Financial services update – 8 / 37 观点
In this month's update:
On 25 May 2022, the Financial Services Regulatory Initiatives Forum published the fifth edition of the Regulatory Initiatives Grid, which provides a clear outline of the upcoming regulatory work. The key initiatives for Q3 2022 include, among others, the FCA Consumer Duty policy statement with final rules and guidance, a consultation on proposals to support improving diversity in financial services, and a policy statement on improvements to the appointed representatives regime.
On 23 May 2022, the European Commission published its report on the operation of the European Supervisory Authorities (ESAs), as required under Article 81 of the ESA Regulation (EU) No 1093/2010. The report covers:
The Commission does not intend to propose legislative changes as more time is required to assess the full impact of the review. However, the Commission does recognise the need for changes in supervision.
On 20 May 2022, Charles Randell, the then Chair of the FCA, gave a speech at the Centre for Commercial Law Studies. The key takeaways are:
Mr Randell suggests that to level up the UK, regulation should listen to the diverse needs across the nation.
On 19 May 2022, the FCA published its policy statement (PS22/5) on amendments to the Handbook and Enforcement Guide relating to its new cancellation and variation power under the Financial Services Act 2021. The power gives the FCA the ability to cancel or vary FCA authorised firms' permissions more quickly.
The amendments apply only to firms authorised or deemed, under the temporary permissions or supervised run-off regimes, to be authorised by the FCA under Part 4A of FSMA. The amendments do not apply to payment service providers, e-money issuers, or firms that are authorised by the PRA.
The FCA encourages firms that are not carrying on FCA regulated activities, or a particular regulated activity, to request any unused permissions to be cancelled.
The new rules and guidance came into force on 19 May 2022.
On 20 May 2022, the G7 financial ministers called for "consistent and comprehensive" regulation to hold the cryptocurrency sector to the same standards as traditional finance. The G7 group has requested that:
On 12 May 2022, the FCA published its CryptoSprint webpage, following the event which took place on 10 and 11 May 2022.
The purpose of the CryptoSprint was to obtain views from industry and other stakeholders to assist in determining how the cryptoassets sector could be regulated.
The CryptoSprint is the first event hosted by the FCA to help determine future policy in an innovative manner, and the FCA states that this will be the first of many engagement initiatives to help inform the future regulatory regime for Cryptoassets.
The outputs of the CryptoSprint will be shared in summer 2022.
On 10 May 2022, an agreement was reached by the European Parliament and the Council of the EU as to the proposed regulation on digital operational resilience for the financial sector (2020/0266(COD)) (DORA). Please see our recent insight article for further information.
EIOPA will consider feedback in ongoing and future work on digitalisation.
On 5 May 2022, Nikhil Rathi, FCA Chief Executive, gave a speech at the Chartered Institute for Securities & Investment 30th anniversary dinner. The main points to note are:
On 25 May 2022, ESMA published the following documents in response to the ESAs queries to the European Commission about the interpretation of the Sustainable Finance Disclosure Regulation ((EU) 2019/2088) (SFDR) and the Taxonomy Regulation ((EU) 2020/852) (TR):
The ten questions and answers focus on the following topics and are intended to supplement areas that are subject to ambiguity:
On 12 May 2022, the Department for Business, Energy and Industrial Strategy (BEIS) published its call for evidence on updating the Green Finance Strategy. The questions are categorised under the following objectives:
The consultation closes on 22 June 2022, and the update to the Green Finance Strategy is planned for late 2022.
On 10 May 2022, the UK Transition Plan Taskforce published a call for evidence on its plans for a sector-neutral framework for private sector transition plans. The call for evidence includes queries on:
The call for evidence closes on 13 July 2022. The Taskforce aims to publish a consultation later in 2022, with a view to finalise the sector-neutral framework in early 2023.
On 2 May 2022, the European Banking Authority (EBA) published its discussion paper on the role of environmental risks in the prudential framework. The EBA recognises that climate change and broader environmental issues are changing the risk picture for the financial sector and will become more prominent in the future. This raises questions as to whether the prudential framework can account for the new risk drivers.
The EBA provides an initial assessment of the framework's interaction with environmental risks and poses questions on whether amendments are required to address risks. In this discussion paper, the EBA:
The consultation closes on 2 August 2022.
On 19 May 2022, HM Treasury published the summary of responses received from the July 2021 consultation (please see our August 2021 update for further information on this), and provides its planned approach for access to cash legislation. The planned approach includes:
On 10 May 2022, the Payment Service Regulator (PSR) published the independent PSR Panel's summary report on the digital payments initiative (which is dated April 2022). The initiative was launched following a recommendation by the Access to Cash Working Group.
The Panel found that a key driver for reliance on cash is low income, other vulnerabilities, and importance of budgeting and avoiding overspending.
The Panel identified four high-level areas that require work to address drivers of cash reliance and facilitate greater take-up of digital payments:
For each of these high-level areas, the Panel has set out its recommendations for the PSR which it expects to be considered in the PSR's work programme.
On the PSR Panel's digital payments initiative report webpage, the PSR confirms it will engage with relevant authorities and industry on the identified barriers and solutions, with a workshop planned for June 2022.
The PSR will respond to the Panel's recommendations in summer 2022.
On 10 May 2022, the European Commission published its public consultation paper on the revised Payment Services Directive ((EU) 2015/2366) (PSD2) and open finance. In addition, the consultation was published alongside:
The public consultations close on 2 August 2022 and the targeted consultations close on 5 July 2022.
On 11 May 2022, the Financial Services Consumer Panel (the Panel) published:
The Panel has identified four sets of risks from the investigation which covers the consumer journey from pre to post contract: marketing, advice readiness, product understanding, and product value.
The aim of the paper is to stimulate regulators and industry to undertake further work on some of the highlighted issues. The Panel recommends further investigations into:
The paper sets out actions the Panel would like the FCA to take in respect of the four areas of risk, and provides a work programme for regulators, industry, and the Money and Pensions Service.
On 11 May 2022, the European Commission published its legislative proposal for a Directive amending the Consumer Rights Directive (2011/83/EU) (CRD) and repealing the Distance Marketing Directive (2002/65/EC) (DMD) (COM(2022) 204).
The proposed Directive repeals the DMD and transfers the contents to the CRD. The proposed Directive will also extend the application of certain rules in the CRD to financial services distance contracts, and makes targeted amendments to the protections which are currently set out in the DMD. The amendments include the following issues:
The annex to the proposed Directive includes a table showing how the provisions in the DMD relate to the CRD (as amended).
The Council of the EU and the European Parliament will now consider the legislative proposal. The DMD will be repealed 24 months after adoption by which time Member States will be expected to have transposed the Directive into national law and regulation.
On 6 May 2022, the FCA published its Dear CEO letter to consumer credit firms regarding the need for ensuring financial promotions are clear, fair and not misleading.
The letter was addressed to credit brokers, and firms providing high-cost lending products, but may be relevant to other firms that are involved in these activities.
The FCA is concerned that the cost of living crisis will lead to a greater demand for credit, and will particularly impact vulnerable consumers. The FCA reminds firms that they have a responsibility not to exploit the cost of living crisis, and should focus on customers' needs by providing the right information at the right time according to the rules. The FCA has noted in particular:
The letter lists several actions for firms to ensure compliance with the financial promotion requirements. It also makes it clear that the FCA will proactively monitor the market and assess compliance. Where the FCA identifies non-compliant financial promotions, it will consider what further action may be appropriate to take.
On 5 May 2022, Sheldon Mills, Executive Director, Consumers and Competition at the FCA, gave a speech on supporting customers in challenging times. The key aspects to note include:
On 25 May 2022, Duncan Mackinnon, PRA Executive Director for Supervisory Risk Specialists, gave a speech on the PRA's expectations on supervisory expectations for firms in implementing the operational resilience framework ahead of the March 2025 deadline. Mr Mackinnon highlighted the following:
On 17 May 2022, the Financial Ombudsman Service (FOS) published a new webpage on vehicle breakdown cover, which provides information for firms when handling and resolving complaints. The webpage provides details on:
On 11 May 2022, Sheldon Mills, Executive Director, Consumers and Competition at the FCA, gave a speech on serving consumers and businesses in times of uncertainty and change at the British Insurance Brokers' Association Conference. The speech focussed on:
The following recent documents have been published by ESMA and the EBA on crowdfunding:
On 20 May 2022, ESMA published its updated Q&As on transparency topics under the MiFID II Directive and the Markets in Financial Instruments Regulation (MiFIR) in respect of Q&A's regarding non-equity transparency.
On 19 May 2022, Christina Segal-Knowles, BoE Executive Director for Financial Markets Infrastructure, gave a speech on central clearing. Ms Segal-Knowles acknowledges that work to strengthen central clearing is crucial to the BoE's efforts to enhance the resilience of the UK and global financial system. Of particular note, the following areas are considered to require further work:
Ms Segal-Knowles concludes by suggesting that the BoE should consider how CCPs can be part of the solution by learning and adapting.
On 23 May 2022, the FCA published its non-handbook finalised guidance on parts of the UK Money Markets Funds Regulation (UK MMF). The FCA has a general duty under the UK MMF to take appropriate measures where a Money Market Fund (MMF) manager fails to meet portfolio composition and valuation requirements. The guidance notes the following:
On 23 May 2022, the FCA and the BoE, with the endorsement of HM Treasury, published their discussion paper on resilience of MMFs, which contributes to the assessment of vulnerabilities in MMFs and how much they contribute to risks to UK financial stability and investor protection. The paper also considers possible policy changes that would affect UK MMFs and their users. These changes may also be relevant to non-UK MMFs that are marketed to UK investors.
The paper covers:
Responses should be submitted by 23 July 2022.
On 22 May 2022, ESMA published its updated Q&As on the application of the UCITS Directive (2009/65/EC). ESMA has updated the Q&A on the performance reference period for the benchmark model, and has introduced a new Q&A on the performance reference period for the hurdle rate model.
On 20 May 2022, ESMA published its updated Q&As on the application of the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD). ESMA has updated and introduced new Q&As regarding its guidelines on performance fees in UCITS and certain types of AIFs.
On 18 May 2022, the European Parliament's Economic and Monetary Affairs Committee (ECON) published its draft report on the proposed Directive amending the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) and the UCITS Directive (2009/65/EC). The draft report contains a draft legislative resolution setting out proposed amendments, and provides suggestions for improvement in the following areas:
On 17 May 2022, ESMA published its consultation paper on the information for firms to provide, as well as the context and format of the notification letters to use, when informing regulators of their cross-border marketing and management activities under the UCITS Directive (2009/65/EC) and the AIFMD (2011/61/EU). The consultation paper sets out the draft RTS and ITS under the UCITS Directive and AIFMD specifying the form of the notification letters to be submitted in certain scenarios, eg UCITS submitting a notification letter to their home national competent authorities to propose to market their units in a host Member State.
The consultation closes on September 2022. The final report is anticipated to be published by the beginning of 2023.
On 17 May 2022, the FCA published its:
Both firms have been found in breach of Principle 1, Integrity, for acting dishonestly and recklessly in respect of pensions advice. They were also found in breach of section 20 of the Financial Services and Markets Act 2000 by carrying out the regulated activity of pension transfers without the relevant permission. HCA was in breach between 20 October 2013 and 8 July 2015, while BHIM was in breach between 9 September 2014 and 12 December 2016.
Considering the financial circumstances of HCA the FCA decided not to impose a financial penalty, in the interest of creditors. Otherwise, the FCA would have imposed a fine of £239,900.00.
The FCA imposed a fine of £311,639.00 on BHIM including a disgorgement figure of £204,039.00. No discount was applied.
On 13 May 2022, the FCA published its final notice of 12 May 2022 to Alexander Jon Compliance Consulting Ltd, refusing to authorise (AJCC) to provide regulatory hosting services, in order to protect consumers.
The FCA considered that AJCC could not demonstrate the skills, experience or staff to oversee appointed representatives, could not explain how its appointed representatives would assess whether products or services were appropriate, or demonstrate that it would be directly responsible for its appointed representatives conduct or compliance.
The FCA has published an accompanying press release to remind firms they are accountable for appointed representatives and must ensure they can properly oversee appointed representatives. This decision is aligned with the FCA Strategy commitment to improve oversight of appointed representatives; a policy statement on enhancements to the appointed representatives regime is expected in Q3 2022.
On 12 May 2022, the Payment Service Regulator (PSR) published a decision notice which has been issued to National Westminster Bank plc, Royal Bank of Scotland plc, Ulster Bank Ltd and Coutts & Company.
The banks have been fined £1,820,000for failure to comply with Articles 4 and 10(5) of the EU Interchange Fee Regulation ((EU) 2015/751) by issuing individually settled credit cards across a range of products to business customers which they considered would be recognised as commercial cards under the Regulation, and therefore did not cap interchange fees. The banks requested uncapped interchange fees on UK domestic transactions between 24 March 2016 and 14 March 2018, and despite being aware of the ongoing breach, did not attempt to comply with Article 4 until late 2017 following engagement with the PSR.
After the PSR's investigation, the banks reimbursed the excess interchange fees received by other parties.
The banks agreed an early settlement and qualified for a 30% discount, otherwise the fine imposed would have been a penalty of £2,600,000.
On 17 May 2022, the FCA published a new webpage on reporting sanction evasions and weaknesses in sanction controls. The webpage sets out:
The webpage notes that the FCA operates confidentially and will not share any action taken in respect of a report.
On 11 May 2022, the Wolfberg Group published its FAQs on how negative news screening can enhance financial institutions' awareness of potential financial crime risk posed by existing and prospective customers.
The FAQs identified relevant factors in setting negative news standards, such as applying screening as part of a risk-based approach to anti-money laundering and counter terrorist financing.
On 10 May 2022, HM Treasury published its policy paper regarding the government's approach to authorised push payment (APP) scam reimbursement. The government will:
The PSR intends to publish a consultation in autumn 2022.
The FCA's new power to cancel or change a firm's permissions supports its "use it or lose it" approach. How many assessments of firms has the FCA carried out as part of this initiative since May 2021?
The answer to last month's trivia: in its 2022-2025 strategy document, the FCA made 6 commitments for reducing and preventing conduct that can cause serious harm.