Financial Services SpeedRead: 17 October 2024 edition

Welcome to the latest edition of the Financial Services SpeedRead, a collection of bite-sized updates designed to help you keep on top of key regulatory developments in financial services over the preceding fortnight. Please get in touch if you want to explore any of the topics covered in this fortnight's edition of Financial Services SpeedRead in more detail.

Financial Markets

1. Global Foreign Exchange Committee: Request for feedback: Amendments to the FX Global Code and Disclosure Cover Sheets

On 9 October 2024, the Global Foreign Exchange Committee (GFXC) published a request for feedback from market participants on its proposed amendments to the 2021 version of the FX Global Code (Code), as well as on the disclosure cover sheets for both liquidity providers and platforms. This follows a targeted review of the Code that was undertaken by the GFXC.

The amendments are intended to enhance guidance on FX Settlement Risk mitigation practices, encourage appropriate reporting requirements and promote greater transparency on the utilisation of FX data, so as to help market participants make more informed business decisions. The amendments to the disclosure cover sheets focus on increasing transparency and facilitating the comparison of FX data usage derived from client interactions.

Feedback on the proposed amendments is due by 25 October 2024.

2. FCA: Newsletter: Market Watch 80

On 9 October 2024, the FCA published its Market Watch 80 newsletter detailing its guidance on complying with SYSC 6.1.1R when dealing with overseas clients who operate aggregated accounts without visibility on the Ultimate Beneficial Owners (UBOs).

The FCA notes that it has seen an increase in potential market abuse in leveraged equity products from such aggregated accounts, often with UBO identities hidden from authorised firms. The FCA refers to these accounts as "Obfuscated Overseas Aggregated Accounts" (OOAAs).

The FCA's recommendations for dealing with OOAAs include:

• modifying risk frameworks and offboarding thresholds for OOAAs;
• communicating a zero-tolerance policy towards market abuse to OOAAs;
• requesting OOAAs to disclose details about their systems and controls to prevent market abuse; and
• utilising strong measures to terminate OOAA relationships where necessary.

3. ESMA: Consultation paper: Review of RTS 22 on transaction data reporting and RTS 24 on order book data

On 3 October 2024, ESMA published a consultation paper (ESMA12-2121844265-3745) on the transaction data reporting and order book record keeping requirements introduced by Regulation (EU) 2024/791 (Updated MiFIR). This is the latest in a series of consultations published by ESMA as it fulfils its various mandates (see our briefing here) in light of Updated MiFIR entering into force (see our briefing here). This consultation proposed changes to RTS 22 and RTS 24 following the changes made by Updated MiFIR.

It is difficult to summarise the requirements for transaction reporting proposed. The main takeaways are:

• there is some good news (i.e. the removal of the shortselling indicator); and
• firms with UK and EU entities who have run centralised reporting frameworks will now have to start thinking more seriously about the D word ("divergence").

For more information, please see our briefing here.

Banking and Prudential

No new entries.

Fund Management

No new entries.

Senior Managers and Governance

No new entries.

Financial Crime

4. Government: Guidance: Information sharing measures in the Economic Crime and Corporate Transparency Act 2023

On 4 October 2024, the Government published guidance on information sharing measures in the Economic Crime and Corporate Transparency Act 2023 (ECCT Act).

The ECCT Act introduced measures which provided greater clarity to regulated firms on sharing relevant customer information, either directly or indirectly through a third-party intermediary. These new measures are voluntary.

The guidance includes:

• the policy intent behind the measures;
• information on how firms can ensure that they are abiding by the new measures;
• practical considerations including mechanisms for cross-sector sharing; and
• requirements for law enforcement reporting, UK GDPR compliance and maintaining effective customer complaint processes.

Retail Services

5. FCA: Final Notice/Press release: FCA fines TSB £10.9m over treatment of customers in financial difficulty

On 10 October 2024, the FCA published a final notice and press release detailing its £10,910,500 fine to TSB Bank plc (TSB) for failing to ensure customers who were in arrears were treated fairly.

The FCA found that between June 2014 and March 2020, TSB breached Principle 3 (taking reasonable care to organise and control its affairs responsibly and effectively) and Principle 6 (treating customers fairly) of the FCA’s Principles for Businesses.

In particular, the FCA found that:

• failings were caused by systemic weaknesses in TSB's collections and recoveries systems and controls;
• some customers suffered a loss, including vulnerable customers; and
• TSB could have acted sooner to rectify the failings.

TSB has established a programme to resolve the issues, costing £105m. At the time of the press release, TSB had paid £99.9m in redress to the affected customers.

6. FCA: Portfolio letter: FCA’s expectations for financial advisers and investment intermediaries

On 7 October 2024, the FCA published a letter to financial advisers and investment intermediaries setting out its priorities, its expectations and the work it intends to do.

At a high level, the FCA's key priorities for 2024-2026 will be to:

• reduce and prevent harm, including in the areas of retirement income advice and ongoing advice services;
• monitor and test higher industry standards under the Consumer Duty; and
• enable more consumers to pursue their financial objectives through the Advice Guidance Boundary Review.

These priorities will be underpinned by increased industry collaboration and a forward-looking, data-led approach to regulation.

Firms are expected to review the letter and consider how it applies to them.

7. FCA: Updated statement: Statement on forbearance in relation to investment trust disclosure requirements

On 30 September 2024, the FCA updated its statement on forbearance in relation to investment trust disclosure requirements, which will be in place until the legislation which will amend the Packaged Retail and Insurance-based Investment Regulation comes into place.

The update states that, despite the forbearance, relevant firms should still adhere to other relevant rules and regulations, with particular focus on the Consumer Duty and the requirements to ensure communications are fair, clear and not misleading. In addition, such firms must also comply with the following:

• Good outcomes for retail clients: firms should act honestly, fairly and professionally to protect the best interests of their retail clients. Relevantly, firms choosing to opt out of providing a key information document are encouraged by the FCA to provide additional product information as per PRIN 2.A.5.3R(1) to support their retail investors;
• Product Governance Requirements: the FCA expects product manufacturers and distributors to share relevant product information to ensure appropriate distribution. Distributor firms, or firms preparing retail client communications, must meet Consumer Duty obligations; and
• Collaboration and Information Sharing: firms in the distribution chain for securities issued by investment trusts should aim to collaborate on any necessary information regarding product distribution, which would ensure compliance with the general obligations towards retail investors.

Digital Finance and Fintech

8. EBA: Final Report: Guidelines on redemption plans under MiCA

On 9 October 2024, the EBA published its final report on guidelines on the orderly redemption to be developed by issuers of ARTs and EMTs in the event that an issuer is deemed "unable or likely to be unable to fulfil its obligation".

The guidelines contain guidance for issuers in the design of a redemption plan and focus on the following areas:

• proportionality considerations when determining content of the redemption plan and timeframe for its review/update;
• main features and objectives of the redemption plan (e.g. equitable treatment of all token holders and factors to ensure the timely implementation of the plan);
• governance requirements (e.g. processes applicable for the development, update and execution of the redemption plan and the identification of responsible persons);
• pooled issuance (where the same token is issued by multiple issuers); and
• triggers of the redemption plan.

The guidelines need to be translated into the official EU languages and published on the EBA website. They will apply from two months after the date of publication on the EBA’s website.

For more on MiCA, please see our briefings here.

Payments

9. FCA: Multi-firm Review: Review of payment firms' implementation of the Consumer Duty

On 9 October 2024, the FCA published the key findings of its review of payment firms' implementation of the Consumer Duty.

The FCA's review revealed varying levels of compliance, with just over half of the 23 firms reviewed firms being rated as satisfactory and the rest noted as requiring significant improvements. Key findings of the review include that:

• the best firms had customer-centric purposes, strong governance, and systematic approaches to identifying markets and good outcomes, while other firms did not appear to have recognised the higher standards the Duty requires of their business;
• the best firms had clear and consistent intermediary oversight arrangements, including clear governance structures;
• many firms were not providing fair value to retail customers by relying overly on price benchmarking rather than considering broader costs and benefits;
• firms could aid customer understanding by pre-testing and post-testing their communications;
• effective firms provided clear, accessible support channels and promptly addressed issues; and
• strong governance involves the need for regular consideration by the Board of how to best implement the Consumer Duty.

The FCA has recommended that firms read the review and use the findings and examples of best practice to raise standards. Additionally, the FCA noted that where it finds significant shortfalls in a firm's implementation of the Consumer Duty, it will require the firm to implement mitigation programmes.

10. FCA: Dear CEO Letter: Action Required in respect of FCA's expectations on APP Fraud Reimbursement

On 7 October 2024, the FCA published a "Dear CEO Letter" addressed to the payment services providers (PSPs) it regulates, which set out the FCA's expectations for PSPs' compliance with the new Authorised Push Payments (APP) fraud reimbursement requirements which came into force that day.

The reimbursement requirements relevantly relate to fraud carried out on payments routed through the Faster Payments System (FPS) and CHAPS. The FCA's expectations in respect of these requirements can be summarised as follows:

• firms should improve their anti-fraud systems and controls, including by implementing effective governance controls and related data collection, undertaking regular reviews of processes, and ongoing customer due diligence;
• firms should manage their capital and potential liabilities so as to mitigate risks from APP reimbursement liabilities;
• firms must avoid causing harm to consumers as far as possible, or rectify harm where they can. This includes by supporting customers through the lifecycle (including the complaints process) and considering appropriate remedial actions;
• firms must ensure consumers are informed of all dispute resolution procedures pre-contract, including the Financial Ombudsman Service; and
• noting the reimbursement requirement measures only cover fraudulent payments made through FPS and CHAPs, and not "on us"/ intra-firm payments, the FCA ask to ensure their approach to "on us" payments meets their obligations under the Consumer Duty.

The FCA noted that it will work with the Payment Services Regulator (PSR) to monitor PSPs' compliance with the APP fraud reimbursement regime, and that it plans to gather data from firms to assist with its compliance assessments.

11. HMT: Legislation: HMT publishes final draft Payment Services (Amendment) Regulations 2024

On 3 October 2024, HMT published the final draft Payment Services (Amendment) Regulations, which propose to permit banks and other PSPs to delay processing suspicious payments by 72 hours.

Relevantly, PSPs are currently required to process all payments within one business day. However, the Regulations would enable PSPs to carry out investigations into any payment request that it reasonably deems to be suspicious. In order to trigger a delay, a PSP must have reasonable grounds to suspect the payment is being induced subsequent to fraud and/or dishonesty.

PSPs must inform customers of any blocked payments and what might be required to unblock them, as well as let customers know whether or not the payments are ultimately found to be innocent and subsequently executed. PSPs will also be required to compensate customers for any costs and charges associated with the blocking.

Parliament is due to review the draft Regulations shortly, following its recent return from conference recess.

12. PSR: Policy statement: Faster Payments APP scams reimbursement Requirement: Confirming the maximum level of reimbursement (PS24/7)

On 2 October 2024, the PSR published a policy statement (PS 24/7) confirming the maximum amount that PSPs will be required to reimburse victims of APP scams.

Specifically, PS24/7 confirms that PSPs will have to reimburse scam victims for up to £85,000 per claim. This will means that 99.8% of Faster Payments APP scams by volume, and 90% by value, will be fully reimbursed if they are in scope of the policy. Similarly, PS24/7 notes that the Bank of England, operator of CHAPS, has also set the maximum reimbursement level for CHAPS APP scams to £85,000.

The PSR is keeping this level under review and will consider it as part of its 12-month evaluation of the reimbursement policy.

13. PSR: New webpage: New APP fraud reimbursement protections

On 2 October 2024, the PSR published a new webpage on the new APP fraud reimbursement protections.

The website summarises the scope of the protections, including that:

• the protections apply to UK bank transfers and all types of payment firms (from high street banks to e-money firms);
• PSPs are expected to reimburse an eligible victim within 5 business days;
• linked to the above, PSPs are entitled to an extension of up to 35 days to obtain more information; and
• payment firms have the option to apply a £100 excess, but it cannot be applied to vulnerable customers.

The protections commenced on 7 October 2024.

ESG

14. FCA: Updated webpage: Climate Financial Risk Forum – October 2024 Guides

On 10 October 2024, the FCA updated its Climate Financial Risk Forum (CFRF) webpage to reference three new guides published by the CFRF in relation to key climate risk areas. The guides specifically concern:

• Nature-related Risk: aims to help firms frame nature as a risk, and therefore incorporate it into risk management;
• Short-term Scenarios: provides guidance to firms on how short-term scenarios might be used in climate scenario analysis to support decision making; and
• Mobilising Adaptation Finance to Build Resilience: advises those in the industry on how they might assess and respond to physical risks, as well as how they might facilitate increased levels of investment into climate adaption to respond to such risks.

The FCA emphasised that these guides are not regulatory guides, and do not necessarily reflect the views of the FCA or PRA. Rather, these guides are intended to help those in the financial services industry develop effective approaches to climate-related risks and opportunities.

The guides may be accessed via the direct links on the FCA's webpage.

Other

15. ESAs: Press Release: Work programme 2025

On 7 October 2024, the ESAs published its Work Programme for 2025.

The Work Programme states that the ESAs will place a particular focus upon promoting sustainability and strengthening financial entities' digital resilience in 2025. This includes by:

• providing guidance on sustainability disclosures;
• operationalising the oversight framework of critical information and communication technology (ICT) third-party providers and implementing the major ICT-related incident coordination framework, as per the Digital Operational Resilience Act (DORA);
• publishing an annual list of financial conglomerates and working on specific conglomerates' reporting templates;
• promoting coordination and cooperation among national innovation facilitators with a view to scaling up innovative solutions in the financial sector; and
• addressing other cross-sectoral matters such as retail financial services, investment products, and securitisation.

16. BoE: Press release: SIMEX 24 – completion of simulated test of the UK financial sector's operational resilience

On 2 October 2024, the BoE published a press release regarding a market wide simulation exercise (SIMEX 24) which tested the financial sector's ability to respond to an infrastructure failure that would require a total shutdown and restart of the sector.

The BoE stated that it carried out the test in partnership with UK Finance, the financial sector and the other UK financial authorities (HMT and the FCA).

The press release does not indicate the results of the exercise or when they may be published.

17. ESMA: Press Release: 2025 Annual Work Programme

On 1 October 2024, ESMA published its 2025 Annual Work Programme (AWP), emphasising its commitment to resilient, transparent, and sustainable European financial markets.

Of particular relevance, the AWP notes the following with respect to its priorities for 2025:

• ESMA will continue to enhance the efficiency and attractiveness of European capital markets, including by working with the co-legislators to support the construction of the European Savings and Investment Union;
• significant focus will be placed on implementing MiCA and DORA, as well as the European Green bonds and ESG Rating Providers Regulations;
• ESMA will also focus upon enhancing cross-border cooperation among EU supervisors, improving data quality, and leveraging on technology to streamline supervision;
• ESMA will continue developing its data hub to provide a shared platform for stakeholders, while preparations will be finalised for the European Single Access Point launch in 2026; and
• the Retail Investment Strategy and the possible shortening of the settlement cycle will also be key priorities for ESMA in 2025 and beyond.