New FCA webpage on operational resilience

On 28 May 2024, the FCA published a new webpage to assist firms with complying with its operational resilience regime.

The webpage provides observations and insights on the preparations firms have made towards complying with the FCA's final rules and guidance on strengthening operational resilience in the financial services sector ahead of the end of the transition period on 31 March 2025.

The FCA expects firms to use these observations to review their approaches and to assess their readiness on key areas of the framework. Among other things, the FCA highlights that:

• Ahead of the end of the transition period, firms must ensure that they can remain within impact tolerance in severe but plausible scenarios for any identified important business services and have their plans approved by their boards in good time.

• Important business services, impact tolerances and mapping should be reviewed on at least an annual basis, or if there is a material change to firms' businesses or the market in which they operate.

• Changes to important business services, impact tolerances and mapping should be clearly identified in firms' self-assessment, along with any rationale.

• Scenario testing should become part of firms' business as usual arrangements and be reviewed on a regular basis as evidence of firms' operational resilience.

Treasury Sub-Committee on Financial Services Regulations summarises concerns on FCA proposals to publicise enforcement investigations

On 24 May 2024, the Treasury Sub-Committee on Financial Services Regulations published a letter (dated 23 May 2024), which summarises its concerns about the FCA proposals on publicising enforcement investigations.

The concerns include: 

• The FCA's approach appears to be different to the approach of financial conduct regulators in similar economies.

• Confidence in UK financial services markets could be lost, if the bar is set too low when assessing the public interest of publicising an investigation, and large numbers of investigations are published.

• The FCA must prioritise reducing the time it takes to conclude investigations. FCA investigations can take many years and during this time named firms will have an allegation hanging over them.

• Publicising enforcement investigations appeared to be an FCA priority, compared to other work that might have been undertaken to increase international competitiveness.

• The FCA already has the power in exceptional circumstances to publicise an enforcement investigation, which has been used when requested by Parliament.

These points were made by committee members in an oral evidence session held on 8 May 2024.

FCA speech on the need to engage with corporate treasurers to shape our markets

On 21 May 2024, the FCA published a speech by Nikil Rathi, FCA Chief Executive, on the need to engage with corporate treasurers to shape our markets.

The speech was delivered at the Association of Corporate Treasurers Annual Conference 2024. Highlights include:

• Regulators want and need engagement from corporate treasurers – who are a bellwether for what is really going on in the economy and the direct impact of regulation.

• The FCA’s wide ranging package of reforms is aimed at reducing burdens and barriers to raising finance as well as supporting the risk appetite in the economy that enables firms to secure the capital they need for investment.

• Innovations such as T+1 and a Digital Securities Sandbox are designed to make markets and transactions more efficient and transparent, reducing the cost of capital for corporates.

FCA publishes Dear CEO letters on implementing the Consumer Duty for closed products and services

On 16 May 2024, the FCA published a series of sector-specific Dear CEO letters on implementing the Consumer Duty for closed products and services. 

The FCA also sent out a general letter to all other regulated firms. The letters explain the application of the Duty to closed products and services, and they identify priority issues that are particularly acute or widespread in closed products and services. These are:

• Gaps in customer data.

• The fair value of products and services.

• The treatment of consumers with characteristics of vulnerability.

• Gone-away or disengaged customers and vested contractual rights.

They also highlight action prompts to ensure firms are prepared for the 31 July 2024 deadline.

The FCA notes that life insurers are expected to be particularly affected, whilst firms in some sectors may have no or very few customers with closed products and services. It is circulating the letters widely to help firms consider broader distribution chains. 

The FCA emphasises the Duty applies in full to closed products and services from the deadline and does not apply to the past actions of firms.

Letters to firms in the following sectors are addressed in the relevant sections of this update:

• retail banking.

• consumer finance.

• consumer investments. 

• asset management.

FCA gives evidence to Treasury Committee at regular accountability hearing

On 9 May 2024, the House of Commons Treasury committee published the transcript of an oral session held on 8 May 2024 with the FCA.

The session formed part of the ongoing Parliamentary scrutiny. The witnesses were Nikhil Rathi, FCA Chief Executive, and Ashley Alder, FCA Chair.

Points of interest include:

• Consultation on proposals to publicise enforcement investigations (CP24/2): the FCA responded to committee questions on the proposals.

• Consultation on diversity and inclusion in financial services (CP23/20): the committee will publish the FCA response to its "Sexism in the City" inquiry report.

• Debanking: government and Parliament must decide whether banking is such a fundamental service that there should be a backstop mechanism right, which exists in other jurisdictions.

• Motor finance: one party that was subject to a Financial Ombudsman Service final decision has started judicial review proceedings. The FCA has applied to be a party to the judicial review.

• Access to cash: Parliament has tasked the FCA with seeking to ensure there is reasonable access to cash.

BoE speech on opportunities and risks of FinTech and AI

On 21 May 2024, the Bank of England (BoE) published a speech by Randall Kroszner, an external member of both the BoE's Financial Policy Committee (FPC) and its Financial Market Infrastructure Committee (FMIC).

The speech discusses balancing the productivity opportunities of FinTech and AI for innovation and productivity growth against the potential financial stability risks. The speech outlines the distinction between fundamentally disruptive versus more incremental innovation and the different regulatory challenges with dealing with these two types of change. 

Points of interest include:

• The FPC and the FMIC each has a role in protecting and enhancing financial stability in the UK. The rise of new technologies means a thoughtful approach is required.

• Disruption, as opposed to incremental, innovation makes is more difficult for regulators to know what actions to take to achieve financial stability, and what the unintended consequences could be for stability, growth and innovation.

• Regulators must be open to new approaches.

• Operational resilience is becoming more important to financial stability as AI and FinTech play a greater role in the provision of financial services. 

BCBS digitalisation of finance report

On 16 May 2024, the Basel Committee on Banking Supervision (BCBS) published a report (BCBS575) on the digitalisation of finance.

This report builds on the Committee's 2018 paper on the implications of Fintech developments for banks and bank supervisors.

In the report, the BCBS:

• Reviews the use of key innovative technologies across various aspects of the banking value chain. This includes the use by banks of application programming interfaces (API), artificial intelligence (AI) and machine learning (ML), distributed ledger technology (DLT) and cloud computing.

• Consider the emergence and role of new technologically enabled suppliers (such as Big Techs, FinTechs and third party service providers) and business models.

The report explains the benefits and risks of new technologies and new technologically enabled suppliers for the provision of banking services. The BCBS concludes that whilst digitalisation can benefit both banks and their customers, it can also create new vulnerabilities and amplify existing risks. 
The Committee will continue to monitor developments related to the digitalisation of finance. Where necessary, it will consider whether additional standards or guidance are needed to mitigate risks and vulnerabilities.

BCBS update on Basel III implementation and cryptoasset standards

On 13 May 2024, the Basel Committee on Banking Supervision (BCBS) published a press release on the outcome of the meeting of the Group of Central Bank Governors and Heads of Supervision (GHOS), the BCBS oversight body.

The Basel Committee's oversight body welcomes progress made in implementing Basel-III. Key issues discussed were:

• Basel III implementation: members have continued to make good progress with implementation on Basel III. Two-thirds of member jurisdictions will have implemented all, or the majority of, the standards by the end of 2024. The remaining jurisdictions plan on doing so by 2025. The GHOS tasked the Committee with continuing to monitor and assess the full and consistent implementation of Basel III.

• Cryptoasset standard: the GHOS has agreed to defer implementation of the Committee's prudential standard for banks' cryptoasset exposures by one year to 1 January 2026. The GHOS endorsed the standard in December 2022, and consulted on a set of targeted revisions in December 2023. The revised implementation date should help to ensure that all members are able to implement the standard in a full, timely and consistent manner.

ECON report on proposed FIDA Regulation

On 13 May 2024, the European Parliament's Economic and Monetary Affairs Committee (ECON) published its report on the proposed Regulation on a framework for finance data access (FIDA Regulation, or FIDA) (2023/0205(COD)).

ECON announced that it had adopted the report on 18 April 2024. 

EBA final reports containing three sets of final draft RTS and one set of final draft ITS under MiCA

On 7 May 2024, the EBA published final reports containing three sets of final draft regulatory technical standards (RTS) and one set of final draft implementing technical standards (ITS) under the Regulation on markets in cryptoassets ((EU) 2023/1114) (MiCA):

• Final report on draft RTS on information for application for authorisation to offer to the public and to seek admission to trading of asset-referenced tokens and draft ITS on standard forms, templates and procedures for the information to be included in the application under Article 18(6) and (7) of MiCA.

• Final report on draft RTS on the detailed content of information necessary to carry out the assessment of a proposed acquisition of qualifying holdings in issuers of asset-referenced tokens under Article 42(4) of MiCA.

• Final report on draft RTS on the approval process for white papers for asset-referenced tokens (ARTs) issued by credit institutions under Article 17(8) of MiCA.

In a press release, the EBA explained that these technical standards are key to regulating access to the EU market by applicant issuers of asset-references tokens (ARTs), and persons intending to exercise significant influence on these undertakings through the acquisition of qualifying holdings.

The next step is for the EBA to submit the three draft RTS to the European Commission for endorsement, following which they will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union. The draft ITS will be submitted to the European Commission for endorsement and publication in the Official Journal of the European Union.

Government implementation update on UK sustainability disclosure requirements

On 16 May 2024, HM Treasury, the Department for Energy Security and Net Zero (DESNZ), Department for Business and Trade and the Department for Environment, Food and Rural Affairs (Defra) published an implementation update relating to economy-wide sustainability disclosure requirements (SDR). 

The document provides an SDR implementation update which reflects the rapid development of international standards, and a summary of how SDR fits together across the financial services sector, wider economy, and when engagement with the proposals is needed.

The update includes information on:

• The UK green taxonomy: the Government continues to work at pace and expects to consult in due course on the proposed UK Green Taxonomy. The timeline in the update suggests the consultation will take place in 2024. 

• Transition plan disclosures: the government will consult in Q2 2024 on its approach to transition plan disclosures for UK companies. The FCA will consult in 2025 on strengthening transition plan disclosure expectations in line with the Transition Plan Taskforce framework.

• UK Sustainability Reporting Standards: the timeline sets out details of planned consultations by the government and the FCA in 2024 and 2025 relating to the development of UK Sustainability Reporting Standards.

HM Treasury, PRA and FCA respond to Treasury Committee recommendations in Sexism in the City inquiry report

On 14 May 2024, the House of Commons Treasury Committee published a report containing responses from HM Treasury, the PRA, and the FCA to the recommendations set out in its report following its "Sexism in the City" inquiry. 

Points of interest include:

• Non-disclosure agreements: HM Treasury states that there are legal limits to how NDAs can be used in an employment context and that an NDA will "most likely" be unenforceable to the extent it seeks to prevent employees from reporting a crime to the police or co-operating in a criminal investigation.

• Impact of bonus cap removal: The PRA and FCA agree it is important to monitor the impact of removing the bonus cap on gender pay and inequality. They will work with the government and the Equality and Human Rights Commission (EHRC), and they will formally review the policy at the earliest opportunity that sufficient evidence is available.

• Non-financial misconduct (NFM): The FCA is prioritising its work on NFM, including sexual harassment and bullying. 

• Diversity data reporting and target setting: The FCA agrees it would not want any data collection to just be a "tickbox" exercise, without an appropriate focus on outcomes. 

• Whistleblowing: The FCA is currently considering how it can improve its approach to whistleblowing. 

The FCA and PRA are reviewing responses received to their consultation papers on diversity and inclusion. 

ESMA final report on guidelines on funds' names using ESG or sustainability-related terms

On 14 May 2024, ESMA published a final report (ESMA24-472-440) setting out its guidelines on funds' names using ESG or sustainability related terms.

The draft guidelines take into account feedback ESMA received to its November 2023 consultation.

The report sets out the text of the draft guidelines, which aim to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims in fund names. The guidelines also provide asset managers with measurable criteria to assess their ability to use ESG or sustainability related terms in fund names.

The guidelines will be translated and will apply three months after publication of the translations, subject to a transitional period of six months for funds existing before the application date.

CPMI work programme for 2024/25

On 23 May 2024, the Committee on Payments and Market Infrastructures (CPMI) published its work programme for 2024/25.

The programme outlines the strategic priorities for its policy, standard-setting, implementation and analytical activities. The key themes include the following: 

• Risk management of financial market infrastructures (FMIs): the CPMI's main priorities are a continuation of the work on FMIs' resilience and recovery, including FMIs' practices for non-default losses (NDLs), central counterparty (CCP) margining practices in centrally cleared markets, and foreign exchange (FX) settlement risk reduction.

• Enhancement of cross-border payments: the CPMI's main priorities are developing governance and oversight considerations relating to the interlinking of fast payment systems (FPS) and recommendations for technical standards that can help enhance cross-border payments.

• Digital innovation in payments, clearing and settlement: the CPMI and the Bank for International Settlements will deliver a report to the G20 on tokenisation in the context of money and payments.

PSR update on measures to prevent APP fraud

On 22 May 2024, the House of Commons Treasury Committee published a letter (dated 15 May 2024) from Chris Hemsley (Payment Systems Regulator (PSR) Managing Director) to Harriett Baldwin, Chair of the Committee. The letter provides an update on the PSR's progress in implementing measures to protect consumers and introduce better incentives on payment service providers (PSPs) to prevent authorised push payment (APP) fraud.

The letter notes that firms' preparations for complying with the requirement are gathering momentum. Some key steps the PSR expects to see firms take are:

• Investing in systems and processes to detect and prevent scams, and making use of available data and technology.

• Reassessing their fraud and risk management to ensure it is fit for purpose, reassessing their transaction limits to ensure that they remain within their risk appetite.

• Engaging with Pay.UK on the development of the reimbursement claims management system.

• Communicating clearly to consumers and proactively notifying consumers of protections available under the new policy.

The new reimbursement requirement will introduce consistent minimum standards for firms to reimburse victims of APP scams from 7 October 2024.

PSR interim report on market review into card scheme and processing fees

On 21 May 2024, the Payment Systems Regulator (PSR) published the interim report on its market review into card scheme and processing fees (MR22/1.9).

The market review was launched in response to concerns about high fees. The PSR's provisional conclusion is that the supply of scheme and processing services is neither working well nor working in the interests of all service users. Concerns include that:

• Mastercard and Visa do not face effective competition when dealing with merchants and acquirers, in respect of core scheme and processing services. 

• Over the past five years, Mastercard and Visa have increased their scheme and processing fees by more than 30% in real terms, but there is "little evidence that the quality of service has improved at the same rate".

The PSR consider that intervention to address these issues may be appropriate. Possible remedies could include:

• Improved transparency so that businesses and acquirers can make informed decisions and are more able to switch to alternative suppliers of optional services.

• Obligations on Mastercard and Visa to explain, consult and/or document the reasons for price changes and the pricing of new services.

• Greater reporting of financial information to the PSR on an on-going basis to improve scrutiny of Mastercard and Visa’s UK operations going forward.

Responses are sought by 30 July 2024.

PSR consults on APP scams data cycle 2 publication guidance

On 8 May 2024, the Payment Systems Regulator (PSR) published draft guidance for payment service providers (PSPs) on publishing authorised push payment (APP) scams data for the second reporting cycle (January to December 2023), together with a consultation on the publication guidance for cycle 2 (CP24/7).

The draft guidance is for the 141 PSPs that are required to publish APP scams data under the PSR's Specific Direction 18 which was published in March 2023 and revised in December 2023. CP24/7 is designed to be read together with the draft guidance. The PSR has also published a comparison version of the previous guidance for reference.

The PSR is proposing to change the publication guidance for cycle 2 and welcomed views on the changes through CP 24/7 until 30 May 2024. It expects to issue the final version of the publication guidance for cycle 2 by the end of June 2024.

PSR announces launch of mid-point review of five-year strategy 

On 7 May 2024, the Payment Systems Regulator (PSR) published a thought piece in which Dan Moore, Head of Strategy, Analysis and Engagement, discusses the mid-point review of its five-year strategy.

The PSR's five-year strategy was published in January 2022. As it reaches the halfway point of the five-year strategy, the PSR is launching a mid-strategy review to assess the progress and determine whether the strategic outcomes and priorities remain relevant, or whether they need to be adapted or refined.

Stakeholders across the payments landscape are invited to give their views on how they view the PSRs progress, what issues they consider are important, and whether there are any suggested changes the PSR should made. The online stakeholder survey closed on 4 June 2024.

ECB opinion on proposed PSD3 and PSR

On 7 May 2024, the Council of the EU published a note (9761/24) which attached an opinion (CON/2024/13) (dated 30 April 2024) of the European Central Bank (ECB). The opinion is on the proposed Directive on payment services and electronic money services in the internal market (PSD3) (2023/0209 (COD)) and the proposed Regulation on payment services in the internal market (Payment Services Regulation (PSR)) (2023/0210(COD)).

The opinion is a response to requests from the Council and the European Parliament for an opinion on the proposed Regulation and the proposed Directive. The ECB welcomes the proposed legislative acts and agrees with their aims.

FCA Dear CEO letters on implementing Consumer Duty for closed products and services 

On 16 May 2024, the FCA published a Dear CEO letter on implementing the Consumer Duty for closed products and services, for the consumer finance sector. 

Before the rules come into force for closed products and services on 31 July 2024 ,the FCA is writing to firms to support them in their final preparations. The letter sets out:

• The application of the Duty to closed products and services.

• The priority issues that are particularly acute or widespread in closed products and services. 

• Action prompts to ensure firms are prepared for the 31 July 2024 deadline for closed products and services.

• A reminder, in Annex 1, of the definition of closed products and services and an overview of the rules.

FOS update on car finance commission complaints: May 2024 

On 9 May 2024, the Financial Ombudsman Service (FOS) published a press release, which provides an update on car finance commission complaints. 

The FCA is reviewing the historical use of motor finance discretionary commission arrangements (DCAs). Points of interest include:

• The FOS has approximately 20,000 open complaints related to car finance commission.

• In January 2024, it published its first, representative, final ombudsman decisions fully addressing the arguments it has received across a range of these complaints. 

• In March 2024, three court cases relating to car finance commission were granted permission to go to the Court of Appeal.

• In April 2024, Clydesdale Financial Services Ltd, trading as Barclays Partner Finance, started judicial review proceedings in relation to one of the FOS' decisions.

FCA highlights good practice and improvement areas for oversight of appointed representatives

On 23 April 2024, the FCA published a webpage setting out good practice and areas for improvement relating to principal firms' oversight of appointed representatives (ARs) and introducer appointed representatives (IARs) undertaking credit broking.

The FCA sets out examples of good practices and areas for improvement it has seen in principal firms' due diligence checks when appointing ARs and in their ongoing monitoring of ARs. These include:

• Initial appointment and ongoing oversight of ARs: areas for improvement include making enquiries with other principals where an AR has been (or is currently) appointed to another principal and not solely relying on automated checks when undertaking background searches on ARs.

• Ongoing monitoring of ARs: areas for improvement include firms being more proactive to identify harm caused by their ARs and not only relying on very limited management information to monitor AR conduct.

• Ending AR relationships: areas for improvement include checking an AR's website after termination to ensure it no longer states it was an AR of the firm, and immediately notifying the FCA to amend the Register after terminating a contractual arrangement.

PRA policy statement on approach to authorisation and supervision of insurance branches

On 23 May 2024, the PRA published a policy statement (PS8/24) on insurance branch authorisation and supervision.

The PRA sets out its final policy on proposals to consolidate and formalise its existing policy on overseas insurers that write business in the UK through the establishment of a third-country branch. 

The PRA also published, in Appendix 1 to PS8/24, the final version of a new statement of policy (SoP) on its approach to insurance branch authorisation and supervision. The SoP largely reflects the PRA's existing expectations in SS2/18.

SME finance – APPG manifesto and House of Commons Treasury Committee report

On 20 May 2024, the All-Party Parliamentary Group (APPG) on Fair Business Banking published a manifesto for improvements to access to finance for small and medium-sized enterprises (SMEs). Also, on 8 May 2024, the House of Commons Treasury Committee published a report on the findings from its inquiry into SME finance.

The APPG sets out recommendations on SME finance for the next Parliament, which include:

• Extending the regulatory perimeter under the FSMA to cover commercial lending to small and medium-sized businesses.

• Creating a Financial Services Tribunal (FST) to provide a permanent route for resolving larger and more complex cases and replace the Business Banking Resolution Service (BBRS).

• Extending the threshold of the Financial Ombudsman Service (FOS) to allow larger SMEs to refer complaints to the FOS.

The Committee report includes a number of recommendations, which include:

• The PRA should not go ahead with plans to scrap the SME supporting factor in the new Basel 3.1 standards.

• HM Treasury should introduce its proposed debanking requirements before the 2024 Parliamentary summer recess.

• The FCA must give the FOS powers to address personal guarantees for SMEs.

FCA Dear CEO letters on implementing Consumer Duty for closed products and services

On 16 May 2024, the FCA published a Dear CEO letter on implementing the Consumer Duty for closed products and services, for the retail banking sector.

Before the rules come into force for closed products and services on 31 July 2024, the FCA is writing to firms to support them in their final preparations. The letter sets out:

• The application of the Duty to closed products and services.

• The priority issues that are particularly acute or widespread in closed products and services. 

• Action prompts to ensure firms are prepared for the 31 July 2024 deadline for closed products and services.

• A reminder, in Annex 1, of the definition of closed products and services and an overview of the rules.

FCA publishes Primary Market Bulletin No 49

On 21 May 2024, the FCA published Primary Market Bulletin 49. 

During 2023, the FCA reviewed 25 premium list commercial companies over a three-year period. It assessed compliance with their disclosure obligations under the Listing Rules (LR) in relation to Long Term Incentive Plans (LTIPs), and nature of the metrics and performance conditions tied to the LTIPs.

The FCA found:

• All 25 companies complied with LR 9.41R(2).

• Only 10 of the 25 companies released a shareholder circular in accordance with LR 13.8.11R(1). Nine out of the 10 companies filed the circular on the FCA’s National Storage Mechanism (NSM). 

• All 25 companies reviewed provided a summary of the LTIP’s principal terms in the resolution contained in the notice of meeting, as required under LR 13.812R. 

• 11 out of 25 of the LTIPs had been amended. 

• Financial metrics such as total shareholder return, return on capital employed, and earnings per share were the most commonly used LTIP performance metrics.

• Whilst there are no specific requirements under the Listing Rules for LTIPs to include non-financial metrics, the use of these metrics doubled between 2020 and 2022.

FCA Dear CEO letters on implementing Consumer Duty for closed products and services

On 16 May 2024, the FCA published a Dear CEO letter on implementing the Consumer Duty for closed products and services, for the consumer investments sector. 

Before the rules come into force for closed products and services on 31 July 2024, the FCA is writing to firms to support them in their final preparations. The letter sets out:

• The application of the Duty to closed products and services.

• The priority issues that are particularly acute or widespread in closed products and services. 

• Action prompts to ensure firms are prepared for the 31 July 2024 deadline for closed products and services.

• A reminder, in Annex 1, of the definition of closed products and services and an overview of the rules.

LR and DTR: FCA cancellation of listing decision challenge withdrawn

On 14 May 2024, the FCA published a statement to report that Umuthi Healthcare Solutions has withdrawn its reference to the Upper Tribunal, which challenged the FCA's decision to discontinue the listing of its standard shares from the Official List. 

The withdrawal means the FCA's First Supervisory Notice remains in force. The FCA cancelled the listing of Umuthi's standard shares from the Official List with immediate effect after finding special circumstances which precluded normal regular dealing in the shares. The discontinuance of the listing of Umuthi's shares remains in effect.

FCA publishes Market Watch issue 79

On 9 May 2024, the FCA published issue 79 of Market Watch. 

In this Market Watch, the FCA:

• Discusses failures of market abuse surveillance caused by issues with factors such as data and automated alert logic. 

• Discusses the recent peer review of firms’ testing of front-running surveillance models. 

• Sets out examples of malfunctions it has observed, to help firms understand the types of issues they may face.

In 2023, the FCA assessed how investment firms review their automated surveillance models. It encourages all firms that undertake market abuse surveillance to study its observations and consider whether modifying their testing arrangements would be useful. 

FCA published policy statement and final securitisation rules

On 30 April 2024, the FCA published a policy statement (FCA PS 24/4) to replace the firm-facing provisions from the UK Securitisation Regulation. These are being transferred into the FCA Handbook as part of the repeal and replacement of retained EU law.

FCA PS 24/4 includes a legal instrument entitled the Securitisation (Smarter Regulatory Framework and Consequential Amendments) Instrument 2024 (FCA Securitisation Instrument 2024) . This amends the glossary of definitions and various sourcebooks of the FCA Handbook, and incorporates the new Securitisation sourcebook (SECN) as a new sourcebook in the Specialist Sourcebooks block of the FCA Handbook.

FCA PS 24/4 should be read together with PRA PS 7/24, the Securitisation Regulations 2024 and the Securitisation (Amendment) Regulations 2024. Collectively, these rules and regulations will replace the UK Securitisation Regulation.

The changes resulting from FCA PS 24/4 will come into force on 1 November 2024, subject to the revocation of the UK Securitisation Regulation and related technical standards.

FCA chair discusses UK asset management issues 

On 23 May 2024, Ashley Alder, FCA Chair, delivered an updated version of a speech he originally gave in February 2024, on the FCA's agenda for UK asset management. 

The speech discusses:

• the Smarter Regulatory Framework

• private finance

• non-bank financial intermediation (NBFI) and valuations

• retail investments

• sustainability disclosure requirements (SDR)

• innovation.

Noting the FCA's secondary objectives of facilitating international competitiveness and growth of the UK economy, Mr Alder notes that, at every point in its decision-making process, the FCA considers the options that could advance its primary operational objectives and weigh up which of them could advance growth and competitiveness.

The speech also addressed packaged retail and insurance-based investment products (PRIIPs). The FCA is looking forward to consulting on a ‘new regime that is proportionate and tailored to the market and products here in the UK, and which allows firms to design a more engaging consumer journey’.

FCA Dear CEO letters on implementing Consumer Duty for closed products and services

On 16 May 2024, the FCA published a Dear CEO letter on implementing the Consumer Duty for closed products and services, for the asset management sector. 

Before the rules come into force for closed products and services on 31 July 2024, the FCA is writing to firms to support them in their final preparations. The letter sets out:

• The application of the Duty to closed products and services.

• The priority issues that are particularly acute or widespread in closed products and services.

• Action prompts to ensure firms are prepared for the 31 July 2024 deadline for closed products and services.

• A reminder, in Annex 1, of the definition of closed products and services and an overview of the rules.

Financial Services and Markets Act 2000 (Overseas Funds Regime) (Equivalence) (European Economic Area) Regulations 2024 published

On 14 May 2024, the Financial Services and Markets Act 2000 (Overseas Funds Regime) (Equivalence) (European Economic Area) Regulations 2024 (SI 2024/635) were published, with an explanatory memorandum.

The regulations provide that all EEA states have been determined as equivalent for the purpose of section 271A of the Financial Services and Markets Act 2000 (FSMA), with regards to UCITS that are not authorised as money market funds (MMFs). This will allow EEA UCITS (that are not authorised as MMFs) to apply to the FCA for recognition to market to all UK investors under section 271A(c) of FSMA 2000.

The regulations will come into force on 16 July 2024. 

FCA responds to House of Lords Financial Services Regulation Committee on investment trusts' cost-disclosure regime 

On 14 May 2024, the House of Lords Financial Services Regulation Committee published a letter, dated 10 May 2024, from Nikhil Rathi, FCA Chief Executive. The letter is a response to the Committee's letter of 30 April 2024 on the cost-disclosure regime that applies to investment funds under assimilated law. 

The letter states that the FCA understands and appreciates the need to move as quickly as possible to address challenges created by the cost-disclosure regime. Points of interest include:

• The FCA disagrees with industry concerns that the UK is alone, compared to EEA jurisdictions, in its application to investment trusts of the retained EU law versions of the PRIIPs Regulation (1286/2014) (UK PRIIPs Regulation) and Commission Delegated Regulation (EU) 2017/565 (MiFID Org Regulation).

• The FCA's November 2023 forbearance statement, intended to assist listed closed-ended funds in respect of costs disclosure, highlights the FCA's commitment to resolving challenges for the sector. This statement went as far as the FCA reasonably could without legislative changes.

• The FCA will consult on the details of the replacement composite consumer investments (CCI) regime by autumn 2024.

FCA fines HSBC for treatment of retail lending customers in financial difficulty 

On 23 May 2024, the FCA published a final notice it issued to HSBC UK Bank plc, HSBC Bank plc and Marks and Spencer Financial Services plc (collectively "HSBC"), fining them £6.28 million for failures in their treatment of customers who were in arrears or experiencing financial difficultly. 

The FCA found that, between June 2017 and October 2018, HSBC:

• Entered into payment arrangements or took payments from customers without conducting appropriate affordability assessments.

• Failed to apply forbearance to support some customers in financial difficulty or applied forbearance measures to some customers that were not always appropriate. In particular, HSBC typically provided short-term forbearance solutions. 

• Took disproportionate action, leading to default notices and final demands being issued to customers with very low arrears balances whose accounts could have been brought out of arrears.

The FCA found that HSBC had breached principles 3 (management and control) and 6 (treating customers fairly) of its Principles for Businesses, as well as rules in the FCA's Consumer Credit sourcebook (CONC) and in the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB). HSBC has made redress payments totalling £185 million to customers as part of an extensive remediation programme.

FCA and PRA fine Citigroup Global Markets £61.6 million for trading systems and controls failures

On 22 May 2024, the FCA and PRA published final notices issued to Citigroup Global Markets Ltd (CGML). The FCA final notice imposes a fine of £27.7 million and the PRA final notice imposes a fine of £33.8 million. CGML was fined £61.6 million in total for failures in its trading systems and controls.
Between April 2018 and May 2022, the PRA sent CGML multiple supervisory communications on the need to strengthen its trading controls, but weaknesses persisted. 

In May 2022, a CGML trader mistakenly input a sell order that was meant to dispose of a basket of equities worth USD58 million. The error resulted in USD189 billion being sent to a trading algorithm and USD1.4 billion of equities being sold across European exchanges. This erroneous trade was cancelled. but not before it caused a significant temporary decline in some European stock indices. Deficiencies in CGML's controls contributed to this incident.

The FCA found that CGML had breached:

• Principles 2 (skill, care and diligence) and 3 (management and control) of its Principles for Businesses. 

• MAR 7A.3.2R, which requires a firm to have in place effective systems and controls to ensure that its trading systems prevent the sending of erroneous orders.

The PRA found that CGML had breached:

• Fundamental Rules 2 (skill, care and diligence), 5 (risk strategies and risk management systems) and 6 (organisation and control of affairs). 

• Rules in the Algorithmic Trading Part concerning effective systems and risk controls and the testing and monitoring of systems.

FCA brings charges against "finfluencers" for alleged promotion on social media of unauthorised FX trading scheme

On 16 May 2024, the FCA published a press release announcing it has brought charges against nine individuals in relation to the alleged promotion on social media of an unauthorised foreign exchange (FX) trading scheme.

One individual has been charged with one account of breaching the general prohibition under S.19 FSMA for operating an unauthorised investment scheme, and with one count of unauthorised communications of financial promotions under S.21 of FSMA.

The FCA alleges that between 19 May 2018 and 13 April 2021, the individual, alongside another individual, used an Instagram account to provide advice on buying and selling contracts for difference (CFDs) when they were not authorised to do so. Seven other individuals face one count of issuing unauthorised communications of financial promotions, for promoting the Instagram account.

The individuals will appear before Westminster Magistrate's Court on 13 June 2024.

FCA charges three individuals for alleged involvement with CFD trading pension fraud

On 15 May 2024, the FCA issued a press release announcing it has charged three individuals in connection with their alleged involvement in a high-risk trading scheme that targeted pension savings.

The individuals have been charged with multiple offences, including fraud by false representation and fraudulent trading. The press release states they targeted victims by persuading them to use their pensions to invest in contracts for difference (CFDs) which were then traded to generate large commissions for those running the scheme, with victims’ pension funds almost entirely lost. The FCA also alleges that the individuals made false statements to a trading platform, stating that their clients were professional investors.

The total known loss to victims is over £8 million. The defendants will appear before Westminster Magistrates’ Court on 7 June 2024.

Council of EU publishes text of Directive on cross-border law enforcement access to bank account registries

On 22 May 2024, the Council of the EU published the text (PE-CONS 44/24) (dated 21 May 2024) of the Directive amending Directive  (EU) 2019/1153 as regards access of competent authorities to centralised bank account registries through the interconnection system and technical measures to facilitate the use of transaction records (2021/0244(COD)).

The Directive aims to enhance the efficacy of cross-border inquiries into illicit finance by facilitating easier retrieval of information from centralised bank account registries.

The next step requires the Council to formally adopt the legislation, after which it will then enter into force 20 days after its publication in the Official Journal of the European Union.

Council of EU publishes texts of AML Regulation, AMLA Regulation and MLD6

On 20 May 2024, the Council of the EU published:

• The text of the Regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (AML Regulation) (dated 15 May 2024).

• The text of the Regulation establishing the Anti-Money Laundering Authority (AMLA Regulation) (dated 15 May 2024).

• The text of the Sixth Money Laundering Directive (MLD6) (dated 16 May 2024).

The European Parliament adopted the legislation in April 2024. The Council and the Parliament reached provisional agreement on the AML Regulation and MLD6 in December 2023 and the AMLA Regulation in January 2024. 

The next step requires the Council of the EU to formally adopt the legislation, after which it will be published in the Official Journal of the European Union.

• The AML Regulation will enter into force 20 days after publication and will apply 36 months from the date of entry into force, with exceptions. 

• The AMLA Regulation will enter into force seven days after publication and will apply from 1 July 2025, subject to certain Articles applying from the date of entry into force.

• MLD6 will enter into force 20 days after publication.

OFSI launches FAQs on UK financial sanctions

On 1 May 2024, the Office of Financial Sanctions Implementation (OFSI) published FAQs on UK financial sanctions.

The FAQs are short-form guidance and technical information on financial sanctions, including FAQs relating to:

• specific regimes and countries

• licensing

• Russian oil services ban

• definitions.

EBA draft opinion on new types of payment fraud and possible mitigants

On 29 April 2024, the EBA published a draft opinion on new types of payment fraud and possible mitigants.

The aim of this opinion is to help further strengthen the forthcoming legislative framework under PSD3 and PSR, which will enshrine anti-fraud requirements for retail payments for several years.

The EBA welcomes the European Commission's proposals for a revision of the existing PSD2, in the form of a proposed PSD3 and a PSR, and it is pleased that the proposals incorporate many of the recommendations it made in its June 2022 opinion.

The EBA's opinion discusses the impact of the PSD2 security requirements on fraud levels across the EU and emerging fraud trends it observed and new types of payment fraud. It also sets out potential additional measures to combat fraud that go beyond the fraud mitigation measures proposed in PSD3 and the PSR, and measures introduced in the SEPA Regulation ((EU) 260/2012) by the Instant Payments Regulation ((EU) 2024/886).

The answer to last month's question: Of the 210,000 complaints the Financial Ombudsman Service expects to receive in the 2024/2025 year, 149,200 are anticipated to relate to banking and consumer credit.  

The FCA applies a five-step framework to determine the appropriate level of a financial penalty for breaches of regulatory requirements. Which of these describes the first step?

• mitigating and aggravating factors

• adjustment for deterrence

• the seriousness of the breach

• disgorgement

• settlement discount.