Financial services update – 6 / 37 观点
In this month's update:
On 1 August 2022, the FCA published policy statement 22/10 which sets out its final policy and handbook rules for high-risk investments subject to its financial promotion rules and for firms communicating and approving financial promotions. The policy statement responds to the proposals contained in the FCA's consultation paper 22/2 (see our February 2022 update), which built on the feedback to its discussion paper DP21/2 (see our article "High-risk investment promotions under scrutiny") and evidence from behavioural science research. The FCA has made a number of targeted amendments to its proposals to mitigate negative unintended consequences identified in the consultation responses and to ensure firms have enough time to implement the rules.
The new regime is a key component of the FCA's Consumer Investment Strategy, which it published in September 2021. As part of this strategy, the FCA has set itself a target of a 50% reduction by 2025 in the number of consumers investing in high-risk investments who indicate a low risk tolerance or demonstrate vulnerability.
In summary, the new regime:
The rules relating to risk warnings for financial promotions of high-risk investments come into force on 1 December 2022; all other rules will take effect from 1 February 2023.
Cryptoassets are not covered by the policy statement. The FCA will address its consultation proposals for cryptoassets once the relevant legislation to bring qualifying cryptoassets within the financial promotion regime has been made. At this stage, the FCA expects its approach to cryptoassets will be consistent with how it has approached other high-risk investments.
The FCA has adjusted the application dates of the new rules. The rules come into force on 31 July 2023 for new and existing products or services that are open to sale or renewal and on 31 July 2024 for closed products or services. The FCA expects firms to have agreed their implementation plans by the end of October 2022 and be able to demonstrate that they have ensured their plans are deliverable and robust.
On 21 July 2022, HM Treasury published its first annual report on the state of the UK financial services sector. The report has been produced in collaboration with the City of London Corporation and assesses the attractiveness and international competitiveness of the UK financial services sector. The key findings are:
The report will be used to monitor key performance indicators.
On 20 July 2022, HM Treasury published its response to the second consultation paper on the financial services future regulatory framework review (FRF), which relates to Phase II of the review.
The response summarises the feedback to the consultation and sets out the final policy position. Among other things, the review notes that:
The FRF reforms are being legislated through the Financial Services and Markets Bill 2022/23 (see below).
On 19 July 2022, Nadhim Zahawi, the Chancellor of the Exchequer, gave his first Mansion House speech, in which he highlighted the key aspects of the Financial Services and Markets Bill 2022/23. He described it as a "landmark piece of legislation." The Bill was introduced in Parliament on 20 July 2022. Please see our insight article for further information on the Bill.
On 19 July 2022, the FCA published its perimeter report. The perimeter report webpage will be updated quarterly.
The report sets out the FCA's general approach to the perimeter, and harm linked to the perimeter. The report then works through the following sections, and includes examples of its work in each area:
On 19 July 2022, the FCA published its annual report and accounts for 2021/22, providing an update on what it has achieved in the past year. Some of the key highlights include:
For information on investigations and enforcements in the annual report and accounts, please see our item under the section: FCA Enforcement action.
On 21 July 2022, the Bank of England (BoE), PRA, and FCA (together, the supervisory authorities) published their discussion paper on "Operational resilience: critical third parties to the UK financial sector." The Financial Services and Markets Bill 2022/2023 sets out a framework for managing systemic risks posed by third parties designated as critical third parties (CTPs) by HM Treasury, which has been welcomed by the supervisory authorities.
The discussion paper sets out how the supervisory authorities could use their proposed powers in powers in the Bill to assess and strengthen operational resilience of services supplied by CTPs. The paper focuses on three main building blocks:
The discussion paper is open to responses until 23 December 2022. Subject to the outcome of the Bill, a consultation is anticipated in 2023.
On 13 July 2022, the House of Commons Treasury Committee published a press release announcing the launch of its inquiry into cryptoassets, and a related call for evidence which confirms that the inquiry will cover:
The call for evidence also provides a list of topics that submissions are invited on, including:
Written submissions will be accepted until 17.00 on 12 September 2022.
On 13 July 2022, the FCA held its 2022 innovation open day, in which he FCA laid out its roadmap for the future and shared its plans to support industry growth. The plenary sessions are available on the FCA's innovation open day webinars webpage.
The open day highlighted:
The FCA are also set to host the authorised push payment fraud TechSprint on 27 – 29 September 2022.
On 12 July 2022, Sir Jon Cunliffe, Deputy Governor of the Bank of England, gave a speech on the lessons from the "Crypto Winter", which saw a widespread collapse in the valuation of cryptoassets (Bitcoin has dropped 70% since November), and included the collapse of several high-profile crypto firms. The lessons include:
On 7 July 2022, the International Organization of Securities Commissions (IOSCO), published its cryptoassets roadmap for 2022/23. The Fintech taskforce (FTF) is tasked with developing, overseeing, delivering, and implementing IOSCO's regulatory agenda on Fintech and cryptoassets. The FTF will also be responsible for coordinating engagement with the FSB and other standards bodies on Fintech and cryptoassets related matters.
FTF's work will be split across two workstreams, covering crypto and digital assets (CDA), and decentralised finance (DeFi). Both worksteams will focus primarily on analysing and responding to market integrity and investor protection concerns with regards to cryptoassets. The roadmap provides the FTFs overarching workplan and deliverables for each of the workstreams.Public reports on each workstream are due in 2023. The FTF will also consider whether there are suitable junctures in 2023 for interim reports on the ongoing work.
On 14 July 2022, the Financial Stability Board (FSB) published the first annual progress report on the roadmap for addressing climate-related financial risks. The report aims to: take stock of progress made since publication of the roadmap, identify and address areas that require further attention, strengthen coordination across various international initiatives, and provide updates, where required, to the roadmap actions.
The FSB consider that progress across the four blocks of the roadmap has been encouraging. The four blocks are firm level disclosures, data, vulnerabilities analysis, and regulatory and supervisory practices and tools.
As the understanding of the implications of other sustainability topics deepen, the FSB will consider whether to include a broader range of sustainability topics in future financial stability agendas.
The FSB is also expected to publish:
On 11 July 2022, Anil Kashyap, a member of the Financial Policy Committee, gave a speech on the climate change risks that UK banks and insurers face. Mr Kashyap provides an overview of the structure of the Climate Biennial Exploratory Scenario (CBES) to help illustrate his arguments by describing some of the findings.
In the closing remarks, Mr Kashyap poses some queries that he considers should be asked by senior management at firms, these include:
On 6 July 2022, the NGFS published its final report on bridging data gaps. The report provides policy recommendations for improving the availability, quality, and comparability of climate-related data, and provides an update on the NGFS' work since the May 2021 progress report.
On 28 June 2022, the Task Force on Nature-related Financial Disclosures (TFND) published its second beta draft of the disclose framework for consultation, and an accompanying press release. The framework aims to achieve nature-positive outcomes by providing guidance for organisations to report and act on evolving nature-related risks.
There are a number of additional items in the second draft including:
Updated beta versions are anticipated in November 2022 and February 2023. The final framework is due in September 2023.
On 21 July 2022, HM Treasury published its consultation and call for evidence on payments regulation and the systemic perimeter.
The consultation and call for evidence is split into six chapters. One of these focuses on extending the Senior Managers and Certification regime (SMCR). It is proposed that if the systemic regulatory perimeter is expanded, SMCR should be expanded accordingly to apply to systemic payment systems and specified service providers.
As part of the review, the government would also welcome any views on the potential applicability of SMCR to the payment services and e-money sector more widely, including in relation to the FCA's regulatory ambit.
The consultation closes on 11 October 2022.
On 21 July 2022, the Payment Systems Regulator (PSR) published its response to the digital payments initiative report, please see our previous update for more information on initial report. In the response the PSR welcomes the recommendations set out in the report, and responses include:
On 19 July 2022, the PSR published its annual report and accounts for 2021/22. The report highlights the work completed by the PSR across the various workstreams, such as authorised push payment (APP) scams, access to cash, cryptoassets and stablecoins.
On 29 June 2022, the PSR published a consultation paper on its provisional decision on remedies for the card-acquiring market review. Following a November 2021 market review which found that the market does not operate well for merchants with annual card turnover lower than £50m, the PSR consulted in January 2022 on the initial four remedies.
The PSR is now consulting on the proposals regarding the following three remedies:
It has decided not to progress with the proposal to encourage digital comparison tools for merchants.
These remedies are intended for implementation through specific directions given to the most significant providers of card-acquiring services to the merchants the PSR seeks to protect.
The consultation closed on 3 August 2022.
On 12 July 2022, the FCA published its findings following a multi-firm review into retail banks' treatment of SME customers in collections or recoveries. Ensuring that retail banks regulated by the FCA treat SME customers fairly is a key priority for the FCA.
The review looked at 11 retail banks who provide SME lending services (including bounce back loans, where relevant), and considered the firms' systems, controls and processes for collecting and recovering SME debt under Principles 2, 3 and 6, SYSC 9 and 13, and CONC 7.
In general, the findings identified repeated instances of poor customer outcomes and failure to treat customers fairly. The FCA highlights the themes that drive poor outcomes.
The FCA has provided the 11 retail banks with individual feedback and has published the findings and expectations in a Dear Chair letter.
On 12 July 2022, the European Parliament published a press release confirming that it has agreed its position on the European Commission's legislative proposal for a Directive on consumer credits to revise and replace the Consumer Credit Directive. The Internal Market and Consumer Protection Committee voted to adopt a text reflecting compromise amendments to the draft report prepared in February 2022.
On 20 July 2022, Nathanaël Benjamin, PRA Executive Director, gave a speech on the challenges and risks for investment banks. Among other things, Mr Benjamin noted:
On 20 July 2022, the Financial Ombudsman Service (FOS) published its press release on insurance pricing complaints, reporting that the number of new cases received has fallen to 1,004 from 1,507 the previous year.
FOS notes that whilst the number of new cases has declined, it is important that consumer confidence is upheld in the price of their insurance, especially with the ongoing cost of living crisis.
Despite the number of upheld complaints decreasing, the FOS has found that the insurer has acted fairly in most cases. It did, however, see cases where customers felt that they had not understood the reason for the price quoted.
On 14 July 2022, Victoria Saporta, PRA Executive Director, gave a speech on capital and liquidity buffers. Ms Saporta covers the following topics as part of her speech:
On 20 July 2022, HM Treasury published its response to the consultation on future regulatory framework for central counterparties (CCPs) and central securities depositories (CSDs).
The response summarises the feedback from respondents and how HM Treasury intends to take forward its proposals. The response notes, among other things, that:
On 13 July 2022, the European Commission adopted the following Delegated and Implementing Regulations, under the Regulation on European crowdfunding service providers for business (ECSPR):
On 12 July 2022, the European Commission adopted a Delegated Regulation extending the transitional period for continuing to provide crowdfunding services according to national law as referred to in the ECSPR.
The Council of the EU and the European Parliament will now scrutinise the Delegated Regulations.
On 5 July 2022, the FCA published its consultation paper on proposals to improve how the equity secondary market operates. These proposals apply to trading venues, investment firms, and UK branches of overseas firms undertaking investment services and activities. As part of these proposals, the FCA wants to make the following changes:
Following consideration of the responses to the consultation, the FCA intends to submit the relevant updated technical standards for approval.
The consultation closes on 16 September 2022.
On 20 July 2022, ESMA published its updated Q&A on the application the of Alternative Investment Fund Managers Directive (AIFMD). The update includes two new questions on reconciliations (Section VI, Q&A 15 and 16), and one new question on responsibility for compliance with requirements for marketing communications (Section VIII, Q&A 4).
On 20 July 2022, ESMA published its updated Q&A on the application of the Undertakings for Collective Investment in Transferable Securities Directive (UCITS). The update includes new questions on reconciliation frequency for funds trading on a daily basis (Section X, Q&A 7), reconciliation with tri-party collateral managers (Section X, Q&A 8), and responsibility to ensure compliance with the rules governing marketing communications (Section XIII, Q&A 1).
On 14 July 2022, the FCA updated its webpage on rules that apply to firms in the temporary permissions regime (TPR) and fund operators in the temporary marketing permissions regime (TMPR). The update sees the addition of a new section on disclosure requirements for EEA UCITS. The new section provides that:
On 19 July 2022, the FCA published its annual report and accounts for 2021/22. Investigation and enforcement aspects in the report include:
For general information relating to the annual report and accounts, please see our item under the section: General FS regulation.
On 15 July 2022, the FCA published its final notice that it issued to TJM Partnership Ltd (in liquidation) for having ineffective systems and controls to identify and reduce the risk of financial crime and money laundering in its business.
TJM has been fined £2,038,700 (of which £1,198,277 is a disgorgement) for breach of Principle 2 and Principle 3.
The fine was subject to a 30% stage 1 discount from £2,399,000, pursuant to the FCA's executive settlement procedures.
On 13 July 2022, Elizabeth McCaul, European Central Bank (ECB) Supervisory Board Member, gave a speech on the use of AI to fight financial crime. As part of her speech, Ms McCaul notes the interaction between digitalisation and anti-money laundering (AML) and counter-terrorist financing (CTF) and highlights:
Ms McCaul explains that AI's potential in banking exceeds AML and CTF. AI is already being utilised for credit scoring, algorithmic trading, robo-advice or chatbots. AI is deeply entrenched in the financial system, and is subject to strong governance, risk management and first line internal controls with strong quality assurance components. Innovative digitalisation needs to be supported by a strong regulatory framework and sufficient oversight.
The most important challenges for AI are transparency and explainability, essentially, the ability for humans to understand and trust the results and output created by AI.
Properly harnessing the potential of technology means using it in a manner that reduces risk, including paying attention to the programming of AI, its governance and quality assurance or backtesting which is relevant for machine learning. There may be further changes where AI tools are outsourced to third-party service providers.
On 12 July 2022, the House of Commons Treasury Committee published the 4 July 2022 letter it received from the FCA responding to queries regarding the financial sanctions responsibilities in the context of the Ukraine conflict. The takeaways include:
On 28 June 2022, the Upper Tribunal handed down its Judgment in Vladimir Consulting Ltd v Financial Conduct Authority  UKUT 168 (TCC) where they analysed whether a cryptocurrency traders approach to business was compliant with the AML regime set out in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). The FCA had initially refused the application by Vladimir Consulting (VC), which was then referred to the tribunal for appeal, VC requesting the decision notice be suspended.
The Upper Tribunal has rejected the VC's request for the decision notice to be suspended. For an application of this kind to be upheld, there must be detailed evidence made available as to how the business would carry on in a broadly compliant manner in the timeframe prior to the appeal hearing.
In this instance the Tribunal had not been satisfied that VC would carry on business in a broadly compliant manner were the suspension to be granted.
Issues discussed in the judgment include:
According to the FCA's recent annual report and accounts, what is the total value of penalties collected on behalf of the Treasury for the year 2021/2022?
The answer to last month's trivia: according to the FCA's recent update on its data strategy, 564 financial adverts were amended or withdrawn in 2021.