Financial Services SpeedRead 15 March 2023 edition
15 March 2023
IN THIS EDITION OF THE FINANCIAL SERVICES SPEEDREAD WE COVER THE FOLLOWING UPDATES: |
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Financial Markets 1. FCA: Multi-Firm Review: Fast-Growing Firms 2. HM Treasury: Terms of Reference: Investment Research Review 3. FCA: Updated Webpage: Temporary Permissions Regime 4. FCA: Updated Webpage: Perimeter Report 5. FCA: Trade Data Findings Report and Wholesale Data Market Study 6. European Commission: Call for Evidence: Benchmark Regulation Third-Country Regime 7. HM Treasury: The Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023 |
Banking and Prudential 8. HM Treasury: Call for Evidence: Aligning the Ring-Fencing and Resolution Regimes 9. Bank of England: Consultation Paper: Strong and Simple Framework - Liquidity and Disclosure Requirements for Simpler-Regime Firms (CP4/23) 10. BoE (PRA): Speech by Victoria Saporta: The Regulatory Foundations of International Competitiveness and Growth 11. FCA: Multi-Firm Review: IFPR Implementation Observations - Quantifying Threshold Requirements and Managing Financial Resources 12. FCA: Updated Webpage: Dual-Regulated Firms Remuneration Code |
Financial Crime 13. FATF Guidance on Beneficial Ownership of Legal Persons 14. NCA: Revised Guidance on Suspicious Activity Reports 15. JMLSG: Updated Part II Guidance |
Retail Services 16. FCA: Dear CEO Letters: Consumer Duty |
Digital Services and Fintech 17. ESMA: Guidelines on Standard Forms, Formats and Templates to Apply for Permission to Operate a DLT Market Infrastructure 18. House of Commons: Research Briefing: Central Bank Digital Currencies - The Digital Pound |
ESG 19. House of Commons: Treasury Sub-Committee on Financial Services Regulations: Letter: Greenwashing - Sustainability Disclosure Requirements and Investment Labels Consultation |
Other 20. The Financial Services Regulatory Initiatives Forum: Regulatory Initiatives Grid 21. UK Government: Press Release: Millions Released from Dormant Accounts to Support Vulnerable People with the Cost of Living 22. FOS: Consultation: Temporary Changes to Outcome Reporting in Business-Specific Complaints Data |
FINANCIAL MARKETS |
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1. FCA: Multi-Firm Review: Fast-Growing FirmsOn 10 March 2023, the FCA published its findings of a multi-firm review conducted in 2021-2022 on fast-growing firms, focusing on CFD providers, wealth managers and payment services firms (the Review). The Review assessed 25 FCA solo-regulated firms which had experienced fast growth over a 3-year period (2018-2020), and the impact of such growth on their financial and non-financial resources. The Review focused on risk management practices, governance arrangements and adequacy of financial resources (capital and liquid assets) at firms across the 3 business models. The main findings of the Review are the following:
The FCA confirmed that detailed feedback and recommended actions had been given to the firms reviewed to address the concerns identified. Recommended actions include updating the risk management and governance arrangements, wind-down plans and assessments of adequacy of financial resources. The FCA further noted that all firms that have grown rapidly, or have plans to do so, should read their findings and consider whether they need to make changes to their own arrangements. 2. HM Treasury: Terms of Reference: Investment Research ReviewOn 9 March 2023, HM Treasury published its policy paper on the Terms of Reference for its Investment Research Review. For context, as part of the Edinburgh Reforms set out by Chancellor of the Exchequer, Jeremy Hunt, the Government announced there would be an independent review of financial services investment research and its contribution to UK capital markets competitiveness. Please refer to Ashurst's previous briefing on the Edinburgh Reforms. The Investment Research Review also follows Lord Hill's review into the capital markets, which made recommendations on how to boost the UK as a destination for IPOs and optimise the capital raising process for large and small companies on UK markets. As stated in the Terms of Reference, the Investment Research Review will focus on two key objectives:
(i) providing evidence on how investment research provision in the UK compares or is perceived to compare with other international financial services centres, in both public and private markets; (ii) looking at the amount, quality and type of investment research currently provided on firms listed or quoted, or seeking to be listed or quoted, on UK public markets, and whether that has an effect on the attractiveness of UK markets for issuers;o considering the current level of demand investors have for research, factors driving this demand, and evidence of whether the amount, quality and type of investment research is sufficient to meet such demands; and
(i) considering legislative and non-legislative measures, which may cover some that the FCA will be responsible for overseeing; (ii) evaluating MiFID unbundling rules and their effect on investment research levels and quality; and (iii) suggesting any possible actions that industry should take. 3. FCA: Updated Webpage: Temporary Permissions RegimeOn 7 March 2023, the FCA updated its webpage on the temporary permissions regime (TPR). The update reinforces that the TPR ends on 31 December 2023 and firms that wished to apply for full UK authorisation should have done so by 31 December 2022 (i.e. when the sixth and final landing slot closed). The FCA stated that they expect most applications will be determined by the end of June 2023, although the exact timeframe for each application will depend on a number of factors. These factors include the firm's landing slot (i.e. when the firm applied) and the complexity and quality of the application. Firms seeking an update on their application can contact their case officer. As a reminder, the FCA stated that they expect firms without a valid reason for not seeking full authorisation to voluntarily apply to cancel their temporary permission and either enter the Financial Services Contracts Regime to run-off their UK business (if eligible) or leave the UK regulatory perimeter. The FCA reiterated that they intend to take action to cancel the temporary permission of firms which do not take these steps voluntarily. 4. FCA: Updated Webpage: Perimeter ReportOn 6 March 2023, the FCA published its annual perimeter report, which sets out what does and does not fall within the FCA's scope of regulation. The key points from this report include:
5. FCA: Trade Data Findings Report and Wholesale Data Market StudyOn 2 March 2023, the FCA published its Findings Report following its review into trade data. The FCA considered that access to good quality fairly priced trade data (i.e. information on prices and volumes traded and supplied by venues, amongst other things) is important for the whole financial data system. The FCA has identified issues in relation to the following:
The FCA confirmed that it is now working with the Government to develop consolidated tapes, adding that the FCA plans to consult on a consolidated tape by the summer of 2023. The FCA stated that findings of the wholesale data review will help inform the design of consolidated tapes. The FCA has also published a market study notice, together with terms of reference confirming that the FCA intends to carry out a market study into whether the markets for benchmarks, credit ratings data and market data vendor services in the UK are working well. The deadline for comments on the terms of reference, and on whether a market investigation to the Competition and Markets Authority is justified is 30 March 2023. The market study report is expected to be published by March 2024. The FCA also confirmed that it will assess whether any further work is needed in wholesale markets within the context of wider priorities, upcoming legislative changes implementing the outcomes of the Future Regulatory Framework (FRF) Review, and the global context in wholesale data markets. 6. European Commission: Call for Evidence: Benchmark Regulation Third-Country RegimeOn 1 March 2023, the European Commission issued a call for evidence for its initiative in relation to the Benchmark Regulation (BMR). This initiative will review whether the scope of the EU rules for financial benchmarks as well as the rules for the use of non-EU financial benchmarks are still fit for purpose. In particular, the call for evidence highlighted the following problems which the initiative aims to tackle:
The feedback period for the call for evidence ends on 29 March 2023. 7. HM Treasury: The Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023On 1 March 2023, the draft Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023 was published, together with an explanatory memorandum. The draft Order concerns the ancillary activities exemption as outlined in Schedule 3 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544). This regime is applicable to firms trading commodity derivatives or emission allowances chiefly for investment purposes or support of the firm's commercial business. The draft Order has been published in response to feedback received in relation to the Wholesale Markets Review, which indicated industry preference for a simplified method to determine when an activity is ancillary. The measures were foreshadowed in the written statement published by Jeremy Hunt in December 2022, detailing plans for the UK financial regulatory framework (please see Ashurst's previous briefing here). The draft Order:
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BANKING AND PRUDENTIAL |
8. HM Treasury: Call for Evidence: Aligning the Ring-Fencing and Resolution RegimesOn 2 March 2023, HM Treasury published a call for evidence seeking views on the practicalities of aligning the ring-fencing and resolution regimes for banks and long-term options for reform. The call for evidence follows the findings of the statutory independent review on ring-fencing chaired by Sir Keith Skeoch (the Skeoch Review), which concluded that the benefits of the ring-fencing regime would likely reduce over time as the resolution regime for banks is embedded. The Skeoch Review concluded that the resolution regime offers a more comprehensive solution to addressing the problems of 'too big to fail' and recommended that the Government consider the practicalities of aligning the ring-fencing and banking resolution regimes, while maintaining the UK's financial stability. The call for evidence is the first stage in the Government's response to this recommendation, and responses to it can be provided by 7 May 2023. 9. Bank of England: Consultation Paper: Strong and Simple Framework - Liquidity and Disclosure Requirements for Simpler-Regime Firms (CP4/23)On 27 February 2023, the Bank of England published a consultation paper "Strong and Simple Framework: Liquidity and Disclosure requirements for Simpler-Regime Firms (CP4/23)". The consultation follows the PRA's April 2021 discussion paper (DP1/21) and April 2022 consultation paper (CP5/22) in which it proposed a simplified prudential framework for small, domestic banks and building societies (Simpler-Regime Firms). The PRA's November 2022 consultation paper (CP16/22) covering the parts of the Basel III standards that remain to be implemented in the UK also set out the proposed criteria that small firms should meet in order to qualify as Simpler-Regime Firms. The strong and simple framework is designed to take a number of years and be implemented in stages. CP4/23 sets out the first phase of proposed simplifications that would apply to Simpler-regime Firms. These proposals consist of the following:
The deadline for responses is 30 May 2023. 10. BoE (PRA): Speech by Victoria Saporta: The Regulatory Foundations of International Competitiveness and GrowthOn 27 February 2023, Victoria Saporta (Executive Director, Prudential Policy) delivered a speech titled: "The regulatory foundations of international competitiveness and growth". Parliament is currently debating the Financial Services and Markets Bill that will redefine the PRA’s powers and responsibilities (including giving the PRA a new secondary objective). This would require the PRA to act when they can to facilitate the UK economy's international competitiveness and its growth over the medium to long term, subject to alignment with international standards. Ms Saporta confirmed in her speech that the PRA's plan is to deliver responsible openness that harnesses the UK's strengths as a global financial centre as well as tailor rules to UK circumstances when appropriate to do so. Ms Saporta concluded her speech by stating that the new objective will lead to big changes in how the PRA makes rules and the PRA has already been working hard developing their ideas about what competitiveness means for the financial services industry and how it is connected to growth. 11. FCA: Multi-Firm Review: IFPR Implementation Observations - Quantifying Threshold Requirements and Managing Financial ResourcesOn 27 February 2023, the FCA published a multi-firm review on firms' implementation of the internal capital adequacy and risk assessment (ICARA) process and reporting under the Investment Firms Prudential Regime (IFPR). The review focused on firms' capital adequacy, liquidity adequacy and wind-down planning as part of the ICARA process, as well as regulatory reporting. The review found that most firms engaged well and progress has been made in understanding the requirements of the ICARA process. However, areas for improvement were identified, including:
The FCA intends to publish a concluding report after completion of the review, and may publish further interim observations where appropriate. 12. FCA: Updated Webpage: Dual-Regulated Firms Remuneration CodeOn 27 February 2023, the FCA updated its Remuneration Code (SYSC 19D) webpage by adding a new section titled: "Publication of PRA (CP5/23)Remuneration: Enhancing proportionality for small firms". CP5/23 outlines proposed changes to the application of proportionality for dual regulated firms, linked to the PRA's Strong and Simple framework proposals. The FCA confirmed that they are working with the PRA to consider the changes that may be required to their own rules and the timing of these. |
FUND MANAGEMENT |
No updates for this edition of the FSS. |
SENIOR MANAGERS AND GOVERNANCE |
No updates for this edition of the FSS. |
FINANCIAL CRIME |
13. FATF Guidance on Beneficial Ownership of Legal PersonsOn 10 March 2023, the Financial Action Task Force (FATF) published its guidance on beneficial ownership of legal persons. By way of context, in March 2022, the FATF agreed on tougher global beneficial ownership standards in its Recommendation 24 by requiring countries to ensure that competent authorities have access to adequate, accurate and up-to-date information on the true owners of companies. The guidance published by the FATF will help countries implement the revised Recommendation 24. 14. NCA: Revised Guidance on Suspicious Activity ReportsOn 9 March 2023, the National Crime Agency (NCA) published updated guidance on submitting suspicious activity reports (SARs). Topics covered include how to submit using the online system and how to obtain a defence against money laundering or terrorist financing. It also covers dos and don'ts and provides brief explanations on how certain inputs help or hinder the NCA's work. The guidance also sets out examples of deficiencies in SARs and how they can be improved. 15. JMLSG: Updated Part II GuidanceOn 5 March 2023, the Joint Money Laundering Steering Group (JMLSG) published revisions to its guidance. The amended guidance in Part II relates to:
These currently await Ministerial approval, following submission to HM Treasury. Part I Chapter 6 6.70-6.71 of the Guidance has also been amended to show that the Financial Ombudsman can effectively handle complaints with a money laundering element. |
RETAIL SERVICES |
16. FCA: Dear CEO Letters: Consumer DutyThe FCA continues to support in scope firms on the Consumer Duty implementation process through a programme of engagement, which includes setting out its expectations under the Consumer Duty in letters (see our previous edition of the FSS on 9 February 2023). On 3 March 2023, the FCA updated its webpage with a new series of 'Dear CEO' letters addressed to firms in the following sectors:
These Dear CEO letters include a reminder of the following:
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PAYMENTS |
No updates for this edition of the FSS. |
DIGITAL SERVICES AND FINTECH |
17. ESMA: Guidelines on Standard Forms, Formats and Templates to Apply for Permission to Operate a DLT Market InfrastructureOn 8 March 2023, ESMA published translations of its Guidelines on standard forms, formats and templates to apply for permission to operate a DLT market infrastructure. ESMA published the Final Report in relation to the guidelines in December 2022. The EU DLT Pilot Regime applies from 23 March 2023. Key features of the Guidelines include:
The publication of the translations will trigger the start of a two-month period during which national competent authorities in each member state must confirm whether they comply or intend to comply with the Guidelines. 18. House of Commons: Research Briefing: Central Bank Digital Currencies - The Digital PoundOn 8 March 2023, the House of Commons published a research briefing on central bank digital currencies (CBDCs): the digital pound. CBDCs, as defined by the BoE, are an electronic form of money that consumers hold with their country's central bank. The research briefing confirmed that in March 2023, four CBDCs were operating and 114 other countries were exploring the concept. The UK Government and BoE, as stated in the briefing, have been exploring the idea of introducing a CBDC and they are consulting on principles and plans for developing it, but the BoE has no plans as yet to introduce a digital pound. With respect to the benefits and risks of CBDCs, the briefing explained that CBDCs would aim to promote reliability and stability while allowing more competition and innovation. However, implementing CBDCs also poses technical and security challenges, including increased risk of cyber-attack as well as raising concerns about data privacy. The briefing also referred to the consultation, launched by the BoE and the Treasury in February 2023, on the assessment of the potential need for a digital pound and its design ideas. For more information on the consultation, please see our briefing. |
ESG |
19. House of Commons: Treasury Sub-Committee on Financial Services Regulations: Letter: Greenwashing - Sustainability Disclosure Requirements and Investment Labels ConsultationOn 9 March 2023, a letter from Harriett Baldwin, Chair of the Treasury Committee to Nikhil Rathi, Chief Executive of the FCA was published titled: "Greenwashing - Sustainability Disclosure Requirements and Investment Labels Consultation". In the letter, the Treasury Sub-Committee on Financial Services Regulations warned that consumers who currently invest in funds guilty of greenwashing may have to pay to move their investments into new "sustainable" funds. Specifically, concerns were raised by the cross-party Committee of MPs in relation to the fact that the FCA has not put a figure on how much this will cost consumers. The letter calls on the regulator to conduct a more detailed cost benefit analysis of its proposals. MPs further asked the regulator what enforcement work it will be doing to tackle funds who have misled consumers. In addition to the above, MPs also asked whether there is a risk that tighter regulations could drive funds away from ESG investing or out of the UK, subsequently reducing consumer choice. |
OTHER |
20. The Financial Services Regulatory Initiatives Forum: Regulatory Initiatives GridOn 28 February 2023, the Financial Services Regulatory Initiatives Forum published its Regulatory Initiatives Grid, which sets out upcoming regulatory developments over the next 24 months in order to help the financial services industry to prepare for initiatives that may significantly affect them. The Forum consists of the BoE, the FCA, the Competition and Markets Authority, the PRA, the Pensions Regulator, the Information Commissioner's Office and the Financial Reporting Council. The initiatives in the latest grid concern matters such as: consumer protection; enhancing transparency and value for money; and the themes emerging from the Financial Services and Markets Bill as well as the Edinburgh Reforms. There is an increased number of initiatives regarding cryptoassets, as well as others to maintain the regulatory regime's ability to meet new challenges and opportunities. The key initiatives are:
21. UK Government: Press Release: Millions Released from Dormant Accounts to Support Vulnerable People with the Cost of LivingOn 7 March 2023, the Department for Culture, Media and Sport published a press release in relation to money redirected from forgotten accounts to good causes under the Dormant Assets Scheme. Dormant asset, as explained by the press release, is a financial product, such as a bank account, that the customer has not used for many years, and which the business has been unable to reunite them with, despite making efforts based on industry best practice. The press release confirmed that £76 million tied up in forgotten accounts will be used to support people to get out of debt and assist social enterprises with innovative energy saving solutions. Further, the press release stated that, in England, the Dormant Assets Scheme is being expanded to include community wealth funds, which will allow local residents to improve their communities. 22. FOS: Consultation: Temporary Changes to Outcome Reporting in Business-Specific Complaints DataOn 6 March 2023, the Financial Ombudsman Service (FOS) published a consultation on temporary changes to outcome reporting in its business-specific complaints data. Between 1 November 2021 and 31 March 2022, the FOS amended the way it recorded the outcomes of certain complaints that were proactively resolved by businesses. This led to around 100 financial businesses making nearly 7,000 offers to resolve complaints, which ultimately helped complainants get fair answers more quickly. As a result, the FOS has been considering the results and feedback from that initiative in order to assess whether it should take this forward on a more permanent basis. The deadline for responses is Monday 20 March 2023. |
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.