Financial Services SpeedRead: 8 March 2024 edition
08 March 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 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.
On 29 February 2024, the FCA published the final report on its Wholesale Data Market Study (MS23/1.5), which examined competition in the three key markets: credit ratings data, the provision of benchmarks and market data vendor services.
The study was launched in March 2023 following persistent user concerns about how well wholesale data markets are working.
Overall, the FCA found that firms can buy the kind of data they need, and, in most cases, the data they buy is of sufficient quality to meet their needs.
However, the FCA did identify evidence of, and drivers for, market power across all three markets in scope of the study. This means that users may be paying higher prices for the data they buy than if competition was working more effectively. In particular, the FCA found that:
The FCA will focus its next steps on two broad areas: (i) looking at where the issues identified in the market study could be addressed through the Smarter Regulatory Framework (SRF), and (ii) tackling firm-specific issues using other tools such as its powers under the Competition Act 1998.
The FCA invites any comments on the next steps it will take forward by 12 April 2024, submitted via email to WholesaleDataMarketStudy@fca.org.uk.
On 26 February 2024, HM Treasury (HMT) published a draft version of The Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024 (Draft Instrument), with an Explanatory Memorandum.
The Draft Instrument is created under section 138BA of FSMA (introduced by the Financial Services and Markets Act 2023 (FSMA 2023)), which provides a power for HMT to make regulations to grant the financial services regulators the ability to disapply or modify rules made by the regulators under FSMA.
Accordingly, the Draft Instrument grants the PRA the ability to disapply or modify the application of any of its rules made under FSMA, where appropriate, to take into account the circumstances and business models of individual firms as part of the government's SRF. It also introduces certain procedural requirements that must be followed in relation to PRA decisions on disapplying or modifying PRA rules. For example, the PRA must issue decision notices to applicant firms which either grant a permission to disapply or modify specified rules or explain any decision to refuse such permission.
The Draft Instrument is intended to come into force on 30 June 2024.
On 20 February 2024, the Council of the EU published a press release confirming that it has adopted the proposed Directive amending MiFID II and the proposed Regulation amending MiFIR.
The amendments to the EU's trading rules are intended to equip investors with better access to the market data necessary for investing in financial instruments more easily and to increase the global competitiveness of the EU's capital markets and ensure a level playing field.
In particular, the amendments establish:
The texts will now be published in the EU’s Official Journal and enter into force 20 days later. The regulation will apply immediately in all EU member states, and member states will have 18 months to incorporate the Directive into their national law.
On 29 February 2024, HM Treasury published the Bank of England Levy (Amount of Levy Payable) Regulations 2024 (SI 2024/252) (BoE Levy Regulations), with an accompanying Explanatory Memorandum. The BoE Levy Regulations set out the details of the new BoE levy (which replaces the Cash Ratio Deposits Scheme) on authorised deposit-takers.
The BoE Levy Regulations specify:
The BoE Levy Regulations came into force on 1 March 2024. Alongside the BoE Levy Regulations, the relevant provisions of the Financial Services and Markets Act 2023 that relate to the BoE levy also came into force on 1 March 2024 by virtue of the FSMA 2023 (Commencement No. 5) Regulations 2024, which were also published on 29 February 2024.
On 19 February 2024, the European Central Bank (ECB) published its revised guide to internal models for credit risk, market risk and counterparty credit risk.
The guide follows the ECB's public consultation on internal models ending in September 2023. Alongside the updated guide, the ECB published a feedback statement in which it sets out comments received on the public consultation and the ECB's responses.
In particular, the revisions to the guide include:
The guide aims to provide transparency for relevant institutions on how the ECB understands and intends to apply the rules around internal models when assessing whether institutions meet the relevant requirements.
On 19 February 2024, the ECB published a memorandum of cooperation (Memorandum) entered into with Member State NCAs for the performance of their supervisory tasks in relation to the supervision of third-country groups and third-country branches. Under CRD IV, NCAs supervising branches of credit institutions with their head office in a third country and NCAs supervising institutions that are part of the same third-country group are required to cooperate closely to ensure that all activities of the third-country group in the EU are subject to comprehensive supervision.
The Memorandum aims to:
The memorandum was signed on 19 January 2024 and came into effect the following day.
On 1 March 2024, the FCA published a portfolio letter on its supervisory strategy for the asset management and alternatives sector. This updates the FCA's portfolio letters issued in August 2022 and February 2023 to reflect changes in the external risk environment, work that has since been completed and the FCA's areas of focus for the sector over the next year.
The FCA's supervisory priorities over the next year will be:
The FCA expects CEOs of the relevant firms to discuss the letter with their board and executive committee, consider whether the risks of harm identified apply to their business, and adopt strategies to mitigate such risks.
For more information on the post-Brexit framework for asset managers, please see our briefing here in relation to the February 2023 letter.
No new entries.
On 26 February 2024, the Council of the EU published a press release announcing that it and the European Parliament have agreed that the new Anti-Money Laundering Authority (AMLA) will be based in Frankfurt, beginning operations from July 2025. The location of the AMLA's seat will be included in the regulation establishing the AMLA (AMLA Regulation)
The AMLA will have direct and indirect supervisory powers over obliged entities and power to impose sanctions and other measures. This is part of a wider package of laws to reform the EU's framework against money-laundering and terrorist financing.
On 20 February 2024, the FCA published a webpage providing guidance on good practice and areas for improvement regarding firms' implementation of the Consumer Duty.
The FCA identifies examples of good practice and areas for improvement in relation to:
The FCA notes that firms should continue to make improvements in line with good practice and address any gaps identified. It also notes that the findings may be useful for firms when considering changes they need to make to meet the 31 July 2024 implementation deadline for closed products and services.
On 20 February 2024, HMT published The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024 (Order), with an Explanatory Memorandum.
This Order amends the regulatory framework under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO), to make operating a pension dashboard service which connects to the Money and Pensions Service dashboards digital architecture a regulated activity. Such dashboards will allow individuals to view all of their pensions data, including their state pension, in one place and online.
Firms that wish to operate a pensions dashboard service will require authorisation from the FCA to undertake this activity.
The Order comes into force on 11 March 2024.
No new entries.
No new entries.
On 23 February 2024, the Environment Audit Committee (EAC) published the Government's response to the EAC's report on the 'Financial sector and the UK's net zero transition', which was published on 29 November 2023. The report set out the financial sector's role in achieving net zero greenhouse gas emissions by 2050.
While the Government rejected the EAC's recommendation to introduce quarterly reporting on how it is meeting net zero targets while enhancing energy security, it announced the following (current and future) initiatives with respect to achieving the UK's net zero targets. Specifically, in relation to the financial sector, the Government indicated that:
On 1 March 2024, the FCA published a webpage with information to assist firms with preparing their wind-down plans where they are required by the FCA to submit this document as part of their application for authorisation.
The new webpage specifically provides the guidance on:
On 27 February 2024, the FCA published a consultation paper on its simplified Enforcement Guide (EG) and a new approach to enforcement investigations that will involve publishing the details of investigations. For more information, please see our Ashurst briefing here.
The FCA's proposed new approach aims to increase transparency over its investigations and the deterrent impact of the action it takes against firms. The FCA considers that publicising investigations will (i) build trust in the system, (ii) help firms and the market to build their understanding of the types of suspected misconduct and other failings investigated by the FCA, and (iii) support FCA accountability around the efficiency and pace of investigations.
The FCA plans to use a flexible public interest framework to inform its case-by-case decision-making on whether and what to announce. It is proposing that the new policy will apply to both new and ongoing investigations, where the FCA assesses that publishing an announcement or update is in the public interest.
The FCA has also proposed changes which aim to reduce duplication and make information about its processes more accessible, for example by moving relevant information from the EG to the FCA website.
The FCA is inviting feedback on the above proposals until 16 April 2024.
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.