March Monthly Regulatory Highlights

By Kyte Ekstrom | FCA Regulation, News | 0 Comments

The European Parliament publishes draft report on Crypto-assets regulation

The European Parliament has published a draft report on the European Commission’s proposal for a regulation of the European Parliament and of the Council on markets in crypto-assets and amending Directive (EU) 2019/1937 (COM(2020)0593 – C9-0306/2020 – 2020/0265(COD))

Suggested amendments to the Regulation include:

  • Amendment 1 – Authorisation requirements of a prospective issuer of asset-referenced tokens.
  • Amendment 2 – (DLT) Protocols and infrastructure in order to validate transactions and secure recording.
  • Amendment 3 & 4 – Definitions of distributed ledger technology, an electronic money (e-money) token and a utility token.
  • Amendment 5 – white papers to be drawn up in one of the official languages of the home Member State or in English.
  • Amendment 6 – Monetary policy enforcement and the secure handling of payments.
  • Amendment 7 – Timelines of the authorisation process.
  • Amendment 8 – Own fund requirements for issuers of asset-referenced tokens (ARTs).
  • Amendment 9 – The decision to dispose of a qualifying holding in an issuer of asset-referenced tokens.
  • Amendment 10 – The authorisation of e-money tokens.
  • Amendment 11 – Procedures to prevent, detect and investigate money laundering and terrorist financing.
  • Amendment 12 – Traceability of crypto-asset transfers.
  • Amendment 13 – Wind-down plans in place.

The European Parliament has called on the Commission to refer the matter to the Parliament again if it replaces, substantially amends, or intends to substantially amend its proposal. It also instructs its President to forward its position to the Council of the EU, the Commission and the national parliaments.

European Parliament draft report 2020/0265 (COD)

CMA publishes consultation paper on Open Banking remedies

In January 2020 the Open Banking Implementation Trustee sent the CMA (Competition & Markets Authority), a proposal for a revised Agreed Timetable and Project Plan (the Roadmap), regarding implementation requirements of the Retail Banking Market Investigation Order 2017 (the Order), as they relate to Open Banking. The proposal was subsequently amended, and the timetable adjusted in May 2020 to reflect the impact of the coronavirus pandemic. Although some of the dates have been moved back since then, the implementation requirements of ‘the Order’ will be delivered by the end of 2021.

The purpose of this document is to seek stakeholder views on what arrangements would be appropriate to put in place to ensure the effective oversight and governance of the CMA’s open banking remedies following the delivery of the implementation requirements of ‘the Order’ and how the transition process towards the new governance model should be managed.

Questions raised by the CRM include:

Whether the successor organisation proposed by UK Finance proposals would be (a) independent and accountable (b) adequately funded (c) dedicated to serving the customer’s interests (d) robust and sustainable.

What compliance monitoring arrangements will be necessary for the CMA to put in place going forward, what transitional arrangements should be adopted, and when the process should begin.

The CMA’s consultation closed on 29 March 2021.

Consultation paper: Future oversight of the CMA’s open banking remedies

FATF publishes guidance on applying a risk-based approach to AML/CTF supervision

The objective of the Financial Action Task Force’s (FAFT) guidance is to clarify and explain how supervisors should apply a risk-based approach to activities in line with the FATF Standards. It also explains common expectations and identifies innovative practices that ways that can help improve the effectiveness of AML/CFT supervision and therefore the overall AML/CFT system.

The guidance is set out in three parts:

  • Part 1 – High-level guidance on risk-based supervision – this section explains how supervisors should assess the risks that their sectors face to prioritise their activities.
  • Part 2 – Supervisors risk understanding – sets out strategies to address common challenges in risk-based supervision with jurisdictional examples.
  • Part 3 – contains principles, tools aimed to strengthen risk based approach, and examples from across the global network.

FAFT – Guidance for a risk-based approach

COVID-19 – FCA publishes final guidance on business interruption insurance claims

The guidance, based on the High Court’s judgement and declaration, and the additional statements from the Supreme Court in the context of insurers’ obligations under the FCA’s rules to handle claims fairly.

The guidance sets out:

  • Types of evidence that policyholders may use when proving the presence of COVID-19 in a particular area around their premises.
  • The FCA’s expectations for insurers and insurance intermediaries in relation to policyholders seeking to prove the presence of COVID-19 when making claims under BI policies.

The guidance is in immediately effect. The FCA expects all issues relating to proving the presence of COVID-19 will have been resolved by the 31st January 2022.

FCA – Final guidance: Business interruption insurance test case – proving the presence of coronavirus (Covid-19)

FCA publishes policy statement on amendments to single and cumulative contactless payment transaction thresholds

The policy statement summarises the responses the FCA received to two questions on proposed changes relating to changes to contactless payment.

The FCA confirms the decision to amend the contactless exemption in Article 11 of the regulatory technical standards on strong customer authentication (SCA-RTS) to increase the single transaction threshold for contactless card payments from £45 to £100, and the cumulative transaction threshold from £130 to £300.

The FCA considers that the change to the cumulative transaction threshold replaces the supervisory flexibility it introduced to support the industry throughout COVID-19, and means that firms can set limits up to these thresholds but not exceed them. To support consumers and merchants during the pandemic, the FCA had previously confirmed that they were very unlikely to take enforcement action where a firm fails to require Chip and PIN when a customer exceeds the cumulative transaction value threshold. The FCA further states that, in making use of the new limits, firms must ensure that they mitigate the risk of unauthorised transactions and fraud.

The FCA’s amendments to Article 11 are set out in the Technical Standards on Strong Customer Authentication and Common and Secure Methods of Communication (Amendment) Instrument 2021, which came into force on 3 March 2021.

FCA – Amendments to single and cumulative transaction thresholds for contactless payments

Technical standards on strong customer authentication and common and secure methods of communication (amendment) instrument 2021

Tighter Regulation for Online Tech Firms

Andrew Bailey, the governor of the Bank of England, has urged the government to crack down on online tech giants hosting scam advertisements on their websites. Mr Bailey has suggested that regulations could be tightened using the Online Harms Bill, which is currently passing through Parliament.

The Online Harms Bill puts forward ambitious plans for a new system of accountability and oversight. New regulatory framework for online safety has been called for, which will clarify the responsibilities companies have in order to keep UK users, particularly children, safer online with the most robust action to counter illegal content and activity.

The Commons Work and Pensions Select Committee has also called on the governments to protect people from investment scams. In a report published yesterday, the committee said regulators ‘appear powerless’ to hold online companies to account in the same way they would be able to for traditional media.

Online Harms White Paper: Full Government Response to the consultation

The FCA Publishes Speech on Market Abuse During 2020

The FCA has published a speech delivered by Executive Director of Enforcement and Market Oversight, Mark Steward, on the level of market abuse during 2020 and the steps it has taken to reduce it. Points made by Mr Steward include:

  • Due to heavier trading between March – June 2020, as investors adjusted to the impact of COVID-19, the FCA saw a 34% increase in transactions and transaction reports in 2020.
  • A reduction in suspicious transaction and order reports (STORs) during March – June 2020. Since the first lockdown, STORs have now returned to levels we would expect. This is potentially attributed to the regulator’s recent surveillance and investigation work, which has reduced the number of trades requiring a STOR.
  • the FCA’s new approach to short selling reporting enables short positions to be reported on its Electronic Submission System (ESS), which has speeded up validation and introduced automated alerts that facilitate more readily the identification of delayed notifications and other issues. The FCA intends to roll this out for long position reporting as well.
  • The new market cleanliness measure, published by the FCA in September 2020, and the potentially anomalous trading ratio (PATR) focuses on the underlying trading behaviour of price sensitive announcements and whether such behaviours can be deemed ‘anomalous’ (which is a more neutral term than suspicious though the behaviour may also be suspicious).

Mr Steward also provided some information on key recent enforcement cases including:

  • The public censure of Redcentric, the IT systems provider, and the requirement to provide investor compensation totalling £11.4m in relation to false and misleading statements about the company’s financial position. Criminal charges against 3 former directors alleging offences under the Companies Act, Theft Act and Fraud Act are awaiting trial.
  • The public censure proceedings against, former construction company, Carillion following alleged market abuse by the company who mislead markets and investors over the deteriorating state of their finances before the company collapsed into liquidation two years ago.
  • The completed market abuse proceedings against former hedge fund manager, Corrado Abbatista, which saw him fined £100,000 for placing large misleading orders for instruments he had no intention of trading.
  • Proceedings brought against HK based hedge fund, Asia Research & Capital Management Ltd, which were fined £873,000 for failures to make 155 notifications to the FCA and 155 disclosures to the market.

Other important points of relevance Mr Steward touched on include the risk of misleading online marketing to retail investors. The FCA have seen an increase in online scams and fraud during 2020.

Speech by Mark Steward

London Capital Finance – Treasury Committee publishes letter to former FCA Chief Executive

Governor of the Bank of England, Andrew Bailey, who is also the former Chief Executive of the FCA, gave evidence to the Treasury Committee in February in relation to the FCA’s regulation of London Capital and Finance (LCF). LFC was made insolvent in 2019 as a result of alleged fraud against retail investors. An independent review of the FCA’s regulation of LCF was led by Dame Elizabeth Gloster, she wrote to the Committee about the evidence that Mr Bailey provided.

Chair of the Treasury Committee, Rt Hon. Mel Stride MP, has now written to Mr Bailey to clarify several statements that he made during the evidence session, including:

  • Statements that appear to contradict Dame Elizabeth Gloster’s account of events.
  • The lessons he learned from the failings of LCF’s regulation.
  • His views on the financial promotions regime.
  • A number of prioritisation decisions made in relation to major change projects at the FCA.

The Treasury Committee has requested a response from Mr Bailey by 22 March 2021.

Letter to Andrew Bailey

FATF and Egmont Group publish joint report on Trade-based money laundering

This report supplements the original joint report, published back in December 2020, relating to trends and developments on trade-based money laundering. The additional report sets out to help the public and private sector better identify suspicious activity concerning international trade, and also details risk indicators derived from a sampling of data from the Trade-Based Money Laundering Project, including:

  • Structural risk indicators, such as the structure of a corporate entity appearing unusually complex and illogical.
  • Trade activity risk indicators, such as trade activity being inconsistent with the stated line of business of the entities involved.
  • Trade document and commodity risk indicators, such as inconsistencies across contracts, invoices or other trade documents.
  • Account and transaction activity risk indicators, such as trade entities making very late changes to payment arrangements for a transaction.

FAFT & Egmont Group – Trade-Based Money Laundering

Temporary Permissions Regime Updated – The FCA Publishes Three New Webpages

The FCA has published three new webpages, adding and amending the current TPRs already in place:

Landing Slots for Firms in the TPR

The next steps for firms who have received a ‘landing slot’ to apply for full authorisation in the UK are set out. The page also links to the further material firms should read before submitting an application.

Landing slots for firms in the TPR

Cancelling a Temporary Permission

On this webpage the FCA covers steps for cancelling a temporary permission; if the firm is in the TPR, or the supervised run-off regime and no longer has business requiring it to have a UK permission.

Cancelling a temporary permission

Supervising Firms in the TPR

The FCA explain their role and approach in supervising firms in the TPR.

Supervising firms in the TPR

FCA Censures Now-Collapsed Company Premier FX Limited

The age old adage that some rules are made to be broken should never be applied when dealing with FCA regulations, as Premier FX Limited recently found out.

Premier FX Limited, formerly authorised by the FCA under the Payments Services Regulations to perform the regulated payment service of money remittance has been issued a public censure by the FCA for violating the regulations around handling clients money.

As an authorised remittence company, Premier FX Limited, was only allowed to take funds from customers accompanied by a payment order for onward transfer for an immediate or a future date execution. However, the company was found in breach of its regulations by receiving and holding the funds on behalf of its clients, misleading customers with the nature of its authorised services. The FCA elaborated that the company was not permitted to hold any of the client’s funds indefinitely.

A complex investigation involving the analysis of hundreds of thousands of transactions across Premier FX’s bank accounts over the course of several years, in a range of currencies and through a number of overseas bank accounts, uncovered that the company’s deceased Chief Executive, Peter Rexstrew, had also been using client funds to settle business expenses.

After the death of the company Chief Executive, the full scale of discrepancies came to light when his two children and staff attempted to continue the business, only to discover that the firm was unable to cover its own expenses.

The company unravelled within weeks of Peter Rexstrew’s death and collapsed when a large number of clients, whom had deposited funds in the company, demanded their funds back.

Premier FX Limited – Final Notice

The moral of this woesome tale isn’t to fear furry, fanged strangers in the woods (although you should probably do that too), it’s that you should always take heed of FCA regulations, and if in doubt, or need help with your compliance, give us a shout.

FCA Final Guidance on the Fair Treatment of Vulnerable Customers

The Guidance, issued under section 139A of the Financial Services and Markets Act 2000 as guidance on the FCA’s Principles for Businesses (the Principles). It sets out their views of what firms should do to comply with their obligations under the Principles and ensure they treat vulnerable customers fairly.

The report outlines how to identify and understand the needs of vulnerable customers, the skills and capability of staff, a summary of actions that firms should take to treat vulnerable consumers fairly, and monitoring and evaluation.

FCA FG21/1 Guidance for firms on the fair treatment of vulnerable customers

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  • Variation of permission applications
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