December Monthly Regulation Update

By Kyte Ekstrom | Agent Relationship, AML, Appointed Agent, Appointed Representative, E Money, FCA Regulation, Financial Promotions, FinTech, Investment, Investment Advisor, Investment Funds, Investment Manager, payments, Pensions, Regulatory Hosting, Umbrella Services | 0 Comments

December Headlines

General Regulation
– HM Treasury publishes Consultation Paper – Financial Promotion Exemptions
– House of Commons Publishes Letter – Future of the UK and EU AML/CFT Regimes
– FCA Publishes Consultation Paper (CP21/34)- Improving the Appointed Representatives Regime

Payment Services, E-Money & Open Banking
– FCA publishes Policy Statement (PS21/19) – Strong Customer Authentication
– Transparency International UK publishes Report – Money Laundering Risk in E-Payments

Investment Services 
– FCA Publishes Third Policy Statement (PS21/17) – Final Rules UK IFPR
– FCA publishes Policy Statement (PS21/20) – UK MiFID

Pension Providers
– FCA publishes Policy Statement (PS21/21) – Pension Wise Guidance

General Regulation

HM Treasury publishes Consultation Paper – Financial Promotion Exemptions

The Financial Promotions Order (FPO) contains exemptions for high net worth individuals and sophisticated investors from the financial promotion restriction. These exemptions are aimed to help small and medium sized enterprises raise finance from sophisticated private investors, or ‘business angels’ without the cost of having to comply with the financial promotions regime. A number of exemptions from the financial promotion restriction, also enable unauthorised individuals or businesses to communicate financial promotions without requiring the approval of an authorised firm.

Responding to economic, social and technological changes that have occurred since the exemptions were introduced in 2001, and to instances of misuse of the exemptions identified by the Financial Conduct Authority, this consultation considers three proposed reforms to the following exemptions:

  • Certified high net worth individuals (Article 48)
  • Sophisticated investors (Article 50)
  • Self-certified investors (Article 50A).

The proposed reforms look to:

  1. Increase the financial thresholds for high net worth individuals
  2. Amend the criteria for self-certified sophisticated investors
  3. Place a greater degree of responsibility on firms to ensure individuals meet the criteria to be deemed high net worth or sophisticated
  4. Update the high net worth individual and self-certified sophisticated investor statements
  5. Update the name of the high net worth individual exemption.

The consultation closes on 9 March 2022.

HM Treasury Consultation: Financial promotion exemptions for high net worth individuals and sophisticated investors

Webpage

House of Commons Publishes Letter – Future of the UK and EU AML/CFT Regimes

The House of Commons European Scrutiny Committee has published a letter (dated 1 December 2021) from Sir William Cash, Committee Chair, to John Glen, Economic Secretary to the Treasury. The letter covers the implications for the UK of the EU’s proposed reforms to its anti-money laundering (AML) and counter-terrorist financing (CFT) regime.

Sir William Cash refers to the package of measures proposed by the European Commission in June 2021 and poses a number of questions on the scope and progress of HM Treasury’s review of the the UK’s AML/CFT regulatory and supervisory regime.

Letter from Sir William Cash to John Glen, Economic Secretary to the Treasury: Reform of EU money laundering rules: implications for the UK

FCA Publishes Consultation Paper (CP21/34)- Improving the Appointed Representatives Regime

Consultation Paper (CP21/34) proposes stronger requirements on oversight of the Appointed Representatives (AR) regime.

In the accompanying press release the FCA noted that they are seeing a wide range of harm across all sectors where firms have ARs. Harm which often occurs due to Principal Firms not performing enough due diligence before appointing an AR, or, from inadequate oversight and control after an AR has been appointed.

The FCA’s proposed changes aim to address the harm arising in this market while retaining the cost, competition and innovation benefits the AR model can provide. The proposals would improve Principal Firms oversight of ARs and require principal Firms to provide the FCA with more information on their ARs, allowing the FCA to spot risks more quickly.

The FCA will also expect ARs to be more effectively overseen by their Principal Firms.

The FCA is also seeking views, through a discussion chapter in the consultation, on the wider risk posed by some of the business models operated by principal firms, and whether setting limits on such arrangements may help to reduce potential harm.

HM Treasury has also published a Call for Evidence on how market participants use the AR regime, how effectively it works in practice, and possible future reforms.

The FCA’s consultation and HM Treasury’s Call for Evidence both close on 3 March 2022.

FCA Consultation Paper: Improving the Appointed Representatives regime (CP21/34)

Webpage

Press release

HM Treasury: The Appointed Representatives regime: Call for Evidence

Webpage

E-Money, Payment Services & Open Banking

FCA publishes Policy Statement (PS21/19) – Strong Customer Authentication

Policy Statement (PS21/19) sets out final rules for Regulatory Technical Standards on Strong Customer Authentication and Secure Communication (SCA-RTS). The FCA have also set out amendments to, ‘Payment Services and Electronic Money – Our Approach’ (Approach Document, AD) and the Perimeter Guidance Manual (PERG).

The changes outlined in the Policy Statement aim to make the e-money sector (including open banking) more resilient and to protect consumers if firms fail. In light of the feedback received to CP21/3, the FCA is maintaining most of the proposals, with only some minor changes. The FCA has also published the instruments making the changes, and these will come into force variously on 30 November 2021, 26 March 2022 and 26 May 2023.

The Policy Statement highlights that both:

(1) account servicing payment service providers (ASPSPs) offering personal payment accounts within the scope of the Payment Account Regulations 2015.

(2) equivalent payment accounts held by SMEs and credit card accounts operated for consumers or SMEs will need to have a dedicated interface to enable third-party provider (TPP) access in place no later than 18 months after the rules come into force.

The FCA strongly encourages ASPSPs to apply the new exemption from the obligation to carry out strong customer authentication (SCA) as soon as practicable after it has come into effect.

TPPs will need to reconfirm customer consent under Article 36(6) of the SCA-RTS no later than 4 months after the rules come into force.

FCA Policy Statement: Changes to the SCA-RTS and to the guidance in ‘Payment Services and Electronic Money – Our Approach’ and the Perimeter Guidance Manual (PS21/19)

Webpage

Perimeter Guidance (Payment Services) Instrument 2021 (FCA 2021/44)

Technical Standards on Strong Customer Authentication and Common and Secure Methods of Communication (Amendment) (No 2) Instrument 2021 (FCA 2021/45)

Transparency International UK publishes Report – Money Laundering Risk in E-Payments

The Report analyses money laundering risks in the e-payments sector that have yet to be addressed in the UK. The Report notes that most e-payment businesses appear to comply with relevant requirements, but stresses that, without tougher supervision, electronic money institutions (EMIs) will become a vehicle of choice for those seeking to funnel the proceeds of crime and corruption through the UK. In 2019/20, almost one-third of suspicious activity reports relating to suspected criminal funds came from the e-payments sector, of which EMIs make up a significant portion.

Transparency International UK analysed all 261 UK firms certified by the FCA to operate as an EMI and found 100 EMIs with potential money laundering ‘red flags’. These included:

  • Being identified as having poor anti-money laundering controls or processing criminal wealth
  • Having owners, directors or senior staff named in money laundering investigations
  • Owners, directors or senior members of staff having worked previously for institutions alleged or proven to have anti-money laundering failings.

Transparency International also found ‘a worrying trend’ of EMI services being marketed to high risk customers and EMI licences and accounts being made available for sale globally. Examples include UK EMIs marketing their services specifically to ‘high-risk’ customers in the Commonwealth of Independent States region and licensed UK EMIs advertised for sale on LinkedIn and corporate services websites, with prices ranging from £600,000 to £1.5 million.

In light of these findings, Transparency International UK is calling for the following changes:

  • the FCA to introduce higher levels of scrutiny to those seeking to control UK EMIs, and to carry out a targeted audit of the anti-money laundering compliance of high-risk EMI firms;
  • the UK government to bring forward Companies House reform as soon as possible; and
  • the UK government to extend the Senior Managers and Certification Regime to e-payment firms.

Transparency International UK: Together in Electric Schemes

Webpage

Press release

Investment Services

FCA Publishes Third Policy Statement (PS21/17) – Final Rules UK 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 instruments and finalised guidance came into force on 1 January 2022, except one MIFIDPRU transitional provision, which will come into force on 1 December 2022.

To view our guide on the IFPR Final Rules, along with accompanying links to relevant webpages, click the link below.

IFPR Final Rules

FCA publishes Policy Statement (PS21/20) – UK MiFID

Policy Statement (PS21/20) sets out the FCA’s final policy position and rules on changes to the research rules and the removal of the best execution reporting in RTS 27 and RTS 28. The changes the FCA are making are intended to ensure that the UK MiFID rules for research and best execution are better tailored and more proportionate to the risks arising. This should remove unnecessary regulation, making the requirements less complex and allowing these markets to work better.

Following on from feedback the FCA is proceeding with the changes, as previously consulted on in April 2021 (CP21/9), which relate primarily to the Conduct of Business sourcebook (COBS), are as follows:

  • ResearchAmendments to the inducements rules in COBS 2.3A will broaden the list of what is considered to be “minor non-monetary benefits” to include fixed income currencies and commodities (FICC) research and research on small and mid-cap listed or unlisted companies (SMEs) with a market cap below £200m. There are also changes to how the inducement rules apply to openly available research and research provided by independent research providers;
  • Best executionThe requirement for execution venues to publish a report on various execution quality metrics to enable market participants to compare execution quality at different venues (RTS 27 reports) is to be removed. The requirement for investment firms who execute orders to produce an annual report setting out the top five venues used for executing client orders and a summary of the outcomes achieved (RTS 28 reports) is also to be removed.

The removal of the best execution reporting in RTS 27 and RTS 28 will come into force on 1 December 2021. The changes to the research rules will come into force variously on 1 December 2021 and 1 March 2022.

FCA Policy Statement: Changes to UK MiFID’s conduct and organisational requirements (PS21/20)

Webpage

Conduct of Business Sourcebook (Amendment) Instrument 2021 (FCA 2021/59)

Technical Standards (Markets in Financial Instruments Regulation) (Best execution) Instrument 2021 (FCA 2021/60)

Pension Providers

FCA publishes Policy Statement (PS21/21) – Pension Wise Guidance

From 1 June 2022 pensions providers must give consumers a stronger nudge to Pension Wise guidance when they decide to access their pension savings.

These changes implement a requirement set by Parliament and are designed to increase take-up of the Pension Wise service, which offers free and impartial guidance to consumers about the options for accessing their defined contribution (DC) pension savings.

Policy Statement (PS21/21) on ‘The stronger nudge to pensions guidance’ follows on from the FCA’s consultation paper on the same topic published in May 2021 (CP21/11). The FCA’s final rules amend the Conduct of Business sourcebook (COBS), and state that when a consumer has decided in principle how they wish to access their pension savings, or transfer rights accrued under their existing pension to another pension provider for the purpose of accessing their pension savings, pension providers must:

  • Refer the consumer to Pension Wise guidance.
  • Explain the nature and purpose of Pension Wise guidance.
  • Offer to book a Pension Wise guidance appointment, and where the consumer accepts that offer, book the appointment or provide the consumer with sufficient information to book their own appointment.
  • Confirm and record whether the consumer declined the offer to receive the Pension Wise guidance. These rules implement the requirements set out in section 18 of the Financial Guidance and Claims Act 2018.

The Policy Statement also sets out the FCA’s next phase of work, beginning early-2022, where they will consider the pensions guidance needs of consumers more holistically at different points in their pensions journey, including in the run up to accessing their pensions savings.

FCA Policy Statement: The stronger nudge to pensions guidance: feedback on CP21/11 and final rules and guidance

Conduct of Business Sourcebook (Final Nudge to Pensions Guidance) Instrument 2021 (FCA 2021/54)

Webpage

Press release


Compliance Vs FinTech Compliance

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