July Monthly Regulatory Update

By Kyte Ekstrom | Compliance, Financial Promotions, FinTech | 0 Comments

FCA Publishes Dear Chair Letter and Guiding Principles  ESG and Sustainable Investment Funds

The Dear Chair letter (dated the 19th of July) is addressed to the chairs of authorised fund managers (AFMs). The letter sets out ways of improving the quality and clarity of authorised environmental, social and governance (ESG) and sustainable investment funds.

The FCA has developed a set of guiding principles, as set out in the Annex of the letter. The guiding principles aim is to ensure that any ESG-related claims are clear and not misleading, both at the time of application and on an ongoing basis.

The principles are relevant where an FCA authorised investment fund pursues a responsible or sustainable investment strategy and claims to pursue sustainability characteristics, themes or outcomes. These principles are targeted at funds that make specific ESG-related claims, not those that integrate ESG considerations into mainstream investment processes.

The overarching principle is set out with three supporting principles. Each principle is accompanied by a set of ‘key considerations’, intended to add clarity.

  • The overarching principle is consistency:A fund’s ESG or sustainability focus should be reflected consistently in its design, delivery and disclosure, particularly in its name, stated objectives, documented investment policy and strategy, and holdings.

The supporting principles relate to:

  • Principle 1- Design:References to ESG (or related terms) in a fund’s name, financial promotions or fund documentation should fairly reflect the materiality of ESG/sustainability considerations to the objectives and/or investment policy and strategy of the fund.
  • Principle 2 – Delivery:A Firm should apply appropriate resources ((including skills, experience, technology, research, data and analytical tools) in pursuit of a fund’s stated ESG objectives. The way that a fund’s ESG investment strategy is implemented, and the profile of its holdings, should be consistent with its disclosed objectives on an ongoing basis.
  • Principle 3 – Disclosure:Pre-contractual and ongoing periodic disclosures on responsible or sustainable investment funds should be easily available to consumers and contain information that helps them make investment decisions.

The FCA has produced these principles after receiving a large volume of applications for the authorisation of funds with a sustainable focus that have been poor-quality and fallen below their expectations.

The principles complement the FCA’s recent consultation paper (CP21/17) on climate-related disclosure rules for asset managers and asset owners.

FCA Consultation Paper – Enhancing Climate-Related Disclosures by Asset Managers, Life Insurers, and FCA-Regulated Pension Providers

Dear Chair letter: Authorised ESG & Sustainable Investment Funds: improving quality and clarity

HM Treasury Publishes Call For Evidence Review of the UK’s AML/CFT Regulatory and Supervisory Regime

The call for evidence focuses on the review of the UK’s anti-money laundering and counter terrorist financing regulatory and supervisory regime. According to the press release this is to be achieved by focussing on three key themes:

  • The overall effectiveness of the regimes and their extent (i.e. the sectors in scope as relevant entities).
  • Whether key elements of the current regulations are operating as intended.
  • The structure of the supervisory regime including the work of OPBAS to improve effectiveness and consistency of supervision.

A consultation on amendments to the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 will be run in parallel to this call for evidence

Call for Evidence: Review of the UK’s AML/CFT regulatory and supervisory regime

Call for Evidence webpage

HM Treasury Publishes Consultation Paper: Amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022

This consultation invites views and evidence on the steps that the government proposes to take to amend the Money Laundering Regulations (MLRs). The paper focuses on potential amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLR 2017). This consultation is running in parallel to the Review of the UK’s AML/CFT Regulatory and Supervisory Regime.

The proposed amendments will allow the government to make some time-sensitive updates to the MLRs, which are required to ensure that the UK continues to meet international standards set by the Financial Action Task Force,

The consultation covers five areas of potential change:

  • Changes in scope to reflect latest risk assessments
  • Clarificatory changes to strengthen supervision
  • Expanded requirements to strengthen the regime
  • Information sharing and gathering
  • Transfers of cryptoassets

Any amendments adopted subject to this, or to further internal consideration, will be taken forward through secondary legislation due to be laid in spring 2022. The consultation closes at 11:45pm on the 14th of October 2021. A final report will be published no later than the 26th of June 2022.

Consultation paper: Amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022

Consultation paper webpage

BEIS Publishes Two Consultation Papers: A New Pro-competition Regime for Digital Markets, and Reforming Competition & Consumer Policy

The Department for Business, Energy & Industrial Strategy (BEIS) has published two consultation papers.

A New Pro-competition Regime for Digital Markets: which seeks feedback on the government’s proposals for the Digital Markets Unit and how it will work with other regulators including the FCA and the PRA.

Reforming Competition and Consumer Policy: which covers proposals organised around three key themes:

  • Promoting competition to drive enterprise, innovation, growth, and productivity
  • Updating consumer rights to keep pace with markets
  • Strengthening the enforcement of consumer law by individuals and regulators, for example strengthening prepayment protections for consumers.

Responses to both consultations are due by 1 October 2021.

A new pro-competition regime for digital markets

Consultation page

Reforming competition and consumer policy

Consultation page

Press release

FCA Publishes Second Policy Statement: Implementation of Investment Firms Prudential Regime

Policy Statement PS21/9 on the UK Investment Firm Prudential Regime (IFPR) summarises the feedback received on CP21/7, the FCA’s response and its near-final rules setting out prudential requirements for solo-regulated investment firms in the UK.

The FCA state that their baseline approach is for consistency with the EU regime, unless there are specific reasons for divergence in order to reflect the nature of the UK market, or otherwise to comply with the FCA’s duties under Part 9C of FSMA.

The near-final rules require FCA investment firms to consider the potential harm they can cause to clients, markets and others, by the type and scale of activities they undertake. This is a change from the previous regime which was based on investment firms mainly considering the risks to their own balance sheet.

In general, the FCA has implemented their proposals as consulted on, but have made some minor changes in order to enhance clarity. For example:

  • Change has been made to the definition of a small and non-interconnected (SNI) investment firm.
  • The Policy Statement also clarifies the types of firms that should conduct more in-depth stress testing and reverse stress testing.
  • There are also a range of clarifications to the provisions on remuneration, including in relation to the application of the MIFIDPRU Remuneration Code to carried interest and the requirements applying to non-SNI firms.
  • Chapter 15 of the Policy Statement provides a more detailed summary of the amendments to the Handbook text consulted on in CP21/7.

The FCA notes that the new regime represents a major change for FCA investment firms and it is critical that they adequately prepare.

The FCA intends to publish a further consultation paper and Policy Statement this year. It expects the IFPR to take effect in January 2022.

FCA – Implementation of Investment Firms Prudential Regime

FCA – Webpage

UK IFPR – FCA Updates Webpages – Authorisation and Permissions Information MIFIDPRU Forms

The Investment Firms Prudential Regime (IFPR) is set to come into force on the 1st of January 2022, this will have an impact on all UK investment firms authorised under MIFID. Any firm submitting a new authorisation or VOP application will need to demonstrate how it will meet ongoing requirements under the current and new prudential regimes, as part of the FCA’s threshold conditions assessment. The FCA cannot guarantee that any application received at this stage will be determined before the expected start date of IFPR, and remind firms that the application of some of the transitional provisions in the IFPR will be determined by the prudential categorisation of a firm as of 31 December 2021. Firms should therefore consider the transitional provisions in the IFPR rules.

Updated webpage: Authorisation: Wholesale investment firms

The FCA have also updated their webpage on capital requirements permissions. From the 1st of January 2022 a new prudential regime for UK investment firms authorised under MIFID (the Investment Firm Prudential Regime (IFPR)) will come into force.

This means:

  • The majority of existing waivers and modifications to prudential rules in the FCA handbook will no longer apply.
  • The majority of existing CRR permissions will no longer apply to FCA investment firms.
  • The new rules contain transitional provisions that give some existing waivers and permissions status under the new regime − firms should consider the transitional provisions in the IFPR rules for more details.
  • firms will need to consider applying for permissions, or rule waivers and modifications, of rules in the new sourcebook (MIFIDPRU)
  • UK CRD IV introduced new prudential requirements. The FCA are responsible for prudentially regulating nearly all UK investment firms under these requirements.

Updated webpage: Capital requirements permissions

The FCA’s webpage on the IFPR states that the gateway for MIFIDPRU applications is open.  A number of application forms for permissions that firms will need to apply for in advance of MIFIDPRU coming into force are now available on that webpage (including, for example, a form for permission to be exempt from individual liquidity requirements and to apply the group capital test).  The FCA has also published a new MIFIDPRU authorisation supplement form (and accompanying notes) for firms seeking authorisation.

Updated webpage: Investment Firms Prudential Regime

Application for authorisation MIFIDPRU supplement form

Application for authorisation MIFIDPRU Supplement form – notes

FCA publishes Consultation Paper: Issuing Statutory Notices – A New Approach to Decision Makers

The Consultation Paper (CP21/25) contains proposals that would move some decision-making from The Regulatory Decisions Committee (RDC), a committee of the FCA Board, to staff in its Authorisations, Supervision and Enforcement Divisions.

The FCA’s press release states that the proposed changes will involve streamlining the FCA decision-making and governance so that the FCA can move more quickly to stop and prevent harm faster.

The affected decisions include those that currently require the issue of a statutory notice, including:

  • Imposing a requirement on a firm or varying its permissions by limiting or removing certain types of business.
  • Making a final decision in relation to a firm’s application for authorisation or an individual’s approval that has been challenged.
  • Making a final decision to cancel a firm’s permissions because a firm does not meet the FCA’s regulatory requirements.  Under the proposals, a decision to start civil and/or criminal proceedings would also be taken by a senior staff committee or by an individual FCA staff member, rather than the RDC.

The RDC would continue to make decisions in relation to contentious enforcement cases, where the FCA proposes a disciplinary sanction or seeks to impose a prohibition order. This would allow the RDC to focus on significant cases of misconduct where harm had already occurred and required penalisation for failure.

The consultation closes on 17 September 2021. The FCA will consider feedback and aims to publish a Policy Statement in or around November 2021.

FCA Consultation Paper – CP21/25

Press release

FCA publishes FAQs – Fair Treatment of Vulnerable Consumers

In February 2021 the FCA published the Finalised Guidance on the fair treatment of vulnerable customers (FG21/1). The Guidance provided clarity on what firms should do in order to understand the needs of consumers in vulnerable situations and the changes they needed to make in order to meet the standards set by the FCA Principles for Businesses.

Following the finalised guidance the FCA has published a set of frequently asked questions (FAQs). The FCA’s answers link to key chapters and paragraphs in FG21/1, its feedback statement (also published in February 2021) (FS21/4) and other relevant documents, including its recent consultation paper on a new consumer duty (CP21/13).

Subjects covered in the FAQs include:

  • Why the fair treatment of vulnerable customers is important.
  • How the FCA will supervise firms on whether they are treating vulnerable customers fairly.
  • Practical actions firms can take in relation to product and service design, customer service and communications.
  • What firms need to do in terms of monitoring and evaluation.
  • Data protection and other regulatory obligations.

FG21/1 – Finalised Guidance on the fair treatment of vulnerable customers

FAQs: Finalised Guidance on the fair treatment of vulnerable customers

Financial promotion – FCA Publishes Good and Bad Practice Case Studies 

With the ever evolving ways to communicate financial services and promotions to consumers, the FCA have published a new website to help businesses understand the financial promotions rules that apply to particular products and services. The website includes two short videos, with accompanying transcripts, highlighting the need for promotions to be clear, fair and not misleading, irrespective of the media used.

The mock scenarios include various social media adverts for car finance and claims management companies.

VIDEO ONE – covers the common mistakes we see for a car finance hire purchase promotion, these include:

  • mentioning weekly/monthly payment without a prominent representative example
  • using an incentive statement without a prominent Representative APR
  • failing to include prominently credit broker statement

VIDEO TWO – includes the common mistakes we see for a claims management promotion, these include:

  • failing to identify as a Claims Management Company
  • failing to prominently include information about consumer’s right to make a claim for themselves for free
  • failing to include the name of the relevant ombudsman or compensation scheme
  • using ‘No-Win-No Fee’ statement or similar statement without disclosing fee/termination fees where applicable

You may also like to view The Perimeter Guidance Manuel from the FCA Handbook and the FCA’s Social Media Guidance

For further reference, see the links below which relate directly to the following product areas:

FCA – Financial Promotions Case Studies

Case Study 1 transcript: Consumer Credit: Car Finance

Case Study 2 transcript: Claims Management Companies: Financial Service Products

Financial Promotions and the Online Safety Bill

The House of Commission Work and Pensions Committee has published a letter sent by the FCA Chief Executive, Nikhil Rathi. The letter focuses on financial promotions online and calls for reforms to the legislative framework relating to exemptions from the financial promotions regime and the Online Safety Bill.

The letter details the following:

  • Exemptions which were removed when the UK left the EU and the new powers this has granted the FCA in order to tackle online fraud.
  • The lack of resource and lack of finalised regulations or legal ambiguity.
  • Whether there are any current powers which would benefit from further clarity provided through legislation.
  • New powers the FCA want to be included within the Online Safety Bill.
  • The FCA’s latest figures from their ScamSmart pension fraud campaign – which aims to provide consumers with knowledge and tools in order to avoid pension scams.

Mr Rathi calls for the Online Safety Bill to be revised to cover paid-for advertising, as well as user-generated content. It is suggested that online platforms, such as search engines and social media platforms, should be required to identify and remove fraudulent content.

Letter – Financial Promotions Online

CLLS Responds to FCA Discussion Paper – Strengthening Financial Promotion Rules for High-Risk Investments and Firms Approving Financial Promotions

The CLLS (City of London Law Society) Regulatory committee has published their response to the FCA’s discussion paper (DP21/1) on strengthening financial promotion rules for high-risk investments and firms approving financial promotions.

Concerns, aims, and points raised include the following:

  • Concern that as the restrictive regime for high-risk financial promotions has become a ‘complex patchwork’. The CLLS question whether the FCA has exhausted a more principles-based approach to the regulation of high-risk investments in favour of a relying on detailed technical rules, which can be difficult for the firms to understand. The letter also notes a disconnect between the COBS4 rules and the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (“FPO”) regime (applying to unauthorised persons).
  • The main aim should be to set new initiatives is to mitigate the risk from scam investment advertisements, and should include:
    • A new dragnet approach to enable the FCA to capture suspicious ads on the same day or within 24 hours after they first appear.
    • The development of Online Safety legislation which will result in a more activist approach from social media companies.
  • The CLLS stress that making the financial promotion regime more onerous for regulated firms will not address the risk of abuse of the financial promotion perimeter. In fact, imposing limits on the retail investment market could drive more individuals to the unregulated sector. Further concerns were raised that certain measures proposed in DP21/1 could deflect from investors taking responsibility for their own decisions and might add to compliance costs.

CLLS Response: FCA Discussion Paper (DP21/1): Strengthening our financial promotion rules for high-risk investments and firms approving financial promotions

Treasury Committee publishes PRA letter on Conditions for Assessing a Proposed Change in Control of a Regulated Firm

The House of Commons Treasury Committee has published a letter from the PRA Chief Executive, Sam Woods, on the conditions for assessing a proposed change in control of a regulated firm.

Currently, under the change in control framework set out in Part 12 of FSMA, the appropriate regulator may object to an application for a change in control if there are reasonable grounds for doing so on the basis of the six assessment criteria set out in section 186.

The PRA raises the possibility of reverting to the original approach. The letter notes, ‘(to) allow the regulator to object unless it is satisfied it is appropriate for an acquisition to take place in the light of the relevant criteria. Doing so would strengthen the hand of the regulator where the position is unclear and be conducive in practice to an even more robust approach to the review of acquisitions.

Letter from PRA to Treasury Committee – Conditions for assessing a proposed change in control of a regulated firm

Money Laundering and Terrorist Financing (Amendment) (No 2) (High-Risk Countries) Regulations 2021

The Money Laundering and Terrorist Financing (Amendment) (No 2) (High-Risk Countries) Regulations 2021 (SI 2021/827) have been made and came into force on 13 July 2021.

The Regulations amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLRs 2017) by substituting the list of high-risk third countries in Schedule 3ZA for a new list. More specifically, Ghana is no longer classed as a high-risk country for the purposes of enhanced customer due diligence requirements, while Haiti, Malta, Philippines and South Sudan are now classed as high-risk countries.

HM Treasury has also published updated advisory notices about the risks posed by unsatisfactory money laundering and terrorist financing controls and money laundering and terrorist financing controls in overseas jurisdictions.

The Money Laundering and Terrorist Financing (Amendment) (No 2) (High-Risk Countries) Regulations 2021 (SI 2021/827)

Explanatory memorandum


Updated advisory notices: High-Risk Third Countries

High-Risk Third Countries webpage

Money Laundering and Terrorist Financing controls in higher risk jurisdictions


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