8 Feb 2021
Each month we publish a round-up of the latest regulatory updates, covering only the salient points, including links to relevant documents and webpages.
FCA Publishes Policy Statement – PS21/3 Building operational resilience
In December 2019, the FCA, in partnership with the Bank of England (BoE), and PRA consulted on proposed changes to improve the operational resilience of the UK financial sector. From their findings the Bank then published a ’shared Final Policy Summary’. The new FCA rules and guidance will come into force on 31 March 2022.This will apply to:banks
PRA-designated investment firms
Recognised Investment Exchanges
enhanced scope SM&CR firms
entities authorised and registered under the Payment Services Regulations 2017 or Electronic Money Regulations 2011
By 31 March 2022, firms must have identified their important business services, set impact tolerances for the maximum tolerable disruption and carried out mapping and testing to a level of sophistication necessary to do so. Firms must also have identified any vulnerabilities in their operational resilience.
House of Lords European Affairs Committee Announces Inquiry – UK-EU Financial Services
The House of Lords European Affairs Committee (the Committee) has announced the launch of a new UK-EU financial services inquiry. The Committee notes that the UK-EU Trade and Cooperation Agreement (TCA) contains only limited provisions on financial services trade between the UK and the EU. Since the TCA was signed, the EU has only granted the UK two equivalence decisions for financial services, both of which have been limited and one of which has since expired. In contrast, the UK has granted equivalence to EEA member states in 28 of the 32 areas identified for the equivalence process.The inquiry will consider:
The impact so far on the UK financial services sector of the UK’s departure from the EU single market.
The impact of the absence of a functioning framework for UK-EU regulatory cooperation.
The future of cross-border UK-EU financial services trade in the absence of equivalence.
The impact of regulatory divergence and agreements with third countries on UK-EU financial services trade.
The Committee indicates on its accompanying webpage that there will be an oral evidence session on 8 February 2022.
The Committee expects to report by May 2022.
FCA Publishes Speech – The Future of UK Financial Regulation
The speech on the FCA’s role and priorities on enhancing the UK’s financial services sector, given by Sarah Pritchard, Executive Director of Markets at the FCA, was given at the City and Financial Global’s Future of UK Financial Regulation Summit.
Ms Pritchard noted that, since the FCA’s CEO, Nikhil Rathi, set out the FCA’s vision for change and the future in July 2021, the FCA has taken steps towards delivering the outcomes that are needed to protect consumers and ensure a well-functioning market, through “being innovative, assertive and adaptive”.
These steps include:
HM Treasury consulting on giving the FCA significant new rule-making powers, through the Future Regulatory Framework (FRF).
How the FRF is a critical opportunity to adapt the regulatory system ensuring that it continues to enhance the attractiveness of UK capital markets.
The announcement the the FCA will be making the Regulatory Sandbox permanent.
Supporting investment in assets, such as infrastructure and private equity with the implementation of the Long Term Asset Fund regulations enabling open-ended funds to invest more efficiently in long-term illiquid assets.
Changes to the Listing Regime, aiding UK public markets to remain an attractive and trusted place to list companies.
The first successful prosecution under the Money Laundering Regulations against NatWest Bank for failing to have adequate Money Laundering systems and controls.
The ‘Regulatory Permissions ‘use it or lose it,’ pilot, seeking to remove permissions from firms who do not use them.
The proposed introduction of new rules to embed diversity and inclusion across financial services, and in listed markets.
The steps taken to implement the recommendations of the Taskforce for Climate Related Financial Disclosures.
Looking to the longer term, Ms Pritchard welcomes the government’s vision for the Future Regulatory Framework (FRF) as “an opportunity to create a rulebook which meets the specific needs of the UK market, while still remaining anchored by the high international standards which the UK has done so much to shape.”On ESG, Ms Pritchard highlights that the FCA expects ESG and sustainable finance to grow as an area of interest, noting that the FCA will “need to redouble work on [its] innovation agenda, to support the data and technology solutions which underly [sic] ESG integration”.
Finally, Ms Pritchard turns to future developments in 2022, highlighting that the FCA will publish their overarching consumer and market strategies, detailing future priorities. She further explained that the strategies should provide “a continued focus on the elements covered above, but with a focus also on the outcomes [the FCA is] seeking, and how progress will be measured.”Ms Pritchard also touches on the FCA’s current recruitment drive, highlighting the arrival of new senior leaders as well as senior leader vacancies.
FCA Publishes Guidance – Head of Compliance and MLRO Applicant Competency and Capability
The new webpage, published by the FCA, states that authorised and registered firms should have heads of compliance and money laundering reporting officers (MLROs) who are suitably competent and capable of effectively performing the roles, and should carefully consider how individuals can demonstrate this ahead of seeking regulatory approval.
The guidance focuses on four key areas:
Training – outlining necessary requirements for heads of compliance and the level of skills and knowledge required. As well as expectations for ongoing training and CPD courses.
Experience – the FCA states that Individual applicants do not need to have held head of compliance and MLRO positions before, but suggest the type of candidate suitable for the role.
Support from third parties – while it is not a necessary requirement for an applicant firm to have external compliance support, the FCA notes that it may be a helpful addition to the firm’s own in-house arrangements.
Capacity – the FCA note that the time commitment to the role must be proportionate and sufficient to the size of the company, and that the physical location of the head of compliance and/or MLRO is a relevant factor when deciding if the applicant will be effective in their role
Even if an applicant believes they have sufficient experience or training, the FCA note that they may still request an interview to test competence and capability.
FCA Publishes Webpage – Financial Promotions Data 2021
The webpage analyses the latest data, from January 2021 to 31 December 2021, resulting from action taken against authorised firms breaching financial promotion rules and referrals and investigations into unregulated activity. The data relates to financial promotions across all sectors. 1,686 financial promotions carried out by authorised firms from multiple sources were reviewed.
Key points emerging from the analysis include:
Last year saw an increase in approx. 300 amends/withdrawals of promotions (for authorised firms)
Some of the most common breaches were in the retail lending sector, in particular claims management companies (CMCs) and retail finance promotions.
The retail investment sector’s use of social media influencers on various platforms to market investments is increasingly becoming a concern.
The FCA issued 1,410 alerts about unauthorised firms and individuals in 2021, an increase of 18% from 2020.
In relation to illegal financial promotions by unauthorised persons, last year saw an overall increase of 10% of total reports received compared with 2020:
There has been a significant reduction in non-compliant paid for advertisements by unauthorised entities on Google since the FCA’s engagement and implementation of Google’s new financial services advertisement policy.
34,244 reports were received about potential unauthorised business. The number of alerts issued about unauthorised firms and individuals totalled 1,410, an increase of 18% from 2020.