June Regulatory Update
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Financial Ombudsman Service publishes 2019/20 complaints data and future strategy
Following the FOS’s consultation on it’s future strategy (published Dec 2019) it has published it’s 2019/20 annual complaints data alongside its future strategy looking ahead to 2025 and beyond. The 2019/20 annual complaints data shows that the FOS received over 270,000 new complaints relating to financial businesses, a decrease from an estimated 388,000 complaints received in 2018/19.
The FOS’s future strategy has set out three strategic priorities;
- enhancing services offered
- preventing complaints and unfairness arising
- building an organisation with the capabilities it needs for the future
Taking us to 2025: Our strategy
Principles on Outsourcing – IOSCO publishes consultation
IOSCO has developed a common set of outsourcing principles. These principles are based on the earlier 2005 Outsourcing Principles for Market Intermediaries and the 2009 Outsourcing Principles for Markets, but their application is expanded to trading venues, market intermediaries, market participants acting on a proprietary basis, credit rating agencies and financial market infrastructures. The revised outsourcing principles comprise a set of fundamental precepts and seven principles. The fundamental precepts cover issues such as the definition of outsourcing, the assessment of materiality and criticality, affiliates, sub-contracting and outsourcing on a cross-border basis.
The seven principles are;
- due diligence in the selection and monitoring of a service provider
- the contract with a service provider
- information security, business resilience, continuity and disaster recovery
- confidentiality issues
- concentration of outsourcing arrangements
- access to data, premises, personnel and associated rights of inspection
- termination of outsourcing arrangements
It also proposes to expand the application of the principles from regulated entities to trading venues, market participants acting on a proprietary basis, credit rating agencies (CRAs) and financial market infrastructures (FMIs). The consultation period closes 1 October 2020. Due to the disruption caused by COVID-19, an extended consultation period has been allowed.
IOSCO Principles on Outsourcing Consultation Report
Outsourcing – ESMA publishes consultation on draft Guidelines on cloud service providers
On June 3 2020, ESMA published for consultation draft Guidelines on outsourcing to cloud service providers, providing guidance on the outsourcing requirements applicable to financial market participants when outsourcing to cloud service providers and aims to help firms and competent authorities identify, address and monitor the risks and challenges that arise from cloud outsourcing arrangements. Covered in the draft guidelines are;
- governance, documentation, oversight and monitoring mechanisms that firms should have in place
- due diligence requirements prior to outsourcing
- minimum elements that outsourcing arrangements should include
- exit strategies and audit rights; and (v) notification and supervision requirements
ESMA consultation on draft guidelines on cloud service providers
FCA Policy Statement PS20/5 – Extending the Senior Managers Regime to benchmark administrators
On 2 June 2020, the FCA published Policy Statement 20/5: Extending the Senior Managers Regime to benchmark administrators: final rules (PS20/5). The FCA sets out its final rules and guidance for extending the Senior Managers Regime (SMR) and conduct rules to benchmark administrators.
The FCA is not applying the certification regime to benchmark administrators that do not undertake any other regulated activities as the provisions in the Benchmarks Regulation, including Article 4 which outlines governance and conflict of interest requirements, should ensure a similar outcome. The FCA will not require non-certification staff that would otherwise be captured to be included in the directory.
Only benchmark administrators that are authorised in the UK will be required to comply with the SMR, therefore, third country benchmark administrators and their UK-based legal representatives will not be required to implement the regime.
The SMR will come into force for benchmark administrators that do not undertake any other regulated activities on 7 December 2020. Administrators should ensure they have the right individuals in the right controlled functions to support the conversion from the approved persons regime (APR). They should ensure they have implemented the regime, including training relevant employees in the conduct rules, and preparing statements of responsibilities for Senior Managers. The FCA will continue to process applications for controlled functions under the APR until the commencement date.
FCA publishes update on High Court BI insurance test case
The FCA has published an update on the progress made ahead of its High Court test case, which seeks a declaratory judgment about the meaning and effect of several business interruption (BI) insurance policy wordings in order to help resolve key contractual uncertainties concerning the validity of BI insurance claims in light of COVID-19.
They have identified a sample of 17 policy wordings that capture the majority of the key issues that could be in dispute. Having reviewed over 500 relevant policies from 40 insurers, the FCA has identified 16 insurance firms using at least one of the representative sample policy wordings. The FCA warns that policyholders should not assume that the inclusion of their policy wording will mean their policies are valid. Rather the FCA explains that it is seeking a judgment that will help clarify which BI policies are valid and those which are not.
The policy wordings and the insurers using them can be found here.
FCA publishes guidance on product value for insurance firms
The FCA has published guidance which is intended to highlight what they consider firms should be doing now to identify any material issues from coronavirus that affect the value of their products, and their ability to deliver good customer outcomes.
Among other things, the guidance states that:
- firms that manufacture or provide products should consider whether and how COVID-19 may have materially affected the value of their insurance products;
- where firms identify circumstances that could materially affect the value of the product, they should take appropriate action, which may include reducing premiums for the duration of the change in value, or issuing partial refunds of premiums already paid; and
- where firms provide refunds or partial refunds to customers at a product level as a result of COVID-19, which do not involve changes to the policy itself, it is unlikely that firms would need to treat this as a mid-term adjustment for the purposes of the renewal disclosure rules set out in the Insurance Conduct of Business sourcebook (ICOBS).
FCA Product value and coronavirus: guidance for insurance firms
AML and CTF – JMLSG publishes revised guidance
The Joint Money Laundering Steering Group (JMLSG) has published revised versions of Parts I, II and III of its guidance on the prevention of money laundering and the financing of terrorism in the UK financial services industry following the JMLSG’s consultation on proposed revisions to its guidance in February 2020.
The revisions include amendments to;
- Chapters 4, 5, 7, 8 and the Glossary in Part I of the guidance
- Sector 3 (Electronic Money) in Part II of the guidance
- Chapter 3 (Equivalent markets) in Part III of its guidance, to reflect changes introduced by the Money Laundering and Terrorist Financing (Amendment) Regulations 2019, which came into force on 10th January 2020.
JMLSG part I – Prevention of money laundering/ combating terrorist financing – Revised
JMLSG part II – Prevention of money laundering/ combating terrorist financing – Revised
JMLSG part III – Prevention of money laundering/ combating terrorist financing – Revised
FCA publishes it’s Quarterly Consultation Paper (CP20/7)
The FCA has published it’s Quarterly Consultation Paper containing proposed miscellaneous amendments to the FCA Handbook to reflect aspects of the Corporate Insolvency and Governance Bill and the Bounce Back Loan Scheme (BBLS).
The proposed amendments include;
- Chapter 2 – Rule clarification to confirm the ability of the FSCS to declare in default firms and successors subject to the proposed new moratorium under the Insolvency Act 1986
- Chapter 3 – Bounce Back Loan Scheme-consequential amendments to CONC 7
- Chapter 4 – Changes to the OPBAS Sourcebook for Professional Body Anit-Money Laundering Supervisors
FCA Quarterly Consultation No28
FCA publish Finalised Guidance FG20/1: Assessing adequate financial resources
Following it’s consultation on this guidance in June 2019, the FCA has published its Finalised Guidance (FG20/1) on a framework to help financial services firms ensure they have adequate financial resources.
The guidance covers;
- The purpose of adequate financial resources and the FCA’s approach
- What the FCA looks for from all firms
- FCA’s expectations of firms to reduce potential to cause harm
FCA publishes Primary Market Bulletin Issue no. 29
On 9 June 2020, the FCA has published Primary Market Bulletin which, among other things, this edition sets out the FCA’s best practice note on identifying, controlling and disclosing inside information under the Market Abuse Regulation (596/2014/EU) (MAR)
FCA Primary Market Bulletin Issue no 29
ESMA publishes Guidelines on the compliance function
ESMA has published Guidelines on certain aspects of the compliance function requirements under Article 16(2) of MiFID II and Article 22 of Delegated Regulation (EU) 2017/565 (MiFID II Delegated Regulation). They replace ESMA’s existing Guidelines on MiFID compliance function requirements, published in July 2012.
The guidelines will be addressed to;
- investment firms and credit institutions providing investment services and activities
- investment firms and credit institutions selling or advising clients in relation to structured deposits
- UCITS management companies and AIFMs when providing investment services and activities in accordance with the UCITS Directive and the AIFMD respectively
ESMA Guidelines on the compliance function
ESMA publishes revised 2020 work programme
ESMA has published a revised version of its 2020 supervision work programme, alongside its 2019 annual report, in light of the disruption caused by COVID-19.
It outlines several key priorities;
- ensuring correct application of the framework for secondary markets under MiFID II and MiFIR
- ensuring the consistent interpretation, supervision and enforcement of rules by NCAs
- monitoring market developments to drive its convergence initiatives for financial innovation, including in relation to the regulation and supervision of crypto-assets, cyber security and cyber resilience
- continuing to ensure that NCAs adopt a coordinated response to the impact of COVID-19 on financial markets, including in relation to short selling, transparency and reporting obligations
ESMA Revised Work Programme 2020
FCA updates webpage on reporting market abuse
The FCA has updated its webpage on how firms and trading venues can report suspected market abuse under the Market Abuse Regulation (596/2014/EU) (MAR) to the FCA. It has also published a new webpage with instructions on how an individual can report suspected market abuse to the FCA.
How firms and trading venues can report market abuse
How individuals can report market abuse
FCA publishes consultation paper on high risk investments:Marketing speculative illiquid securities (including speculative mini-bonds) to retail investors
The FCA has published a consultation paper (CP20/8) proposing to make permanent it’s temporary rules on marketing certain high-risk investments, in order to prevent harm to consumers from investing in complex, higher-risk products that they do not understand and are not suitable for them.
The consultation period closes on 1 October 2020 and the FCA plans to publish a Policy Statement containing final rules before the end of 2020, with the final rules to come into effect from 1 January 2020.
FCA publishes finalised guidance for firms in light of High Court BI insurance test case
The FCA has published a Feedback Statement (FS20/8) alongside its finalised guidance on it’s expectations for insurers and insurance intermediaries when handling claims and complaints relating to COVID-19 and business interruption (BI) insurance policies during the test case.
Among others, the finalised guidance includes changes or additions in light of feedback to:
- Clarify that the scope of the guidance is restricted to relevant non-damage business interruption policies.
- Confirm that the guidance has the same scope as the rules it gives guidance on
- Make clear within the guidance that coverage issues relating to clauses that have an exhaustive list of notifiable diseases which does not include Covid-19 or to clauses which require the disease to be present on the insured premises are not included in the test case.
- Provide more details and clarity on our expectations of how firms should handle claims and complaints during the period when the test case is ongoing and the parameters around their actions.
The updated guidance comes into effect immediately. The FCA intends to review the guidance in the light of the progress of the test case and, in any event, within six months, to assess whether it is still needed.
FCA announces new regulatory data collection platform
The FCA has announced further information on its new regulatory data collection platform, called RegData, to replace its existing platform Gabriel.
In advance of their moving date, the FCA is asking firms to ensure that Gabriel contains:
- up-to-date contact details
- the correct principal user and assigned administrator rights
- accurate information about all other active users, with any non-active users disabled.
Firms should continue to use Gabriel, using their existing Gabriel login details, until their firm has been moved to the new platform.
FCA publishes statement on the planned amendments to the Benchmark Regulation
The FCA has welcomed the Government’s announcement that it intends to bring forward legislation to amend the Benchmarks Regulation (BMR) to give the FCA enhanced powers. These could help manage and direct an orderly wind-down of critical benchmarks such as LIBOR, and, in particular, help deal with the problem identified by the Sterling Risk Free Rate Working Group of ‘tough legacy’ contracts that cannot transition from LIBOR.
HM Treasury updates policy statement on prudential standards and FCA publishes Discussion Paper on UK prudential regime for investment firms
HM Treasury has published an updated version of it’s policy statement on the prudential standards contained in the forthcoming Financial Services Bill.
The updated policy statement explains HM Treasury’s legislative approach to the implementation of prudential standards, including the introduction of a delegation and accountability framework for the UK regulators. It indicates that HM Treasury, the PRA and the FCA intend to introduce the IFPR and updated rules for credit institutions so that they achieve similar intended outcomes as those in the relevant EU legislation.
The FCA has also published a discussion paper (DP20/2) on the government’s proposals to introduce the IFPR after Brexit for UK investment firms who are currently authorised under MiFID II. It sets out the details of, and the FCA’s initial views on, the EU regime introduced by the IFD and IFR and seeks industry feedback on the design of the UK regime.
The deadline for comments is 25 September 2020.
Updated HM Treasury Policy Statement on prudential standards in the Financial Services Bill
FCA Discussion Paper on introducing a new UK prudential regime for MiFID investment firms
FCA publishes draft updated temporary guidance for consumer credit customers
The FCA has published draft updated temporary guidance for consumer credit customers in light of the economic impact caused by the COVID-19 pandemic. The draft guidance relates to credit cards, overdrafts and personal loans and updates the final guidance and temporary financial relief measures published by the FCA on 9 April 2020.
The proposals outline the support firms would be expected to provide credit card and other revolving credit and personal loan customers coming to an end of a payment freeze, as well as those who are yet to request one.
FCA draft updated temporary guidance for firms in relation to credit cards in light of COVID-19
FCA draft updated temporary guidance for firms in relation to overdrafts in light of COVID-19
FCA draft updated temporary guidance for firms in relation to personal loans in light of COVID-19
AI and machine learning – IOSCO consults on guidance for supervision
IOSCO has published a consultation requesting feedback on guidance on the use of artificial intelligence (AI) and machine learning by market intermediaries and asset managers. The proposed guidance aims to ensure;
- Appropriate governance, controls and oversight frameworks over the development, testing, use and performance monitoring of AI and ML
- Staff have adequate knowledge, skills and experience to implement, oversee, and challenge the outcomes of the AI and ML
- Robust, consistent and clearly defined development and testing processes to enable firms to identify potential issues prior to full deployment of AI and ML
- Appropriate transparency and disclosures to investors, regulators and other relevant stakeholders
The consultation period closes on 26 October 2020.
FCA publishes update on its role as supervisor of cryptoasset businesses
The FCA has published an update on its role as AML and CTF supervisor of certain UK cryptoasset businesses under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
Cryptoasset businesses carrying out any of the activities listed by the FCA have been required to comply with the MLR’s since 10 January 2020.
Any new businesses which began operating after 10 January 2020 must be registered with the FCA before carrying out any business.
Firms authorised or registered under the Financial Services and Markets Act 2000, Electronic Money Regulations 2011 or Payment Services Regulations 2017 but undertaking cryptoasset activity subject to the MLRs will also be required to apply for registration.
For more information please see the official FCA webpage publication
If your business is yet to register with the FCA, and you would like to discuss, please contact your designated compliance consultant.
