7 Feb 2023
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 Statement - Misleading Adverts
The financial promotions data for 2022, presents data resulting from both actions taken against authorised firms breaching financial promotion rules, and referrals and investigations into unregulated activity. The report notes that in 2022 the FCA saw a significant increase in intervention activity in response to poor financial promotions compliance by authorised firms, and also activity involving unauthorised firms and individuals.
Key messages in the report include:
Last year the FCA had 8,582 promotions amended or withdrawn, which is an increase of 1,398% compared with 573 in 2021 (in relation to authorised firms).
The FCA issued 1,882 alerts to help prevent consumers from losing money to scams in 2022, an increase of 33% from 1,410 in 2021 (in relation to unauthorised firms and individuals).
The FCA also published a press release which notes that social media remains a major focus for the regulator’s work in combatting misleading promotions. The FCA has worked closely with several Big Tech companies to change their advertising policies to allow only financial promotions that have been approved by FCA authorised firms, but notes that further work is required.
The press release also identifies, ‘fin-fluencers’ (influencers who publicise content on financial matters) as a growing concern for the regulator. The FCA warns that unauthorised fin-fluencers should think carefully before promoting financial products and should be clear about their obligations when advertising to consumers through their social media channels. In the most serious of cases, the FCA notes that it has referred, and will continue to refer, fin-fluencers for criminal investigation.
FCA Publishes Portfolio Letters - Implementing the Consumer Duty
The Portfolio Letters seek to support firms through the transition to implementing the Consumer Duty (the Duty).
Each letter sets out the following:
a reminder of the implementation timeline, key elements of the Duty and how it applies to firms in the portfolio.
the FCA’s expectations for how firms should embed the Duty.
feedback from the FCA’s review of firms’ implementation plans published in January 2023.
the FCA’s approach to supervising the Duty in the portfolio and next steps.
The letters are addressed to the following sectors:
asset management, custody & fund services and alternatives
credit reference agencies and providers of credit information services
general insurance and pure protection firms
mainstream consumer credit lenders
mortgage lenders and administrators
retail banks and building societies
Several sectors are due to receive letters shortly, including credit unions, payment services and e-money firms, and credit brokers.
The Bank of England and HM Treasury Publish Joint Consultation Paper - Digital Pound
The joint Consultation Paper, published by the Bank of England (BOE) and HM Treasury covers the potential UK retail central bank digital currency (UK CBDC), colloquially known as the ‘digital pound’. This has been published alongside a Technology Working Paper which focuses on the technical requirements and design considerations for a digital pound.
The BOE and HM Treasury state that, if current trends continue, it is likely that the digital pound will be needed in the future in order to anchor the monetary system. The published paper also notes that it is too early to commit to building the infrastructure and both are convinced that further preparatory work is justified.
The Consultation Paper explains how a digital pound would be a new form of sterling, similar to a digital banknote, issued by the Bank and used by households and businesses for their everyday payment needs, both in-store and online. If introduced, the digital pound would exist alongside, and be easily exchangeable with, cash and bank deposits, and no interest would be paid on holdings (making it useful for everyday payments, but neither designed nor intended for savings).
A limit on individuals’ holdings (of between £10,000 and £20,000 per individual) would apply, at least in the introductory phase, striking a balance between encouraging use and managing risks, such as the potential for large and rapid outflows from banking deposits into digital pounds.
Users should be able to make and receive digital pound payments through smart cards (similar to existing payment cards), e-commerce websites and smart devices. The private sector would play a crucial role in enabling these means of payment; the Bank would provide the digital pound and the central infrastructure, including the ‘core ledger’, which may utilise distributed ledger technology, while private sector companies (which could be banks or approved non-banks) would provide the interface between the Bank and users via digital wallets. Recognising the fundamental importance of trust, it is proposed that any personal data would be anonymised by these private sector intermediaries before being shared with the Bank.
The paper also explores the implication of a digital pound for monetary and financial stability, including consideration of the potential for adverse impacts on banks’ business models and the cost and availability of credit.
The next steps are for the BOE and HM Treasury to invest in a ‘design phase’ that, while no firm decision has been taken on whether to build the digital pound, they will: (a) step up their development work (b) build the necessary skills (c) put in place the technical capability to introduce the digital pound in a timely manner, in the event a decision to do so is made in future.
Responses to the Consultation Paper and the Technology Working Paper are invited until 7 June 2023, and these responses will inform the next stage of work.
RULES COMING INTO FORCE AND ACTIONS REQUIRED IN FEBRUARY 2023
FCA publishes Policy Statement (PS22/10) and Handbook Rules for High-Risk Investments and Firms Approving Financial Promotions - Financial Promotion Rules
Policy Statement (PS22/10) covers the FCA’s rules on strengthening financial promotion rules for high-risk investments. Appendix 1 (of the Policy Statement) sets out the draft Handbook Instrument that will make the proposed changes. The Policy Statement follows on from consultation paper (CP22/2) which was published in January 2022.
Several targeted changes have been made to the original proposals, which have been added with a view to avoiding certain negative unintended consequences as identified by respondents.
The changes include:
Clarifying that the FCA’s marketing restrictions do not generally apply to investments issued by local authorities.
Shortening the main risk warning for high-risk investments and allowing alternative risk warnings in peer-to-peer agreements and portfolios, and where the activity of the product issuer or provider could be covered by the Financial Services Compensation Scheme.
Exempting investment companies listed under Chapter 15 of the FCA’s Listing Rules that are caught by its marketing restrictions from the risk warning, risk summary and personalised risk warning requirements.
Exempting ‘shareholder benefits.
Clarifying that the Direct Offer Financial Promotion (DOFP) rules relate to promotions which include a manner of response or includes a form by which any response may be made.
Clarifying that the 24-hour cooling off period starts from when the consumer requests to view the DOFP (for Restricted Mass Market Investments) or financial promotion (for Non-Mass Market Investments).
Ensuring that consumers must wait at least 24 hours before undertaking the appropriateness test again from their second assessment onwards.
It is also extending the implementation period to six months (with the exception of the main risk warning rules, which must be implemented within four months).
The rules will not apply to cryptoasset promotions. The FCA will make final rules for cryptoasset promotions once the relevant legislation bringing certain cryptoassets into the scope of the financial promotion regime has been made by HM Treasury.
The FCA currently expects to take a similar approach to cryptoassets as that taken for other high-risk investments.
The rules related to risk warnings for financial promotions of high-risk investments will take effect from 1 December 2022. All other rules will have effect from 1 February 2023.
FCA Publishes New Webpage - Section 165 Request for Principal Firms (Further Information Regarding ARs)
The webpage notes that it is sending principal firms a mandatory section 165 data request between 8 and 12 December 2022 requesting further information about their appointed representatives (ARs).
Firms will be required to provide the following information about their ARs and introducer ARs (IARs):
The reasons for any appointments
The nature of their regulated business
Whether any unregulated business is conducted and, if so, the nature of this business
The nature of financial arrangements between you, as the principal, and your AR(s)
Complaints information and whether the AR is part of a group
Firms have until 28 February 2023 to respond.