21 Nov 2022
December is a busy month for new and updated guidelines / policies coming into force, as well as discussion paper and consultation paper deadlines.
FCA publishes Policy Statement (PS22/11) - Appointed Representatives Regime
The changes will take effect on 8th December 2022 following a four-month implementation period. The FCA has confirmed that the rules will not apply to firms in the Temporary Permissions Regime or the Financial Services Contracts Regime.
The Policy Statement follows the FCA’s Consultation Paper on the improvements (CP21/34), which was published in December 2021. Policy Statement (PS22/11) sets out improvements to the appointed representatives (AR) regime.
The FCA is proceeding with most proposals, but is also making changes to the final rules to add flexibility, making it easier for firms to implement the relevant proposals, and reduce duplication and regulatory burden.The FCA has explained that the changes will ensure that the data requested from principals will be the most useful in identifying trends, issues and harms arising from the AR regime, while minimising the burden on firms.The new rules will require principals to:
Apply enhanced oversight of their ARs, including ensuring they have adequate systems, controls and resources.
Assess and monitor the risk that their ARs pose to consumers and markets, providing similar oversight as they would to their own business.
Review information on their ARs’ activities, business and senior management annually, and be clear on the circumstances when they should terminate an AR relationship.
Notify the FCA of future AR appointments 30 calendar days before they take effect.
Provide complaints and revenue information for each AR to the FCA on an annual basis.
The FCA highlights that the new rules do not change the fact that principals are responsible for the activities of their ARs, and also states that, as part of the FCA’s new three-year strategy to improve outcomes for consumers and markets, the FCA is undertaking targeted supervision of principal firms across the financial services sector as a whole; this includes using improved data and analytical tools, and increasing scrutiny of firms when they apply for authorisation and appoint ARs.
As part of the FCA’s enhanced reporting requirements, principal firms should expect to receive a request for data about their ARs later in 2022. The final Handbook rules and guidance and updated forms are set out in Appendix 1 to the Policy Statement through the ‘Appointed Representatives Instrument 2022’ (FCA 2022/32).
EBA Publishes Final Report on Guidelines on Role of AML/CFT Compliance Officers
Guidelines apply from 1st December 2022
The European Banking Authority (EBA) consulted on the guidelines in July 2021, and has now published their guidelines specifying the role and responsibilities of the anti-money laundering and countering the financing of terrorism (AML/CFT) compliance officer and of the management body of credit or financial institutions.
These Guidelines aim to ensure a common interpretation and adequate implementation of AML/CFT internal governance arrangements across the EU in line with the requirements of the EU Directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (ML/FT) under Article 8 and Chapter VI of the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4).
The EBA is proceeding with the guidelines as consulted on, with several minor changes.
The guidelines will be translated into the official EU languages and published on the EBA website. The deadline for national competent authorities to report whether they comply with the guidelines will be six months after the publication of the translations. The guidelines will apply from 1 December 2022.
EBA Final Report: Guidelines on policies and procedures in relation to compliance management and the role and responsibilities of the AML/CFT Compliance Officer under Article 8 and Chapter VI of Directive (EU) 2015/849
FCA publishes Policy Statement (PS22/10) and Handbook Rules for High-Risk Investments and Firms Approving Financial Promotions - Financial Promotion Rules
The rules related to risk warnings for financial promotions of high-risk investments will take effect from 1 December 2022.
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.
DISCUSSION / CONSULTATION PAPERS
PRA and FCA Publish Joint Paper: Potential Measures to Oversee Critical Third Parties - Operational Resilience
Responses to the discussion paper need to be submitted by 23rd December 2022
The discussion paper covers potential ways to manage and oversee systemic risks posed by critical third parties (CTPs) to the UK financial sector. These measures focus on material services that CTPs provide and include:
a framework for identifying potential CTPs, which would inform the supervisory authorities’ recommendations for formal designation by HM Treasury.
minimum resilience standards, which would apply to the services that designated CTPs provide to firms and Financial Infrastructure Firms (FMIs).
a framework for testing the resilience of material services that CTPs provide to firms and FMIs using a range of tools such as scenario testing, participation in sector-wide exercises, cyber resilience testing and skilled persons reviews of CTPs.
The proposed measures would complement, not replace, firms and FMIs’ existing responsibilities to manage risks from contracts with third parties. Whether or not firms and FMIs rely upon third parties to support the delivery of important business services, firms and FMIs are responsible, and ultimately accountable for their operational resilience.
Responses to the discussion paper can be submitted on or before 23 December 2022.
PRA Publishes Discussion Paper (DP4/22) – Future Approach to Policy
The PRA welcomes comments on the Discussion Paper until 8 December 2022
Discussion Paper (DP4/22) sets out the PRA’s proposed approach to policy-making as they undertake wider rulemaking responsibilities following the UK’s departure from the EU, and also through the reforms identified by the government as part of the Future Regulatory Framework (FRF) Review - which is currently being implemented through the Financial Services and Markets Bill 2022-23 (FSMB).
In the Discussion Paper, the PRA sets out their ambition to be a strong, accountable, responsive and accessible policymaker. Highlighting that the PRA will:
Continue to be driven by the pursuit of strong standards, which underpin UK financial stability and support its status as a world leading financial centre.
Assume broader rule-making responsibilities. The ability to update rules directly in the PRA Rulebook will allow the PRA to respond quickly to changes in the external environment. The PRA will have more scope to adapt rules to account for new risks, and to calibrate their approach in a way that better reflects the characteristics of their regulated firms and the UK financial system.
Be proactive in their approach to the secondary competitiveness and growth objective and look for opportunities to advance it. This means looking more broadly at the ways in which the PRA can facilitate competitiveness and growth and also taking advantage of the additional opportunities the PRA will have to review in areas of policy that have previously been fixed in UK legislation.
The PRA will act within a strong policy and accountability framework set and overseen by Parliament, advancing the objectives given by Parliament and the government. As the PRA takes on wider responsibilities they will continue to engage with HM Treasury, and will enhance engagement in certain areas in response to reforms introduced in the FSM Bill, such as HM Treasury’s power to require regulators to review their rules.
The PRA welcomes comments on the Discussion Paper until 8 December 2022, and indicates that responses received will inform a future consultation on the PRA’s approach to policy.
FCA publishes Discussion Paper (DP22/5) - Competition Impacts of Big Tech on the Financial Services Industry
Deadline for responses to the Discussion Paper is 15 January 2023
Discussion Paper (DP22/5) covers the potential competition impacts of the ‘Big Tech’ firms’ entry and expansion into retail financial services. The FCA notes that in recent years, Big Tech firms entry into financial services, in the UK and elsewhere, has demonstrated their potential to disrupt established markets, drive innovation and reduce costs for consumers. The regulator wants to see these benefits ‘fully realised’ while also ensuring good consumer and market outcomes.
The FCA had adopted the Financial Stability Board’s definition of ‘Big Tech’, firms being ‘large digital companies with established technology platforms and extensive established networks’. This includes Facebook (Meta), Google (Alphabet), Apple and Amazon.
The Discussion Paper includes analysis on the competition impacts of Big Tech on four key retail sectors: payments, deposit taking, consumer credit and insurance. The FCA are seeking views on the potential competition benefits and harms from Big Tech firms in these sectors, which will inform their pro-competitive approach to digital markets.
Having examined the four retail sectors in scope, the FCA find five key themes emerging:
Potential for BigTech firms to enhance the overall value of their ecosystems with further entry and expansion in retail financial services sectors through innovative propositions.Their entry into the payments sector with Google and Apple Pay are good examples.
In the short term, a partnership-based model is likely to continue to be the dominant entry strategy for Big Tech firms. In the longer term they may seek to rely less on partnerships and compete more directly with existing firms.
Big Tech firms entry may not be sequential or predictable. While initial forms of entry may be hard to predict, once momentum builds, it may cause significant market changes to occur quickly.
In the short-term and possibly enduring longer, Big Tech firms entry in financial services could benefit many consumers; benefits arising from Big Tech firms own innovations, as well as increasing other market participants incentives to innovate, improve quality and reduce prices of financial products and services through increased competition.
In the longer term, there is a risk that the competition benefits from Big Tech entry in financial services could be eroded if these firms can create and exploit entrenched market power to harm healthy competition and worsen consumer outcomes.
No regulatory changes are being proposed at this stage, and the FCA’s paper aims to stimulate discussion to inform their regulatory approach to Big Tech firms as part of the new UK pro-competitive regime for digital markets. The deadline for responses to the Discussion Paper is 15 January 2023. Following this, the FCA will consider feedback and intends to publish a Feedback Statement in the first half of 2023.
FCA Publishes Consultation Paper (CP22/19) - A New Baseline Financial Resilience Regulatory Return
The deadline for responses is the 2nd of December 2022
Consultation Paper (CP22/19) on the proposed creation of a base financial resilience regulatory return for solo-regulated firms, referred to as ‘FIN073’. This will replace the FCA Financial Resilience Survey (formerly the Covid-19 Impact Survey) which was launched in June 2020.
In summary the FCA note the reason for this consultation:
"Over the last two years, having access to high quality baseline financial resilience data on a regular basis has improved our ability to meet our objectives to protect consumers and ensure market integrity. This data allows us to rapidly assess financial resilience risks at firms, resulting in early intervention where appropriate…Ultimately, this data helps in delivering our strategic commitment of reducing harm from firm failure.”
In the Consultation Paper the FCA explain that they are seeking to reduce both the administrative and financial burden that an ad hoc survey places on firms, and also to increase the quality and consistency of financial resilience data received from solo-regulated firms. Firms will be required to submit a FIN073 every quarter, including information such as the total amount of liquid assets that it controls, or to which it has unrestricted access; its average monthly cash needs arising from fixed costs; and net profit or loss in the last quarter.
FIN073 would apply to all FCA regulated firms except for credit brokers, MIFIDPRU investment firms, PRA authorised persons or Temporary Permission firms. The proposals also apply to authorised electronic money institutions and authorised payment institutions.
The Consultation Paper also contains a Draft Handbook text at Appendix 1, which makes the amendments to the FCA’s Supervision Manual (SUP) under the Financial Resilience Reporting Instrument 2022. Specifically, these amendments relate to SUP 16 Annex 53R and SUP 16 Annex 54G.
The deadline for responses is 2 December 2022. The FCA intends to publish a Policy Statement and final rules in spring 2023.
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