|T’is the season to be compliant! Each month we publish the latest regulation updates and industry news. Our monthly regulation update covers only the salient points – it’s the gift that keeps on giving!|
– HM Treasury Publishes Supervision Report 2019/20 – AML and CTF
– Speech by Economic Secretary – New Directions for the Future of UK Financial Services
– FCA Publishes Market Watch Issue 68 – Market Conduct
– HM Treasury Publishes Consultation Paper – Future Regulatory Framework Review
– FSCS Publishes Update on 2021/22 Levy and Forecast on 2022/23 Levy
– The Money Laundering and Terrorist Financing (Amendment) (No. 3) (High-Risk Countries) Regulations 2021
Payment Services, E-Money & Open Banking
– Open Banking – UK Finance Publishes Report on Future Strategy
– CMA Publishes Terms of Reference – Open Banking Lessons Learned
– Bank of England Publishes Speech by Executive Director for Banking, Payments and Innovation – Cross-Border Payments
– Payment and Electronic Money Institution Insolvency (England and Wales) Rules 2021 Published
– FCA Publishes Final Rules – IFPR
– FCA Publishes Final Rules and Guidance – Long-Term Asset Fund Regime
– IAIS Publishes Application Paper – Anti-Money Laundering and Terrorism Financing
– The FCA Updates Webpage on Final Rules – General Insurance Pricing Practices
– IAIS Publishes Issues Paper – Insurer Culture
– FCA Updates Q&As – General Insurance Pricing Practices
|HM Treasury Publishes Supervision Report 2019/20 – AML and CTF|
The ninth annual supervision report on anti-money laundering (AML) and counter-terrorist financing (CTF) for 2019/20, relates to the performance of AML and CTF supervisors (including the FCA) between 6 April 2019 and 5 April 2020 – as required under section 51 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLRs).
The report concludes that supervisory action is broadly consistent with the previous reporting period, and refers to a need for greater consistency in the approach to supervision and enforcement.
HM Treasury: Anti-money laundering and counter-terrorist financing: Supervision Report 2019-20
Speech by Economic Secretary – New Directions for the Future of UK Financial Services
HM Treasury has published a speech by the Economic Secretary to the Treasury, John Glen MP. During the speech, given on 23 November 2021 to the UK Finance Annual Dinner, Mr Glen confirmed that the government intends to legislate, as early as parliamentary time allows, to implement the changes identified in the Wholesale Markets Review. Some of the changes include: (a) giving firms greater choice about where they can trade by revoking the share trading obligation and doubling the volume cap (b) recalibrating the transparency regime for fixed income and derivatives markets (c) to remove barriers that prevent the build-up of liquidity, reducing the scope of the position limits regime for commodity derivatives and transferring the setting of position limit controls from the FCA to trading venues.
Speech by John Glenn MP, Economic Secretary to the Treasury, to the UK Finance Annual Dinner
FCA Publishes Market Watch Issue 68 – Market Conduct
The newsletter on market conduct and transaction reporting issues focuses on web-based trading platforms and highlights the FCA’s concerns regarding gaps in users’ surveillance of web-based platform activity. It covers matters on monitoring gaps in fixed income and rates markets, including:
Market Abuse Surveillance
The FCA is concerned that users of web-based platforms may not be able to monitor all of their orders to detect potential market abuse (This is in line with Article 16(2) of the UK Market Abuse Regulation (UK MAR).
The FCA have observed that most users of web-based platforms face initial challenges in getting useable data in a format suitable for surveillance, and note a significant gap in many users’ market abuse surveillance.
there is disparity in the knowledge of users’ compliance and/or surveillance teams, with many failing to ensure that order and trade data are captured for surveillance purposes. The FCA also highlights disparity in the steps users take where they have identified a gap in data capture.
Market Abuse Risk Assessments
assessments often fail to include business entered on web-based platforms, particularly orders which are deleted or otherwise do not result in a trade.
users failing to capture all trade and order data will not be meeting Article 25(1) of UK Markets in Financial Instruments Regulation (UK MiFIR), which requires investment firms to keep data relating to all orders and transactions for five years. Failure to capture and record this data may also affect the FCA’s ability to monitor the market.
the FCA has observed firms using web-based trading platforms before completing formal new business procedures. Formal procedures and good governance for onboarding new platforms will allow firms to capture and monitor all relevant trade and order data.
Firm Rationales for Failings
the FCA will continue to observe firms using questionable rationales to justify potential failings to meet their obligations under UK MAR. Where the PRA has not published enforcement action on particular failings, firms should not assume the PRA will not take appropriate enforcement action.
Operators of Web-Based Platforms
operators of trading venues are reminded of their obligations to undertake effective monitoring to prevent, identify and report potential market abuse, and of their order data recording obligations under Article 25 of UK MiFIR.The FCA will also continue to visit firms and venues to assess their suspicious transaction and order reporting (STOR) frameworks.
Newsletter: Market Watch 68
HM Treasury Publishes Consultation Paper – Future Regulatory Framework Review
The consultation paper proposes changes to the UK’s financial services regulatory framework under the Financial Services and Markets Act 2000 (FSMA). The Future Regulatory Framework (FRF) Review was first announced in his June 2019 by the then chancellor in his Mansion House speech. The chancellor set out the government’s vision for an open, green and technologically advanced financial services sector and established to determine both how the financial services regulatory framework should adapt to the UK’s new position outside of the EU and how to ensure the framework is fit for the future.
The consultation both provides feedback and builds on HM Treasury’s Phase II consultation on the FRF, published in October 2020. The consultation centres around three themes: regulatory responsibility for rule-making, regulatory accountability, and an update to the regulators objectives and principles.
The consultation closes on 9 February 2022.
Consultation: Financial Services Future Regulatory Framework Review: Proposals for Reform
FSCS Publishes Update on 2021/22 Levy and Forecast on 2022/23 Levy
The Financial Services Compensation Scheme (FSCS) announced The total levy for the 2021/22 financial year is now £717m which is lower than the previous forecast of £833m announced in May.
The FSCS has also published their first levy forecast for 2022/23, which currently stands at £900m. This includes the FSCS’s estimated running costs (management expenses). However, this estimation may change and is subject to further consultation in January 2022 – it is predicted that approximately 400m in compensation costs are relating to failures that have yet to occur.
FSCS Outlook November 2021
The Money Laundering and Terrorist Financing (Amendment) (No. 3) (High-Risk Countries) Regulations 2021
Along with the Money Laundering and Terrorist Financing (Amendment) (No. 3) (High-Risk Countries) Regulations 2021 (SI 2021/1218), an explanatory memorandum has also been published.
The Regulations amend the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLRs) by substituting the list of high-risk third countries in Schedule 3ZA for a new list. The new list classifies Jordan, Mali and Turkey as high-risk countries for the purposes of enhanced customer due diligence requirements in regulation 33(3).
The Regulations came into force on 2 November 2021.
The Money Laundering and Terrorist Financing (Amendment) (No. 3) (High-Risk Countries) Regulations 2021
Open Banking – UK Finance Publishes Report on Future Strategy
UK Finance has published a report on the future strategy of open banking payments. The report arrives against a backdrop of growth in open banking transactions, which increased fivefold in the year to September 2021.
The report’s key recommendations relate to:
Governance: there should be further development of open banking payment standards supported by industry governance and an associated technical group. This should be considered following the CMA’s decision on open banking governance and a successor body to the Open Banking Implementation Entity.
Multi-lateral industry framework: there is a case for exploring a voluntary framework for open banking payments – without which there could be fragmentation in the market. Roles, responsibilities and liabilities of different market participants could be described in such a framework.UK Finance will discuss the report with regulators, along with other industry bodies, with a view to taking the recommendations forward.
CMA Publishes Terms of Reference – Open Banking Lessons Learned
The purpose of the review is to identify the lessons the CMA should learn from recent issues at the Open Banking Implementation Entity (OBIE), in order to make recommendations for the CMA’s future approach to remedies resulting from Market Investigations. Independent non-executive director of the CMA, Kirstin Baker, is leading the review.
The review will not revisit questions from the independent investigation into the OBIE, conducted by Alison White, but will take the report into account while addressing the following key questions:What weaknesses were there in the CMA’s design, implementation and monitoring of OBIE?What factors should the CMA consider when designing, implementing and monitoring remedies in Market Investigations in future, including in terms of scoping, timing, flexibility and allocation of resources and responsibility?What measures or processes would ensure that the governance of Market Investigation remedies is effective and appropriate, including where scope or timeframes change?What should be the process for CMA Executive and Board oversight of remedies when the Market Investigation Reference Group oversight ends?What if any further recommendations should be made for the future?The review will be completed within 6 months. The findings will be reported to the CMA Board and published.
Bank of England Publishes Speech by Executive Director for Banking, Payments and Innovation – Cross-Border Payments
In the speech, delivered at the Central Bank Payments Conference, Victoria Cleland, talked about how central banks and the private sector will work together to improve cost, speed, transparency and access to cross-border payments. She also explained how the Bank of England’s upgrade to the Real-Time Gross Settlement (RTGS) payments system will help, believing that this will enable longer operating hours and stronger links between payment systems.
Ms Cleland remarked that many cross-boarder payments suffer from long-standing challenges of high costs and low speed, limited access and insufficient transparency. Challenges, which she stated, impact remittances. She noted that fractions underlying cross-boarder payments have been around for many years and are multi-dimensional, meaning solutions must be developed holistically across the whole payments ecosystem, including issues such as data and messaging standards.
The Bank of England intends to consult the industry in early 2022 on enhanced functionality under the RTGS service, with a new platform to be launched in late 2023. Ms Cleland also discussed the potential introduction of a UK central bank digital currency (CBDC), which has the potential to improve cross-border payments efficiency. The Bank remains undecided about whether to introduce a CBDC and will consult with HM Treasury regarding this in 2022.
In conclusion Ms Cleland stated, ‘the success of this work depends on the commitment of public authorities and the private sector, working together in a coordinated manner. By collaborating in policy making, implementation and monitoring, we can make the most of this opportunity to address the frictions in cross-border payments for the benefit of citizens and economies worldwide.’
Payment and Electronic Money Institution Insolvency (England and Wales) Rules 2021 Published
The new rules provide detailed operating provisions to support the special administration process for a payment institution or an electronic money institution, established by the Payment and Electronic Money Institution Insolvency Regulations (SI 2021/716).
These regulations set out a new process for payment and electronic money institutions, in order to facilitate a faster and more efficient return of funds to customers in the event of insolvency.
The new regulations require administrators to pursue the following special administration objectives:Ensure the return of relevant funds as soon as is reasonably practicable;Ensure timely engagement with payment system operators, the Payment Systems Regulator and the Bank of England, HM Treasury and the FCA.Rescue the institution as a going concern, or wind it up in the best interests of the creditors.\The Payment and Electronic Money Institution Insolvency (England and Wales) Rules 2021 (SI 2021/1178) came into force on 12 November 2021.
|FCA Publishes Final Rules – IFPR|
The final rules have been made in order to streamline and simplify prudential requirements for solo-regulated UK firms authorised under the Markets in Financial Instruments Directive (MiFID) regime.
The rules form part of the FCA’s Investment Firms Prudential Regime (IFPR), and contain minor updates to the near-final rules published in the FCA’s first two policy statements on the IFPR published earlier this year (PS21/6 and PS 21/9).
The FCA has published the following materials:Investment Firms Prudential Regime Instrument 2021 (FCA 2021/38) – this contains the text of the new prudential sourcebook for MiFID Investment Firms (MIFIDPRU) and the MIFIDPRU Remuneration Code, set out in the Senior Management Arrangements, Systems and Controls (SYSC) sourcebook.Investment Firms Prudential Regime (Consequential Amendments to other Prudential Sourcebook Instrument 2021 (FCA 2021/39) – this revokes the Prudential sourcebook for Banks, Building Societies and Investment Firms (BIPRU) and most of the Prudential sourcebook for investment Firms (IFPRU).Finalised Guidance: General guidance on the application of ex-post risk adjustment to variable remuneration (FG21/5) – this sets out the FCA’s expectations of the way in which firms should comply with requirements in SYSC 19D and SYSC 19G on ex-post risk adjustment, including malus and clawback.The instruments and finalised guidance come into force on 1 January 2022, except one MIFIDPRU transitional provision, which will come into force on 1 December 2022.
The FCA has also published templates for firms Remuneration Policy Statements (RPS), which is designed as a tool for firms to document their remuneration policies and practices, and templates for material risk takers (MTRs), which is intended for use by firms to record their assessment of which staff are identified as MTRs, as required by SYSC 19G.
The FCA intends to publish a third policy statement before the end of 2021, reflecting the outcome of its third consultation paper (CP21/26) published in August 2021. The FCA further emphasises the importance of firms adequately preparing for the IFPR regime, which comes into force on 1 January 2022.
Investment Firms Prudential Regime Instrument 2021 (FCA 2021/38)
Investment Firms Prudential Regime (Consequential Amendments to other Prudential Sourcebooks) Instrument 2021 (FCA 2021/39)
Finalised Guidance: General guidance on the application of ex-post risk adjustment to variable remuneration (FG21/5)
Table of MTRs
FCA Publishes Final Rules and Guidance – Long-Term Asset Fund Regime
The final rules for a new category of open-ended authorised fund, called the Long Term Asset Fund (LTAF), are designed specifically to facilitate investment in long-term, illiquid assets such as venture capital, private equity, private debt, real estate and infrastructure.
The policy statement sets out the FCA’s response to Consultation Paper (CP21/12), in which stakeholders showed support for the new LTAF, whilst also cautioning that the proposed rules might not work as intended in some areas.
In response to this feedback, the final rules contain amendments relating to:Investing in loans and second schemes.The role of the depositary in overseeing the authorised fund manager’s competence in valuing the fund.The promotion of non-mainstream pooled investments, so that LTAFs can be promoted to high-net worth investors.The types of redemption terms for LTAFs that are more likely to be appropriate, to avoid LTAFs being developed that the FCA would not authorise.The changes to the FCA Handbook, particularly to the Glossary, Senior Management Arrangements, Systems and Controls sourcebook (SYSC), Fees manual (FEES), Conduct of Business sourcebook (COBS) and Collective Investment Schemes sourcebook (COLL) are set out at Annex I of PS21/14.
These final rules came into force on 15 November 2021.
Policy statement: A new authorised fund regime for investing in long term assets (PS21/14)
Handbook instrument: Long-term asset fund instrument 2021 (FCA 2021/41)
IAIS Publishes Application Paper – Anti-Money Laundering and Terrorism Financing
The purpose of this Application Paper, published by the International Association of Insurance Supervisors (IAIS), is to provide information and advice on how money laundering (ML) and terrorist financing (TF) can occur within the life insurance sector and on measures to mitigate the associated risks. The Guidance is directed both to supervisors and to the private sector (life insurers and intermediaries) and is intended to supplement, rather than replace, existing standards and expectations.
The paper endorses the risk-based approach (RBA) and recommendations adopted by the Financial Action Task Force (FATF) and makes the following key points:The principal starting point for applying a risk-based approach is the development of an ML/TF risk assessment. This should be commensurate with the nature, size and complexity of the business of the life insurer or intermediary.The intensity and depth of risk mitigation measures, including customer due diligence (CDD), depends on the ML/TF risk assessment.Senior Management should be involved in the anti-ML/TF process.
The FCA Updates Webpage on Final Rules – General Insurance Pricing Practices
The update concerns the rules on attesting compliance published in Policy Statement PS21/5. The FCA states it will send a survey to all general insurers and premium finance providers in January 2022, through which firms can provide their response in relation to the first annual attestation.
Firms subject to the rules must provide the first attestation by 31 March 2022. Firms not subject to the rules (because they undertake no pricing activities in relation to in-scope products), are requested to submit a nil response in accordance with instructions to be provided in the survey.
Policy Statement: General insurance pricing practices market study (PS21/5)
IAIS Publishes Issues Paper – Insurer Culture
The paper focuses on culture as a “point of intersection for prudential and conduct risks”. The Issues Paper published by the International Association of Insurance Supervisors (IAIS), provides background on particular topics, describes current practices and identifies relevant supervisory issues and challenges. They are not, however, intended to be guidance on supervisory expectations.
The paper is part of the IAIS’s broader shift in recognising culture as a key trend in insurance markets and supervision, and explores the concept of culture in more detail, providing illustrative examples. Key points made by the paper include:That there is no one ‘right’ or ‘good’ culture for insurers: the key question for supervisors is instead whether a particular insurer’s culture effectively promotes safety and soundness, the interests of stakeholders (including policyholders) and the fair treatment of customers.Insurers must not approach the management of culture as a one-off, whereby shortcomings can be identified and rectified in one go. Instead, culture management must be seen as an ongoing process requiring long-term commitment.
FCA Updates Q&As – General Insurance Pricing Practices
The updated version of the FCA’s general insurance pricing practices Q&As, adds further question on cash-equivalent incentives.
In response to a question regarding whether incentives such as cinema or events tickets would be considered to be “non-cash” incentives, the FCA clarifies their expectations that firms:Develop their own methodology to determine whether their incentives can be readily expressed as having monetary value.Need to consider how they comply with the FCA’s pricing rules contained in the ICOBS section of the FCA Handbook.
We are the only compliance consultancy in the UK to specialise exclusively in fintech, meaning we understand your business and your needs. Our dynamic team all hold industry qualifications and are up to date with the latest compliance regulations regarding all spheres of technology based, and alternative finance companies.
A deep dive look into your businesses activities and processes to determine the level of compliance required in order to fulfil regulatory requirements. Think of this service as a ‘health check’, which can range from checking on one element of your business or a full-firm-wide review.
Our cost-effective retainer service for firms with low compliance requirements.
This popular service is the comprehensive way to ensure your firm remains compliant. Providing you with periodic risk-based compliance reports focused on specific areas of the business, as well as any other ongoing advice or compliance assistance required.
Perfect for situations when you need assistance with one-off issues which require efficient and effective resolution. Comply – Ad hoc incorporates assistance with any regulatory/compliance issues including the following:
Providing you with training services specific to your business and activities. With financial regulation constantly evolving, it is imperative that your firm keeps up-to-date with its requirements, including maintaining the competency of staff. Some of the training services we currently provide to businesses include:
Keep your finger on the ‘regulation’ pulse – connect with us on social media.