Financial Services SpeedRead: 2 October 2024 edition
02 October 2024
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 since the end of July. 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
No new entries.
Banking and Prudential
No new entries.
Fund Management
No new entries.
Senior Managers and Governance
No new entries.
Financial Crime
1. FCA: Speech: Frameworks for effective fraud prevention measures
On 5 September 2024, the FCA published a speech by Andrea Bowe, the FCA's director of the specialist directorate, on frameworks for effective fraud prevention measures.
Ms Bowe specifically highlighted the importance of collaboration between industry participants in tackling fraud, including by forming partnerships and sharing information in order to reinforce defences and stay ahead of evolving threats.
The speech also highlighted issues relating to "mule activity", with it being noted that this a specific area where a collective response could have a substantial impact on disrupting criminal operations and recuding the flow of fraudulent funds.
Retail Services
2. FCA: Policy statement: Extending the temporary changes to handling rules for motor finance complaints (PS24/11)
On 24 September 2024, the FCA published a Policy Statement (PS24/11) confirming that it has extended the pause on handling complaints relating to discretionary commission arrangements (DCAs) until 4 December 2025.
This means firms will not be required to provide a final response to DCA complainants within 8 weeks, while consumers will have until the later of 29 July 2026 or 15 months from the date of their final response letter from the firm, to refer a DCA complaint to the Financial Ombudsman. The FCA also noted in PS24/11 that this extension will provide it with additional time, if necessary, to introduce alternative methods for addressing DCA complaints, such as a consumer redress scheme.
The FCA will set out the next steps in its review into the past use of DCAs in the motor finance sector by May 2025, with a view to confirming final rules for how consumers will be compensated in December 2025.
3. HM Treasury and the FCA: Press releases: Reforms to Financial Services retail-disclosure requirements
On 19 September 2024, HM Treasury and the FCA published press releases detailing their joint plans to reform the UK retail disclosure rules.
Specifically, a new framework for Consumer Composite Investments (CCIs) has been proposed to replace the Packaged Retail and Insurance-based Investment (PRIIPs) Regulation (PRIIPs Regulation). The new framework will be aimed at supporting investors to better understand what they are paying for and the value they are receiving through the distribution chain. Moreover, the CCI framework will be proportionate and allow more bespoke arrangements to address concerns raised with PRIIPs.
HM Treasury has proposed laying legislation as soon as possible so as to provide the FCA with the appropriate powers to deliver this reform. It is intended that the new retail disclosure regime will be in place in H1 2025, subject to Parliamentary approval and the FCA consultation process.
The FCA has also published a statement confirming that it will temporarily exempt investment trusts from the PRIIPs Regulation and its associated technical standards, as well as from the requirements of the Commission Delegated Regulation 2017/565, as it applies in the UK (i.e. the MiFID Org Regulation) from 19 September until the legislation to amend the PRIIPs Regulation for investment trusts comes into force.
4. FCA: Publication: Update on cash savings
On 18 September 2024, the FCA published an update detailing progress in the cash savings market following the publication of its Cash Savings Market Review in July 2023 (the Market Review).
In the update, the FCA confirms that it has seen improvements in both the rates available to savers and the volume and timing of firms' communications to customers. The FCA also found, however, that many firms have had difficulties with assessing fair value and that the largest firms also continue to pay below the market average for standard easy access products.
The FCA stated that it expects firms to improve their fair value assessments over time and confirmed it will take appropriate action where it considers this is not the case
5. FCA: Publication: Price and Value Outcome: Good and Poor Practice update
On 18 September 2024, the FCA published an update outlining various insights from the first year of the implementation of the price and value outcome under the Consumer Duty.
Of particular relevance, the FCA reminded firms that it expects them to think about price when assessing fair value, but affirmed that this should not be the sole consideration. The FCA also noted the following key messages for firms in respect of this assessment:
- outcomes of the Consumer Duty should be considered holistically;
- effectively identifying target markets helps in assessing impacts on different customers;
- an analysis of cross-subsidies, where relevant in a firm's business model, can be helpful in identifying where different consumer groups may be at risk of not receiving fair value;
- evidence is vital in fair value assessments, but firms should be proportionate in their approach; and
- prompt action should be identified and taken if fair value assessments show consumers are at risk of not receiving fair value.
The FCA also provided firms with examples of what it considers to be good and bad practice in respect of the undertaking of this assessment. It also reminded firms that it will act where it identifies firms not making improvements in response to feedback, or if firms' products and services are clear poor value outliers.
Digital Finance and Fintech
No new entries.
Payments
6. FCA: Consultation paper: Changes to the safeguarding regime for payments and e-money firms (CP24/20)
On 25 September 2024, the FCA published a Consultation Paper relating to proposed changes to the safeguarding regime for payments and e-money firms (CP24/20). These changes are specifically intended to address weaknesses in the current safeguarding approach and ensure that consumer money is safe by:
- minimising shortfalls in safeguarded relevant funds;
- ensuring these funds are returned as cost-effectively and quickly as possible; and
- strengthening the FCA's ability to identify and intervene in firms that do not meet its safeguarding expectations to ensure these outcomes are met.
The changes are proposed to be introduced in two stages. Firstly, the FCA will publish strengthened interim safeguarding rules for firms by mid-2025 which will improve compliance with the existing safeguarding regime set out in the Electronic Money Regulations and the Payment Services Regulations. This will ensure that some of the weaknesses identified by the FCA can be addressed prior to the second stage of implementation.
Secondly, the FCA will then publish "end-state" rules which replace the existing e-money safeguarding with a CASS style regime where relevant funds and assets are held on trust for consumers. This regime will be designed to work with payments firms’ business models and will address the remaining shortcomings identified by the FCA.
Responses to the consultation are due by 17 December 2024, following which the FCA will publish final interim rules with an accompanying policy statement during H1 2025.
7. PSR: Policy statement: Supporting the identification of APP scams and civil disputes (PS24/6)
On 23 September 2024, the Payment Systems Regulator (PSR) published a policy statement and accompanying guidance to support the identification of Authorised Push payment (APP) scams and civil disputes. The guidance sets out high-level factors that payment services providers (PSPs) should consider when determining whether a claim is a reimbursable APP scam or a civil dispute. These include:
- the communication and relationship between consumer and alleged scammer;
- the trading status of alleged scammer;the alleged scammer's capability to deliver any goods and services related to the claim;
- the extent to which the alleged scammer deceived the consumer as to the payment's purpose; and
- information held by receiving PSPs about the relevant accounts.
The PSR also reminds PSPs that misidentifying a claim as a reimbursable APP scam or civil dispute can have significant impacts on both consumers and alleged scammer(s). Therefore, PSPs must ensure they consider all the high-level factors when assessing claims.
8. PSR: Guidance: Powers and Procedures Guidance
On 20 September 2024, the PSR published an updated version of its Powers and Procedures Guidance. The guidance explains the PSR's role as the regulator for payment systems and the powers it has under the Financial Services (Banking Reform) Act 2013 (FSBRA) to:
- take regulatory action by way of making directions and imposing requirements; and
- take enforcement action for non-compliance.
Moreover, the guidance also details the FSBRA legal and regulatory framework under which the PSR operates, including the procedures that will apply when it considers using, or does use, the powers afforded to it under this instrument.
This latest version of the guidance applies from 20 September and the previous version will cease to apply.
9. UK Finance: Press Release: UK Finance announces successful outcome of Regulated Liability Network Experimentation Phase
On 17 September 2024, UK Finance published a press release relating to the successful outcome of the Regulated Liability Network (RLN) Experimentation Phase.
The RLN is a new type of financial market infrastructure that aims to deliver new capabilities for payments and settlement, including tokenisation and programmability. The work undertaken by UK finance explored various use cases and identified a number of potential benefits, including reducing fraud, improving efficiency in home-buying and reducing the cost of failed payments in the UK.
UK Finance also noted the RLN could deliver economic value and support innovative initiatives, such as Open Banking, while also enabling newer firms to interface with established institutions via a common point of access.
UK Finance welcomes further engagement with regulators and other public bodies.
ESG
No new entries.
Other
10. FCA: Speech: Change for the better: the FCA’s evolving approach to enforcement
On 24 September 2024, the FCA published a speech by Therese Chambers, the joint executive director of enforcement and market oversight at the FCA, regarding the transparency of the FCA's approach to investigations into firms.
Of particular relevance, Ms Chambers stated that detailed proposals regarding transparency in investigations would be provided in late autumn 2024, and that these would include case studies and give an idea of the number of cases that might be affected.
The case for a 'degree more transparency' was said to remain strong, though Ms Chambers did state that the proposals would be focused on publicising only those cases likely to deliver the greatest deterrent and in circumstances where such firms have had a chance to provide their views on whether, what, and when an announcement is made.
