May Regulatory Update

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FCA publishes final report in relation to RBS GRG

The Financial Conduct Authority (FCA) has today published the final report on its investigation into Royal Bank of Scotland’s (RBS) treatment of small and medium-sized enterprise (SME) customers transferred to its Global Restructuring Group (GRG).

While admitting it “clearly fell short of the standards its customers expected”, action against managers was not possible as it was largely unregulated.
The FCA said it “found no evidence that RBS artificially distressed and transferred otherwise viable SME businesses to GRG to profit from their restructuring or insolvency” and added that regulation changes since the scandal should help ensure action is enforceable in future.

FCA publishes final rules on Buy Now Pay Later products

The Financial Conduct Authority (FCA) confirmed it will introduce new rules in the Buy Now Pay Later (BNPL) market, saving consumers around £40-60 million a year. The changes, which include banning firms from charging backdated interest on money that has been repaid by the consumer during the BNPL offer period, will be in force by 12 November 2019.

Commission adopts Communication taking stock of preparations for a no-deal Brexit

On 12 June 2019, the European Commission adopted a communication on the state of play of preparations of contingency measures for a no-deal Brexit. This is the fifth Communication on no-deal preparations from the Commission since it started planning in December 2017.

The communication sets out selected areas in which vigilance is needed in the coming months to assist in preparing for the risk of a no deal Brexit. The Commission encourages stakeholders to take advantage of the extra time until 31 October 2019 to ensure that they have taken all the necessary action to prepare for this possible eventuality.

The communication also notes that the Commission does not plan any new measures ahead of exit day.

FCA to regulate pre-paid funeral plans

The Treasury recently announced proposals to regulate pre-paid funeral plan providers under the Financial Conduct Authority (FCA), amid evidence of poor conduct, misleading sales tactics and consumer detriment. At the moment, most of the funeral plan sector is regulated by the Funeral Planning Authority (FPA), but firms can choose not to sign up to its code of practice. The funeral plan market has seen extensive growth in recent years, with sales increasing 200% between 2006 and 2018.

Under the plans, the FCA would regulate funeral plan providers and any intermediaries they use to promote or sell funeral plans – for example, cold calling centres or lead generation websites – but wouldn’t regulate the funeral directors themselves.

The Government’s consultation on the proposals will be open until 25 August.

FCA introduces new rules for P2P platforms

The Financial Conduct Authority (FCA) is introducing rules designed to prevent harm to investors, without stifling innovation in the peer-to-peer (P2P) sector, following a consultation paper on October 2018.

The FCA are introducing a package of rules and guidance to improve standards in the sector.  In summary, the policy statement (PS19/14) confirms that the FCA are:

  • Introducing more explicit requirements to clarify what governance arrangements and systems and controls platforms need to have in place to support the outcomes they advertise.
  • Strengthening rules on plans for the wind-down of P2P platforms.
  • Applying marketing restrictions to P2P platforms, designed to protect new or less-experienced investors.
  • Introducing a requirement that an appropriateness assessment (to assess an investor’s knowledge and experience of P2P investments) be undertaken, where no advice has been given to the investor.
  • Setting out the minimum information that P2P platforms need to provide to investors.
  • Applying the Mortgage and Home Finance Conduct of Business sourcebook (MCOB) and other Handbook requirements to P2P platforms that offer home finance products, where at least one of the investors is not an authorised home finance provider.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “These changes are about enhancing protection for investors while allowing them to take up innovative investment opportunities.”

The move, which comes after Lendy went to administration, had been widely anticipated after the FCA issued stark warnings back in April that investors often don’t know what they’re really putting their money into.

Crypto-assets: Work underway, regulatory approaches and potential gaps

The Financial Stability Board (FSB) has published a report on crypto assets, focusing on work underway, regulatory approaches and potential gaps, warning that regulators are taking a divergent approach.

The FSB expressed concerns that gaps may arise in cases where such assets are outside the perimeter of market regulators and payment system oversight. To some extent, this may reflect the nature of crypto assets, which have been designed to function outside established regulatory frameworks. The FSB continues to assess that crypto assets do not pose material risks to global financial stability at present, but that they do raise a number of further policy issues beyond financial stability.

IOSCO: Emerging market regulators issue recommendations related to sustainable finance 

The International Organisation of Securities Commissions (IOSCO) published the report Sustainable finance in emerging markets and the role of securities regulators, which provides 10 recommendations for emerging market member jurisdictions to consider when issuing regulations or guidance regarding sustainable financial instruments. Among other things, the recommendations include requirements for reporting and disclosure of material Environmental, Social and Governance (ESG) specific risks, aimed at enhancing transparency.

The report explores the trends and challenges that influence the development of sustainable finance in emerging capital markets. It also provides an overview of the initiatives that regulators, stock exchanges, policy makers and others key stakeholders in emerging markets have undertaken in this area. The report identifies the pre-requisites for creating an ecosystem that facilitates sustainable finance, such as an appropriate regulatory framework and fit-for-purpose market infrastructure, reporting and disclosure requirements, governance and investor protection guidelines and mechanisms to address needs and requirements of institutional investors.

FCA confirms biggest shake-up to the overdraft market for a generation

The Financial Conduct Authority (FCA) has confirmed it is introducing reforms to fix a dysfunctional overdraft market. These changes will make overdrafts simpler, fairer, and easier to manage and will protect the millions of consumers that use overdrafts, particularly more vulnerable consumers. The changes represent the biggest overhaul to the overdraft market for a generation.

In 2017, firms made over £2.4bn from overdrafts alone, with around 30% from unarranged overdrafts. More than 50% of banks’ unarranged overdraft fees came from just 1.5% of customers in 2016.  People living in deprived areas are more likely to be impacted by these fees. In some cases, unarranged overdraft fees can be more than ten times as high as fees for payday loans.

The FCA has introduced a number of remedies that will make overdrafts fairer, simpler and easier to manage. The FCA are simplifying and standardising the way banks charge for overdrafts and following the changes they expect the typical cost of borrowing £100 through an unarranged overdraft to drop from £5 a day to less than 20 pence a day.

Over £27 million reported lost to crypto and forex investment scams

The Financial Conduct Authority (FCA) and Action Fraud are warning the public to be wary of investment scams carried out via bogus online trading platforms. This warning comes as cryptoassests (crypto) and forex investment scams reports more than tripled last year to over 1,800. Fraudsters promise high returns from investments in crypto and forex, with victims losing over £27 million in total in 2018/19.

Director of Action Fraud, Pauline Smith, said:

‘These figures are startling and provide a stark warning that people need to be wary of fake investments on online trading platforms. It’s vital that people carry out the necessary checks to ensure that an investment they’re considering is legitimate.

‘Action Fraud is pleased to be partnering with the FCA to raise awareness of online trading scams, and we hope it will help prevent more people falling victim. Remember, if you think you have been a victim, contact Action Fraud.’