June Monthly Regulatory Update

By Kyte Ekstrom | Brexit, Compliance, Digital, FCA Regulation, Financial Industries, Financial Promotions, FinTech, Insurance, Investment, News, Pensions, regtech | 0 Comments

HM Treasury Consultation Response: Next Steps for Regulatory Framework on Approval of Financial Promotions

HM Treasury has published a response to the July 2020 consultation on the regulatory framework for approval of financial promotions. The original consultation proposed to introduce a new FCA-operated regulatory ‘gateway’ through which authorised firms would need to pass before they are able to approve the financial promotions of unauthorised persons.

As there is currently no specific assessment authorised firms must undergo before they are able to approve financial promotions of unauthorised firms. The government noted three potential risks:

  • Lack of relevant approver firm expertise: due to the wide range of financial products and services, an authorised firm could be approving promotions for a product outside of its area of expertise.
  • Lack of approver firm due diligence: the FCA has identified cases where due to insufficient due diligence authorised firms have not been compliant with FCA rules.
  • Challenges in exercising appropriate regulatory oversight: without a comprehensive view of firms which are approving financial promotions for others, the FCA is unable to hold an up-to-date list of which authorised firms are undertaking this activity at any moment in time.

The government identified two policy options to deliver the proposed gateway: restricting the approval of financial promotions through the imposition of FCA requirements (option 1) and specifying the approval of financial promotions as a ‘regulated activity’ (option 2).

HM Treasury agrees that option 1 would be the best way forward. This would strengthen the FCA’s ability to ensure that authorised firms comply with FCA rules without fundamentally altering the overall regulatory architecture of the financial promotion regime.

The consultation proposes that all new and existing authorised firms will be prohibited from approving the financial promotions of unauthorised persons through the imposition of a Financial Promotion Requirement on their permission. Firms that wish to approve financial promotions will be required to apply to the FCA for a ‘variation of requirement’ to have the prohibition removed either entirely (allowing them to approve all types of financial promotions), or partially (allowing them to approve certain types of financial promotions).

A transition period with three distinct phases has been proposed to allow for an timely transition between the current and the future regime. The relevant legislation will be brought before parliament and the FCA will consult on its proposals for implementing the gateway in due course.

Consultation response: Regulatory Framework for Approval of Financial Promotions

A Bold New Regulatory Framework for the UK – TIGRR Publishes Report

The report includes around 100 recommendations and focuses on how the UK can reshape regulation and take advantage of new regulatory freedoms since exiting from the EU. The main objectives of the new proposed regulatory framework is to make a material difference to the UK’s economic growth, competitiveness and productivity, without compromising on protecting consumers, workers and the environment.

The report contains, among others, the following recommendations relating to financial services:

  • Encouraging investment by insurers – the Taskforce on Innovation, Growth and Regulatory Reform (TIGRR) recommends amendments to the matching adjustment and risk margins in the UK Solvency II framework with the aim of releasing capital for investment.
  • Restoring a principles-based approach to regulation – the report sets out ideas to amend the position limits derived from the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) to introduce greater flexibility while maintaining protections on critical contracts.
  • Supporting FinTech and digitalisation – the report suggests increasing competition in the banking sector by adopting a graduated regulatory approach for challenger banks, reducing anti-money laundering requirements for new Open Banking or FinTech services, and accelerating plans to develop a central bank digital currency, with the launch of a pilot within 12 to 18 months.
  • Amending disclosure and transparency requirements for financial services products – suggestions include:
  • Removing the MiFID II-derived requirement to provide costs and charges reports to professional investors and eligible counterparties.
  • Removing the investment recommendation disclosure requirements from the UK Market Abuse Regulation (596/2014) for wholesale clients.
  • Restricting the key information document disclosure requirement in the UK PRIIPs Regulation (1286/2014) to complex packaged products.

In a letter, written in response to the report, the Prime Minister states that the bold proposals (set out in the report) provide a valuable template, illustrating the sheer level of ambitious thinking needed to usher in a new golden age of growth and innovation right across the UK. In the letter the Prime Minister states that the government intends to publish a formal response to the report as soon as practicable.

TIGRR – Report

Letter from Prime Minister, Boris Johnson, to the TIGRR

Bank of England Publishes Speech – The Evolution of UK Payment Systems

The speech by, Victoria Cleland, Executive Director for Banking, Payments and Innovation, sets out, among other things, the Bank of Englands real time gross settlement (RTGS) system and its multi-year programme to review the RTGS service.

The first key milestone will be in June 2022, when the Clearing House Automated Payment System (CHAPS) is set to move to the global standard for financial messaging in payments, ISO 20022 (on a like-for-like basis). The BoE will transition to enhanced ISO 20022 messaging in February 2023 and expects to introduce a state-of-the-art core settlement engine in September 2023.

Ms Cleland also refers in her speech to the BoE’s recent discussion paper on digital money, including the possibility of central bank digital currencies (CBDC) and states that if a CBDC were to be issued by the Bank of England for use by households and businesses, it would co-exist alongside cash, commercial bank deposits, and core payments infrastructure such as RTGS.

Speech: A New Dawn for Payments – Victoria Cleland

HM Treasury Launches Call for Evidence – Securitisation Regulation in the UK

The call for evidence pertains to the onshored Securitisation Regulation ((EU) 2017/2402) and seeks views on how the UK’s securitisation market is performing and how the Securitisation Regulation can be tailored to the UK.

The aims of the review are:

  • to bolster securitisation standards in the UK, in order to enhance investor protection and promote market transparency.
  • to support and develop securitisation markets in the UK, including through the increased issuance of STS securitisations, in order to increase their contribution to the real economy.

The call for evidence notes that HM Treasury is separately conducting a wider Future Regulatory Framework (FRF) Review to determine how the overall framework for financial services will need to adapt to the UK’s position outside of the EU.

HM Treasury is seeking more detailed views on two potential changes:

  • whether a change is required to scope out certain non-UK Alternative Investment Fund Managers (AIFMs) marketing in the UK from certain requirements in the Securitisation Regulation
  • whether it would be desirable to introduce an equivalence regime for simple, transparent and standardised securitisations (STS).

Responses should be submitted to SecuritisationReview@hmtreasury.gov.uk by 2 September 2021.

Call for evidence: Review of the Securitisation Regulation

HM Treasury Publishes Response to Consultation – UK implementation of IFPR and Basel III

This consultation is in response to HM Treasury’s February 2021 consultation paper on Implementing the Investment Firms Prudential Regime (IFPR) and the final Basel III standards exercising powers under the Financial Services Act 2021.

Taking into account the comments received, HM Treasury is changing its approach in several key areas, which include:

  • applying the equivalence provision contained in Article 132 of the UK CRR would be a ‘disproportionate method for addressing the prudential risks arising from UK banks’ investments in overseas funds’, as a result HM Treasuryhas decided to remove it.
  • a decision has been made to implement the Fundamental Review of the Trading Book (FRTB) reporting requirements alongside FRTB revisions to Pillar 1 capital requirements (that is, as part of Basel 3.1 and not from 1 January 2022) due to concerns about implementation costs.
  • to remove reference to the EUR 730,000 initial capital requirement (ICR), which will become obsolete. This will allow the PRA to designate investment firms that deal as principal under Part 4A of FSMA where it considers this is desirable.

(One firm noted that if GBP 750,000 firms were brought into scope, which in their view would not be preferable, exemptions and simplified obligations similar to the current ones available for EUR 730,000 firms should be continued).

The published response also sets out clarifications regarding the operation of equivalence determinations for the purposes of Large Exposures under Article 391 of the UK CRR and the scope of the use of bail-in and resolution stays. In addition, it confirms the government’s intention to replicate the scope of prudential consolidation that applies under Article 18 of the UK CRR.

HM Treasury intends to put legislation in place in order to provide firms with adequate time to prepare ahead of the 1 January 2022 implementation date.

The FCA will publish its third IFPR consultation, and related policy statements, later this year.

Consultation response: Implementation of the Investment Firms Prudential Regime and Basel III standards

FCA Announces Successful Applicants to Cohort 7 of the Regulatory Sandbox

The FCA received 58 applications, primarily from firms looking to operate in the retail banking and lending sector. Thirteen firms have been accepted into Cohort 7 and the FCA has published a new webpage providing details of all thirteen firms.

The FCA explains that, in light of COVID-19, they were interested in seeing more innovation and testing from firms developing businesses / products or services intended to detect fraud and scams, support the financial resilience of vulnerable consumers, or improve access to finance for small and medium-sized enterprises (SMEs).

Noting that firms wish to trial and scale innovative products or services across multiple jurisdictions, the webpage links to the Global Financial Innovation Network (GFIN) (Chaired by the FCA with a network of 72 financial regulators and related organisations), the webpage states that The GFIN is working with a select group of firms to agree cross-border testing plans.

The regulatory sandbox is currently run on a cohort basis, with periodic application windows opened throughout the year. However, it is the FCA’s intention is to move to ‘Always Open’ later in 2021, making the regulatory sandbox available throughout the year.

Webpage: Regulatory sandbox – Cohort 7

Webpage: Global Financial Innovation Network (GFIN)

FCA Publishes Consultation Paper CP21/16  Quarterly Consultation No 32

The FCA invites comments on this Consultation Paper. All comments for chapters 3 and 5 need to reach the FCA by 5 July 2021, and all comments for chapters 2 and 4 need to reach the FCA by the 2 August 2021.

Proposed changes to the FCA Handbook are as follows:

  • CHAPTER 2 – Changes to CONC 6.7.4RTo amend the rule to enable firms providing credit cards to offer instalment plans to customers without requiring a rule modification.
  • CHAPTER 3 – Other Minor Changes to CONCTo make minor consequential changes to CONC, arising from the FCA’s 24 May update to the statutory information sheets sent to customers in arrears and default under the Consumer Credit Act 1974 (CCA).
  • CHAPTER 4 – Changes to the Mortgage Lenders & Administrators Return (MLAR):The FCA proposes to ****amend Mortgage Lenders & Administrators Return (MLAR) reporting instructions due to the cessation of LIBOR.
  • CHAPTER 5 – Changes to the Decision Procedure and Penalties (DEPP) and Fees ManualsAmendments to DEPP and FEES as a result of a new power given in the Financial Services Act 2021 to the FCA to cancel or vary FCA-authorised firms’ Part 4A permissions.

Quarterly consultation No.32 (CP21/16)


Response form

Law Commission Publishes Discussion Paper  Corporate Criminal Liability

The Law Commission is seeking views on whether, and how, the law relating to corporate criminal liability can be improved so that they appropriately capture and punish criminal offences committed by corporations, and their directors or senior management.

In the discussion paper, the Law Commission seeks views from stakeholders on how to achieve this by asking a range of questions concerning topics such as reform of the identification principle, further ‘failure to prevent’ offences and the possibility of additional civil penalties.

Questions posed include:

  • What principles should govern the attribution of criminal liability to non-natural persons?
  • Does the identification principle provide a satisfactory basis for attributing criminal responsibility to non-natural persons? If not, is there a merit in providing a broader basis for corporate criminal liability?
  • Should there be ‘failure to prevent’ offences akin to those covering bribery and facilitation of tax evasion in respect of fraud and other economic crimes? If so, which offences should be covered and what defences should be available to companies, and what would the economic and other consequences be for companies of introducing such offences?
  • Is there a merit in extending the powers of authorities in England and Wales to impose civil penalties and in what circumstances might this be appropriate?
  • What principles should govern the individual criminal liability of directors for the actions of corporate bodies? Are statutory ‘consent or connivance’ or ‘consent, connivance or neglect’ provisions necessary, or is the general law of accessorial liability sufficient to enable prosecutions to be brought against directors where they bear some responsibility for a corporate body’s criminal conduct?

The Law Commission invite responses from 9 June to 31 August 2021. An options paper is due to be published towards the end of 2021.

Discussion paper: Corporate Criminal Liability

CPS Updates Guidance  Prosecuting ‘Failure to Disclose’ Offences

The Crown Prosecution Service (CPS) has updated its guidance setting out different types of Money Laundering offences and the approach to be taken when prosecuting the offences.

The updated guidance includes prosecuting standalone ‘failure to disclose’ cases under section 330 of the Proceeds of Crime Act 2002 (POCA). This means that it is now possible to prosecute a section 330 offence, regardless of whether an offence of money laundering has been substantiated, this is to encouraging professionals working in the regulated sector to disclose any suspicion of money laundering to law enforcement.

Updated guidance: Money Laundering Offences

ABI Publishes Report – Industry Fears over Pensions Advice

The Association of British Insurers (ABI) has published a report calling for changes to the FCA rules relating to pensions advice. The report examines how approaches to sustainable pension withdrawal rates could be delivered, and covers the risks customers face when making withdrawals without receiving advice. The report also describes how providers currently help their customers navigate decisions about pension withdrawals and explores how the ‘right regulatory changes’ could help improve provider services in the future.

The report describes the role of regulation, regarding accessing pensions as a ‘special case’, stating that there is a need for an alternative approach to the existing FCA rules concerning advice and guidance. The report notes that changing the advice rules would put the onus on the industry to show that it has the appropriate level of support in place and on individual firms to show that they are meeting their responsibility to treat customers fairly.

ABI Report: Future Proofing the Freedoms – supporting customer decisions about pension withdrawals

EBA Consultation Paper – Regulatory Technical Standards on Individual Portfolio Management of Loans Offered by Crowdfunding Service Providers

Consultation paper (EBA/CP/2021/22) on draft regulatory technical standards (RTS) sets out, among other things, the EBA’s proposals on requirements that are relevant to crowdfunding service providers (CSPs) offering individual portfolio management loans.

Issues raised include:

  • the methods employed for risk assessments
  • the information that CSPs must disclose in relation to several key characteristics of each loan included in a certain portfolio
  • the policies that crowdfunding platforms need to have in place on contingency funds.

Comments must be received before the 4 September 2021. A public hearing on the consultation paper will be held on 20 July 2021. The EBA intends to submit the final draft RTS to the European Commission in October 2021.

EBA Consultation Paper: Draft Regulatory Technical Standards on Individual Portfolio Management of loans offered by crowdfunding service providers under Art. 6(7) Regulation (EU) 2020/1503

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