October Regulatory Update

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Financial Services Duty of Care Bill 2019-2020

On the 29th October, the Financial Services Duty of Care Bill 2019-20 had its first reading in the House of Lords. If the Bill becomes law, it will amend FSMA 2000 to require the FCA to introduce rules to impose a duty of care owed by authorised persons to consumers when carrying out regulated activities under FSMA.

A date for the Bill’s second reading in the House of Lords has yet to be scheduled.


Brexit: Regulatory Technical Standards for strong customer authentication and common and secure open standards of communication

The FCA has published a Policy Statement (PS19/26) containing the regulatory technical standards (RTS) that will apply in the UK in the event of a no-deal Brexit in relation to strong customer authentication (SCA) and common and secure open standards of communication under the revised Payment Services Directive (PSD2). These RTS are substantially the same as the EU RTS under PSD2. The FCA notes that payment services providers (PSPs) will be required to comply with the provisions of the UK-RTS in the event of a no-deal Brexit. The FCA’s correspondence regarding an adjustment period for compliance with the EU RTS should be treated as applying to the UK-RTS.

FCA Policy Statement PS19/26 – Brexit: Regulatory Technical Standards for strong customer authentication and common and secure open standards of communication


FCA publishes statement on impact of Brexit delay on firms

The FCA published a statement on the 30th October outlining the consequences and impacts for firms of the agreement between the UK and the EU to extend the period under Article 50(3) of the Treaty on the European Union (TEU) to 31 January 2020. The FCA states that:

  • firms no longer need to take action to implement Brexit contingency plans for 31 October 2019;
  • it is extending the deadline for firms and funds to submit notifications to enter the temporary permissions regime (TPR) to 30 January 2020 (see also the item below). Fund managers will have until 15 January 2020 to inform the FCA of any changes to their existing notification; and
  • firms should continue to comply with existing regulatory requirements, including those relating to MiFID transaction reporting and EMIR trade reporting. The FCA has suspended the reporting arrangements outlined in its press release of 11 October 2019.


Changes to mortgage responsible lending rules and guidance

The FCA has published a Policy Statement (PS19/27) setting out changes to its responsible mortgage lending rules in the Mortgages and Home Finance Conduct of Business sourcebook (MCOB) and Supervision manual (SUP) parts of its Handbook. This follows a consultation paper published in March 2019 as part of the Mortgages Market Study, in which the FCA proposed to reduce regulatory barriers faced by so-called “mortgage prisoners”. The new policy statement confirms that the FCA will proceed with its proposed amendments largely as consulted on, including allowing mortgage lenders to carry out a modified affordability assessment for consumers looking to switch to a new mortgage deal on their current property, subject to conditions. In addition to its original proposals, the FCA:

  • will allow eligible consumers to borrow more to finance an intermediary fee, as well as a product or arrangement fee;
  • has simplified the definition of a “more affordable” mortgage; and
  • will require inactive lenders and administrators of unregulated entities to develop and implement a communication strategy for contacting relevant consumers

The changes outlined in PS19/27 enter into force immediately.

FCA Policy Statement PS19/27: Changes to mortgage responsible lending rules and guidance


FATF publishes consultation on draft guidance

The Financial Action Task Force (FATF) has published for consultation draft guidance on the use of digital identity systems for customer due diligence (CDD). The guidance intends to help governments, regulated entities and other relevant stakeholders apply a risk-based approach to the use of digital identity systems for certain CDD elements under FATF Recommendation 10. The consultation document covers several areas, including: (i) how digital ID systems work; (ii) the FATF requirements for customer identification and ongoing due diligence; (iii) the development of assurance frameworks and technical standards for digital ID systems; (iv) how relevant bodies can apply a risk-based approach to using digital ID systems in accordance with FATF Recommendation 10; and (v) the benefits and risks of using digital ID systems.

The consultation period closes on 29 November 2019. FATF invites banks, virtual asset service providers and other regulated entities to comment on the draft guidance and it intends to take into account feedback received to the consultation when finalising the text of the guidance.

FATF draft guidance on digital ID systems for CDD


FCA on Regulation in a changing world

Christopher Woolard, Executive Director of Strategy and Competition at the FCA, has delivered a speech addressing the FCA’s future approach to regulation. Following periods of regulatory change driven by post-crisis regulation, changes in consumer needs, technological innovation, and Brexit, Mr Woolard states that the FCA intends to issue an open invitation for public engagement and consultation on the FCA’s future approach to regulation and whether the FCA’s regulatory model is still appropriate and effective. This will include consultation on the imposition of a duty of care on FCA-regulated firms.

He advocates a new approach where rules are designed to fit the end-purpose they serve – termed “outcomes-based regulation” – placing simplicity, clarity, and real-world effectiveness at the centre of the FCA’s focus.

The FCA plans to publish several detailed papers including an analysis of future market dynamics, a Discussion Paper reviewing the FCA’s Principles for Businesses, and a Consultation Paper on implementing a duty of care for FCA-regulated firms. The responses to the FCA’s consultative documents and analysis are intended to direct the FCA’s future regulatory approach.

Speech by Christopher Woolard (Executive Director of Strategy and Competition at the FCA) on the FCA’s future approach to regulation


FSB publishes report on regulatory issues

The Financial Stability Board (FSB) has published a report on the regulatory issues associated with the development of stablecoins. The report, delivered to the G20 Finance Ministers and Central Bank Governors, responds to the G20 Osaka Declaration which noted that cryptoassets do not pose a material risk to financial stability but emphasised the importance of monitoring the development of cryptoassets and remaining vigilant to emerging regulatory risks. The FSB report suggests that stablecoins could become a source of systemic risk, while noting that the emergence of global stablecoins that could be used for cross-border payments and remittances by a large number of users in different countries could provide benefits to the financial system and the broader economy. Therefore the FSB intends to:

  • evaluate existing supervisory and regulatory approaches to cryptoassets and stablecoins, focusing on cross-border issues and taking into account the perspectives of emerging markets and developing economies;
  • consider whether existing approaches adequately and effectively address the financial stability and systemic risks which may arise from the development of stablecoins or cryptoassets intended for domestic and retail use; and
  • advise on the possible multilateral responses, including developing approaches to address such risks at the global level.


The FSB intends to submit a consultative report to the G20 Finance Ministers and Central Bank Governors in April 2020, followed by a final report in July 2020.

FSB report on the regulatory issues associated with stablecoins


AML/CTF controls in overseas jurisdictions – FATF publishes list of strategically deficient jurisdictions

Following its plenary meeting of 16-18 October 2019, the FATF has published a statement identifying jurisdictions with strategic AML and CTF deficiencies, for which they have identified an action plan to strengthen the effectiveness of their AML and CTF frameworks. The FATF has also announced that Ethiopia, Sri Lanka and Tunisia are no longer subject to the FATF’s ongoing AML and CTF monitoring process. The FATF statement also illustrates its concerns regarding the significant and serious deficiencies identified in the Democratic People’s Republic of Korea and Iran’s AML and CTF frameworks.

FATF AML and CTF compliance: Ongoing process


FCA publishes latest data on complaints

The FCA has published its latest complaints data covering the period from December 2018 to July 2019. The data shows an increase in complaints from 3.91 million to 4.29 million. There was a 34% increase in PPI complaints and a 6% reduction in non-PPI complaints.

Press release: FCA publishes complaints figures for H1 2019


ECB publishes results of its sensitivity analysis of liquidity risk

The ECB has published the final results of its sensitivity analysis of liquidity risk, which assessed the ability of ECB-supervised banks to handle idiosyncratic liquidity shocks. This analysis constituted the ECB’s supervisory stress test of 2019 under Article 100 of the Capital Requirements Directive.

The report highlights that, overall, ECB-supervised banks have comfortable liquidity positions with half of the 103 participating banks reporting a survival period (the number of days a bank can continue to operate using available cash and collateral without accessing funding markets) of more than six months. However, the ECB identified a number of vulnerabilities, including that:

  • survival periods calculated on the basis of cash flows in foreign currencies are often shorter than those reported at the consolidated level;
  • on a stand-alone basis, subsidiaries of euro area banks domiciled outside the euro area typically display shorter survival periods than those within the euro area;
  • banks may underestimate the negative impact on liquidity that could result from a credit rating downgrade; and
  • collateral management practices in a number of banks could be improved.

The ECB intends to discuss the results with banks as part of its annual review and evaluation process (SREP) and use the results to inform the assessment of banks’ governance and liquidity risk management.

ECB report: Sensitivity analysis of liquidity risk – Stress test 2019


FCA Market Study on General insurance pricing practices

The FCA has published a report setting out its interim findings, provisional remedies and next steps in relation to its market study into general insurance pricing practices. The study considers whether pricing practices in the home and motor insurance markets support effective competition and lead to good consumer outcomes. The FCA study identifies several areas in which pricing practices within these markets are not working well for consumers, including that:

  • insurers often sell policies at a discount to new customers and increase premiums when customers renew, targeting increases at those less likely to switch;
  • longstanding customers pay more on average, but even some people who switch pay higher prices;
  • one in three consumers who pay high premiums show at least one characteristic of vulnerability, such as having lower financial capability, and lower income consumers may pay higher margins than those with higher incomes;
  • firms engage in a range of practices to raise barriers to switching; and
  • many consumers who switch or negotiate their premium can obtain a good deal.

The FCA states that it has already taken a number of steps to address the issues identified, including its 2017 rules aimed at improving the transparency of general insurance pricing practices, and will continue to ensure that firms improve the oversight of their pricing policies. It also sets out a number of proposed remedies in relation to these issues, including: (i) banning or restricting pricing practices which increase premiums for consumers who frequently renew their policies; (ii) restricting the way in which firms use automatic renewal mechanisms; and (iii) improving the information which firms are required to provide to consumers to ensure they deal with their customers transparently.

The deadline for comments on the FCA’s interim report is 15 November 2019. The FCA intends to publish its final report and consultation on remedies in Q1 2020.

Interim report on FCA Market Study MS18/1: General insurance pricing practices