June 2024 Regulation Update

GENERAL

ESAs put forward common understanding of greenwashing and warn on risks

The European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have published their Progress Reports on Greenwashing in the financial sector. In these reports, the ESAs put forward a common high-level understanding of greenwashing applicable to market participants across their respective remits – banking, insurance and pensions and financial markets.

Press Release

ESAs Progress Report on Greenwashing

European Commission launches targeted consultation on artificial intelligence in the financial sector

The targeted consultation will gather input from all financial services stakeholders including companies and consumer associations. Views are particularly welcome from financial firms that provide or deploy/use AI systems. This consultation is designed for respondents developing or planning to develop or use AI applications in financial services.

European Commission Targeted Consultation

FCA Publishes Research Note: Digital engagement practices: a trading apps experiment

The FCA's research has found that digital engagement practices (DEPs) used by trading apps, such as gamification, can increase the trading frequency and risk taking of consumers.

The FCA's findings suggests that firms and regulators should continue to closely scrutinise the effect of trading app design features on consumer investment decisions, especially in light of the FCA's Consumer Duty.

FCA's Research Note

FCA Publish New Webpage - Overseas appointed representatives

Feedback to the FCA's consultation on improving the appointed representatives regime (PDF) showed that principals may have challenges overseeing and communicating effectively with their OARs due to:

• differences in legal, accounting and regulatory requirements for each jurisdiction

• geographical distance

• cultural and language differences

The FCA has set out its expectation for principals with OARs, as well as points and practical considerations for principals with OARs.

The FCA will continue to use data to inform their regulatory approach, including whether any targeted supervisory engagement with principals with OARs is needed in future.

FCA Webpage - Overseas appointed representatives

FCA rejects complainant's suggestion about introducing explicit money mule warnings

The FCA has published its response to the Financial Regulators Complaints Commissioner's final report (dated 8 May 2024) regarding a complaint made against the FCA (202300608).

As currently drafted, Regulations 17 and 46 of the MLRs do not contain an explicit requirement for banks to tell customers about the risks of money mules, nor do they require the FCA to make rules requiring firms to do this, or to supervise that firms are doing this.

The FCA's Response

INSURANCE

FCA Publishes: Insurance multi-firm review of outcomes monitoring under the Consumer Duty

Under the Consumer Duty (the Duty) firms must regularly assess, test, understand and evidence the outcomes their customers are receiving. Without this, it will be impossible for firms to know that they are meeting the requirements set out in the Duty.

The FCA's recent publication sets out the key findings from its review of larger insurance firms’ approaches to outcomes monitoring under the Duty. The FCA recognise this represents a new expectation of firms and have set out examples of good and poor practice to help all firms raise their standards where necessary.

Firms that identify gaps in their compliance with the FCA's rules should act immediately, putting robust plans in place to address any shortcomings.

FCA Publication - Insurance multi-firm review of outcomes monitoring under the Consumer Duty