October Monthly Regulatory Update

By Kyte Ekstrom | AML, Compliance, FCA Regulation, FinTech | 0 Comments


FOS Publishes Updated Guidance – Compensation for Distress, Inconvenience or Other Non-Financial Loss

The Financial Ombudsman Service (FOS) recently published updated guidance for both businesses and consumers concerning the compensatory awards for distress or inconvenience.

Garry Wilkinson, Principal Ombudsman and Director of Investigation, confirmed in a FOS blog post that the updated guidance does not represent a change in approach, but provides more detailed guidance on, and examples of, the awards for distress and inconvenience that the FOS may make.

The guidance includes:

  • Further case studies to support businesses and consumers’ understanding of what fair compensation might be in relation to particular complaints.
  • Further case studies on the level of award the FOS may make where a business’s mistakes may have had a serious impact on a consumer.
  • Examples of where the FOS may make awards for other non-financial loss, including damage to reputation, and pain or suffering.
  • For consumers specifically, the circumstances in which FOS may make an award.

FOS blog post: Awards for distress and inconvenience – what businesses need to know

FOS guidance for businesses

FOS guidance for consumers

FCA Publishes New Webpage – Remote or Hybrid Working Expectations for Firms

The webpage sets out the FCA’s expectations on remote and hybrid working for existing firms, firms that are applying for authorisation, and firms that are proposing to submit further applications; applying for waivers, variations of permission or changes of control. The webpage contains a list of wide-ranging considerations which, according to the FCA, are likely to evolve over time.

Firms considering remote or hybrid working will be evaluated by the FCA on a case-by-case basis and need to be able to prove that the lack of a centralised location or remote working does not or is unlikely to:

  • Affect the firm’s location in the UK, or its ability to meet and continue to meet the threshold conditions for the regulated activities it has or will have permission for – or any equivalent requirements, where these do not apply.
  • Prevent the FCA receiving information about a firm.
  • Reduce the accuracy of the Financial Services (FS) Register for others if, for example, consumers are not able to contact the firm at the principal place of business shown on the FS Register.
  • Affect the ability of the firm to oversee its functions including any outsourced functions.
  • Cause detriment to consumers.
  • Damage the integrity of the market.
  • Increase the risk of financial crime.
  • Reduce competition.

The webpage also includes details on planning measures firms must adhere to, including, among other:

  • Plans must be in place and reviewed periodically to identify new risks.
  • Governance and oversight by senior managers under the Senior Managers Regime must be able to be maintained.
  • Policies and procedures in place to reduce any potential for financial crime arising from working arrangements.
  • Control functions such as risk, compliance and internal audit must be able to continue unaffected.

The FCA notes that a firm’s application for authorisation or registration should cover certain specific details, where applicable. For example, depending on the firm’s business model, it might need to refer to the arrangements for remote working and business continuity plan requirements when using home networks.

FCA webpage

FCA Publishes 2020/21 Report – Regulatory Perimeter

The third annual report on the FCA regulatory perimeter determines which firms require authorisation and the level of protection consumers can expect in relation to the financial services and products that they purchase. The report is key to providing clarity on the FCA’s approach to their perimeter and to support regular dialogue on the adequacy of the present regime.

The 2020/21 report covers a number of areas including potential consumer harm linked to the perimeter, firms’ business models and adopted structures, consumer investments, technological changes, lending and the wholesale market perimeter.

Key areas of concern highlighted in the report include:

  • financial promotionsEnabling consumers to make effective financial decisions. This includes ensuring that rules on financial promotions are fit for purpose.
  • Senior Managers and Certification RegimeThe report calls to extended the SMCR to recognised investment exchanges (RIEs), credit rating agencies (CRAs) and payments and e-money firms. This will enhance individual accountability and governance with firms, ensuring consistency of supervisory expectations of key individuals and strengthen the FCA’s ability to supervise such firms.
  • Online Safety Bill 2021 (OSB)The duty to be imposed on internet companies should extend to paid-for advertising, as well as user-generated content. The OSB should also designate fraudulent content as a priority and require platforms to take monitoring and preventative action.

The FCA will formally discuss the report with the economic secretary to the Treasury, John Glen, later in the year. The minutes of that discussion will be published.

Perimeter Report 2020/21

Press release


NGFS Publishes Progress Report – Climate-Related Risks

The report, published by the Network for Greening the Financial Systems, sets out how a growing number of NGFS members, across all continents, are using climate scenarios to identify, assess and understand climate risks in their economies and financial systems. The report is part of the NGFS’ contribution to the 2021 United Nations Climate Change Conference (COP26) being held in Glasgow in November 2021.

The report features 31 NGFS members’ climate scenario exercises to date, and reveals that the NGFS scenarios are a foundational component in almost all of them. It also highlights a number of the challenges that need to be addressed in undertaking this work. By providing insight into how central banks and supervisors have sought to address these challenges, the report serves as a practical reference work for those seeking to do climate scenario exercises in the future.

All exercises surveyed for the report cover the banking sector and about half of the exercises also involve insurers or other financial institutions. As climate scenario exercises develop, insights into the financial impacts from transition and physical risks will become increasingly comprehensive, based on a converging set of methodological practices and a growing body of data.

Going forward, the NGFS will continue to serve as a platform for knowledge sharing between central banks and supervisors, report on its findings as they emerge, and improve its scenarios with the aim of being as relevant as possible for economic and financial analyses. The NGFS and the FSB intend to publish a joint report on the main implications of possible future climate scenarios for the financial system in 2022.

Scenarios in Action: a progress report on global supervisory and central bank climate scenario exercises (NGFS Technical Document, October 2021)

Press release

CFRF Publishes Second Set of Guides on Climate-Related Financial Risks

The Climate Financial Risk forum (CFRF) has published a second set of guides to help the financial industry better address climate-related financial risks and opportunities. The new guides build on the CFRF’s first set of guides published in June 2020, and set out best industry practice in the following key areas:

  • Risk Management: the CFRF’s Risk Management Working Group have published materials in order to help retail banks, corporate banks, insurers and asset managers produce and implement risk appetite statements that integrate climate-related financial risks
  • Scenario Analysis: the guides provide practical examples on how firms can incorporate sector-specific points when developing an effective approach to scenario analysis.
  • Disclosure: the CFRF’s Disclosure Working Group has produced guidance on managing the legal risks associated with publishing climate-related disclosures.
  • Innovation: the guides identify practical opportunities to mobilise financial capital and steward an economy-wide transition to meet climate targets.
  • Climate Data and Metrics: the report on climate data and metrics highlights areas where climate-related areas could be employed and makes recommendations for their implementation.

CFRF Guides 2021 FCA press release

Bank of England press release

NatWest Plc Pleads Guilty in Criminal Proceedings   Money Laundering Regulations

NatWest plc has entered guilty pleas to criminal charges brought by the FCA under the Money Laundering Regulations 2007 (MLR 2007). NatWest accepts that it failed to comply with Regulation 8(1) between November 2013 and June 2016, and Regulations 8(3) and 14(1) between November 2012 and June 2016 in relation to the accounts of a UK incorporated customer.

These regulations require certain firms, including FCA regulated firms, to ensure they have adequate anti-money laundering systems and controls in place to prevent money laundering. The case has now been referred to Southwark Crown Court for sentencing and no individuals have been charged as part of the proceedings. This is the first criminal prosecution brought by the FCA under the MLR 2007.

Press release: NatWest plc pleads guilty in criminal proceedings

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021

The Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021 has received royal assent. The Act provides for the establishment of a compensation scheme for London Capital & Finance (LC&F) bondholders.

In January 2019 LC&F entered into administration, at that point it had over 11,000 investors who had invested £237 million in total. The majority of LC&F’s investors were ineligible for compensation from the Financial Services Compensation Scheme as the issuance of certain of LC&F’s non-transferable debt securities, known as “minibonds”, were not a regulated activity.

The Economic Secretary, John Glen, announced in December 2020 that the exceptional circumstances of the case warranted the establishment of a compensation scheme.

The Act also amends the Pensions Act 2004 to allow the Secretary of State to make a loan to the Board of the Pension Protection Fund and for that loan to form part of the funds of the Fraud Compensation Fund. The High Court in Dalriada Trustees confirmed that members of certain types of scam pension schemes relating to pensions liberation are eligible for compensation from the Fraud Compensation Fund.

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021


FCA Publishes Final Notice on Credit Suisse – Financial Crime Due Diligence Failings

Credit Suisse has been fined £147,190,200, by the FCA, for serious financial crime due diligence failings relating to loans worth over USD1.3 billion, which the bank arranged for the Republic of Mozambique over the period October 2012 to March 2016.

The FCA found that the Bank breached Principle 2 of the FCA’s Principles for Businesses (failure to conduct its business with due skill, care and diligence), Principle 3 (failure to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems), and SYSC 6.1.1.R (failure to establish, implement and maintain adequate policies and procedures sufficient to ensure compliance by the Bank, including its managers and employees, with its obligations under the regulatory system and for countering the risk the Bank might be used to further financial crime).

The FCA took into account Credit Suisse’s undertaking to forgive USD200 million of debt owed by the Republic of Mozambique, when setting the fine. Credit Suisse also agreed to resolve the case with the FCA, qualifying it for a 30% discount in the overall penalty – without these considerations the financial penalty would have been significantly greater.

The FCA fine is part of an approximate USD475 million global resolution agreement involving the US Department of Justice, the US Securities and Exchange Commission, and the Swiss Financial Market Supervisory Authority (FINMA).

Final Notice: Credit Suisse International, Credit Suisse Securities (Europe) Ltd, and Credit Suisse AG

Press release

JMLSG Publishes Revised Trade Finance Sectoral Guidance  – AML/CTF

The Joint Money Laundering Steering Group (JMLSG) has published a revised version of Sector 15 (trade finance) in Part II of its anti-money laundering and counter-terrorist financing guidance for the financial services sector. The JMLSG consulted on the amendments in April 2021 and the revised text has been submitted to HM Treasury for approval.

The new Sector 15 (Trade Finance) in Part II

Press release

JMLSG Consults on Revisions to Guidance on Monitoring Customer Activity  – AML/CTF

The Joint Money Laundering Steering Group (JMLSG) has published for consultation proposed revisions to Chapter 5.7 (Monitoring customer activity) in Part I of its anti-money laundering and counter-terrorist financing guidance for the financial services sector.

Comments on the proposed revisions need to be submitted by 30 October 2021.

Consultation – Part I, Chapter 5.7

Press release

UK Finance Publishes Report – Anti-bribery and Corruption Compliance -Definition of Public Officials 

UK Finance has worked with members to develop a practical and risk-based definition of ‘public officials’ for the purposes of anti-bribery and corruption compliance.

The report states that it is widely recognised that bribery of public officials is particularly damaging, with consequences including the distortion of fair competition, diversion of funds away from vital public services, corrosion of the rule of law and the undermining of national security. It is observed that the definition of ‘public official’ is currently ambiguous, owing to high-level international legal definitions of public official intersecting with national legislation and guidance.

UK Finance asserts that this ambiguity adds costs and delay to corporate anti-bribery and corruption efforts, and the intention of its report is to help firms define public officials by building on the UK Bribery Act 2010 definition to provide a practical risk-based approach.

Report: Anti-bribery and corruption compliance: Definition of public officials



PSR Publishes Response Paper – APP Scams – Confirmation of Payee

The Payment Systems Regulator (PSR) has published a Response Paper (RP21/1) following Consultation Paper (CP21/6) on the second phase of delivering Confirmation of Payee (CoP). CoP is a name-checking service designed to prevent Authorised Push Payment (APP) scams and misdirected payments, and is already offered by the UK’s six largest banking groups.

The Response Paper concludes that Phase 1 of delivering CoP has had a positive impact in reducing APP scams and mitigating risk. The paper also summarises findings from the call for views and concludes that further work is needed to ensure a greater number of institutions use CoP in order to protect more consumers. With this in mind, the Paper sets out the PSR’s next steps in relation to the implementation of CoP, which include:

  • Monitoring the progress of Phase 1 participants who will enter Phase 2 by the end of 2021.
  • Beginning a consultation in December 2021 on terminating the dual running of Phase 1 and 2 and revoking Specific Direction 10 by March 2022.
  • Issue a further consultation in March 2022 (if appropriate) to direct non-participant Payment System Providers (PSPs) to offer CoP and/or secure the delivery of the secondary reference data (SRD) capability.

PSR Response Paper: Confirmation of Payee (RP21/1)



HM Treasury Publishes Consultation Paper – Regulation of Buy-Now-Pay-Later Products

In February the government published The Woolard Review – A review of change and innovation in the unsecured credit market, which included the recommendation that all buy-now-pay-later products (BNPL) should be regulated by the FCA to prevent risks of potential consumer harm from crystallising. The Consultation Paper, published by HM Treasury, calls for feedback on the scope and form of the regulatory proposals, which are designed to address the risks highlighted in the Woolard Review.

The regulatory changes proposed include:

  • The way BNPL products should be advertised and promoted.
  • Clear communication between BNPL firms and customers to ensure the consumer understands the credit agreement, and associated features and risks.
  • More steps to be taken requiring BNPL firms to protect borrowers in financial difficulty – including the potential application of provisions in the Consumer Credit Act 1974 (CCA).
  • BNPL firms and products to be brought within the ambit of the Financial Ombudsman Service (FOS).
  • Creditworthiness assessments for BNPL products in line with current FCA rules.
  • BNPL firms to be brought within the scope of the statutory buyer protection scheme under section 75 of the CCA.

The consultation paper notes the importance of such regulatory changes being proportionate to ensure that consumers are given appropriate protections without unduly limiting the availability and cost of useful financial products.

The consultation closes on 6 January 2022.

HM Treasury consultation paper: ‘Regulation of Buy-Now Pay-Later’

The Woolard Review


FCA Publishes – Investment Firms Prudential Regime Final Rules

The final rules are set to streamline and simplify prudential requirements for solo-regulated UK firms authorised under the Markets in Financial Instruments Directive (MiFID). These rules will create a major change for FCA regulated investment firms and the FCA emphasises that it is critical that all firms prepare for the regime, which comes in to force from the 1st January 2022.

Along with streamlining and simplifying the FCA’s prudential requirements, the IFPR will refocus requirements and expectations away from the risks that firms face, to also consider and look to manage the potential harm firms can pose to consumers and markets.

The first consultation introduced the UK IFPR and focused on categorising investment firms, prudential consolidation and the group capital test, own funds, aspects of own funds requirements, concentration risk and reporting.

The second consultation focused on the remaining aspects of own funds requirements, liquidity, risk management, firms providing clearing services, governance, remuneration, applications and notifications. It also addressed the interaction between the UK IFPR and other existing prudential regimes.

The third consultation focused on disclosure, technical standards, additional aspects of own funds, depositories, our approach to the UK resolution regime, enforcement, applications and notifications and consequential changes to the Handbook.

The IFPR will apply to the following:

  • MiFID investment firms authorised and regulated by the FCA
  • Collective Portfolio Management Investment Firms (CPMIs)
  • Regulated and unregulated holding companies of groups that contain either of the above

The IFPR will not apply to PRA designated investment firms. They will remain subject to prudential supervision by the PRA.

The FCA will publish a third policy statement by the end of 2021.

IFPR – Final Rules

FCA Publishes Portfolio Letter – Wealth management and Stockbroking Supervision Strategy

In the letter firms are reminded of the need to foster a healthy culture to prevent harm to consumers and markets, and the FCA observes that the imposition of a new ‘Consumer Duty’ would require significant shift in culture and behaviour for many firms.

The FCA’s objectives for firms operating in this sector include ensuring that:

  • Firms are not facilitating investment scams, fraud or market abuse. Firms must ensure client portfolios are managed in line with individual client risk profiles and ensure overall suitability.
  • In the event of failure, firms can wind down in an orderly manner with adequate controls to mitigate any potential loss of client assets.
  • Consumers are fully aware of the overall cost they pay for their investment. Firms should have clear systems and processes for collecting and aggregating all the data relevant to disclosures of both ex-ante and ex-post costs and charges.

Dear CEO Letter: Wealth Management and Stockbroking Supervision


EIOPA publishes article – Cyber Risk in the Insurance Industry

The European Insurance and Occupational Pensions Authority (EIOPA) has published an article on the impact of cyber risks on the insurance industry.

The article refers to a recent study on COVID-19 and cyber risk in the financial services sector, which revealed that the sector has experienced the largest number of COVID-19 related cyber events of any sector, with insurers one of the three most affected types of financial business.

Insurance groups are a target for cyber attacks because they hold significant amounts of confidential policyholder data, including a large range of protected personal sensitive information. The main consequences suffered by insurers following these cyber incidents are business interruption and material financial costs for the firm, policyholders and third parties. Cyber incidents can also result in severe and long-lasting operational issues for the targeted insurance groups and the reputational damage may be substantial or even irreversible.

EIOPA states that insurers need to manage cyber and IT risks, both within their organisations and across the value chain, as well as ensuring they keep pace with new threats and developments. Operational resilience testing and co-operation between insurers, regulators and other stakeholders can help with both these aspects and, in this regard, it welcomes the proposed Regulation on digital operational resilience for the financial sector (DORA) and other initiatives.

EIOPA will continue to monitor and motivate innovation, while keeping a close eye on emerging risks and how consumers are being treated.

Press release