12 Jan 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 Consultation Paper – Strengthening Financial Promotion Rules
The FCA is acting to concerns about the ease and speed with which people can make high-risk investments by proposing a significant strengthening of their rules on how high-risk financial products are marketed. Under the proposed rules, the FCA would ensure firms that approve and communicate financial marketing have relevant expertise and understanding of the investments being offered, improve risk warnings on ads and ban incentives to invest (eg) new joiner or refer-a-friend bonuses. Those looking to make certain high-risk investments would also be asked more robust questions about their knowledge and investment experience. The category of high-risk investments includes, among others, investment-based crowdfunding, peer-to-peer agreements, and speculative illiquid securities.
Consultation Paper (CP22/2) includes proposed restrictions on the marketing of cryptoassets following HM Treasury’s announcement on 18 January 2022 that the promotion of ‘qualifying cryptoassets’ will be brought within the financial promotions regime. The FCA plans to categorise qualifying cryptoassets as ‘Restricted Mass Market Investments’, meaning consumers would only be able to respond to cryptoasset financial promotions if they are classified as restricted, high net worth or sophisticated investors.
CP22/2 covers the following key areas:
Classification of ‘high-risk investments’.
The consumer journey into high-risk investments (following concerns that many consumers are just ‘clicking through’ when accessing these investments).
Strengthening the role of firms approving and communicating financial promotions.
Applying financial promotion rules to qualifying cryptoassets.
The deadline for responses is 23 March 2022, and the FCA will confirm their final rules in summer 2022.
FCA publishes Policy Statement – Regulatory Fees & Levies
Policy Statement (PS22/1) sets out a new structure for authorisation application fees. This Policy Statement applies to all FCA fee-payers and to any businesses considering applying for FCA authorisation or registration.
Subject to a number of minor adjustments, the FCA is proceeding with the amendments as consulted on in Consultation Papers (CP20/22 and CP21/8). Changes are being made to the following:
General pricing categories for application fees
Consumer credit applications
Fees for claims management companies
Structured charges on validation orders
The FCA also consulted on introducing a new charge for applications under the Senior Managers and Certification Regime (SMCR), and controlled functions for appointed representatives. The FCA intends to publish a Handbook Notice before this is implemented.
The new structure comes into effect from 24 January 2022.
FCA Statement on Further Extending Flexibility on 10% Depreciation Notifications – COVID-19
Temporary measures have been in place since March 2020 regarding the requirement for firms to issue 10% depreciation notifications to investors. The measures were put in place initially to help firms support consumers during market volatility linked to COVID-19 and also the Brexit transitional period.
As a result from findings of HM Treasury of their Wholesale Markets Review (WMR), the FCA is extending the temporary measures for firms for a further 12 months (until 31 December 2022) while HM Treasury and/or FCA conclude their policy work on the future of this requirement.
During this period, the FCA will not take action for breach of COBS 16A.4.3 UK for services offered to retail investors, provided that a firm has met certain specified requirements. For services offered to professional investors, the FCA will not take action for breach of COBS 16A.4.3 UK, provided that firms have allowed professional clients to opt-in to receiving notifications.
FCA publishes Two Policy Statements – Climate-Related Disclosures
The FCA has published two Policy Statements confirming final rules and guidance to promote better climate-related financial disclosures; (PS21/23) on enhancing climate-related disclosures by standard listed companies, and (PS21/24) by asset managers, life insurers and FCA-regulated pension providers.
PS21/23 – The FCA is proceeding with the policy as consulted on, but with a change to the scope of issuers that are subject to the new Listing Rule requirements and the addition of a guidance provision on transition plan disclosures. The new Listing Rule requirements (LR 14.3.27.R) will apply for accounting periods beginning on or after 1 January 2022 and are set out in the Listing Rules (Disclosure of Climate-related Financial Information) (No 2) Instrument 2021, contained in Appendix 1 of PS21/23.
PS21/24 – The FCA has confirmed that they are introducing a new ESG Sourcebook to the FCA Handbook containing rules and guidance for asset managers and certain FCA-regulated asset owners to make disclosures consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). The rules will apply to the largest in-scope firms (34 asset management and 12 asset owner firms) from 1 January 2022 and to smaller firms (a further 140 asset management and 34 asset owner firms) from 1 January 2023. Appendix 1 sets out the Disclosure of Climate-Related Financial Information (Asset Manager and Asset Owner) Instrument 2021 (FCA 2021/62), which contains the new ESG Sourcebook.
The first financial reports subject to the new rules in PS21/23 and PS21/24 will be published in early 2023.
PAYMENT SERVICES & OPEN BANKING
PSR Publishes – Five Year Strategy
The PSR (Payment Systems Regulator) has published a Five Year Strategy (The Strategy) this follows on from Consultation Paper (CP21/7) on the same matter, published in June 2021.
The Strategy identifies four strategic outcomes which the PSR wishes to achieve, it also lists corresponding strategic priorities that will enable the PSR to deliver against those outcomes.
The priorities are:
To ensure everyone has access to payment services they need and are sufficiently protected when using them.
To emphasises greater focus on promoting competition between payment systems, including between payment systems within the UK and in the markets supported by them.
To unlock the potential of account to account (interbank) payments as an alternative to cards.
To ensure that the interbank systems provide the infrastructure, rules and incentives that foster innovation and competition in payments.
The PSR is proceeding with the Strategy as consulted on, with minor amendments or clarifications, including:
Emphasising the importance of near-term outcomes as well as longer-term ones, clarifying that, as the PSR works to develop competition, it may need to protect users until competition has time to take effect.
Adjusting their fourth priority to better reflect changes that are taking place to UK interbank payments, including those initiated through Open Banking services.
The PSR will conduct a mid-term review of progress in 2024 and intends to publish an Annual Plan in March 2022, setting out a work plan for the forthcoming financial year.
HM Treasury Publishes Consultation Response – Cryptoasset Promotions
This response follows on from the July 2020 consultation on cryptoassets and the financial promotions regime and sets out the government’s plan to bring the promotion of certain ‘qualifying cryptoassets’ within the scope of financial promotions legislation.
The promotion of qualifying cryptoassets will be subject to FCA rules, and will be in line with the same high standards that other financial promotions; such as stocks, shares and insurance products.
Certain cryptoassets are already subject to the financial promotions regime. This response calls for a wider range of cryptoassets, including those which are currently unregulated and used as a means of investment, such as bitcoin, to be brought within scope. Although the government is still in the process of finalising the definition of ‘qualifying cryptoassets’, it has been noted that the promotion of non-fungible tokens or ‘NFTs’ will be excluded from the definition.
This broadening of the financial promotions regime will be achieved by secondary legislation to amend the FSMA 2000 (Financial Promotion) Order 2005 (FPO), which sets out the investments and activities to which the financial promotion regime applies.
The FCA has also published a consultation paper setting out their approach to strengthening the financial promotion rules for high risk investments, which included proposals on how they will apply FCA rules on financial promotions to qualifying cryptoassets.
In the wake of this consultation response, on 19 January 2022 the FCA published a consultation paper setting out its approach to strengthening its financial promotion rules for high risk investments, which included proposals on how it will apply FCA rules on financial promotions to qualifying cryptoassets (CP22/2)
Although HM Treasury have proposed not to have a transition period for implementing the changes, in the light of industry feedback, it will provide a six-month transition period for the FPO changes and the complementary FCA rules.
FCA Publishes New Webpage – MIFIDPRU Remuneration Code
The new webpage provides an overview of the renumeration code (the Code), along with information on; application, proportionality, performance adjustment, reporting requirements, and disclosure.
The Code, which is set out in the Senior Management Arrangements, Systems and Controls sourcebook (SYSG 19G), applies to all MIFIDPRU investment firms in performance periods starting on or after 1 January 2022.
The FCA has also published documentation, which firms may find useful to record how their remuneration policies and practices comply with the Code. However, they are not required to use the below templates:
Remuneration Policy Statement (RPS) template
Table of material risk takers (MRTs)
Inquiry launched by House of Lords – UK Commercial Insurance & Reinsurance Market
The House of Lords Industry and Regulators Committee has launched an inquiry into the regulation of the London Market – the UK’s commercial insurance and reinsurance market. These markets, focused on commercial and wholesale speciality risks, are world-leaders and its services are some of the City of London’s major exports. The Committee will explore the extent to which regulatory policy is well-designed and proportionately applied and the possibilities for optimising policy following Brexit.
The inquiry will consider the roles of the Bank of England and Financial Conduct Authority and the appropriateness of regulation – the content of regulations as well as their implementation and application by regulators – relative to the risks posed by the London Market. The Committee will also assess the effects of regulation on customer interests and the market’s global competitiveness. The Committee will conduct a short inquiry, with a small number of public evidence sessions.
The Committee has published a call for evidence seeking information on, among other things:
Whether the UK regulatory framework is appropriate for the commercial insurance and reinsurance sectors.
To what extent the Bank of England and FCA apply and interpret regulatory policy in these areas in a proportionate manner and strike the right balance between regulation and competitiveness.
How the activities of the UK’s financial regulators affect the ease of carrying out commercial insurance and reinsurance business in the UK, and the impact this has on the availability and cost of insurance cover in the UK.
Improvements that could be made to the regulation of commercial insurance and reinsurance in a post-Brexit context.
The deadline for submissions is 11 February 2022.