Financial services update – 7 / 37 观点
In this month's update:
Treasury Committee: launch of sub-committee for scrutiny of financial services regulations
On 23 June 2022, the Treasury Committee published its report on future Parliamentary scrutiny of financial services regulations. As part of the future approach, a sub-committee will be established to take the lead on scrutiny of regulatory proposals, which will be chaired by Rt. Hon. Mel Stride MP.
The Treasury Committee believes it is most effective to intervene at the consultation paper phase of the regulatory proposal process.
A Financial Services Scrutiny Unit is being established to offer advice to the sub-committee.
The sub-committee will commence its work by scrutinising the Prudential Regulation Authority's (PRA) proposals for a 'Strong and Simpler Framework' (discussed further in the Banking and insurance section
European Affairs Committee: UK-EU relationship in financial services
On 23 June 2022, the House of Lords European Affairs Committee published its report on the UK-EU relationship in financial services. The report highlights the importance of the financial services sector to the UK, comprising 19.1% of all UK services exports, with 37% of total UK financial services exports in 2019 exported to the EU. The report considers how the government must ensure its approach to financial services meets the needs of the whole country and economy.
The report focuses on the following areas:
FCA: data strategy update 2022
On 23 June 2022, the FCA published its update on data strategy.
The FCA originally published its data strategy in January 2020. The update sets out where the FCA has made progress, where it has more to do and where it has increased its focus.
The FCA's progress so far includes:
Whilst the FCA is pleased with the progress it has made over the past year, it notes that changes in the external market have reinforced its resolve to become a digital regulator. Looking ahead, the FCA is transforming its platform, building new tools, and improving data strategy across the entire data and technology pyramid and it will continue to modernise its enterprise architecture to a cloud-based system, with strengthened security and operational resiliency.
The aim of these efforts is for the FCA to become the first global financial services regulator to build a Digital Unified Intelligence Environment.
The FCA's data strategy has featured prominently in recent speeches from the regulator:
BoE and PRA: annual reports and accounts
On 23 June 2022, the Bank of England (BoE) and the Prudential Regulation Authority (PRA) published their annual reports and accounts, including a number of committee and sub-committee reports. Among other things, the main reports set out financial information, horizon scanning activities and reviews of delivery on goals.
Treasury Committee: future of financial services regulation
On 16 June 2022, the Treasury Committee published its report on the future of financial services regulation. The conclusions and recommendations refer to issues including:
HM Treasury has two months to respond to the report.
EU: Provisional agreement reached on markets incryptoassets (MiCA) proposal
On 30 June 2022, it was announced that the Council of the EU and the European Parliament had reached a provisional agreement on the markets in crypto-assets (MiCA) proposal, which covers issuers of unbacked crypto-assets, stablecoins, and trading venues and wallets. The Council and Parliament must now approve the provisional agreement and formally adopt it. MiCA is expected to come into force by the end of 2023.
HM Treasury: Government sets out plans to legislate for direct regulation of "critical" third parties to the finance sector
On 8 June 2022, HM Treasury published its policy statement on "Critical third parties to the finance sector". Please see our recent insight article for further information.
EU: Regulation on pilot regime for market infrastructures based on DLT
On 2 June 2022, the European Parliament and Council of the EU published Regulation (EU) 2022/858 on the pilot regime for market infrastructures based on distributed ledger technology. The Regulation came into force on 22 June 2022, 20 days after its publication in the Official Journal.
The Regulation will apply to EU member states from 23 March 2023, except for Articles 8(5), 9(5), 10(6) and 17, which applied from 22 June 2022, and Article 16, which applied from 4 July 2021.
The Regulation will make certain amendments to the MiFID II Directive, MiFIR, and the Central Securities Depositories Regulation.
HM Treasury: managing the failure of systemic digital settlement asset (including stablecoin) firms
On 31 May 2022, HM Treasury published its consultation on managing the failure of systemic digital settlement asset (including stablecoin) firms. HM Treasury is seeking views on whether an amended Financial Market Infrastructure Special Administration Regime (FMI SAR) is the appropriate vehicle to become the primary legal framework to address the risk of failure of systemic digital settlement asset firms (DSAs).
The government considers FMI SAR to be the most appropriate regime to adapt and that the BoE should be the lead regulator, but also notes that the Payment and E-Money Special Administration Regime (PESAR) is capable of being applied.
The consultation closes on 2 August 2022.
ESMA: market characteristics of EU ESG rating and data providers
On 27 June 2022, ESMA published a letter providing an overview of the market for EU ESG rating providers following the call for evidence. ESMA provides an overview of its findings, which includes the following:
ESMA considers the feedback indicative of an immature but growing market, which bears resemblance to the credit ratings market.
FCA: evaluation paper on supporting innovation in ESG data and disclosures
On 23 June 2022, the FCA published its evaluation report on supporting innovation in ESG data and disclosures. The FCA and the City of London Corporation ran the second digital sandbox pilot between November 2021 and March 2022. The key lessons learned during the pilot include:
Glasgow Financial Alliance for Net Zero: consultation on net zero transition plans
On 15 June 2022, Glasgow Financial Alliance for Net Zero (GFANZ) published its interim report setting out recommendations and guidance on net zero transition plans in the financial sector, and launched a six-week public consultation.
The report encourages consistency in approaches to transition planning across the financial sector, and to accelerate the adoption of net zero transition planning and related activities. Alongside the report, GFANZ has published a set of transition planning documents, a guide providing an overview of these transition planning documents, and the interim report.
The consultation closes on 27 July 2022.
Basel Committee on Banking Supervision: principles for the effective management and supervision of climate-related financial risks
On 15 June 2022, the Basel Committee on Banking Supervision (BCBS) published the final version of its principles for the effective management and supervision of climate-related financial risks. The principles aim to foster alignment in terms of supervisory expectations for addressing climate-related financial risks by improving risk management and supervisory practices related to these risks.
The BCBS sets out 18 high level principles. Principles 1 to 12 provide guidance to banks, and principles to 13 to 18 provide guidance for prudential supervisors. The principles cover the following topics:
The principles cross-refer to other expectations in the Basel framework, such as the BCBS's core principles for effective banking supervision and the supervisory review process.
European Supervisory Authorities: clarification on the draft RTS under the Sustainable Finance Disclosure Regulation
On 2 June 2022, the European Supervisory Authorities (ESAs) published a statement to provide clarification on the draft regulatory technical standard (RTS) issued under the Sustainable Finance Disclosure Regulation ((EU) 2019/2088) (SFDR). The statement includes:
The clarifications relating to practical implications of the RTS follow numerous requests given their breadth and technical complexity.
Payment Systems Regulator: market reviews on scheme and processing fees and cross-border interchange fees
On 21 June 2022, the Payment Systems Regulator (PSR) published:
MR22/1.1 Scheme and processing fees
The review on scheme and processing fees focuses on Mastercard and Visa as these account for 99% of debit and credit card payments in the UK. The review will examine:
The review will focus on data from 2014 – present to enable it to build on the analysis and data collected in its card-acquiring services market review.
The review will consider:
MR22/2.1 Cross-border interchange fees
From December 2015 until the end of the transition period in December 2020, following the UK's withdrawal from the EU, interchange fees (IFs) for UK domestic, and UK-EEA transactions were subject to caps under the Interchange Fees Regulation – a cap of 0.2% of the value of consumer debit card transactions, and 0.3% of the value of consumer credit card transactions.
Additionally, card transactions used by a card issued outside the EEA at a merchant located within the EEA were subject to IF caps, as part of commitments offered by Mastercard and Visa to the EU. These commitments were made binding in 2019 and differentiate between card-present (CP) and card-not-present (CNP) transactions. CP transactions are subject to the same caps, whereas CNP transactions are subject to higher caps. These commitments are due to expire in 2024.
Once the UK had withdrawn from the EU, the on-shored UK Interchange Fee Regulation applies the cap levels set out in the EU Interchange Fees Regulation. The caps apply to transactions involving UK-issued cards making payment to an EEA merchant, but do not apply to transactions using an EEA-issued card to a UK merchant. These are known as outbound IFs and are not subject to any caps.
Since withdrawal from the EU, Visa and Mastercard have applied the same levels to both inbound and outbound IFs for UK-EEA transactions. For CP transactions, IFs have remained at the same level, whereas IFs for CNP transactions have increased from 0.2% and 0.3% to 1.15% and 1.5%, respectively.
The PSR wants to understand the rationale for the increased UK-EEA CNP transaction IF rates, and whether the increases are indicative of the market or aspects of the market not working well. The PSR will focus its investigation on UK-EEA cross-border IFs in Visa and Mastercard systems, covering both debit and credit card consumers. This will focus only on IFs that were previously covered by the EU caps, with outbound IFs the priority for review.
The PSR is seeking views on the draft terms of reference, and the responses are due by 5pm on 2 August 2022.
FCA: branch and ATM closures or conversions
On 14 June 2022, the FCA published its guidance consultation on branch and ATM closures or conversions: updated guidance for firms.
The FCA is publishing this updated guidance to ensure that expectations under their principles are clear. Among other things, the FCA proposes to:
The guidance consultation closes on 26 July 2022.
FCA: supervisory strategy for mainstream consumer credit lenders portfolio
On 27 June 2022, the FCA published its portfolio letter setting out an updated view of the key risks mainstream consumer credit lenders (MCCLs) pose to consumers and the market they operate in. The risks are grouped into the following categories:
HM Treasury: Regulation of Buy-Now Pay-Later
On 20 June 2022, HM Treasury unveiled its approach to the regulation of interest-free buy-now pay-later products. Please see our recent insight article for further information.
HM Treasury: Consumer Credit Act reform
On 16 June 2022, HM Treasury published a press release announcing the government's intention to reform the Consumer Credit Act 1974 (CCA).
The government plans to publish a consultation on the reform by the end of the year.
The proposed reform intends to move much of the CCA to sit under the FCA rather than under statute, enabling the FCA to respond quickly to emerging developments in the market. Amendments will be made to simplify technical terms to make clear to consumers what protections are in place and improve cost efficiency for businesses in complying with the regulatory requirements.
The reforms also aim to enable lenders to provide a wider range of finance whilst ensuring high levels of consumer protection.
The proposed reform is anticipated to be complex and require substantive work and is therefore expected to take place over an extended timeframe to ensure the reform is fit for purpose.
FCA: Dear CEO letter to lenders regarding the rising cost of living
On 16 June 2022, the FCA published its Dear CEO letter to lenders (including retail banks and consumer credit firms), to remind them of the standards expected of them, especially whilst consumers are affected by the cost of living crisis. The FCA reminds lenders to:
The FCA will monitor the outcomes and take further action as necessary. They intend to publish findings from work on borrowers in financial difficulty, and plan to consult on the future of the tailored support guidance.
The Upper Tribunal: right to claim compensation and right to seek a validation order
On 15 June 2022, the Upper tribunal published its judgment in Barclays Partner Finance v Financial Conduct Authority  UKUT 00151 (TCC), where it considered the rights of consumers where regulated agreements are unenforceable and the consumer is therefore entitled to recover compensation.
It was considered by the tribunal that the fact that a consumer had invoked the compensation process did not invoke the validation order process. It was determined that the right to claim compensation and the right to seek a validation order are separate processes which need to be independently invoked. Therefore, a claim for compensation could be made sometime after an application for a validation order.
Treasury sub-committee: proposed strong and simple framework
On 27 June 2022, the House of Commons Treasury Sub-Committee on Financial Services Regulations published the following in relation to the PRA's strong and simple framework:
As part of the call for evidence, the sub-committee is seeking views on various aspects, including:
The consultation closes on 11 July 2022.
PRA: consultation on model risk management principles for banks
The PRA has developed a set of principles that it considers to be key for establishing an effective model risk management (MRM) framework. The PRA is proposing to embed these principles as supervisory expectations for all regulated banks, building societies and PRA-designated investment firms. The expectations are set out in the proposed supervisory statement, which is included in the appendices.
The proposed MRM principles cover the following areas:
The proposals are not open to insurers at this time, given the ongoing Solvency II review.
The consultation closes on 21 October 2022.
FCA: travel insurance signposting rules
On 17 June 2022, the FCA updated its webpage on policy statement PS20/3 on signposting to travel insurance for consumers with medical conditions.
The update confirms that the FCA has decided to delay the post-implementation review of the rules by a year and intends to conduct the review in the period of April – October 2023.
The FCA considers that the impact of COVID-19 on the travel insurance market would undermine its ability to draw firm conclusions if the review were conducted this year.
FCA: supervisory strategy for personal and commercial lines insurance intermediaries
On 13 June 2022, the FCA published its portfolio letter to firms in its personal and commercial lines insurance intermediaries (P&CLII) portfolio regarding its supervisory strategy.
This letter follows the 4 September 2020 letter for P&CLII, which we covered in our October 2020 update. The FCA highlights, among other things, that:
The FCA will continue engagement with P&CLII and aim to provide an updated view of key risks by the end of 2023.
BoE: resolvability assessment of major UK banks
On 10 June 2022,the BoE published its paper detailing its findings from its assessment of the resolvability of the major eight UK firms as part of the resolvability assessment framework.
The BoE concludes that there are several thematic and firm specific areas where further work is needed, although banks are in a fundamentally better place than in the 2007/2008 global crisis. Banks are expected to:
The BoE expects to conduct direct verification of firms' resolvability preparedness.
The BoE will repeat its assessment of major UK banks in 2024, and every two years thereafter.
FCA: work update on market abuse and manipulation
On 17 June 2022, the FCA published a press release providing an update on its work on market abuse and manipulation. The press release responds to recent press reports about the FCA's approach, and this press release responds by highlighting the FCA's approach, which includes:
FCA: the second phase of the Listing Rules reform
On 15 June 2022, Clare Cole, FCA Director of Market Oversight, gave a speech on the FCA's second phase of reform of the Listing Rules: increasing transparency and encouraging more market participation. The key takeaways include:
HM Treasury: senior managers & certification regime for financial market infrastructures
On 7 June 2022, HM Treasury published its response to the consultation proposing a senior managers & certification regime (SMCR) for financial market infrastructures (FMI). Please see our previous update for more information on the consultation.
The proposals aim to enhance accountability of senior managers and improve governance arrangements. The proposals cover CCPs, CSDs, recognised payment systems, and SSPs. On review of feedback from the responses, HM Treasury intends to design and put in place SMCR for CCPs and CSDs, with certain detailed aspects to be set out in secondary legislation and regulators' rules. HM Treasury also intends for the option to extend SMCR to other systemic financial services entities in the future. Legislating on SMCR for recognised payment systems and SSPs will be taken forward separately considering the upcoming review on the regulatory perimeter for systemic firms in payments chains by the BoE.
Further details on the plans to implement SMCR for CCPs and CSDs will be provided in due course.
Council of the EU: AIFMD and UCITS Directive
On 21 June 2022, the Council of the EU published its note containing the final compromise text of the proposed Directive amending the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) and the UCITS Directive (2009/65/EC) (AIFMD II) (2021/0376(COD)).
On 17 June 2022, the Council published a press release announcing that it had agreed the general approach on the proposed Directive amending the AIFMD and UCITS Directives.
ESMA: common supervisory action on costs and fees of investment funds
On 31 May 2022, ESMA published its final report, that was caried out with national competent authorities (NCAs), on the costs and fees for investment funds.
The aim of the common supervisory action was to assess, foster and enforce compliance of supervised entities with key cost-related provisions in the UCITS framework. ESMAs analysis and conclusions are set out in the report, the key points include:
ESMA concludes that continued supervisory attention is required, and stresses that investors should be adequately compensated where they are charged with undue costs or fees where there were calculation errors resulting in financial detriment.
ESMA will continue to work with NCAs and invites them to consider enforcement where necessary.
ESMA: key priorities for EU retail fund investors
On 31 May 2022, Verena Ross, ESMA Chair, gave a speech on the key priorities for EU retail fund investors. The speech covers ESMA's retail investor priorities under the following three topics:
Sustainability and greenwashing – the current sustainability disclosure framework is incomplete and imperfect. Ideally, the required disclosures would have followed a corporate transparency regime.< The corporate transparency regime is still a work in progress. Together with the ISSB's global standards, these should help to improve underlying sustainability over time.
FCA: FCA fine Ghana International Bank for AML controls failings
On 23 June 2022, the FCA published its decision notice that it issued to Ghana International Bank PLC (GIB) for failings in anti-money laundering controls related to correspondent banking activities.
GIB has been fined £5,829,900 for failing to:
FCA: FCA fine JLT Specialty Ltd for financial crime control failings
On 22 June 2022, the FCA published its final notice that it issued to JLT Specialty Ltd, an insurance broker, for failings in financial crime control, allowing bribery of over USD3 million.
JLT has been fined £7,881,700 for breach of Principle 3, management and control, for failing to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems.
The fine was subject to a 30% stage 1 discount from £11,259,500, pursuant to the FCA's executive settlement procedures.
FCA: FCA fine TFS Loans Ltd (in administration) and require redress for affected guarantors
On 10 June 2022, the FCA published its final notice that it issued to TFS Loans Ltd (in administration), a guarantor loans provider, imposing a fine and requiring redress for affected guarantors. Guarantor loans are regulated credit agreements, under which an individual other than the borrower provides a guarantee or indemnity.
TFS has been fined £811,900 and is required to provide redress to guarantors who have suffered a loss resulting from TFS's failings. The FCA found that between November 2015 and 10 April 2018 TFS was in breach of principle 6, treating customers fairly, and principle 3, organising and controlling affairs responsibly and effectively, as well as breaching CONC requirements.
The fine was subject to a 30% stage 1 discount from £1,159,988, pursuant to the FCA's executive settlement procedures.
HM Treasury: review of the UK's anti-money laundering and countering the financing of terrorism regime
On 24 June 2022, HM Treasury published its review of the UK's anti-money laundering and countering the financing of terrorism regime, which focuses on improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). The review is centred around three core themes:
Key conclusions identified in the report include:
FCA: FCA pursuing re-trial of insider dealing case
On 22 June 2022, the FCA published its press release stating that it intends to pursue a re-trial of two individuals for insider dealing. The press release follows the decision of Southwark Crown Court to discharge the jury after they were unable to reach a verdict following an eight-week trial. The re-trial is set to commence on 11 September 2023.
Financial Action Task Force: outcomes of June 2022 plenary
On 17 June 2022, the Financial Action Task Force (FATF) published its document setting out the outcomes of the 14 – 17 June 2022 plenary meeting. The outcomes include:
HM Treasury: amendments to the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017
On 15 June 2022, HM Treasury published its response to the call for evidence and consultation on potential amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) and the Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017 (OPBAS).
The review covers various areas, including:
According to the FCA's recent update on its data strategy, how many financial adverts were amended or withdrawn in 2021?
The answer to last month's trivia: since May 2021, the FCA has carried out 1,090 assessments as part of its "use it or lose it" approach to regulatory permissions.