Financial Services Regulatory Initiatives Forum provides interim update to regulatory initiatives grid

The Financial Services Regulatory Initiatives Forum, which includes the Bank of England (BoE), the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR), has published its Q4/2024 interim update of the regulatory initiatives grid (the Grid). This follows update follows the deferral of the eighth edition due to the recent election. The Grid has been updated with upcoming publications impacting firms from October 2024 to March 2025, aiming to support post-election planning. A complete Grid will not be provided this year.

Mansion House speeches on growth

On 17 October 2024, the FCA and PRA published speeches at the Mansion House on growth. FCA's Chief Executive, Nikhil Rathi outlined the FCA's approach, whilst Sam Woods, Bank of England (BoE) Deputy Governor for Prudential Regulation and PRA Chief Executive, shared the PRA's perspective.

FCA's speech

Rathi sets out the approach that the FCA is taking to growth in the light of the new secondary growth objective. He describes the new objective as "liberating", enabling candid discussion about risk appetite.

Key issues highlighted:

• Enforcement: The FCA intends to publish more data and case studies on a public interest test for enforcement investigations in November 2024. Relatively few firms will be affected; naming a firm in the public interest will not be the default position. Firms will have longer to make representations about impact and that the FCA will consider the impact on small firms. The FCA board will decide on the proposals in early 2025.

• Data: Rathi emphasises investing in technology to improve data sharing and ease regulatory burden. The FCA's move to the cloud and use of large language models will speed up data analysis.

• Literature review: The FCA will shortly open a research competition on links between financial regulation and growth focusing on how the FCA can support capital formation, productivity gains and financial services exports. The findings of an FCA research note, also published on 17 October 2024, on the current evidence base connecting financial services regulation to economic growth.

PRA's speech

Woods sets out the approach that the PRA is taking to growth in the light of the new secondary growth objective. The PRA is strongly committed to the objective and is taking concrete steps to improve the PRA regime's contribution to UK growth and competitiveness. The PRA is undertaking this pro-growth work in a careful, balanced way, with the aim of reducing bureaucracy and excessive conservatism without compromising financial stability. As an unelected body, the PRA's role is to implement the will of elected officials as mandated by Parliament and the government's remit letters.

Woods gives the removal of the bankers' bonus cap as an example of the PRA's pro-growth work. The PRA also intends to bring forward proposals to:

• Move to a five-year deferral period for all senior managers, rather than the current eight years, and to a four-year deferral period for individuals in the scope of the regime. The PRA also proposes to abolish the 6–12-month retention period that applies to higher-paid senior managers.

• Allow vesting on a pro rata basis from the first year, whereas the current rules require a three-year wait for some senior managers, no vesting is permitted for some senior managers until three years after a bonus award is made.

Joint Committee of ESAs' work programme for 2025

On 4 October 2024, the Joint Committee of the European Supervisory Authorities (ESAs) (comprising of the EBA, EIOPA and ESMA) published its 2025 work programme (JC 2024 27). Priorities include:

• Sustainability disclosures: The ESAs will publish a report on reporting principal adverse impacts under Article 18 of the Sustainable Finance Disclosure Regulation (SFDR), update Q&As on sustainability disclosures under the SFDR Delegated Regulation and work on new technical standards for ESG rating disclosures introduced into Article 13 of the SFDR by the Credit Rating Agencies Regulation.

• Digital operational resilience: The ESA will launch the oversight framework of critical ICT third-party providers and implementing the major ICT-related incident co-ordination framework under the Regulation on digital operational resilience for the EU financial sector (DORA).

• Financial conglomerates: The ESA will publish the annual list of financial conglomerates and develop specific conglomerate reporting templates.

• Innovation in the financial sector: The ESAs, through the European Forum for Innovation Facilitators (EFIF), will promote co-ordination and co-operation amongst national innovation facilitators to support scaling up of innovation in the financial sector across the EU in accordance with the European Commission's Digital Finance Strategy.

• Cross sector issues: the ESAs will address cross-sectoral matters such as retail financial services, investment products and securitisation, and continue to map and monitor external credit assessment institutions as mandated by the Capital Requirements Regulation and the Solvency II Directive.

BoE announces completion of latest exercise to test sector's resilience to major operational disruption

On 3 October 2024, the BoE published a press release on the latest UK market-wide simulation exercise to test the UK financial services sector's resilience to a major operational disruption (SIMEX 24).

The exercise was carried out in partnership with HM Treasury, the FCA, UK Finance and the financial services sector.

SIMEX 24 was developed by the Cross Market Operational Resilience Group (CMORG) (a joint initiative between the regulators, UK Finance and the industry). It tests the sector's ability to respond to a major infrastructure failure requiring a total sector shut down and restart.

The publication date for the exercise's outcome and findings is pending.

SIMEX 24 forms part of a continuous programme examining the sector's response to challenging scenarios, including those on the government's National Risk Register.

BoE speech on maximising value of financial sector data collections

On 3 October 2024, the Bank of England (BoE) published a speech by James Benford, its Executive Director for D&A Transformation and Chief Data Officer.

Benford discusses the BoE's refreshed data and analytics strategy and three-year implementation plan, launched in July 2024. As well as the second of the three missions into which the BoE's new strategy is organised: maximising the value of the data the BoE collects and shares.

A number of problems relating to increasing the value of regulatory data collections are identified, including: the need for consistent clarity in reporting requirements, insufficient incorporation of supervisor's needs in the design of the collections, since many were designed in isolation there are opportunities for consolidation, and some of the systems, including how data is processed and how regulators interact with firms, are dated and unnecessarily complex.

Discussions between regulators and firms are informing a set of principles for designing data collections and their operation, including:

• Clarifying the purpose of the collections. The BoE will drop collections that cannot be clearly justified and will be transparent on how it uses the data.

• Exploring consolidating collections.

• Tailoring reporting populations and ensuring all aspects of its collections are supported by a cost benefit analysis.

The BoE's main use case for these principles will be the PRA's Banking Data Review, which will draw on the experience of the recent review of reporting for insurance. BoE will build on the proposals as part of the Strong and Simple initiative to de-scope small domestic deposit takers from 38 reporting templates related to capital requirements and to simplify other templates.

The Banking Data Review will consist of three phases:

• By summer 2025, the BoE will consult on a first wave of whole-form deletions and proposals to close gaps and regularise reporting on counterparty credit risk. 

• In 2026, it will review the approach to credit risk and whether there are collections that can be slimmed and consolidated. 

• In the third wave, the BoE will address remaining areas.

Complementary work is being done to review FCA collections.

EBA work programme for 2025

On 30 September 2024, the EBA published its 2025 work programme (EBA/REP/2024/20) detailing its strategic priorities, which include:

• Implementing the EU banking package (consisting of the Regulation and Directive that extensively amend the Capital Requirements Regulation and the CRD IV Directive, respectively CRR III and CRD VI) and enhancing the Single Rulebook.

• Enhancing risk-based and forward-looking financial stability for a sustainable economy.

• Enhancing data infrastructure and launching a data portal.

• Starting oversight and supervisory activities for Regulation on digital operational resilience for the financial sector (DORA) and the Regulation on markets in cryptoassets (MiCA).

• Developing consumer orientated mandates and ensuring a smooth transition to the new anti-money laundering and countering the financing of terrorism (AML/CFT) framework.

The EBA's medium term strategic objectives for 2025 to 2027 are set out in chapter 1. Its priorities may need to be refined as the year progresses to reflect economic and geopolitical developments and new European priorities, such as an increased focus on a capital markets or savings union.

Chapter 2 outlines the 19 specific activities that EBA intends to undertake in 2025 and the timing for the main outputs of those activities, Activities fall within three sections: policy and convergence work, risk assessment and data, and governance, co-ordination and support.

Annex III sets out EBA's peer-review work for 2025-2026.

AI in financial services

Our latest monthly round-up looks at:

• AI in investment management

• the FCA's AI Lab

• banking and conversational AI. 

Government update on cryptoasset regulatory framework

On 28 October 2024, Tulip Siddiq, Economic Secretary to HM Treasury, confirmed that the government is reviewing the proposals for the regulation of cryptoassets and stablecoins, which were published by the Treasury in October 2023 (see our November 2023 update), and that it will set out its policy programme for cryptoassets soon.

FCA publishes financial promotion data for Q3 2024

On 25 October 2024, the FCA published a webpage, summarising the data it has collected during Q3 2024 relating to action it has taken against firms breaching the financial promotion regime.

The webpage includes comments on the cryptoassets financial promotion regime, which has now been in force for over a year.

Generally the FCA has identified poor practice in the market. In terms of the action it has taken:

• It has issued approximately 1,700 consumer alerts about illegal crypto promotions. 

• Over 900 scam crypto websites have been taken down and 56 apps have been removed from UK apps stores. The FCA continues to work with social media companies to remove and block illegal content on their platforms.

• It intervened against a cryptoasset firm for failing to fully comply with the FCA's requirements regarding appropriateness and client categorisation.

It says that it is committed to stemming harm from illegal promotions and that a number of cases have been referred to its Enforcement division.  It continues to partner with other law enforcement agencies and overseas regulators to combat illegal cryptoassets financial promotions.

Crypto firms are reminded of the various publications that the FCA has issued to help them navigate its requirements. Rather than rely on industry comparisons, firms are called upon to engage directly with the FCA to raise standards across the sector. The FCA says that it will consider firms' compliance with regulatory requirements, including its financial promotion regime, when assessing an application to become authorised under the future financial services regulatory regime for cryptoassets.

The FCA also mentions that of the applications it is reviewing for firms seeking s.21 approver status, many of these relate to approving cryptoassets financial promotions. Firms are reminded to check carefully their obligations and that the determining applications under the s.21 gateway is not a "rubber stamp" process.

Data (Use and Access) Bill – from open banking to open finance

On 23 October 2024, the Data (Use and Access) Bill was introduced to the House of Lords, accompanied by a memorandum explaining its provisions.. The Bill includes measures for the use and access to data, particularly through "smart data" schemes that allow secure sharing of customer data with authorised third-party providers, who will in turn be able to use that data to provide services to the customer or business and share or publish contextual business data.

Clauses 14 to 17 specifically address the financial services sector, aiming to transition regulatory oversight of the open banking interface from the CMA to the FCA and extend its benefits to an open finance scheme. Open banking allows consumers and small businesses to share their transaction data securely with third parties for various services. The proposed measures will enable HM Treasury to establish open banking on a long-term basis and extend it to other financial products.

In particular:

• Clause 14 gives HM Treasury the power to require financial service providers to use prescribed interfaces and comply with standards, including fee-related requirements. 

• Clause 15 introduces limitations and safeguards on these powers. 

• Clause 16 allows HM Treasury to make regulations for the FCA to enforce these requirements, including financial penalties. 

• Clause 17 confers a power on HM Treasury to amend section 98 of the Financial Services (Banking Reform) Act 2013 so that the FCA's functions regarding financial services smart data schemes are brought in scope of the current arrangements between the regulators of payment systems.

Our data protection colleagues have published a special insight article, in which they discuss some of the wider data protection implications arising from the Bill.

The Bill is due to have its second reading in the House of Lords on 19 November 2024.

FSB report on financial stability implications of tokenisation

On 22 October 2024, the Financial Stability Board (FSB) published a report on the financial stability implications of tokenisation, focusing on distributed ledger technology (DLT)-based tokenisation, which is the technology used in most tokenisation initiatives.

The report notes that tokenisation has seen limited adoption in the financial sector so far, although growth is evident. The FSB warns that significantly scaling up could increase financial stability risks by creating complex and opaque automated trading products and if vulnerabilities are not addressed through proper oversight and regulation.

The report recommends that authorities and international bodies tackle data gaps in monitoring tokenisation adoption, increase understanding of its legal and regulatory integration, and facilitate cross-border information sharing.

The report accompanies the FSB's letter to the G20 finance ministers and central bank governors ahead of their October 2024 meeting.

FCA blog on the registration of cryptoasset businesses under MLRs 2017

On 21 October 2024, the FCA published a blog by Val Smith, Head of Payments and Digital Assets, Authorisations Division, addressing its approach to the registration of cryptoasset businesses under the Money Laundering Regulations 2017 (MLRs).

With only around 40 successful registrations to date, the registration regime has attracted significant criticism from industry. In particular, concerns have been raised that it is not consistent with the regulators' secondary competitiveness and growth objective (SCGO) and that the FCA's process may hinder innovation and threaten the UK's global financial standing. In response, Smith noted:

• The FCA never turns applications down outright but takes the risk of money laundering very seriously. Lowering standards would jeopardize market safety. Unsafe and unregulated innovations are likely to collapse. Instead, the FCA aims to collaborate with partners across government, industry and other jurisdictions to develop a reliable cryptoasset industry.

• The FCA encourages early engagement with cryptoasset businesses through pre-application meetings and offers a wide range of practical support throughout the registration process.

• Each registration application is unique; the FCA considers various factors beyond just a business' controls and systems. The FCA considers the environment it operates in, the people involved in its processes and the customers it wants to reach. These factors affect decision timelines.

The FCA will only register businesses that meet required standards, excluding those that cause harm. The webpage includes links to resources that the FCA has published to assist applicants seeking registration under the MLRs.

Smith's view of the regime was echoed by the former Chair of the FCA and PSR, Charles Randell, when he appeared before the House of Lords Financial Services Regulation Committee on 23 October 2023 as part of its ongoing inquiry into the SCGO. In his response to a question on how to measure progress against the secondary objectives, Randell noted that "[i]t is a real success that the FCA is continuing to take a long time to approve crypto asset exchanges and to interrogate their financial crime and anti-money laundering controls."

MiCA update

October saw a number of MICA-related developments including the following:

• On 1 October 2024, the European Commission adopted a Delegated Regulation on complaints handling by cryptoasset containing regulatory technical standards (RTS) specifying the requirements, templates and procedures for the handling of complaints by cryptoasset services providers.

• On 9 October 2024, the EBA published a final report on guidelines on redemption plans under Articles 47 and 55 of MiCA. 

• On 10 October 2024, the European Commission adopted a Delegated Regulation containing RTS on information to be exchanged between competent authorities.

• On 16 October, the ESMA published an opinion on the European Commission's amendments to draft RTS on authorisations and notifications.

• On 22 October 2024, the EBA published a decision on the procedure for classifying asset-referenced tokens and e-money tokens as significant, along with the transfer of supervisory powers and reporting on those tokens.

BCAP Code updates for cryptocurrency and investment products

On 27 September 2024, the BCAP introduced a new rule banning TV and radio ads for fungible and transferable cryptoasset products, such as cryptocurrencies and utility (fan) tokens, from mainstream, non-specialist audiences.

Previously, these products were under a general restriction per BCAP Code rule 14.5.4 due to their lack of FCA regulation. However, in October 2023 the FCA began regulating the advertising of these assets, imposing restrictions on their marketing to the public (please see our October 2023 update). The new rule aligns with these FCA restrictions and takes immediate effect following a consultation that received no responses.

Additionally BCAP released a consultation to narrow the ban on mainstream adverts for unregulated investments to avoid capturing products which a layman would not perceive as investments. The revised ban in rule 14.5.4 would only apply to unregulated investment products presented as conventional investments where consumer may expect a return.

The current ban on advertising unregulated "investments" was only intended to capture products where consumers can invest capital expecting profit. However, the broad definition of "investment products" in FSMA 2000 may result in mass-market, lower risk products being unintentionally caught by the ban.

The only product BCAP anticipates falling outside the revised ban is unregulated buy-now-pay-later (BNPL) credit. Despite government plans to regulate BNPL credit (please see the Consumer credit and mortgages section below), BCAP states there is no evidence suggesting that these plans stem from an increased risk assessment warranting an advertising ban on BNPL credit in mainstream media. BCAP will continue monitoring development in this area.

This consultation closed on 31 October 2024.

FCA to take action against Crispin Odey

In a warning notice published on 1 November 2024, the FCA noted that it proposed to take action against Crispin Odey in respect of his conduct during the period 24 December 2021 to 17 November 2022. The FCA considers that Mr Odey breached Individual Conduct Rule 1 of the FCA's Code of Conduct, which requires the individual to act with integrity. The conduct in question relates to a disciplinary process undertaken by Odey Asset Management LLP (OAM), which concerned a warning that OAM had given Mr Odey regarding inappropriate behaviour. Odey is entitled to make representations to the FCA's Regulatory Decisions Committee.

Culture and non-financial misconduct survey

On 25 October 2024, the FCA published the findings of its most comprehensive survey to date relating to culture and non-financial misconduct (NFM).

In February 2024, the FCA sent the survey to approximately 1,000 regulated wholesale financial services firms. The survey consisted of a series of questions requesting high-level statistics relating to NFM related incidents in 2021, 2022 and 2023.

Key findings include:

• For the three year period, the number of reported NFM incidents increased significantly. The FCA acknowledges that this may be in part be because of the COVID-19 pandemic.

• Bullying and harassment (26%) and discrimination (23%) were the most reported types of NFM across all sectors. 41% of NFM incidents were reported in the category, "other".

• Across all sectors, reactive processes such as grievances or more formal processes accounted for most of the incidents that firms had identified. The importance of whistleblowing was underscored, with whistleblowing accounting for around 30% of the incidents identified in wholesale banks. Monitoring and surveillance tools accounted for a relatively small number of incidents.

• In 43% of cases, disciplinary or "other" actions were taken including mediation and management training or coaching. The remainder of cases saw a range of outcomes: cases were not invested, not concluded, not upheld, upheld with no further action, or investigations were ongoing.

• Discrimination accounted for the highest percentage of incidents being concluded by a settlement or confidentiality agreement (23% of cases across all sectors).

The responses to the survey will inform the FCA in its ongoing supervisory work and its engagement with firms. Although it has committed for now to not publish best practice or guidance to firms, the much awaited policy statement in response to its consultation on diversity and inclusion in the financial sector (CP 23/20) is expected to be published around year end.

Climate Financial Risk Forum releases guides on nature-related risks, short-term scenarios and adaptation finance 

On 10 October 2024, the FCA updated its webpage on the Climate Financial Risk Forum (CFRF) to announce new guides addressing key climate risk issues:

• Nature-related risk: handbook for financial institutions. This guide offers context on nature-related risk for firms, defining the nature and explaining how this risk can impact financial institutions. It includes details of emerging practice for integrating nature into risk management across financial institutions. It is supplemented by a summary document and technical data guidance on the nature data landscape and its application for financial institutions.

• Resilience working group: short-term scenarios chapter. This guide outlines a framework for use in evolving climate-related risk modelling for short-term use cases, accompanied with a summary document.

• Mobilising adaptation finance to build resilience. This guide aims to assist financial institutions understand and price physical climate change-related risks and to facilitate increased levels of investment into adaptation to respond to that risk as an opportunity. It includes a summary document, case studies focused on adaptation finance and a summary of survey results from CFRF Adaptation Working Group (AWG) members and data providers on current physical risk data sources.

European Parliament corrigendum to proposed Regulation on ESG rating activities

On 8 October 2024, the European Parliament published a corrigendum to the proposed Regulation on the transparency and integrity of ESG rating activities. The specific amendments remain unclear.

The Parliament announced in April 2024 that it had voted in plenary to adopt the proposed Regulation. At that time the text had not undergone lawyer-linguist revision. Once confirmed by Parliament under the Rule 251 corrigendum procedure, the Council of the EU is expected to formally adopt it at a subsequent meeting and the Regulation will be published in the Official Journal of the European Union.

The Regulation will enter into force 20 days after publication in the Official Journal of the European Union and will apply 18 months later.

UNEP FI responsible banking blueprint

On 8 October 2024, the United Nations Environment Programme Finance Initiative (UNEP FI) published guidance for member banks.

The guidance aims to inspire banks in their transformation journeys towards the four UN Principles of Responsible Banking priorities and where they could be by 2030 and beyond. Main areas covered include:

• A bank's strategy.

• The four action categories for impact management by banks: policies and processes, portfolio composition and financial flows, client engagement, and advocacy and partnerships.

• Target-setting and implementation via action and transition plans.

• Transparency and disclosure.

These areas align with four inter-related thematic priorities: net-zero and climate resilient development, halting and reversing nature loss, socio-economic inclusivity, and protecting human rights. These themes were developed with the input from signatory banks and civil society organisations.

This guidance should be read alongside UNEP FI's guidance aimed at supporting banks as they conduct impact analysis, set initial or extended targets, or prepare for target implementation according to the action or transition plans.

ESMA first annual report on EU Carbon Markets

On 7 October 2024, ESMA published its first annual report (ESMA50-43599798-10379) on EU carbon markets, providing details and insights into the functioning of the EU Emissions Trading System (EU ETS) market. Key findings include:

• Prices and volatility. Prices in the EU ETS have declined since early 2023 due to lower industrial activity demand, falling natural gas prices, decarbonisation efforts, and increased supply from additional auction allowances to finance the REPowerEU plan.

• Auctions. Emission allowance auctions are highly concentrated, with ten participants purchasing 90% of auctioned volumes, indicating a preference for sourcing from financial intermediaries.

• Trading and positions. Most emission allowance trading in secondary markets occurs through derivatives, reflecting the annual EU ETS compliance cycle where non-financial sector firms hold long positions (for compliance purposes), while banks and investment firms hold short positions.

The report builds on ESMA's 2022 report and will be produced annually. A webinar presenting the findings occurred 24 October 2024.

Net-Zero Banking Alliance progress report for 2024

On 1 October 2024, the United Nations Environment Programme Finance Initiative (UNEP FI) released a 2024 progress report from the Net-Zero Banking Alliance (NZBA). This report reviews the efforts of NZBA member banks to achieve net-zero emissions by 2050, summarising data from 122 banks through May 2024 on target setting and transition planning—key voluntary commitments of NZBA membership. It features 15 case studies from member banks.

Most members are taking significant steps towards meeting their climate goals. Notably:

• 97% of the 122 banks have set their first sectoral targets.

• Around 80% of the 50 banks are due to set targets focused on carbon-intensive sector.

• Nearly two-thirds of the 91 banks due to publish transition plans by May 2024 have completed this, with 25% more planning to do so by the end of 2024.

• Twenty-three newer members are expected to set targets and publish transition plans by the end of 2025.

The NZBA recognizes these advancements as signs of a transformative shift in banks' approaches to financing the transition to net-zero. However, it also highlights areas needing attention. Setting decarbonization targets remains challenging due to issues like client emissions data quality, unclear pathways, and a lack of supportive policies. Most of the one-fifth of banks that haven’t met target-setting milestones are from emerging markets, where these challenges are more pronounced.

Insights from the report will guide the NZBA in supporting members as they refine their targets over the next year. Following a vote earlier in 2024, member banks with significant capital market activities will update their targets to include associated emissions by November 2025.

FSB 2024 progress reports on G20 roadmap for enhancing cross-border payments

On 21 October 2024, the Financial Stability Board (FSB) published a consolidated progress report for 2024 on actions being progressed as part of the G20 roadmap for enhancing cross-border payments, alongside reports on implementing the legal entity identifier (LEI) and meeting cross-border payment targets.

Significant progress has been made over the past year, including harmonising ISO 20022 data requirements, extending operating hours, and producing key reports on the use of application programming interfaces (APIs) and the interlinking of fast payment systems (FPS). Recommendations on managing payments data and access to becoming a payment services provider (PSP) will be issued in December 2024.

Despite widespread LEI implementation in OTC derivatives and securities markets, adoption in cross-border payments remains a challenge due to costs and lack of incentives, particularly in low-income jurisdictions. Some jurisdictions have made no tangible progress towards implementing the FSB's previously outlined actions. The FSB calls for full implementation of its 2022 recommendations and offers additional oversight and standard-setting recommendations.

FSB's key performance indicators show that more efforts are needed to improve user-experience in payment services. Some regions struggle with targets for cost and speed. The FSB acknowledges that achieving clear improvements will take time for actions carried out under the roadmap to materialise and for industry participants to adapt so that clear improvements are perceived by the end users of cross-border payments. The FSB wants to stimulate conversation amongst stakeholders to address these challenges and refine the roadmap's actions to better meet targets. 

PSR seeking feedback from industry on impact of card-acquiring remedies

On 21 October 2024, the Payment Systems Regulator (PSR) published a press release seeking feedback from businesses on its card-acquiring remedies implemented in 2023.

The PSR has been monitoring businesses' implementation of the remedies, which are designed to make it easier for small and medium-sized businesses to compare prices, negotiate better details and switch providers if necessary.

It is engaging with businesses and trade bodies to assess whether:

• Businesses found it easy to locate the online quotation tool and the summary box under Specific Direction 14, and how accurate they were compared the actual prices they paid for acquiring services.

• Businesses have seen and acted on the trigger messages provided under Specific Direction 15.

• Businesses have encountered issues with hiring, or terminating the hire of, point-of-sale terminals since the 18-month contract limit set out in Specific Direction 16 was imposed.

The PSR will continue to monitor compliance in this area and is planning to run engagement sessions with industry in the next few months. Further information on the PSR's website will be available for businesses to join the discussions. Businesses can contact the PSR to provide feedback through a dedicated mailbox.

Feedback will inform the PSR's remedies progress report expected in 2025.

FCA Dear CEO letters on APP fraud reimbursement

On 7 October 2024, the FCA published two Dear CEO letters outlining its expectations relating to authorised push payment (APP) fraud reimbursement, to banks and building societies and to payment and e-money institutions (collectively payment service providers (PSPs)). The letters have been sent in the light of the new maximum reimbursement limit for victims of APP fraud coming into force (please see our October 2024 update).

Key expectations include:

• Anti-fraud systems and control. PSPs should have effective governance arrangements, controls and data to detect, manage and prevent fraud. Regular reviews are essential to ensure effectiveness. Customer due diligence should be maintained at onboarding stage and continuously to precent accounts being used for fraud.

• Consumer Duty. PSPs must avoid causing foreseeable harm. An example of this is inadequate systems to detect and prevent scams result in consumers falling victims to scams.

• On us APP fraud reimbursement. Internal book transfers, also called "on us" or intra-firm payments, involve internal transfers between accounts from the same firm which can be executed through an internal channel rather than an external payment system, such as the Faster Payments System (FPS). The FCA is concerned that consumers are unlikely to understand that protection levels against APP fraud can differ based on the payment method used. If PSPs are planning to provide a lower level of protection to "on us" APP fraud reimbursement compared to payments made through FPS and CHAPS, they must inform the FCA about the steps they have taken to meet their obligations.

• Capital and Liquidity Impact: The letter to payment and e-money institutions also covers the potential impacts of APP fraud reimbursement liabilities on capital and liquidity.

The FCA requests firms ensure that appropriate oversight, systems and controls are in place to comply with its requirements.

Draft Payment Services (Amendment) Regulations 2024 published

On 3 October 2024, HM Treasury published a final draft of the Payment Services (Amendment) Regulations 2024. An initial draft of the SI was published in March 2024 together with a policy note.

The legislation amends regulation 86 of the Payment Services Regulations 2017 (SI 2017/752), which requires payment service providers (PSPs) to execute payment transactions within maximum time limits by enabling a PSP to delay the execution of a payment, where within a specified time, it has reasonable grounds to suspect that the order has been made due to fraud or dishonesty by a third party (this includes the payee). This delay, which may not exceed the end of the fourth business day after the payment order is received, is intended to provide the PSP with sufficient time to determine whether the order should be executed. The draft Regulations also detail how and when the payer should be notified of any delay and address potential liability the payer might incur for charges or interest due to the delay.

The SI was laid before Parliament on 9 October 2024 and will came into force on 30 October 2024.

In September 2024, the FCA published a guidance consultation (GC24/5) on proposals to change the guidance in its payment services and electronic money approach document to explain how PSPs should apply these legislative changes to minimise the impact on legitimate payments.

FCA and FOS comment on Court of Appeal judgment on motor finance commission

In a speech on the topic of private markets delivered at the Investment Association's annual dinner on 29 October 2024, Nikhil Rathi, Chief Executive of the FCA, referred to the Court of Appeal judgment of 25 October 2024 on motor finance commission in Johnson v FirstRand Bank Ltd (London Branch) t/a Motonovo Finance [2024] EWCA Civ 1282.

The Court of Appeal ruled that in accordance with common law principles it was not lawful for motor dealers to receive commission from lenders providing motor finance, unless it had been disclosed to the customer and the customer had given their informed consent. Rathi noted that the two lenders in the case, Close Brothers and FirstRand Bank, both intend to appeal to the Supreme Court (see the Close Brother market announcement and FirstRand Bank market announcement) and that it was in the interest of everyone that the Supreme Court decides quickly whether to take the appeal and whether it agrees with the Court of Appeal. The Court of Appeal judgment itself recognises the value in a "definitive pronouncement" from the Supreme Court on the underlying legal issues involved in the payment of a commission by a third party.

Rathi said that the FCA has been speaking to the firms involved, the wider sector and the government to assess the impact on industry and consumers and to determine what action is needed. He encouraged firms to engage with the FCA and consider the impact of the judgment on their products and services.

In relation to complaints regarding discretionary commission agreements in motor finance, the FCA confirmed in September 2025 that it had paused the 8-week deadline that firms have to respond to complaints until December 2025 – see our October 2024 update. The Court of Appeal judgment, however, raises questions in relation to other types of commission. In response to calls from industry for the FCA to expand the pause to cover complaints beyond motor finance commission, Rathi said that the FCA is looking at this carefully and "working at pace" to consider the potential benefits and risks of doing so.

For its part, on 5 November FOS updated its website to note that it is carefully considering the impact of the judgment on its approach to complaints about related issues and that it will publish any updates on its website. The outcome of a judicial review of a FOS ruling on a motor finance commission brought by Clydesdale Financial Services Limited (trading as Barclays Partner Finance) is still awaited.

FCA portfolio letter for lifetime mortgage providers

On 25 October 2024, the FCA published a portfolio letter outlining key concerns and priorities for lifetime mortgage providers (LMPs) in 2025. This includes firms offering lifetime mortgages, home reversion and later life lending products.

LMPs must consider the design and introduction of new products, including "hybrid" style lifetime products, to ensure they meet the target market's needs and provide fair value. The FCA has expressed concern that financially stressed consumers are more likely to purchase unsuitable later life products.

The FCA emphasises the importance for LMPs to cultivate effective culture and effective controls, including leadership and governance that promotes customer-focus, integrity, and balanced oversight. Firms must implement robust risk management frameworks addressing both prudential and conduct risks, while improving customer outcomes.

Priority areas for engagement in 2025:

• Consumer Duty

• financial resilience (for non-dual regulated firms)

• operational resilience

• financial crime and fraud

• sustainable finance.

The FCA emphasises a need for co-operative relationships between firms and regulators. Firms should be open and honest, informing the FCA of anything it would reasonably expect to notice under Principle 11, which applies to both regulated and unregulated activities, including those of group members. The FCA also expects notification of any significant non-compliance with the Consumer Duty, proposed business expansion or restructuring affecting risk profiles or resources, new types of products or services, or proposed cessation or reduction in scope of a regulated activity. This includes the purchase or sale of mortgage books or the legal title transfers.

The FCA will continue assessing senior managers' responsibilities under the senior management and certification regime. The previous portfolio letter was published in June 2022.

FCA portfolio letter for non-bank mortgage lenders

On 25 October 2024, the FCA published a portfolio letter for CEOs of non-bank mortgage lenders (NBMLs) and mortgage third party administrators (MTPAs), outlining key concerns and priorities for 2025.

Firms diversifying funding sources, such as through forward flow arrangements with banks, must engage openly with the FCA and notify new agreements under Principle 11 or SUP15.3.8. 

The FCA will engage NBMLs and MTPAs on their cultures and controls, focusing on the following six priority areas:

• financial resilience

• treatment of customers in financial difficulty

• Consumer Duty

• operational resilience

• financial crime and fraud

• sustainable finance.

The FCA emphasises the importance of a co-operative relationship between firms and regulators. Firms must be open and honest, informing the FCA of any matters it should reasonably expect notice of under Principle 11, which applies to both regulated and unregulated activities, including those of group members. The FCA also expects notification of any significant non-compliance with the Consumer Duty, proposed business expansion or restructuring affecting risk profiles or resources, new types of products or services, or proposed cessation or reduction in scope of a regulated activity. This includes the purchase or sale of mortgage books or the legal title transfers.

The FCA will continue assessing senior managers' responsibilities under the senior management and certification regime. The previous portfolio letter was published in February 2022.

FCA findings from multi-firm review of consumer credit firms and non-bank mortgage lenders 

On 23 October 2024, the FCA published its findings, following a multi-firm review of consumer credit firms and non-bank mortgage lenders (collectively firms) conducted in late 2023 and early 2024. The review assessed financial resilience and potential consumer harm due to weakness in financial resilience. The review covered a variety of business models operating under different prudential regimes and regulatory requirements.

The FCA found that many firms could improve risk governance and management. Notably, firms often fail to identify and monitor risks and financial metrics, limiting their understanding of the key challenges they face.

Key findings include:

• Some firms inadequately identified crucial risks that could affect their business, including external risks such as credit, counterparty, liquidity and funding, operational and market risk.

• Most firms had an underdeveloped approach to identifying, assessing, monitoring and managing risks. Firms' risk management frameworks were not fully developed, and the FCA expects tailored approaches with clear early warning mechanisms.

• There was a lack of adequate wind-down down planning undertaken by firms. The FCA expects firms to consider the scenarios leading to financial stress, explore recovery options and plan for winding down the business in an orderly way.

The FCA grouped its observations into two categories, with examples of good practice and areas for improvement. Firms should assess their own approaches against these findings to enhance their procedures.

The FCA will continue to monitor firms' financial resilience and the risk of harm to consumers as part of its supervisory work.

Third HM Treasury consultation on regulation of BNPL products

On 17 October 2024, HM Treasury published a consultation paper on draft legislation on the regulation of buy-now pay later (BNPL), It seeks views on the legislation bringing BNPL products within the scope of regulation by:

• Removing "regulated deferred payment credit agreements" from the exemption in article 60F(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) (RAO). Credit broking related to these agreements will remain excluded from regulation unless the activity is carried out in a customer's home.

• Disapplying certain Consumer Credit Act 1974 (CCA) information requirements for BNPL agreements. The FCA will develop a bespoke disclosure regime aligned with its Consumer Duty.

• Amending the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529) (FPO) to ensure that financial promotions made by unauthorised persons offering third-party BNPL agreements requires approval from an authorised person.

• Establishing a temporary permissions regime (TPR) that allows unauthorised firms to continue BNPL lending while awaiting full authorisation. 

HM Treasury has also published a draft version of the Financial Services and Markets Act 2000 (Regulated Activities etc) (Amendment) Order 2025, which includes the relevant amendments to the CCA, the RAO and the FPO, as well as the legislative framework for the TPR.

The deadline for responses is 29 November 2024. HM Treasury plans to bring forward legislation as soon as parliamentary time allows. The FCA subsequently consult on detailed rules regarding BNPL disclosure requirements. Firms will be subject to full regulation 12 months after the legislation is made.

The consultation follows previous consultations on BNPL regulation in October 2021 and February 2023 (please see our November 2021 update and article). Annex A of the current consultation contains a summary of responses from February 2023.

FCA portfolio letters set out priorities for retail banks and building societies in 2025

On 25 October 2024, the FCA published portfolio letters for retail banks and building societies, outlining its strategy and key priorities for 2025.

The letters update the FCA's view on the key risks of harm it believes for these portfolios, clarifying its expectations of firms, and details its strategy and programme of work to ensure compliance and effective harm remediation.

The FCA recognises that both portfolios must navigate regulatory change, ensure compliance and deliver good customer outcomes, whilst transforming business models and technology amidst increasing competition.

The strategies and priority areas for 2025 (listed in each letter's Annex) include:

• Consumer Duty: firms must embed this duty to acting in a way that delivers better outcomes for retail customers.

• Treatment of customers in financial difficulty: with ongoing financial pressures, firms must support customers in making informed decisions, acting in their own interests and pursuing their financial objectives.

• Access: as channels and services evolve, it is crucial that customers are not unreasonably or unlawfully excluded from banking services and payment accounts.

• Operational resilience: as banks modernise technology for better efficiency, careful management is essential to avoid risks to resilience and business continuity.

• Financial crime and fraud: firms must continually improve their measures against evolving threats, ensure effective controls and investigate suspicions promptly to avoid denying consumers access to their accounts.

• Sustainable finance: claims made about the sustainability of their products and services must be clear, fair, and not misleading, allowing consumers to make informed decisions. Firms must be able to demonstrate how they are meeting sustainability claims and make any limitations clear.

Reforms to the bank ring-fencing regime

On 14 October 2024, HM Treasury confirmed its plans to implement reforms to the bank ring-fencing regime, including a secondary threshold for investment banking activities, global operational flexibilities for ring-fenced banks (RFBs), investment incentives for RFBs in UK SMEs, reduced compliance burdens, and an increased core deposit threshold from £25 billion to £35 billion. 

The reforms will be implemented as soon as parliamentary time allows.

These reforms reflect recommendations from the final report of the Independent Panel on Ring-fencing and Proprietary Trading led by Sir Keith Skeoch, published in March 2022.

FCA speech on new supervisory strategy for financial advice sector

On 11 October 2024, the FCA published a speech by Nick Hulme, its Head of Department (Advisers, Wealth and Pensions), outlining the three buckets in the FCA's new supervisory strategy for the financial advice sector: reducing and preventing serious harm, testing and monitoring under the four outcomes of the Consumer Duty and continuing work on the Advice Guidance Boundary Review (AGBR).

Key points include:

• Retirement income and advice: the FCA is conducting further supervisory work with firms on retirement income and will shar best practices in H1 2025. An update on ongoing advice will follow soon.

• Polluter pays: the FCA plans to publish a policy statement to its consultation on capital deduction for redress for personal investment firms (CP23/24) by the end of 2024. It wants to ensure that firms (and their appointed representatives) who create liabilities are able to pay them. The accompanying supervisory strategy will focus on identifying non-compliance. and hold to account any firm that seeks to avoid the new framework.

• Consolidation: the FCA expects firms to notify it of acquisitions or changes in control. It also expects buying and selling firms to undertake robust due diligence to ensure good client outcomes are achieved and that there is clear board-level ownership and evidence of this. In addition, firms should undertake robust stress testing of financial projections and hold sufficient financial resources.

• Consumer Duty: Hulme describes the FCA's role as one of "nurture and challenge". "Nurture" involves sharing best practices, while "challenge" means intervening when client outcomes fall short.

• AGBR: Hulme emphasises the importance of closing the advice gap and summarised the three limbs of the AGBR. The FCA will publish consultation papers in 2025, one focusing on pensions and another on retail investments, and urges firms to engage with the review's objectives.

Executive remuneration: Investment Association principles of remuneration for 2025: key share schemes and incentives changes

On 9 October 2024, the Investment Association published its updated principles of remuneration for 2025. The principles have rewritten and restructured to simplify guidance and offer more flexibility for pay structures. The updated principles place greater emphasis on early constructive shareholder engagement and transparency. Key changes include:

• Fewer prescriptive statements on incentives and removal of examples of specific triggers for malus and clawback.

• Removal of the 5% in ten years dilution limit; the 10% in ten years limit remains.

• New guidance on the use of hybrid schemes, involving long and short-term incentives, or performance and restricted share awards.

• Remuneration Levels: the guidance emphasises appropriate pay levels linked to performance, both short- and long-term. Companies must justify material increases and maintain transparency regarding pay rationale and peer benchmarking. Instead of mandating that bonuses over 100% of salary be deferred into shares, companies should align deferral policies with their risk profiles.

• Grant and Vesting Levels: companies are encouraged to evaluate grant levels based on financial performance. Discretionary adjustments to vesting outcomes are allowed, reflecting overall company performance.

• Special Awards: companies should clearly explain the rationale for special awards, ensuring they are proportionate and subject to performance conditions.

• Hybrid Schemes: New guidance on hybrid schemes encourages a combination of performance and restricted share awards. Companies must justify hybrid structures and ensure they follow similar guidance as standalone plans, with a minimum vesting period of five years.

FCA speech on addressing market volatility

On 8 October 2024, the FCA published a speech given by its Chief Executive, Nikhil Rathi, on market volatility. He highlights the sharp rise in volatility and resulting risk in markets in recent years, emphasising the increasing frequency of such incidents. He goes on to provide various reasons for this and states that regulators, and market participants, must expect to face predictable volatility as a constant. Within this, he believes that capital markets have a crucial role to play.

Rathi suggests the following points of action for regulators and market participants:

• Nurturing liquidity: he explains that rules designed for large, global banks with heavier capital burdens often hinder limit smaller firms' ability to contribute liquidity. The FCA is exploring adjustments to encourage wholesale trading and improve market liquidity, potentially reducing barriers to entry for specialised trading firms without deposits.

• Pro-active regulation: a shift is needed from reactive to pro-active regulation, focusing on good outcomes, rather than rules for the sake of it. The FCA aims to foster that supports competition and growth.

• Risk: Rathi calls for a new mindset towards risk. He highlights that UK markets relevance stems from the FCA's openness to reform. The FCA is currently challenging longstanding principles to seize opportunities in an age of predictable volatility.

• Infrastructure Investment in infrastructure and technology is crucial, especially in cybersecurity, as cyber-attacks on firms increase. Alongside protection, innovation is central to growth. Rathi explains that the FCA will utilise existing frameworks to adapt to advancements like AI, embracing progress, without compromising on security or fairness.

• Market engagement: Rathi emphasises the importance of all firms engaging with the root causes of market shocks and managing them effectively.

FCA portfolio letter for financial advisers and intermediaries: October 2024

On 7 October 2024, the FCA published a portfolio letter outlining its supervisory strategy for financial advisers and investment intermediaries. The FCA sets out its priorities, expectations and planned actions.

In addition to prioritising monitoring and testing higher industry standards under the Consumer Duty and enabling more consumers to pursue their financial objectives through the Advice Guidance Boundary Review, the FCA intends to reduce and prevent serious harm to consumers in the market. This priority will focus on the following areas:

• Retirement income advice: the FCA refers to a previous Dear CEO letter, which sets out the actions for firms to take. The FCA is following up on the findings of the thematic review with firms and carrying out further work to explore the scale of any issues identified and tackle any harms. It intends to publish further commentary on the retirement income advice market in Q1 2025.

• Ongoing advice services: the FCA is concerned that firms may not be adequately considering the relevance and costs of these services for all clients and that some clients are being charged for services that are not delivered. Firms should ensure that the service offered is appropriate for clients' circumstances and it provides fair value. Further information on the FCA's work will be provided later in 2024.

• Ensuring the "polluters pays": firms and any appointed representatives they oversee must maintain sufficient financial resources for potential redress liabilities. The FCA will outline its next steps on its capital deduction for redress consultation before the end of 2024.

• Consolidation: the FCA plans to undertake multi-firm work to review consolidation within the market. Where it receives notifications from individuals or firms to acquire or increase control in regulated firms, it will assess and challenge their suitability and the financial soundness of the acquisition. It may use its enforcement powers to object transactions or initiate criminal proceedings, where acquisitions are completed without prior regulatory approval.

Other areas of work that may impact firms include ensuring effective appointed representative oversight, the future disclosure regime for consumer composite investments and ESG priorities.

Firms should review the letter and consider its relevance to them.

Draft Securitisation (Amendment) (No. 2) Regulations 2024 published

On 7 October 2024, HM Treasury published a draft of The Securitisation (Amendment) (No. 2) Regulations 2024 (Amendment (No. 2) Regulations), alongside an explanatory memorandum. The draft will amend The Securitisation Regulations 2024 (the Securitisation Regulations 2024).

The Securitisation Regulations 2024 requires any originator and sponsor involved in a transaction to be established in the UK in order for the transaction to qualify as a simple, transparent and standardised (STS) securitisation which provides preferred prudential treatment for regulated investors. To maintain an adequate pool of STS products for UK regulated investors, the regulations include a temporary "grandfathering" regime allowing any EU securitisations notified to the European Securities and Markets Authority as meeting EU STS criteria before and up to 31 December 2024 to also qualify as UK STS securitisations for the life of the transaction.

The Amendment (No. 2) Regulations extends this arrangement's expiry date from 31 December 2024 to 30 June 2026, providing continuity and certainty for UK investors.

Draft Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024 published

On 7 October 2024, a draft version of the Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024 was published with an explanatory memorandum.

The draft Regulations make transitional amendments to assimilated law repealed by section 1(1) of, and Schedule 1 to, the Financial Services and Markets Act 2023 (FSMA 2023), subject to commencement, relating to packaged retail and insurance-based investment products (PRIIPs). In particular, amendments address cost disclosure requirements for listed closed-ended funds, commonly known as investment trusts.

The amended legislations are:

• Article 2 (Products to which the Regulation does not apply) of the UK PRIIPS Regulation (1286/2014).

• Articles 2 (Definitions), 50 (Information on costs and associated charges) and 51 (Information provided in relation to units in collective investment undertaking or PRIIPs) of Commission Delegated Regulation (EU) 2017/565 (MiFID Org Regulation).

Regulation 2 adds closed-ended investment companies that are UK-listed to the list of products excluded from the UK PRIIPs Regulation and inserts an associated definition. These entities will no longer be subject to the requirements of the UK PRIIPs Regulation. Manufacturers, advisors and sellers of shares in these entities will no longer be required to produce the key information document (KID).

Regulation 3 inserts the definition of a "closed-ended investment company that is UK-listed" into the MiFID Org Regulation. It excludes costs relating to these companies from the requirement to aggregate and disclose costs and charges to clients. As a result, firms investing in these entities are no longer required to aggregate or report, the cost of manufacturing or managing shares in this manner.

The Regulations come into force the day after being made.

FCA updates forbearance statement on investment trust disclosure requirements

On 30 September 2024, the FCA updated its statement on forbearance regarding investment trust disclosure requirements.

The statement, initially published on 19 September 2024, with a statement on reforms to the UK retail disclosure regime. HM Treasury also published a statement (please see our October 2023 update).

The FCA has applied immediate regulatory forbearance to provide certainty for firms ahead of the anticipated exemption of closed-ended UK-listed investment funds from the UK PRIIPs Regulation (1286/2014) and parts of Articles 50 and 51 of the MiFID Org Regulation , expected to be legislated in H2 2024.

The updated statement includes a new section explaining:

• The implication of the forbearance is that it applies throughout the distribution chain to any firm carrying on business relating to these products, including manufacturing, distribution or marketing. Firms must continue to comply with other relevant rules and regulations, including the Consumer Duty and ensuring fair, clear and not misleading communication. Firms must act honestly, fairly and professionally in accordance with client's best interests per COBS 2.1.1R.

• Firms across the distribution chain must consider what approach will deliver good outcomes for their retail clients. If not providing a Key Information Document, (KID), additional product information may be required to help retail investors make effective, timely and informed decision, in line with the requirements under PRIN 2A.5.3R(1).

• Under product governance requirements, manufacturers and distributors must share relevant information about the product to ensure appropriate distribution. Distributor firms and firms preparing communications for retail customers, are also subject to Consumer Duty obligations relating to meeting the information needs of retail customers. In the light of the forbearance statement, the FCA expects firms in the distribution chain for securities issued by investment trusts to collaborate on determining and sharing the necessary information for continued compliance with their obligations towards retail investors, including under the Consumer Duty.

FCA fines individual for failing to disclose tax issues

On 28 October 2024, the FCA issued a final notice to Kristo Käärmann fining him £350,000 for breaching Senior Manager Conduct Rule 4 (SMCR 4) as SMF1 (Chief Executive) and SMF3 (Executive Director) at Wise Assets UK Ltd. SMCR 4 requires individuals to disclose any information that the FCA would reasonably expect to be notified of.

In February 2021, Mr Käärmann paid a significant fine to HMRC of £365,651. He was fined for deliberately failing to notify HMRC of a capital gains tax liability after selling shares worth £10 million in 2017. HMRC subsequently added Mr Käärmann to their public tax defaulters list.

The FCA considered Käärmann's approach to the notification of the tax issues to be careless rather than deliberate or reckless.  The penalty was eligible for a 30% discount (from £500,000) as a result of the FCA's settlement process.

FCA launches target action against finfluencers

On 22 October 2024, the FCA announced it has launched a targeted campaign against finfluencers who may be carrying on illegal activity in respect of financial services products.

The FCA used its criminal powers to interview 20 finfluencers who attended voluntarily and issued 38 alerts against social media accounts operated by finfluencers that may contain unlawful promotions.

The FCA highlighted that young and potentially vulnerable followers often trust finfluencers, with nearly two-thirds of those aged between 18 and 29 following influencers. 74% of those said they trusted their advice and nine in ten altered their financial behaviour based on their recommendations.

Steve Smart, joint Executive Director of Enforcement and Market Oversight, warns finfluencers to verify products they promote to avoid legal breaches that could jeopardise their followers' financial wellbeing.

In May 2024, the FCA brought charges against nine finfluencers over an unauthorised foreign exchange (FX) trading scheme (please see our June 2024 update). Six pleaded not guilty to the alleged offences, whilst the other three are yet to indicate their plea. For more details, see the FCA update here. 

Additionally, the FCA published guidance in March 2024 to clarify expectations for firms and finfluencers regarding financial promotions on social media, helping them comply with regulatory obligations.

FCA fines Volkswagen Financial for treatment of customers in financial difficulty

On 21 October 2024, the FCA published the final notice it has issued to Volkswagen Financial Services (UK) Ltd, fining it £5,397,600 for failing to treat its customers in financial difficulty fairly.

Between January 2017 and July 2023, Volkswagen breached Principles 6,7,3 of the Principles for Business by failing to consider customer interest adequately, treat them fairly, communicate information clearly, and organise its affairs responsibly and effectively them in a way that was clear, fair and not misleading. It also failed to take reasonable care to organise and control its affairs responsibly and effectively. Additionally, Volkswagen breached CONC 7.2.1R, 7.3.4R, 7.3.9R, 7.3.14R(1) for failing to show forbearance and DISP 1.3.1R by mishandling complaints. Failures included:

• Vulnerable customers: Volkswagen failed to adequately assess customers' vulnerabilities or provide tailored support.

• Forbearance and due considerations: there was insufficient probing into individual circumstances to identify appropriate forbearance options, and limited use of affordability assessments when agreeing to alternative payment arrangements.

• Termination and possession: customers in financial difficulty faced agreement terminations and car repossessions without Volkswagen assessing their situations or offering suitable forbearance.

• Customer communication: Volkswagen failure to appropriately engage with customer's financial difficulties was compounded by the main communication being templated communications.

Additionally, Volkswagen failures to implement arrears and vulnerability policies and procedures, exacerbating these issues. The FCA deemed these failings serious dye to significant consumer loss and it revealed systemic weaknesses Volkswagen's policies and procedures. These failings were identified during the FCA's supervisory assessment of lender support for borrowers in difficulty.

FCA final notice refusing firm's authorisation application on threshold condition grounds

On 3 October 2024, the FCA issued a final notice refusing to Ashraf Wealth Management Ltd (AWML) refusing its application for authorisation.

The FCA's decision, initially issued in March 2023 setting out its reasons for refusing the application. It was concerned that AWML would not be able to satisfy, and maintain the threshold conditions of appropriate resources and suitability (threshold conditions 2D and 2E) under section 55B(3) of FSMA.

AWML referred the decision notice to the Upper Tribunal (Tax and Chancery Chamber), which dismissed the reference and upheld FCA's decision. The tribunal published its decision in September 2024.

FCA commences criminal proceedings against two individuals for insider dealing

On 3 October 2024, the FCA published a press release announcing that it has commenced criminal proceedings against two individuals for insider dealing between 2016 and 2020.

They were jointly charged with conspiracy to deal in four stocks while being in the possession of inside information.

One of the individuals (A) has also been charged with insider dealing in relation to two stocks and with disclosing to and encouraging the other individual (B) to deal in two stocks. B has been charged with dealing in those same two stocks based on that inside information.

The individuals made a profit of approximately £110,000 and will appear at Southwark Crown Court on 31 October 2024.

FCA fines Starling Bank for financial sanctions failings

On 2 October 2024, the FCA issued a final notice to Starling Bank Ltd for financial crime systems and control failings related to its financial sanctions screening. A fine of nearly £29 million was imposed for breach of Principle 3 of the FCA’s Principles for Businesses, following a 30% (stage 1) discount.

The FCA identified the following failures:

• Inadequate systems and controls to mitigate financial crime risks.

• Repeated breach of not opening accounts for high-risk customers.

Starling's customer base grew from approximately 43,000 in 2017 to 3.6 million in 2023. However, its financial crime measures did not keep up with this growth. Following FCA concerns in 2021 regarding Starling's AML and sanctions framework, Starling initiated an AML enhancement plan and agreed to a voluntary requirement (VERQ) to refrain from opening new accounts for high-risk customers. However, from September 2021 to November 2023, Starling opened 54,359 accounts for high or higher-risk customers, contrary to the VERQ terms.

In January 2023, Starling discovered that its automated screening system had only been screening a small portion of the financial sanctions list since 2017. It took immediate corrective action; an internal review revealed broader systemic issues. Starling subsequently reported multiple potential sanctions breaches to authorities.

By the end of the review period, Starling had improved its compliance measures, including effective control assurance and third-party testing of its sanctions screening systems. The bank also conducted a remediation exercise for previously opened accounts and enhanced its financial crime compliance resources.

FCA v BlueCrest judgment published (Court of Appeal)

On 2 October 2024, the Court of Appeal delivered its judgment in Financial Conduct Authority v BlueCrest Capital Management (UK) LLP [2024] EWCA Civ 1125, allowing the FCA's appeal and dismissing BlueCrest's cross-appeal.

The FCA welcomed the judgment, stating that, pending any further appeals, the case will now proceed to a full hearing before the Upper Tribunal (Tax and Chancery Chamber).

Guidance on information sharing in ECCTA 2023 published

On 4 October 2024, the Home Office, HM Treasury, Ministry of Justice, Companies House,  Serious Fraud Office and Department for Business and Trade published guidance on information sharing measures in the Economic Crime and Corporate Transparency Act 2023 (ECCTA) to support anti-money laundering regulated firms, within Schedule 9 to the Proceeds of Crime Act 2002, to utilise the new information sharing provisions introduced by ECCTA.

These provisions came into force on 15 January 2024.

These voluntary measures provide clarity and assurance to regulated firms that share relevant customer information, directly or via third-party intermediaries.

The guidance covers: policy intent for the measures, how regulated firms can ensure that they are protected by the provisions when undertaking direct and indirect sharing, handling conditions for sharing and receiving information and undertaking law enforcement reporting, UK GDPR compliance and maintaining effective customer complaint processes.

The guidance advises regulated firms, statutory and non-statutory PBSs, and trade bodies to consider the overarching principles in the guidance to develop a consistent approach to sharing within their sectors.

JMLSG finalises revisions to Part II of AML and CTF guidance on wholesale markets

On 30 September 2024, the Joint Money Laundering Steering Group (JMLSG) published a revised version of chapter 18 (wholesale markets) in Part II of its anti-money laundering (AML) and counter-terrorist financing (CTF) guidance for the financial services sector, alongside a press release.

Changes include:

• A new sub-section on authorised personnel acting on behalf of customers in customer due diligence.

• A new section on wholesale subscription finance in private capital funds.

The revised guidance is awaiting approval from HM Treasury. The JMLSG consulted on these revisions in April 2024 (please see our May 2024 update).

The answer to last month's question: Specific Direction 20 requires in scope payment services providers participating in the Faster Payments Scheme (FPS) to comply with reimbursement rules in relation to FPS APP scams from 7 October 2024.

This month's question: approximately how many firms has the FCA supported through its Innovation Services since its inception ten years ago?

• 1500

• 1000

• 750

• 500.