been indicated. This update follows the publication of the: 

• Interest rate hedging product review (IHRP Review). 
• Complaint Commissioner's report on the FCA's handling of complaints in relation to London Capital & Finance (Commissioner's Report). 
• The FCA's response to the IRHP Review. 
• The FCA's response to the Commissioner's Report, which we covered in our April 2022 update.  

PRA: Business Plan 2022/23

On 20 April 2022, the PRA published its Business Plan for 2022/23, setting out its budget, and strategy for the year. The strategic priorities are to: 

• Retain and build upon the strength of the banking and insurance sectors delivered by the financial crisis reforms. 
• Be at the forefront of identifying new and emerging risks, and developing international policy. 
• Support competitive and dynamic markets. 
• Run an inclusive, efficient, and modern regulator within the central bank. 

The PRA's budget of £320.9 million, which includes £8.4 million of implementation and transaction fees, is an 8.2% increase (£24.3 million) on the 2021/22 budget. The PRA explains how it will fund the budget in its annual fees consultation paper.

BoE: update on joint transformation programme

On 13 April 2022, the BoE published an update to firms on the progress of the joint transformation programme.  

The aim of this programme, led jointly by the BoE and the FCA is to transform data collection from the UK financial sector. The update provides a summary of progress since the February 2022 update, these include that: 

• Phase one of the discovery and design stage ended in March 2022. This stage is not being extended to the commercial real estate (CRE) use case until the end of May 2022. CRE will proceed as part of phase two of discovery and design, and phase one of scaling sprint.  
• De-risking the transformation journey is the current priority (until June 2022) for the programme team, before work starts on the next discovery and design stage for phase two use cases.  
• The programming team are finalising recommendations on the phase one discovery and design stage. The BoE and FCA will publish the recommendations and their responses to the recommendations in July 2022. 
• Phase two has been delayed and is now scheduled to start in September 2022. The phase two use cases are CRE, retail banking business model data, incident, outsourcing and third party reporting, strategic review of prudential data collections from solo-regulated firms, and asset reporting for insurers. 

The BoE is asking that firms provide additional resource for phase two of the programme. Nominations for phase two will close on 22 June 2022. 

FCA: Strategy 2022 – 2025 and Business Plan 2022/23

On 7 April 2022, the FCA published its strategy for 2022 to 2025, which focuses on results rather than being process driven. It is the first time the FCA has published a multi-year strategy. The strategy sets out the outcomes that the FCA expects firms to deliver across its markets.

The strategy focuses on three key themes, which are supported by cross-cutting commitments. These are as follows: 

Reducing and preventing serious harm

• Dealing with problem firms.
• Improving the redress framework.
• Reducing harm from firm failure. 
• Improving oversight Appointed Representatives.
• Reducing and preventing financial crime. 
• Delivering assertive action on market abuse. 

Setting and testing higher standards

• Putting consumers' needs first.
• Enabling consumers to help themselves.
• A strategy for positive change: ESG priorities.
• Minimising the impact of operational disruptions.

Promoting competition and positive change

• Preparing financial services for the future.
• Strengthening the UK's position in global wholesale markets.
• Shaping digital markets to achieve good outcomes.

Alongside its strategy document, the FCA published its Business Plan for 2022/23, setting out the work it will carry out under the commitments for each area of focus, some of the highlights are as follows:

• Dealing with problem firms: the FCA will look to take quick and effective action to "identify and cancel firms that do not meet Threshold Conditions at pace and at scale, removing them from the perimeter". To promote competition and innovation, the FCA will look to remove those that shown inability or unwillingness to follow the rules, and level the playing field for firms that do follow the rules.  
• Minimising the impact of operational disruptions: from 31 March 2022 – 31 March 2025, the FCA will assess firms abilities to remain within impact tolerances. From 31 March 2025 firms will need to show that they can remain within their impact tolerances.  
• Shaping digital markets to achieve good outcomes: the FCA will work with the government on the new pro-competitive regime for digital markets, to support competition and innovation. The FCA also intends to proactively identify any competition risks and benefits from big tech entry in financial services, to assist in informing the FCA's future work.  

The FCA has committed to publicly reporting the consistent topline outcomes and metrics that will measure progress. Details of these outcomes and metrics can be found here. The FCA has published its positive impact report to indicate how the FCA provides public or societal value.  

In addition, the FCA continues to adapt how it operates by investment in its people, technology, capabilities, and by evolving its culture. It is also committed to improving diversity and inclusion in both the firms and markets it regulates and at the FCA itself. 

The Business Plans includes the FCA's annual budget. The annual funding requirement (AFR) for 2022/23 is £640.1 million, reflecting a 4.3% increase on the previous year. The AFR includes the ongoing regulatory activity (ORA) budget which is £616.40 million, reflecting a 6.2% increase, and the transformation programme, scope change, consumer harm campaign budgets.  

Council of the EU: adoption of proposed DLT pilot regime

On 12 April 2022, the Council of the EU published note 8088/22 confirming the adoption of the proposed Regulation on a pilot regime for market infrastructure based on distribution ledger technology.

The Regulation will enter into force 20 days after it is published in the Official Journal of the European Union and will apply nine months after the date it enters into force, save for articles 8(5), 9(5), 10(6), and 17 which will apply from the date the Regulation enters into force, and article 16 which will apply from 4 July 2023.  

HM Treasury: announcements on cryptoassets

On 4 April 2022, HM Treasury published: 

• A keynote speech by John Glen, Economic Secretary to the Treasury, setting out the governments plans to make the UK a "world-leading regime" for cryptoassets business.
• The response to the consultation on the UK regulatory approach to cryptoassets, stablecoins and distributed ledger technology (DLT).  

Please see our recent insight article for further information on these.  

FCA: speech on building a digital regulator 

On 4 April 2022, the FCA published a speech by Jessica Rusu, FCA Chief Data, Information and Intelligence Officer, on building a digital regulator. The key points to note are: 

• Fostering innovation, being intelligence-led, and preparing for the future, are central themes to the work of the FCA to effectively carry out the role of regulator. 

Under the central theme of fostering innovation, the FCA is:

• Reviewing the findings of the "Early Oversight" and "High Growth Oversight" initiatives. This is part of the commitment to establishing a regulatory "scalebox" to support firms scaling innovative technologies.
• The FCA is exploring the concepts of ethics and bias in algorithms and AI. The FCA wants to ensure technologies, including AI, are used responsibly in a way that does not harm consumers.

Under the central theme of being intelligence-led, the FCA will: 

• Publish the evaluation report on the learnings from the Sustainability Cohort, in May 2022. The findings will help inform the next stage of the digital sandbox concept. The current data sets and digital sandbox environment remains available to innovators.  

Under the central theme of preparing for the future, the FCA is hosting two "Sprints": 

• The CryptoSprint this month. Please see our recent insight article for further information on this.  
• The TechSprint in September 2022 on Authorised Push Payment Fraud (APP Fraud) together with the Payment Systems Regulator. The TechSprint aims to explore solutions to identify and prevent APP Fraud. 

HM Treasury: terms of reference for Centre for Finance, Innovation and Technology Steering Committee

On 4 April 2022, HM Treasury published the Centre for Finance, Innovation and Technology Steering Committee's (CFIT) terms of reference. The establishment of CFIT was recommended in the Kalifa review, and the CFIT committee will be chaired by Ron Kalifa OBE.

CFIT is being set up to identify and address barriers and opportunities for UK fintech by bringing together finance and technology experts with a "coalition" approach.  

The steering committee will meet via monthly meetings across Spring and Summer 2022. Any proposals made by the steering committee will be recommendations for the final CFIT board and executive team once these have been established.  

HM Treasury: UK transition plan taskforce

On 25 April 2022, HM Treasury launched the UK transition plan taskforce (TPT) which has a two-year mandate to develop a gold standard for climate transition plans. The FCA will be actively involved and will utilise findings to strengthen disclosure rules, and the TPT will bring together and coordinate leaders from industry, academia and regulators.  

The TPT will create three workstreams to achieve this mandate, which are: 

• A sector neutral framework for private sector transition plans. 
• Sector specific guidance for financial and real economy sectors. 
• Recommendations for companies and stakeholders on preparing and using transition plans.  

The launch of the TPT follows the government's 2021 roadmap on greening finance.  

HM Treasury: formal recommendations to reflect energy security strategy

On 7 April 2022, HM Treasury published the following letters from Rishi Sunak, Chancellor of the Exchequer: 

• Letter to Nikhil Rathi, FCA CEO, regarding recommendations for the FCA. 
• Letter to Andrew Bailey, BoE governor, regarding recommendations for the PRC. 
• Letter to Andrew Bailey, regarding recommendations for the FPC. 

These letters provide recommendations that supplement the formal recommendations that were given to the regulators in March 2021. The Chancellor has asked that where it is practical and relevant, each body "should have regard to the government’s energy security strategy and the important role that the financial system will play in supporting the UK’s energy security - including through investment in transitional hydrocarbons like gas - as part of the UK’s pathway to net zero". 

ISSB: exposure drafts of IFRS sustainability disclosure standards

On 31 March 2022, the International Sustainability Standards Board (ISSB) published two drafts of IFRS sustainability disclosure standards. These draft standards are: 

• IFRS S1 general requirements for disclosure of sustainability-related financial information. This would require companies to disclose as part of their general purpose finance reporting, all sustainability-related financial disclosures, such as material information about sustainability-related risks and opportunities. 
• IFRS S2 climate-related disclosures. This supplements the taskforce on climate-related financial disclosures and would require companies to provide material information about significant climate-related risks and opportunities.

Individual jurisdictions will determine whether companies must comply with the final standards.  

The consultation on the drafts closes on 29 July 2022, and the ISSB aims to issue the finalised standards by the end of 2022.

BoE: consultation papers on outsourcing and third party risk management in financial market infrastructure firms 

On 14 April 2022, the BoE published the following consultation papers: 

• Outsourcing and third party risk management: Central Counterparties (CCPs). 
• Outsourcing and third party risk management: Central Securities Depositories (CSDs). 
• Outsourcing and third party risk management: Recognised Payment System Operators and Specified Service Providers (RPSOs and SSPs). 

The draft supervisory statements provide non-binding supervisory expectations that provide guidance on how the BoE will assess compliance.  

With regards to RPSOs and SSPs, the draft consultation paper also includes at Appendix 1, a draft outsourcing and third party risk management part to the Code of Practice (published under the Banking Act 2009), in addition to the aforementioned non-binding guidance.  

The consultation closes on 14 July 2022, and the BoE aims to publish the final policy later in 2022. 

FCA: March 2022 regulation round-up on SCA-RTS

On 31 March 2022, the FCA published its regulation round-up. It includes an item on the Regulatory Technical Standards on Strong Customer Authentication (SCA-RTS). The FCA strongly encourages account servicing payment service providers to apply exemption 10A of the SCA-RTS.  

If adopted, customers will not be required to reauthenticate when accessing their account details through a third-party provider (TPP). TPPs will need explicit consent from customers at least every 90 days.

The FCA expects TTPs should be technically ready to reconfirm customer consent. 

On 1 March 2022, the FCA published its updated strong customer authentication webpage, which we noted in our April 2022 update. 

PSR: Annual Plan and Budget 2022/23

On 29 March 2022, the Payment Systems Regulator (PSR) published its Annual Plan and Budget for 2022/23, along with a supplementary factsheet. The plan sets out the following four strategic priorities: 

• Access and choice: ensuring access to payment services and effective payment options for users.  
• Protection: ensuring sufficient protection is in place when using the UK's payment systems for both individuals and businesses. 
• Competition: promoting competition between and within payment services/systems.  
• Unlocking account-to-account payments: fostering innovation and competition by ensuring interbank systems provide infrastructure, rules, and incentives. 

The PSR plans to hold a future meeting to obtain stakeholder views on the plan and facilitate discussion.  

Council of the EU: proposed directive on consumer credits

On 22 April 2022, the Council of the EU published note 6404/22 and its annexes regarding the proposed Directive on consumer credits to revise and replace the Consumer Credit Directive (2008/48/EC) (CCD II) (2021/0171(COD)).  

The Annex to the note includes the Presidency compromise proposal text, which has been made following the view of the Working Party on Consumer Protection and Information (Consumer Credits) meeting of 9 March 2022. 

The European Commission adopted the proposed Directive in July 2021.  

High Court: meaning of regulated mortgage contract, by way of business and CCA unfair relationship provisions considered

On 8 April 2022, the judgment of Ms Lesley Anderson QC sitting as a Deputy Judge of the High Court was handed down in Arthistory Ltd v Campbell and another [2022] EWHC 848 (Ch) (8 April 2022). As part of the judgment, Ms Anderson QC considers whether an agreement constituted a regulated mortgage contract (RMC), whether it was "by way of business", and whether there was an unfair relationship under s140A on the Consumer Credit Act 1974 (CCA). The judgment notes the following points: 

• There was a RMC, which was not exempt as more than 40% of the property was used as or in connection with a dwelling. 
• The arrangement was not entered into by way of business. The legal analysis of Bassano v Toft [2014] EWHC 377 (QB) applies to the determination of by way of business. 
• The relationship was considered unfair and s140B CCA remedies that unfairness.  

This case highlights how these issues turn on the specific facts of each case.  

FCA: March 2022 regulation round-up on consumer credit terminology 

In its March 2022 regulation round-up, the FCA has reinforced that firms must avoid indicating that customers may obtain available credit with no regard to their financial circumstances, otherwise they will breach CONC 3.3.3R. 

The FCA noted it has seen terms such as "loan guaranteed", "pre-approved", "no credit checks" and other similar phrases, which may lead the customer to think that decisions may be made without credit checks.

PRA: definition of a simpler-regime firm  

On 29 April 2022, the PRA published its consultation paper (CP5/22) on the definition of a simpler-regime firm. The PRA intends to implement a simpler prudential regime for non-systemic banks and building societies. As suggested in DP1/21, the PRA's strong and simple framework would create a series of layered prudential regimes, for which requirements on firms would expand and become more sophisticated as the size and/or complexity of firms increase. 

A simpler-regime firm must meet the following requirements: 

• Have no more than £15 billion in total assets. Assets are defined in the financial reporting framework and calculated using the average total assets reported during the previous 36 months.  
• Have no or a minimal trading book. The PRA proposes to align this with the criteria defined in the Trading Book (CRR) Part of the PRA Rulebook.  
• Must not have any internal ratings based model approvals. 
• Must not provide clearing, settlement, custody, or corresponding banking services to another bank or building society. 
• Activity must be primarily based in the UK and focus on UK-based customers or counterparties.  

The appendix contains the draft rulebook and simpler-regime firms instrument.  

The consultation closes on 22 July 2022. The policy statement is expected to be published later in 2022, or in 2023.

PRA: speech on the future of international insurance in the UK

On 21 April 2022, the PRA published a speech by Alan Sheppard, PRA Head of Insurance Policy, on fostering the UK's role as an international centre for insurance and reinsurance. In the speech, Mr Sheppard confirmed that:

• The temporary permissions regime (TPR) has allowed 190 firms to transition. The PRA expects a further 130 firms to apply for permanent authorisation to operate as third-country branches.  
• To address feedback relating to the disappointing volumes of transactions in the insurance-linked securities market, the PRA intends to develop a "green channel" for a category of standard, short-tail, general insurance structures. The aim of the green channel is to provide applicants with greater certainty over the outcome earlier in the process and provide a faster decision. A consultation on changes to the relevant supervisory statement are planned later in 2022.  
• The PRA will adopt a new approach of authorising traditional entities. The PRA will do so for sizeable investments proposed by wholesale insurance market participants with a highly credible track record by implementing an approach to address: the speed of the authorisation process, the level of the Business Plan review and the level of documentation required at the point of engagement with the PRA. 

The PRA is happy to discuss the new authorisation approach informally with firms considering an application later in 2022.  

CMA: update on Open Banking implementation roadmap

On 14 April 2022, the CMA published a letter to the Open Banking Implementation Entity (OBIE), in response to a letter from OBIE providing an update on the status of the roadmap. The OBIE was established by the Retail Banking Market Investigation Order 2017 to implement Open Banking, and it is funded by the nine largest retail banks (CMA9).  

The CMA welcomes the update which evidences the progress made following publication of the final version of the Open Banking Standard (version 3.1.10).

The clarification on the status of delivery of the enhanced management information (MI) submission mechanism withing the roadmap, which is not a mandatory item with implementation requirements, is noted by the CMA.  

The CMA's position as set out in the letter of 23 March for determining completion of the roadmap remains up to date, save that the enhanced MI submission mechanism will not be considered as a requirement for the CMA9.

BoE and PRA: joint discussion paper on supporting liquid asset usability

On 31 March 2022, the BoE and PRA published a joint discussion paper (DP1/22) on the prudential liquidity framework: supporting liquid asset usability. 

Following the financial crisis of 2007/08, the banks are required by the liquidity coverage ratio (LCR) to hold a large enough stock of high-quality liquid assets (HQLA) to meet their payment obligations in the case of a severe short-term stress. DP1/22 seeks to: 

• Explore factors affecting banks' willingness and ability to draw on their stock of HQLA, allowing it to fall, and how the Bank and the PRA may support this. 
• To what extent it is desirable that banks feel able to draw on their HQLA stock.  

The responses should be submitted by 30 June 2022.  

The responses to DP1/22 will also assist the Basel Committee on Banking Supervision in their review of the Basel III reforms. 

FCA: policy statement on diversity and inclusion on company boards and executive management 

On 22 April 2022, the FCA published its policy statement on proposals to amend the listing rules and disclosure guidance and transparency rules relating to diversity and inclusion on company boards and executive management, along with amendments to its handbook. 

The rules are to be finalised broadly as they were consulted on, although amendments have been made to account for feedback, as follows: 

• As to numerical disclosures, companies may report either on the basis of sex or gender identity. Draft guidance on self-identification has been removed, and new guidance has been added to enable companies to add to the categories included in the table, reflecting the data it has collected. 
• Where issuers have overseas board members or executive management, for whom local law restricts the collection or publication of data, a company may explain the extent of which it is unable to complete the tables and provide numerical disclosures.
• Language relating to ethnic minority backgrounds has been amended. 
• Companies must include an explanation of their approach to data collection. The FCA expects listed firms to do so in a consistent manner, with the explanation including the method and source of data collection, and where it is done on the basis of self-reporting, a description of the questions asked should be provided.  
• The commencement date has been amended to fit the financial year, starting on or after 1 April 2022. However, companies whose financial years began prior to 1 April 2022 are encouraged to report on a voluntary basis.  

The FCA encourages wider reporting on diversity through corporate governance rules, although it has elected not to extend the reporting requirements to sexual orientation, or categories such as lower socio-economic background.  

FSB: transition away from LIBOR

On 5 April 2022, the Financial Stability Board (FSB) published its statement on the transition away from LIBOR, confirming that: 

• All GBP, EUR, CHF, and JPY LIBOR panels, as well as the 1-week and 2-month USD LIBOR settings ceased at the end of 2021. The 1-, 3-, and 6-month GBP and JPY LIBOR settings are being temporarily published on a synthetic basis to support legacy contracts.  
• Key panel-based USD LIBOR settings will continue until the end of June 2023. However, the FSB strongly suggests firms should cease new use of USD LIBOR, subject to limited exceptional use to support orderly transition.  
• Firms must have plans in place to ensure that they are prepared for the cessation of the USD LIBOR panel. 
• The FSB continues to support engagement with emerging markets and developing economies to maintain a smooth transition to risk-free rates, across all global markets.
• Encourages firms to maintain momentum in active transition of legacy LIBOR contracts that reference synthetic GBP and JPY LIBOR settings.   

The FSB is planning a follow-up assessment in the second half of 2022 to identify remaining transition and supervisory challenges to support the LIBOR transition.  

UK regulators: statement on the London Metal Exchange and LME Clear

On 4 April 2022, the UK regulators published their joint statement on the London Metal Exchange (LME) and LME Clear. The supervision of LME and LME Clear is split between the FCA and the PRA, with the FCA responsible for supervision of the LME, and the PRA responsible for the supervision of LME Clear.  The FCA and PRA are responsible for supervision regulated banks and investment firms who participate in the LME's markets.  

On 8 March 2022, the LME suspended nickel trading (which resumed on 16 March 2022). The LME concluded that a disorderly market had arisen amid the challenging market conditions following the conflict in Ukraine.  

Following a period of stability, the FCA intends to review the LME's approach to managing the suspension and resumption of the market in nickel. This review is intended to determine what lessons might be learned regarding the governance and risk management of the LME. Additionally the BoE will conduct a review of the operation of LME Clear to identify any lessons which might be learned in relation to the governance and risk management of LME Clear. 

The FCA and BoE intend to obtain the assistance of appointed skilled persons for these reviews, under section 166 of the Financial Services and Markets Act 2000. 

It is expected that the LME will consider how recent events should shape the LME's approach on market structure. Additionally, the LME has agreed the benefits of appointing independent directors for the purpose of strengthening governance.  

ESMA: response to the European Commission on improving retail investors' suitability and appropriateness assessments

On 19 April 2022, ESMA published its letter of response to the European Commission (EC) following the consultation on options to enhance the retail investors' suitability and appropriateness tests. The key considerations are: 

• The design of a new standardised regime should consider the needs of different investors and safeguard the principle of proportionality. The proposed unique and standardised retail investor regime does not differentiate among various investment services and might raise questions whether a standard "one size fits all" approach will be effective for different types of retail investors and scenarios.  
• Due to the significant impact the proposals would have on the current model, there would be the need for sufficient guidance and information to assist clients in understanding the implications. A sufficient time period should also be provided for firms to implement the rules. 
• GDPR implications require further assessment. The proposals imply the willingness of retail clients to fully share personal investor data, although Article 20 of GDPR does not seem to include personal data that is derived, computed, or inferred from the data provided by a client.  
• ESMA supports the intention of aligning requirements for the distribution of investment products that currently fall within MiFID and Insurance Distribution Directive. However, if these instruments are jointly assessed for the purposes of suitability assessment, it is essential to ensure that these align with other relevant requirements (for example, reporting requirements on the depreciation of a client's portfolio) to avoid operational difficulty for firms, and confusion for the clients. 

IOSCO: good practices for ETF trading 

On 6 April 2022, the International Organization of Securities Commissions (IOSCO) published its consultation paper (CR04/24) which supplements the June 2013 principles for the regulation of Exchange Traded Funds (ETFs) to set good practices for the operation of ETFs and ETF trading. CP04/24 provides these good practices for IOSCO members, responsible entities, and trading venues.  

The consultation paper includes: 

• A section explaining why ETF products should be supplemented with good practices. 
• Examples of proposed good practices for which IOSCO is seeking feedback. These good practices are divided into four themes: effective product structuring, disclosure, liquidity provision, and volatility control mechanisms.  

The responses should be submitted by 6 July 2022. 

ESMA: annual statistical report on cost and performance of EU retail investment products

On 5 April 2022, ESMA published its fourth annual report statistical report on cost and performance of EU retail investment products. 

This report provides an update on the performance and costs of EU retail investment products for 2020 by examining the market over a 10 year period. Findings suggest that there is limited improvement in the affordability of funds in most member states. The report covers areas such as: 

• ESG UCITS. 
• Gross performance. 
• Costs. 
• The performance of retail alternative investment funds. 

It is notable that UCITS with an ESG strategy outperformed non-ESG UCITS and are generally more affordable.  

FCA: Temporary asset retention requirement for certain firms subject to proposed British Steel Pension Scheme consumer redress

On 25 April 2022, the FCA published its policy statement (PS22/4) on the temporary asset retention requirement for certain firms that are subject to the proposed British Steel Pension Scheme (BSPS) consumer redress scheme. The retention requirement is being implemented to ensure that those responsible for redress liabilities meet the costs, and do not dissipate their assets to avoid paying liabilities.  

Firms that provided BSPS members with advice to transfer their pension benefit between 26 May 2016 and 29 March 2018 are within scope, unless they provided advice to fewer than five BSPS members. Additionally, firms that have comparable measures to prevent asset dissipation are not included within the scope of the temporary retention requirement.  

Firms that are in-scope must complete and notify the FCA of the results of a financial resilience assessment (FRA) to confirm that they have adequate resources to meet the BSPS claims. The results must be certified by their compliance officer and be provided to the FCA by 27 May 2022. 

Where the results of the FRA suggest a firm may not have sufficient assets to meet the estimated liabilities, they are prevented from undertaking transactions that are not "in the ordinary course of business". Where a firm believes it undertakes higher-risk transactions "in the ordinary course of business" it must notify the FCA in advance or obtain prior consent.  

The British Steel Pension Scheme (Financial Resilience) Instrument 2022 (FCA 2022/11), contained in Appendix 1 of the policy statement provides the final rules as set out in the instrument. This instrument came into force on 27 April 2022 at 12:01am and will continue in effect until 31 January 2023.  

The FCA will review the asset retention measures later in 2022 to correspond with the conclusion of the BSPS redress scheme consultation and consult on measures around the same time, if appropriate. 

CMA: anti-competitive arrangements 

On 6 April 2022, the CMA published its update on the progress of the ongoing investigation into anti-competitive arrangements in the financial services sector. The purpose of the investigation is to investigate suspected breaches of the Chapter I prohibition of the Competition Act 1998. It has been agreed by the FCA and the CMA that the CMA will exercise enforcement functions regarding this investigation.  

The update provides an updated case timetable, and the CMA expects to release a further update in September 2022. 

FCA: fines for asset management firm and former investment director 

On 30 March 2022, the FCA published the final notices it issued to: 

• GAM International Management Limited (GIML) including a fine of £9,103,523.00.
• Timothy Haywood, former investment director and business unit head, including a fine of £230,037.00.

GIML breached Principle 2 of the FCA's Principles for Business (which requires a firm to conduct business with due skill, care and due diligence) between 28 November 2014 and 25 October 2017, and Principle 8 (which requires a firm to manage conflicts of interest fairly, including between itself, its customers, and different customers) between 20 October 2016 and 8 March 2018.  

GIML qualified for a 30% discount under the executive settlement procedures for settling at an early stage. The total value of the fine without the discount would have amounted to £13,005,033.00.

Mr Haywood breached the Statement of Principle 7 of the Statements of Principle and Code of Practice for Approved Persons (which requires an approved person performing accountable higher management function to take reasonable steps to ensure that the business complies with relevant requirements and standards) between 20 October 2016 and 3 November 2017, and Statement of Principle 2 (which requires an approved person acting with due skill, care and diligence in carrying out accountable functions) between 29 March 2017 and 8 January 2018.  

Mr Haywood qualified for a 30% discount under the executive settlement procedures for settling at an early stage. The total value of the fine without the discount would have amounted to £319,044.00. 

FCA: financial crime controls at challenger banks 

On 22 April 2022, the FCA published its multi-firm review of financial crime controls at challenger banks. This review focuses on relatively new challenger banks which offer quick and easy application processes. The review utilises a sample of six challenger retail banks, primarily consisting of digital banks, with over eight million customers. 

The review found that challenger banks need to do more, despite some evidence of good practice. In particular, the FCA noted: 

• Challenger banks should establish a risk-based approach to anti-money laundering (AML) controls and ensure financial crime controls remain fit for purpose. 
• Some challenger banks were found to have weaknesses in customer due diligence, and/or enhanced due diligence.  

The review sets out the next steps for challenger banks.  

FATF: state of effectiveness and compliance with AML and CTF standards.  

On 19 April 2022, the Financial Action Task Force (FATF) published its report on the effectiveness of its anti-money laundering (AML) and counter-terrorist financing (CTF) standards. The key findings include: 

• Countries have improved technical compliance, making "huge progress" by establishing and enacting a broad range of laws and regulations. 
• 76% of countries have implemented FATF's 40 recommendations to a satisfactory level. 
• Many countries still face substantial challenges. 

The report focuses on the feedback from the fourth assessment cycle and has used that information to inform the strategic review, and the fifth-round assessment cycle.  

The FATF's revised fifth round methodology and procedures will apply once the fifth round evaluation commences.

Regulations: Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2022

On 29 March 2022, the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2022 came into force.  

The regulations provide an updated list of high-risk third countries. The updated list amends the list in Schedule 37A Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (Money Laundering Regulations 2017 or MLRs 2017).  

The updated list now considers the United Arab Emirates as a high-risk third country.  

In its 2022-2025 strategy document, the FCA has made a number of commitments for reducing and preventing conduct that can cause serious harm. How many has it made?

• 8
• 4
• 5
• 6

The answer to last month's trivia: the main technology focus of firms accepted into the FCA's Regulatory Sandbox to date has been DLT/Blockchain/Crypto. More details on the firms accepted into the FCA's Regulatory Sandbox can be found here.