作者
Daniel Hirschfield

Daniel Hirschfield

Senior Knowledge Lawyer

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Charlotte Hill

Charlotte Hill

合伙人

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作者
Daniel Hirschfield

Daniel Hirschfield

Senior Knowledge Lawyer

Read More
Charlotte Hill

Charlotte Hill

合伙人

Read More

2022年12月1日

Financial services regulatory update - December 2022

In this month’s update:  

  • FCA speech on diversity and inclusion in financial services.
  • Government drops controversial "call-in" power.
  • Law Commission seeks evidence on DAOs.
  • UK Transition Plan Taskforce consults on private sector climate transition plans.
  • House of Lords Committee publishes report on fighting fraud.  

      
General FS regulation 

FCA speech on driving change in diversity and inclusion 

On 22 November 2022, the FCA published a speech, given by Sheldon Mills, FCA Executive Director, Consumers and Competition, on driving change in diversity and inclusion (D&I) in the financial services industry.  

Mills noted that the FCA had received over 180 responses to its July 2021 discussion paper on D&I (see our August 2021 FSR update) and highlighted the following D&I practices that have been observed in several firms through a recent supervisory exercise and pilot data survey: 

  • Firms are focusing data collection efforts on the gender and ethnicity of their staff but should also broaden the data they collect (by also focusing on less visible forms of diversity). Firms attribute this to low employee declaration rates.  
  • Over 80% of the firms in the sample have a D&I strategy in place. Most were focused on gender and then ethnicity with most focus on their strategies on senior-level representation. However, strategies should also focus on developing a sustainable diverse talent pipeline from the point of recruitment, through the organisation to leadership.
  • The majority of the firms surveyed recognised the value of systematically approaching inclusion with diversity.  

The complete findings from this work will be published soon and the regulators’ consultation paper on D&I is now expected in 2023. 

FCA speech on issues relating to Consumer Duty 

On 17 November 2022, the FCA Chief Executive, Nikhil Rathi, gave a speech on issues relating to the new Consumer Duty, in which he noted that: 

  • Firms should continue to be open about how they are implementing the Consumer Duty. 
  • The FCA wants to work closely with firms so that the Consumer Duty can help shape a framework for use of AI (artificial intelligence) and other new technologies. Together with the Senior Managers and Certification Regime, the Duty will provide the FCA with the framework to respond quickly to innovations so that new products can be trialled with informed consent and consumer interests at the forefront.
  • The FCA is aware that the Duty may cause some firms to become risk averse and withdraw products for difficult to reach groups. The FCA will be monitoring firms closely to ensure this does not take place. 

Results of FSCB 2022 employee survey 

On 16 November 2022, the Financial Services Culture Board (FSCB) published the results of its 2022 employee survey, together with an overview of the survey to capture employees' perceptions of their firms' organisational cultures. 

For the 2022 survey, 23 firms were surveyed and almost 42,000 responses were received. The key findings were: 

  • There was improvement across all firms in scores relating to leadership, taking responsibility, speaking up and being open to challenge. 
  • The period from 2020 onwards has seen more positive scores on personal resilience and wellbeing in the way that employees describe their firms.  
  • There was less progress on questions relating to customers and in the areas of responsiveness and shared purpose. 
  • The FSCB asked four additional questions relating to aspects of the Consumer Duty, which highlighted the variability of scores among firms in relation to employees' responses to these additional questions, which received a much wider range of responses than those to the survey's core questions. 

The FSCB continues to work with researchers at the Bank of England to measure cultural cohesion or fragmentation in firms to establish how this is associated with prudential and business outcomes. 

FCA financial promotions data shows increase in intervention 

On 4 November 2022, the FCA published a webpage containing its financial promotions quarterly data for Q3 2022, which focused on the FCA action against authorised firms breaching financial promotion rules and referrals and investigations into unregulated activity. As a result of its engagement, the FCA has intervened to amend or withdraw 4,151 financial promotions between July and September 2022. 

A related press release highlighted that:  

  • The FCA flagged several cases involving unauthorised firms and individuals seeking to take advantage of the rising cost of living and that it issued 303 warnings about unauthorised firms and individuals, with over 20% being about clone scams. The cost of living crisis means the FCA is doing more to tackle false claims in adverts, issue warnings to consumers and engaging with tech and social media platforms to protect consumers from online harm.  
  • The FCA's intervention has resulted in 66 Buy-Now Pay-Later (BNPL) promotions from one firm across various social media platforms being amended or withdrawn as they did not give fair risk warnings and were misleading about fees. This action follows the FCA's Dear CEO letter about BNPL products (see our September 2022 update).
  • Retail lending, investments and banking are the sectors with the highest rate of amends to or withdrawal of adverts and amount to 95% of the FCA's interventions with authorised firms. 

Financial Services and Markets Bill 2022-23: committee stage in House of Commons completed 

On 3 November 2022, the Financial Services and Markets Bill 2022-23 (Bill) completed its committee stage in the House of Commons, with Parliament publishing a revised version of the Bill. It will return to the House of Commons for its report stage, where the amended Bill can be debated and further amendments proposed.  

On 23 November 2022, Andrew Griffith, Financial Secretary, HM Treasury, announced that the government had decided not to proceed with the controversial "public interest intervention" power in the Bill, which would have enabled HM Treasury to direct a regulator to make, amend or revoke rules if there were matters of significant public interest. He said that the "existing provisions in the [B]ill are currently sufficient" and the government "remain[s] committed to the operational independence of the financial services regulators."  

Fintech and digital assets 

BoE speech on recent crypto market developments, the regulation of crypto stablecoins and issuance of a CBDC 

On 21 November 2022, the BoE published a speech by Sir Jon Cunliffe, BoE Deputy Governor, Financial Stability discussing the collapse of cryptocurrency exchange, FTX, and the authorities' ongoing work on the regulation of stablecoins and the potential central bank digital currency (CBDC). The speech covered:  

  • The need to bringi the financial service activities and the entities that make up the crypto ecosystem within the regulatory framework to protect investors and financial stability.  
  • The guiding principle for determining how regulation should be extended to these areas: "same risk, same regulatory outcome". 
  • The extension of the current regulatory regimes for e-money and payment systems to cover stablecoins used for payments as set out in the Bill (see above). The BoE intends to consult in early 2023 on the regulatory framework that will apply to such systemic payment systems and the services, like wallets, that accompany them.
  • Towards the end of 2022, the BoE and HM Treasury plan to issue a consultative report on the potential issuance of a digitally native pound sterling.  

Decentralised autonomous organisations: Law Commission call for evidence 

On 16 November 2022, the Law Commission published a call for evidence on decentralised autonomous organisations (DAOs), to produce a scoping study considering how DAOs can operate under the existing English legal system and identify areas in need of reform. 

The Commission describes a DAO as a novel type of technology-mediated social structure or organisation of participants made up of several composite elements. The novelty is that many of the actions and functions of organisational structure can be redesigned to use or facilitate the creation, modification and maintenance of open-source software-based systems. 

The Law Commission seeks evidence on the following: 

  • Whether DAOs are characterised as unincorporated associations or general partnerships under the law of England and Wales. 
  • Whether it is common for DAOs to meet the criteria of unincorporated associations or general partnerships. 
  • Whether the law presents problems for the use of trust or joint ownership arrangements as constituent parts of a DAO's overall organisational structuring. 
  • Whether the law relating to the formation of bodies corporate presents problems for DAOs that choose to use incorporated entities as part of their organisational structuring such as whether there are any requirements or ongoing obligations, such as reporting, that are challenging for the entity to comply with. 
  • Whether any or all available existing legal forms are unsuitable for DAOs. 
  • Whether other jurisdictions provide a legislative approach to legal forms that is more effective or attractive. 
  • Whether a new form of entity or recognition specifically tailored to DAOs should be introduced.
  • Whether there are any circumstances in which a smart contract or a software protocol could be treated as having legal personality. 
  • How the distinction between an incorporated company involved in software development and an open-source software protocol operates as a matter of law. 
  • How DAOs structure their governance and decision-making processes. 
  • Re the status of a DAO's investors or token-holders, the liability of developers of open-source code and liability for taxes. 
  • How money laundering and other regulatory concepts apply to DAOs. 
  • The deadline to receive the evidence is 25 January 2023. 

European Parliament to consider proposed Regulations on markets in cryptoassets and on information accompanying transfers of funds and certain cryptoassets  

On 14 November 2022, the European Parliament updated its procedure file on the proposed Regulation on markets in cryptoassets and its procedure file on the proposed Regulation on information accompanying transfers of funds and certain cryptoassets. The procedure files note that the Parliament will consider the proposed Regulations at its 13 to 16 February 2023 plenary session.

European Parliament adopts Regulation on digital operational resilience (DORA) and related amending Directive at first reading 

On 10 November 2022, the European Parliament published a press release announcing that it has adopted the Regulation on digital operational resilience for the financial sector (DORA) at first reading, alongside the Amending Directive adopted text, which states that these new rules are designed to harmonise and strengthen digital operational resilience requirements for the EU's financial services sector. The rules will apply to providers of financial services and information and communication technology (ICT) providers. The Council of the EU will need to formally adopt the proposals. 

The press release states that DORA and the Amending Directive will enter into force 20 days after publication in the Official Journal of the European Union. DORA will apply on the date 24 months after its entry into force. After adoption of the Amending Directive, member states will have 24 months in which to implement it in their national law. 

For further discussion on this topic, please see our article.  

FCA speech on use of AI 

On 9 November 2022, the FCA published a speech, given by Jessica Rusu, FCA Chief Data, Information and Intelligence Officer, reminding firms of the following things they need to consider when using AI: 

  • A firm's AI governance framework must take a central role and address practical challenges, including ensuring the firm takes responsibility for AI models.  
  • Safe AI adoption must be underpinned by high-quality data to determining the suitability of data. 
  • The use of AI must be fully compliant with existing data protection legislation.
  • How the Senior Managers and Certification Regime is applied to AI. 

DCMS Committee to hold inquiry into the future of the NFT market 

On 4 November 2022, the DCMS Committee announced that it will hold an inquiry into the operation, risks, and benefits of NFTs and the wider blockchain. MPs are expected to consider whether NFT investors, especially vulnerable speculators, are put at risk by the market. The inquiry may also look into the wider benefits that NFTs and the blockchain could provide the UK economy. NFT regulation in the UK is largely non-existent, which puts investors at risk, therefore it will examine whether more regulation is needed to protect consumers from this volatile market, ahead of a Treasury review. 

ESG

FCA announces new ESG data and ratings Code of Conduct working group 

On 22 November 2022, the FCA published: 

  • A press release announcing the formation of a new working group (the group) to develop a voluntary Code of Conduct for ESG data and ratings providers. 
  • The terms of reference of the group. 

The group will: 

  • Identify and establish industry-led solutions relating to financial services firms' use of third-party ESG data and ratings services.  
  • Help support the FCA's ESG Strategy by promoting more rapid development of best practices on transparency, governance, systems and controls, and management of conflicts of interest.
  • Consistently consider the International Organization of Securities Commissions' recommendations and developments in other jurisdictions. 

The group will meet before the end of 2022, with a view to consulting on a draft Code within six months of that meeting and publishing the final Code within approximately four months of the start of the consultation. 

ESA Joint Committee new Q&A on SFDR Delegated Regulation 

On 17 November 2022, the Joint Committee of the ESAs published a new set of Q&A on Commission Delegated Regulation (EU) 2022/1288, which supplements the Sustainable Finance Disclosure Regulation ((EU) 2019/2088) (SFDR) with regard to regulatory technical standards (RTS) on content and presentation of information (SFDR Delegated Regulation) whilst covering the following:  

  • Current value of all investments in PAI and taxonomy-aligned disclosures. 
  • Principal adverse impacts (PAI) disclosures. 
  • Financial product disclosures. 
  • Multi-option products. 
  • Taxonomy-aligned investment disclosures.
  • Financial advisers and execution-only financial market participants (FMPs). 

The SFDR Delegated Regulation applies from 1 January 2023. The European Parliament and Council of the EU are currently scrutinising proposed amendments to the SFDR Delegated Regulation relating to the content and presentation of information in pre-contractual documents and periodic reports for financial products investing in environmentally sustainable economic activities. 

ESAs call for evidence on greenwashing 

On 15 November 2022, the ESAs published a call for evidence (CfE) on greenwashing, requesting: 

  • Views on how to understand greenwashing and the main drivers of greenwashing. 
  • Examples of potential greenwashing practices across the EU financial sector relevant to various segments of the sustainable investment value chain and of the product lifecycle.  
  • Examples of potential greenwashing practices relating to sustainability claims regarding entities and to products or services within and outside the scope of current EU sustainable finance legislation. 
  • Data on the scale of greenwashing and identify areas of high greenwashing risks. 

The deadline for commenting on the CfE is 10 January 2023. 

Executive remuneration: Investment Association principles of remuneration for 2023 

On 9 November 2022, the Investment association (IA) wrote a letter to chairs of remuneration committees of FTSE 350 companies with an updated version of the IA principles of remuneration, setting out investor ESG expectations on the following topics: 

  • Salary levels and the cost of living. 
  • The use of ESG related measures. 
  • Executive pensions. 
  • Windfall gains on long-term incentives.
  • Non-executive director remuneration. 

Climate transition plans: TPT consultation on disclosure framework and implementation guidance 

On 8 November 2022, the UK Transition Plan Taskforce (TPT) published for consultation its proposed disclosure framework for private sector climate transition plans and accompanying implementation guidance. A transition plan should cover: 

  • An entity’s high-level ambitions to manage the changing climate and to leverage opportunities of the transition to a low GHG and climate resilient economy, including GHG reduction targets such as, a net zero commitment. 
  • Short, medium and long-term actions the entity plans to take to achieve its strategic ambition. 
  • Governance and accountability mechanisms that support delivery of the TP and robust periodic reporting.
  • Measures to address material risks to, and leverage opportunities for, the natural environment and stakeholders. 

The accompanying draft implementation guidance also recommends that entities publish standalone TPs at least every three years. The deadline for responses is 28 February 2023. 

Task Force on Nature-related Financial Disclosures consults on third draft of disclosure framework 

On 4 November 2022, the Task Force on Nature-related Financial Disclosures (TNFD) published the third beta version of its disclosure framework for consultation. The TNFD framework will provide guidance for organisations to report and act on evolving nature-related risks, to support a shift in global financial flows away from nature-negative outcomes and towards nature-positive outcome, including: 

  • Expansion of the draft disclosure recommendations to incorporate dependencies and impacts on nature alongside risks and opportunities to the organisation. 
  • Proposed new disclosure recommendations related to supply chain traceability, the quality of stakeholders (including rights holders) engagement and the alignment of an organisation's climate and nature targets. 
  • An adaptive approach to the application of TNFD's disclosure recommendations to accommodate the varying materiality and reporting preferences and needs of report preparers. This is intended to support early action by companies and financial institutions, and encourage increasing disclosure ambition over time.
  • Draft guidance on target setting developed with the Science Based Targets Network (SBTN) and draft disclosure guidance for financial institutions. 

The TNFD also published two discussion papers on scenarios and societal dimensions of nature-related risk management and disclosure. 

The final draft version of the TNFD framework is due to be published in March 2023 and the final recommendations will be published in September 2023.  

GFANZ guidance on financial institution net zero transition plans 

On 1 November 2022, the Glasgow Financial Alliance for Net Zero (GFANZ) published a final report containing recommendations and guidance on financial institution net zero transition plans. 

The report outlines how to develop a transition plan as a set of strategic goals, implementing actions and accountability mechanisms with a framework centred on the following aspects of transition finance: 

  • Technological and products climate solutions that will enable economies to decarbonise.  
  • Business models already aligned with a science-based pathway to achieve net zero. 
  • Companies with credible transition plans who are in the process of aligning with a science-based decarbonisation pathway.
  • Managed phaseout of high-emitting assets that will be stranded in the transition to net zero. 

Alongside the report, GFANZ has produced a supplemental information document setting out more examples and has also published a report on measuring portfolio alignment. 

Ahead of COP27 in Sharm el-Sheikh, GFANZ published a report detailing actions to mobilise capital to emerging markets and developing economies and a call to action report, which recommends the policies the G20 governments should consider in order to meet their climate commitments. 

Payment services and systems 

FSB final report on implementation approach for cross-border payments targets 

On 17 November 2022, the Financial Stability Board (FSB) published a final report on the approach for monitoring progress towards meeting the targets for the G20 roadmap for enhancing cross-border payments. The FSB: 

  • Set out the quantitative targets for achieving cheaper, faster, more accessible cross-border payments in an October 2021 report.
  • Committed to develop a framework for monitoring progress towards those targets using key performance indicators (KPIs) against which future progress would be measured. 

The report: 

  • Sets out an overview of the main data sources. 
  • Sets out a detailed discussion of each KPI and, where possible, the data underlying its calculation. In fact, it discusses the substantial progress made towards establishing the monitoring framework, evaluating and identifying the main data sources for each of the three-market segments (wholesale, retail and remittances) and in identifying the gaps that will remain. 
  • Sets out the approach to operationalising the monitoring exercise and next steps to engage with the potential data providers to develop current estimates of the KPIs and establish the processes for ongoing monitoring. 

MoU between PSR and LSB on APP scams 

On 14 November 2022, the Lending Standards Board (LSB) published a memorandum of understanding (MoU), dated 28 October 2022, between it and the Payment Systems Regulator (PSR) on their respective roles relating to authorised push payment (APP) scams. 

In the MoU, the LSB and the PSR summarise their duties and functions as governing body for the contingent reimbursement model code (CRM code) and under Part 5 of the Financial Services (Banking Reform) Act 2013 respectively. They also consider areas of overlap between them concerning APP scams. 

Their objectives are to: 

  • Improve detection and prevention of APP scams. 
  • Improve protections and outcomes for victims of APP fraud, through reimbursement, repatriation and prevention measures. 
  • Determine whether further enhancements could be made to the CRM code.
  • Provide payment system users with greater transparency about the performance of payment system providers (PSPs) in applying the CRM code until any resulting regulation or legislation supersedes it. 

LSB 2022 review of firms' adherence to CRM code for APP scams 

On 2 November 2022, the LSB published the ninth edition of its LSBulletin in which, among other things, it refers to its 2022 review of firms' adherence to the CRM code for authorised push payment (APP) scams. 

The findings of the 2022 review are set out in a summary report from September 2022. The review was conducted across the nine firms that were signatories to the CRM code as of 1 February 2022. The findings are as follows:  

  • The LSB saw firms have put in place clear plans to address issues raised in previous reviews with some progress and good practice.
  • Areas where further work is required to ensure all firms are consistently applying the requirements of the CRM code when dealing with both the prevention of APP scams and assisting customers who have fallen victim to a scam, which will include the use of effective warnings in face-to-face interaction, oversight, reimbursement decision rationale, perception of customer responsibility, customer vulnerability and customer communications. 

The LSB will continue to work with firms to formalise success measures for the CRM code, reviewing the balance of responsibilities between sending and receiving firms within the CRM code, revising the guidance based on the evidence gathered from its CRM code reviews and engaging with the PSR as it sets out its next steps regarding APP scams. 

The LSBulletin also mentioned that firms must implement the Consumer Duty in line with the FCA's expectations. Therefore, the LSB has undertaken an internal review of the Consumer Duty requirements against its Standards of Lending Practice. The LSB advises that firms adhering to the Standards make a commitment to deliver good customer outcomes and can use them as a key tool to support their implementation of the Consumer Duty. 

Consumer credit and mortgages 

Borrowers in Financial Difficulties: what should lenders be doing in response to the cost of living crisis? 

On 3 November 2022, the Financial Conduct Authority (FCA) published its report on borrowers in financial difficulty (BiFD Report). The BiFD project was launched to assess firms' policies and processes following the implementation of the Tailored Support Guidance (TSG) for mortgages, consumer credit and overdrafts. The TSG was put in place to ensure that lenders appropriately supported those experiencing payment difficulties as a result of the coronavirus pandemic. 

For further discussion on this topic, please see our article

Mortgage brokers contravened FSMA general prohibition and financial promotion restriction (High Court) 

In FCA v London Property Investments (UK) Ltd and others, the High Court considered whether the defendants contravened the general prohibition imposed by section 19 of the Financial Services and Markets Act 2000 (FSMA) and the financial promotion restrictions imposed by section 21 of FSMA and were "knowingly concerned" (within the meaning of sections 380 and 382 of FSMA) in such contraventions.  

In summary it was held that: 

  • The defendants contravened the general prohibition in section 19 of FSMA.  
  • The defendants arranged high interest, unaffordable bridging loans for consumers about to be evicted from their homes, taking large fees.  
  • The defendants bought homes for less than their value from owners who were facing repossession and then rented the properties back to these consumers. 
  • The defendants were not authorised to arrange mortgage contracts or sale and rent back agreements. 

The FCA press release states that, following the judgment and remedial orders, the defendants will now be required to remove around 22 restrictions registered against affected individuals' properties.  

Banking and insurance  

HM Treasury response to consultation on review of UK Solvency II regime 

On 17 November 2022, HM Treasury published a response to its consultation on the review of the UK Solvency II prudential regime for insurers, which included:  

  • The responses received supported most of the proposals set out in the consultation, meaning that the government will take these proposals forward. 
  • The decision that the eligibility requirements for the matching adjustments should be broadened to allow the inclusion of assets with highly predictable cashflows. 
  • There has been no consensus on reform of the fundamental spread.
  • The government will review the appropriateness of the calibration of the fundamental spread in five years' time. 

EIOPA speech on challenging times for insurers 

On 16 November 2022, the EIOPA Chair, Petra Hielkema, gave a speech on the following challenges for insurers: 

  • Inflation and how insurers must set their reserving and pricing accordingly as not account this can lead to the rising cost of claims.  
  • Higher claims that will lead to rising premiums for policyholders.  
  • The rise in interest rates which is generally positive for insurers. 
  • Liquidity can be a risk for long-term investors such as pension funds and insurers, thus liquidity needs to be managed. 

BoE speech on risks from leverage 

On 7 November 2022, Sarah Breeden, BoE Executive Director for Financial Stability Strategy and Risk, gave a speech, reflecting on the recent threat to financial stability that resulted in the BoE's intervention in the gilt market, whereby she discusses: 

  • How to leverage outside the banking sector can create risks to financial stability. 
  • The systemic risk from leverage in the non-bank system arising to markets (both those non-banks invest in and those they borrow from) and to counterparties, who either provide cash, or take the other side of instruments that are used to provide synthetic leverage. 
  • The strategies to address risks from non-bank leverage, whist highlighting the importance of firm stress testing and resilience being set with reference to the system and to market dynamics and not just a firm's own actions. 
  • How banks need to improve their stress testing to better understand market dynamics and structural shifts that might change correlations and norms. 
  • How bank supervisors can play a role in limiting the risks from leverage in the non-bank system to the core financial system through strengthening risk management practices of dealer banks and prime brokers. 
  • A summary of the steps financial stability authorities are taking to address the risks from non-bank leverage. 

PRA Dear Chief Risk Officer letter to asset finance lenders 

On 7 November 2022, the PRA published a letter to chief risk officers (CROs) of asset finance lenders, from Melanie Beaman, PRA Director, and David Bailey, PRA Executive Director, UK Deposit Takers, which summarises the following key areas requiring improvement identified post-administration relating to the Arena Holdings Group of companies: 

  • That most banks' risk appetite limits on single name concentration or customer level limits were inappropriately calibrated. 
  • That banks should improve their AI and supplier vetting policies and processes. 
  • In-life account management and roles and responsibilities. 
  • Automated transaction monitoring and data capabilities.
  • That banks identified an absence of industry-wide information for asset finance lending, thus the PRA encourages banks to continue to engage regarding the creation of an asset register that would help to ensure authenticity of assets as securities and protect from duplicate or false references in asset-based lending. 

FOS ombudsman news issue 175 

On 2 November 2022, the Financial Ombudsman Service (FOS) published issue 175 of ombudsman news, highlighting a new webpage for businesses on complaints involving mobile phone and gadget insurance. The webpage sets the types of complaints the FOS sees and what it looks at when it considers these complaints, to decide what is fair and reasonable in each case on a factual basis.  This includes an assessment of the wording of the mobile phone or gadget insurance and any other relevant documents, such as the policy summary. 

The FOS states that consumers' complaints relate to: 

  • An insurance policy that was missold or policy wording that was misleading. 
  • An insurer wrongly refusing to pay the claim because it applied an exclusion or a limitation that should not have been applied. 
  • An insurance policy continuing beyond the mobile phone contract. 
  • Insurance policies being automatically renewed. 
  • Replacement phones or gadgets provided that were refurbished and not new.  
Securities, investments, and markets 

FPC remit and recommendations for 2022/23 

On 17 November 2022, HM Treasury published a letter from Jeremy Hunt, Chancellor of the Exchequer, to Andrew Bailey, BoE Governor, setting out the following recommendations for the Financial Policy Committee (FPC) for 2022/23: 

  • The importance that lessons are learned from the recent dysfunction in the gilt market and the vulnerabilities associated with leveraged funds that this exposed. The FPC should support this work to ensure suitable levels of resilience in the UK financial system. 
  • The FPC should seek to work in an open and collaborative fashion with not only the FCA and PRA, but with additional bodies such as The Pensions Regulator and the PSR, to identify and seek to address systemic risks and vulnerabilities.
  • The government aim to align private sector financial flows with ESG growth, in a manner that is consistent with 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. 

The FPC must respond to the government, describing any action it has taken or intends to take in response to a specific recommendation. 

HM Treasury extends transitional regimes for overseas CCPs 

On 10 November 2022, HM Treasury published a guidance statement stating that it intends to lay a statutory instrument extending the temporary recognition regime (TRR) for overseas central counterparties (CCPs) and the transitional regime for qualifying central counterparties (QCCPs) by an additional year to 31 December 2024.  

HM Treasury has advised that the statutory instrument was made and laid in November 2022 and will come into force before the end of 2022. 

FCA speech on key priorities for financial advice industry 

On 2 November 2022, the FCA published a speech by Therese Chambers, FCA Director of Consumer Investments, on the following key priorities for the financial advice industry: 

  • Financial advisers are crucial to the delivery of the FCA's consumer investment strategy. 
  • The Consumer Duty is relevant for all firms and the FCA. 
  • The FCA is undertaking other policy work that will benefit the financial advice industry and those consumers who need support to make investment decisions by carrying out a holistic review of the boundary between advice and guidance. 
  • There is likely to be a move away from some aspects of the existing MiFID-derived regime, to ensure the weight of regulation is commensurate with the risk to the consumer.  
  • The FCA is shifting from a reactive to a proactive approach to tackle problem firms more quickly.  
Funds and asset management  

European Parliament to consider proposed Regulation amending ELTIF Regulation at 1 to 2 February 2023 plenary session 

On 16 November 2022, the European Parliament updated its procedure file on the proposed Regulation amending the Regulation on European long-term investment funds (ELTIFs) ((EU) 2015/760).  The procedure file notes that the Parliament will consider the proposed Regulation during its plenary session to be held from 1 to 2 February 2023. 

ESAs update PRIIPs KID Q&As 

On 14 November 2022, the ESAs updated their Q&As on the Packaged Retail and Insurance-based Investment Product (PRIIPs) Key Information Document (KID), regarding Regulation (EU) 1286/2014 (the EU PRIIPs Regulation) and its Delegated Acts, applicable from 1 January 2023. These Q&As remain relevant until the end of 2022, but may no longer be relevant from 1 January 2023, therefore the document indicates those sections where Q&As will need to be revised. These revisions to the Q&As are aimed for publication before 1 January 2023. 

PRA and FCA Enforcement action 

FCA final notice censuring former CEO of Sonali Bank (UK) Ltd for AML failings 

On 18 November 2022, the FCA published the final notice, dated 16 November 2022, it has issued to Mohammed Ataur Rahman Prodhan, former CEO of Sonali Bank (UK) Ltd, banning him for anti-money laundering (AML) failings. 

The FCA had published a decision notice in December 2018 fining Mr Prodhan £76,400 for those failings. Mr Prodhan referred the decision notice to the Tax and Chancery Chamber of the Upper Tribunal, but then withdrew the reference. The FCA states in the final notice that were it not for exceptional circumstances, it would have sought to impose that financial penalty. Mr Prodhan's exceptional circumstances are as follows: 

  • He now lives in Bangladesh and has no residual links to, nor assets in, the UK. 
  • He recently retired from employment. 
  • He has ongoing personal conditions that restrict his ability to travel to the UK, to participate in a hearing of the reference or for any other purpose.
  • Approximately ten years elapsed since Mr Prodhan's misconduct, contributing to an increasing risk that the reference would not be able to be determined fairly. 

FCA and PRA respond to APPG on Fair Business Banking in relation to their decision to take no action following HBOS senior management investigation 

On 17 November 2022, the All Party Parliamentary Group on Fair Business Banking (APPG) published a letter, dated 27 October 2022, from Nikhil Rathi, FCA Chief Executive, and Sam Woods, PRA Chief Executive in response to a letter from the APPG wanting more information on the regulators' decision to take no action following their investigations into former senior managers at Halifax Bank of Scotland plc (HBOS). 

In their letter, the regulators: 

  • Acknowledge that this and the lack of enforcement following the investigation is a matter of acute public interest. 
  • Aim to respond to the questions raised by the APPG and additional context on the limited powers available to them in relation to the subjects of their investigations and the legal constraints and legitimate procedural safeguards that apply.   

The APPG stated in its letter, that they will file a judicial review application should the regulators decline to give reasons. The FCA and the PRA consider that the explanations provided in their letter suffice to stand as a full and final substantive response. 

FCA final notice bans director from working in financial services after criminal conviction 

On 14 November 2022, the FCA published the final notice it has issued to an individual who was the sole director of an authorised consumer credit firm banning them from working in financial services following a conviction for of grievous bodily harm and possession of an offensive weapon, having attacked a security guard at a bar with a machete, which took place while they were approved to carry out a senior management function.  

Consequently, the FCA has decided to remove the person's approval for SMF29 (Limited scope function) and prohibit them from performing any function in relation to any regulated activity carried on by an authorised person, exempt person or exempt professional firm. 

FCA prosecutes individuals for role in binary options investment scheme 

On 1 November 2022, the FCA published a press release announcing it is prosecuting five individuals for their role in a binary option investment scheme, with: 

  • Four individuals being charged with offences under the FSMA, the Proceeds of Crime Act 2002 and an offence of conspiracy to defraud contrary to common law. It is alleged the individuals ran a company that defrauded £1.2 million from investors, by using investor monies to fund their lifestyles, rather than the binary options investments that were advertised.
  • Another individual being charged for perverting the course of justice relating to the FCA's investigation. 

A Crown Court trial has been listed to start in February 2023.  

Economic crime  

Updated HM Treasury advisory notice on money laundering and terrorist financing controls in high-risk third countries 

On 14 November 2022, HM Treasury updated its Money Laundering Advisory Notice: High Risk Third Countries, following the 21 October 2022 publication by the Financial Action Task Force (FATF) of two statements identifying jurisdictions with strategic deficiencies in their AML/CTF regimes. These changes were implemented in the Money Laundering and Terrorist Financing (High Risk Countries) (Amendment) (No.3) Regulations 2022. 

The advisory notice identifies: 

  • Albania, Barbados, Burkina Faso, Cambodia, the Cayman Islands, DPRK, Democratic Republic of the Congo, Gibraltar, Haiti, Iran, Jamaica, Jordan, Mali, Morocco, Mozambique, Myanmar, Panama, the Philippines, Senegal, South Sudan, Syria, Tanzania, Turkey, Uganda, United Arab Emirate and Yemen as countries for which appropriate actions should be taken to minimise risks and these actions may include enhanced due diligence.  
  • Democratic Republic of the Congo, DPRK, Iran, Mali, Myanmar, South Sudan, Syria and Yemen as jurisdictions subject to financial sanctions measures which require firms to take additional measures.
  • That Nicaragua and Pakistan are no longer subject to FATF's increased monitoring process due to their significant progress in improving their AML/CFT regime. 

House of Lords Committee publishes report "Fighting Fraud: Breaking the Chain" 

On 12 November 2022, the House of Lord Fraud Act 2006 and Digital Fraud Committee published its report, Fighting Fraud: Breaking the Chain, with various recommendations to tackle fraud, including: 

  • The establishment of a cabinet subcommittee with a clear mandate to tackle fraud, chaired by and accountable to the Security Minister, and for fraud to be written into the Strategic Policing Requirement, which sets out the top priorities that the police must focus on. 
  • The introduction of a new corporate criminal offence of "failure to prevent fraud", applicable across all sectors, accompanied by significant financial penalties. 
  • The introduction of a single, centrally funded consumer awareness campaign in partnership with industry. 
  • The Online Safety Bill, which contains several important measures to prevent fraudulent content and scam advertising from appearing on online platforms and to hold tech companies accountable when they fail, to be brought to Parliament urgently.
  • The introduction of a delay lasting no more than several hours on certain high-risk payments within the banking sector. 

The biggest takeaway from the report is the statistic that fraud makes up 41% of all crime against individuals (not including companies) yet just 1% of law enforcement is focused on tackling economic crime as a result of cuts in funding to the police, to specialist agencies and to the courts, which lead to less fraud cases being detected, investigated, brought before a court and concluded. It notes that the situation will not change unless adequate resourcing is a priority for government. 

JMLSG consults on amendments to Part II of its guidance 

On 8 November 2022, The Joint Money-Laundering Steering Group (JMLSG) consulted on the proposed amendments to Part II of its guidance, following general reviews of the guidance relevant to each particular sector. The deadline for responses was 20 December 2022. 

The following text will be affected and is available in marked up format on the consultation webpage: 

  • Sectors 5 (Wealth management) and 6 (Financial advisers). 
  • Sector 8 (Non-life providers of investment fund products). 
  • Sector 9 (Discretionary and advisor investment management).
  • Sector 11A (Consumer credit providers). 
  • Sector 13 (Private equity).
  • Sector 22 (Cryptoasset providers and custodian wallet providers). 

Wolfsberg Group updates financial crime principles for correspondent banking 

On 28 October 2022, the Wolfsberg Group (the Group) published an updated version of its 2014 anti-money laundering principles for correspondent banking principles FAQs, both of which have now been retired. A related press release explains that the updated version of the principles: 

  • Provides guidance and best practices for banks. 
  • Draws a distinction between correspondent relationships and correspondent banking activity.
  • Addresses entities other than banks who have correspondent relationships. 

The updated version of the principles also provides global guidance on the establishment and maintenance of cross-border correspondent banking relationships.  

FSR trivia 

What does the 30 April 2023 milestone in the implementation timetable of the FCA's Consumer Duty relate to? 

  • When the Duty applies to closed products/services.
  • When firms must have agreed their implementation plans.
  • When the Duty applies to open products/services.
  • When manufacturers must have completed their review to meet the outcome rules. 

The answer to last month's trivia: of the 2,724 supervisory cases involving high-risk investments or investment scams opened by the FCA in 2021/22, 16% of these related to potentially unregistered cryptoasset business.  

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