Emily Tierney
5 Feb 2024
The latest FinTech news and regulation in bite-size bits with links to relevant articles and documents. You're one-stop-shop for everything FinTech and compliance - don't be complacent, be compliant!
January Regulation Update
General
Law firm warns of regulatory overload
Law firm CMS has warned of regulatory overload as technology providers which supply services to financial services firms could be brought into scope of UK regulation.
https://www.ftadviser.com/regulation/2024/01/19/law-firm-warns-of-regulatory-overload/
Rule Review Framework - final version published by FCA
The FCA has published its 'Rule Review Framework' which sets out how the FCA intends to monitor and review new and existing rules. Following a public consultation on the Framework, launched in July 2023, this final publication explains how the FCA sets, measures and monitors the outcomes of its rules. It also explains how the FCA gathers metrics and qualitative intelligence to understand where there are significant concerns about a rule and how the FCA will conduct a review, if required. In addition the FCA has developed a dedicated feedback tool to allow anyone to share evidence on the effectiveness of its rules.
https://www.fca.org.uk/publications/corporate-documents/our-rule-review-framework
Revealed: FCA hikes pay to fend off pull of the private sector
The Financial Conduct Authority (FCA) is set to hike pay for all its employees this year as it looks to pull in more staff from the private sector, City A.M. can reveal. Staff at the City watchdog are in line for an average performance-based pay hike of 4.83 per cent, with some high-performers in line for a 6.5 per cent boost, the FCA told staff today. Low-performers and those “developing in role” will see an increase of around 1.5 per cent, with another pay review set for the middle of this year. The move will push the FCA to near the top of the pay bracket among public sector bodies, where performance-based pay is a rarity due to tight government controls on spending as well as union pushback.
https://www.cityam.com/revealed-fca-hikes-pay-to-fend-off-pull-of-the-private-sector/
Regulatory references under SMCR
what you need to know First introduced for banks and insurers in March 2017, regulatory references are now a requirement for all firms regulated by the Financial Conduct Authority and Prudential Regulation Authority, under the senior manager and certification regime. Regulated employers must seek and provide regulatory references about those they intend to promote or appoint to certain regulated roles, including employees, contractors and even non-executive directors.
Ones to watch: Seven key areas of FCA scrutiny
Last year was a pretty significant one in the world of Financial Conduct Authority compliance. The Consumer Duty dominated the headlines and fundamentally transformed the way the industry operates. So, what does the regulator have in store next? Certainly, the pace of regulatory change shows no sign of slowing down.
https://www.moneymarketing.co.uk/analysis/ones-to-watch-seven-key-areas-of-fca-focus/
House of Lords creates body to oversee UK financial regulators
Parliament is launching a new committee to scrutinise Britain’s financial services regulators, following growing concerns about accountability as the watchdogs accrue fresh post-Brexit powers.
https://www.ft.com/content/90e0609d-51ae-40b4-a97d-a3e1f9541c22
‘The key thing is to have a plan’: the former City watchdog now helping to guide Keir Starmer
Charles Randell had no idea what was about to unfold as he made his way to Downing Street in September 2007. Days earlier, the then chancellor Alistair Darling had taken drastic measures, guaranteeing deposits at Northern Rock in an effort to halt Britain’s first bank run in 140 years.
Fos expects 181k complaints about everyday financial concerns
In a consultation paper on its plans and budget, the Fos said it expects everyday financial concerns to be the driving force behind complaints made to the service. These include a rise in disputed transactions driven by an increase in financial fraud and scams, as well as cost-of-living pressures causing unaffordable lending.
Motor Finance Complaints and Investigations PS24/1: Temporary changes to handling rules for motor finance complaints
The FCA are aware of a high number of complaints from customers to motor finance firms claiming compensation because of historical, potentially unfair, commission arrangements. The new rules will help ensure their approach to providing any redress that is due to these customers leads to the right outcomes for consumers and the effective functioning of the motor finance market.
FCA launches probe into historic commission agreements by motor finance groups
British auto lenders are braced for more than £1bn in compensation payouts after the UK’s top financial regulator launched an investigation into historical commission agreements by car dealers stretching back a decade. The Financial Conduct Authority said on Thursday it would investigate interest-linked deals offered by motor finance companies following a surge in customer claims, which could lead to redress that compliance experts said echoed the payment protection insurance scandal.
https://www.ft.com/content/491fba92-caca-47e2-b575-30119139b9be
Scrutinising the UK’s new ‘match fit’ listing rule book
The Financial Conduct Authority unveiled its proposed new UK listing rules on the 20th December, long after most market players and pundits had decamped to warmer climes for a digital detox. The timing was strange because the draft rules — initially floated in a consultation last May — are a milestone in London’s fightback to reclaim its status as a premier venue for equity listing and fundraising. It’s a substantial document aimed at making the UK listing regime “match fit,” according to the law firm Latham & Watkins.
https://www.ft.com/content/29da6ddd-16e7-46da-b45f-79531bfce644
FSCS interim CEO: current failure levels are 'still simply too high'
Even though some firms failures are to be expected, the current level remains too high and needs to be addressed, according to Martyn Beauchamp, interim chief executive officer of the Financial Services Compensation Scheme. Speaking to FT Adviser, Beauchamp explained that the pensions and advice landscape will continue to evolve – much of which will have relevance to FSCS and the protection it provides to consumers.
Australian regulator steps up greenwashing crackdown
Australia’s corporate watchdog has pledged to continue to crack down on misleading environmental claims made by funds this year after it launched legal action against three in 2023. Sarah Court, deputy chair of the Australian Securities and Investments Commission, told the Financial Times that the regulator would take action against purportedly ethical funds that were marketing investments as “net zero” or “carbon neutral” but failed to live up to those claims.
https://www.ft.com/content/2e626aec-aeee-4043-a50f-09a93652a278
How much of an uphill struggle is a simplified advice regime?
The Financial Conduct Authority and government’s discussion paper on the advice guidance boundary review marks a milestone in the development of simplified advice. But to reach this point, it has been a long journey.
'Lender success depends on ability to handle a mass of data'
Back in 2006, the Financial Conduct Authority's treating customers fairly principle ushered in a new era. From that moment on, ‘buyer beware’ ceased to be a justification for selling what might prove to be an inappropriate product. Lenders were required to adopt more of a caretaking role to ensure the right fit of product to client. Since then, every few years has seen an incremental escalation of rules that have pushed responsibility even further back into the hands of the providers of financial products and services.
Consumer Duty
FCA warns of 'lumpy' income streams at crowdfunding platforms
The Financial Conduct Authority has set out its expectations on preventing harm for investment-based crowdfunding platforms in response to the consumer duty. In a letter sent on Monday (January 15) the regulator said it will be taking a close look at the financial resilience of firms and cracking down on potential harms from not complying with consumer duty rules.
‘There were rumblings consumer duty was going to be TCF – The Sequel’
The past year was largely dominated by the Financial Conduct Authority’s consumer duty, and this was the elephant in the room for most conversations. Speaking to FT Adviser, Lee Hartley, chief executive officer of Fairstone, said it felt like quite some time since there has been a year which could be called "business-as-usual".
Could consumer duty open the door for CMC complaints?
Complaints about ongoing advice charges, where clients have paid for but not received a service, are not a new issue. But a focus on ongoing fees has been renewed by some claims management companies, which are inviting enquiries from clients if they have not received a corresponding ongoing service.
Investment
Individual charged with fraud over unauthorised investment scheme
The FCA alleges that between January 2016 and November 2021, Mr Flintham, based in Blackburn, Lancashire, defrauded around 240 investors by making false representations to persuade them to invest approximately £19m in an investment scheme operated by him. Mr Flintham made a number of fraudulent claims to investors, including about how the scheme was operated and the profits they could and were making via the scheme. He falsified documents in order to support some of his claims.
https://www.fca.org.uk/news/press-releases/individual-charged-fraud-unauthorised-investment-scheme
Payment Services
UK financial watchdog slams poor standards at payment companies
A failure at payment companies to properly safeguard customer cash is a "constant theme" and tougher standards will be proposed, Britain's Financial Conduct Authority (FCA) said on Thursday. Matthew Long, the FCA's director of payments and digital assets, said 85% of payments and digital money licensing cases were rejected, withdrawn or refused in the last year. Some businesses left the governance section of their applications blank, he told a City & Financial conference
Cryptocurrency
Three ways to tackle ongoing consumer duty compliance
The Financial Conduct Authority has made it abundantly clear that consumer duty implementation on July 31 last year was only the beginning of the compliance journey for our industry, so there will still be plenty for advisers to do around the duty in 2024.
The FCA's stringent rules are hurting crypto firms in the UK, says Bittrex Global CEO
Last summer, UK Prime Minister Rishi Sunak said he was keen on providing regulatory clarity regarding how crypto firms should register and operate in the country — as part of his ambitions for the UK to become a global hub for web3. However, fast-forward several months and some firms have now suspended services or exited the UK market amid strict marketing rules from the country’s financial regulator, the Financial Conduct Authority. “For certain crypto players, the FCA’s rather stringent marketing rules are acting as a deterrent and a potential reason to leave the jurisdiction," lawyer and Bittrex Global CEO Oliver Linch told The Block.
https://www.theblock.co/post/273763/fca-crypto-rules-sunak-uk-web3-hub
FCA plans new UK regulatory regime for fiat-backed stablecoin
The UK’s financial conduct regulator, the Financial Conduct Authority (FCA), has published plans to regulate fiat-backed stablecoins in a way which will protect and benefit both consumers and the markets, an expert has said.
https://www.pinsentmasons.com/out-law/news/fca-plans-new-uk-regulatory-regime-fiat-backed-stablecoin
UK looks increasingly isolated in its anti-crypto ETF stance
The UK is becoming increasingly isolated as one of the few major global markets to continue to hold back from approving retail access to cryptocurrency exchange traded products. Continental Europe has them, as do Australia, Brazil and Canada. The US has followed suit most recently with spot bitcoin ETFs, prompting Hong Kong to say it will also jump on board.
https://www.ft.com/content/df0a8ab8-0c1e-495b-9983-729ead67b73d
Pension
FCA hands adviser warning notice over DB pension transfer advice
The Financial Conduct Authority has handed an adviser a warning notice for unsuitably advising clients to transfer out of their defined benefit pension. Between April 2, 2015 and June 25, 2019, the FCA said the individual - who was not named in the notice - advised customers to transfer out of their DB scheme when it was not suitable.
Financial Misconduct
UK finance watchdog probes possible motor finance misconduct
Britain's finance watchdog said on Thursday it would start looking into the motor finance industry, amid rising tensions between thousands of consumers and finance providers about commission arrangements. In 2021, the Financial Conduct Authority banned incentives for brokers to increase the interest rate that a customer pays for their motor finance. But many customers have logged complaints claiming compensation for unfair commission arrangements struck prior to the ban, the FCA said.
https://www.reuters.com/world/uk/uks-fca-probes-possible-motor-finance-misconduct-2024-01-11/
Lloyds and other banks face up to £16bn impact from FCA motor finance review
Proactive Investors - The City watchdog's review of motor finance is going to lead to a bigger worst-case impact of up to £16 billion on bank profits than previously thought, analysts have warned. Following guidance for analysts from the Financial Conduct Authority on its review of historical motor finance commission arrangements, estimates of the potential impact for UK banks have been revised sharply.
Advice Guidance
What does 2024 have in store for advisers?
After a busy 2023, which included the introduction of the consumer duty, the coming year promises to be just as eventful. The most immediate thing for advisers to concern themselves with in 2024 is the scrapping of the lifetime allowance which is happening in early April with the final regulations having been published late last year.
https://www.ftadviser.com/your-industry/2024/01/12/what-does-2024-have-in-store-for-advisers/
'Could progress really be on the cards for the advice gap issue?’
Those of us who have been in the industry for a while will have greeted the Financial Conduct Authority's review of the advice guidance boundary like an old friend.
What the FCA's ESG advice working group should look at
The working group set up by the Financial Conduct Authority to look into ESG rules and financial advice needs to look at rules around suitability, according to guests on the latest FT Adviser Podcast. Luke Murray, a consultant at regulatory consultancy firm Bovill, said he had spoken to advisers who said there was a need for clearer rules on this area.
FCA establishes industry-led working group for financial advisers
Following its publication in November last year of a package of measures to support the UK’s position as a world-leading, competitive centre for asset management and sustainable investment, the FCA is convening the group to support industry in advising consumers on products making claims about sustainability. The FCA will sit as an active observer of the group and has asked that it be ready to report on how the advice sector can be supported in delivering good practice in the second half of 2024.
Private Equity
What are the key challenges facing the private assets market?
The bigger you are, the more attention you draw, and it seems last year that the explosive growth of leverage – both at the asset level and at the fund level – has finally turned the eagle eye of the regulator towards private assets and markets.
Sustainability
FCA appoints Godfrey and Dreblow to run sustainable advice working group
The Financial Conduct Authority (FCA) has appointed Daniel Godfrey as chair and Julia Dreblow as vice-chair of a new working group to build capabilities in sustainable finance across the financial advice sector.
https://esgclarity.com/fca-appoints-godfrey-and-dreblow-to-run-sustainable-advice-working-group/
Firms cannot afford to sit still amongst growing sustainability regulations
For financial services firms, 2023 was another year of intense regulatory pressure when it came to sustainable finance and environmental, social and governance factors. New regulations and standards, expanding disclosure requirements, concerns about greenwashing and intensifying supervisory expectations were all contributing factors. As firms continue to feel the pressure in 2024, with several new regimes coming into effect, which areas will have the biggest impact and where should firms focus?
Whistleblowing and Non-Financial Misconduct
FCA: NDAs should not deter whistleblowers from reporting non-financial misconduct
The Financial Conduct Authority has said individuals should report non-financial misconduct cases through its whistleblower hotline even if non-disclosure agreements have been signed. During the last hearing of the Treasury Select Committee's Sexism in the City inquiry on Wednesday (17 January), FCA executives responded to concerns about use of NDAs during incidents of bullying and sexual harassment to silence victims and protect the perpetrators.
Anti-Greenwashing
How are asset managers preparing for the SDR and labels regime?
Less than a year after the consumer duty, another addition to the Financial Conduct Authority Handbook will come into force by way of an anti-greenwashing rule. The rule, which comes into effect on May 31, is one of several measures the regulator is introducing through its sustainability disclosure requirements and investment labels regime.