Financial Services Speedread 24 August 2022 edition
24 August 2022
IN THIS EDITION OF THE FINANCIAL SERVICES SPEEDREAD WE COVER THE FOLLOWING 25 UPDATES: |
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Financial Markets 1. House of Commons (Treasury Committee): Letter from the Governor of the Bank of England on the Financial Services and Markets Bill 2. FCA: Policy Statement (PS22/11): Improvements to the Appointed Representatives regime 3. FCA: Policy Statement (PS22/10): Strengthening financial promotion rules for high risk investments 4. ESMA: Call for Evidence: Pre-Hedging |
Banking and Prudential 5. FCA: Statement on IFPR and eligibility for enhanced SMCR status as a Significant SYSC firm |
Fund Management 6. FCA: Portfolio Letter: Alternatives Supervisory Strategy 7. European Central Bank (ECB): Opinion on a proposal for a directive regarding delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by alternative investment funds (CON/2022/26) 8. FCA: Consultation Paper (CP22/14): Broadening retail access to Long-Term Asset Funds |
Financial Crime 9. FCA: Final Notice: Citigroup Global Markets Limited 10. FCA: Statement: Larry Barreto pleads guilty to carrying on regulated activities without authorisation 11. FCA: Final Notice: Sir Christopher Gent |
Retail Services 12. FCA: Press Release: Dear CEO Letter and letter to British retail consumers warning Buy Now Pay Later firms about misleading adverts 13. FCA: Updated webpages relating to authorisation and the consumer duty 14. FCA: Authorisation webpage updated to include the Consumer Duty 15. FCA: Policy Statement (PS 22/9): A New Consumer Duty (Final Rules) 16. FCA: Data on Retail Intermediary Market 2021 |
Payments 17. European Commission: PSD2: Commission Delegated Regulation amending the regulatory technical standards in Delegated Regulation (EU) 2018/389 as regards the 90-day exemption for account access |
Digital Finance and Fintech 18. UK Jurisdiction Taskforce: Public Consultation: The issuance and transfer of digital securities under English private law 19. Law Commission: Consultation Paper on Digital Assets |
ESG 20. Glasgow Financial Alliance for Net Zero (GFANZ): Consultation on Measuring Portfolio Alignment, Enhancement, Convergence and Adoption 21. FCA: Multi-firm review of TCFD-aligned disclosures |
Brexit and Divergence 22. FCA: Updated Webpage: Temporary Permissions Regime (TPR) and landing slots for firms in the TPR |
Other 23. FCA: Updated webpage: CP21/34: Improving the Authorised Representatives regime 24. FCA: Updated webpage on change in control requirements for cryptoasset providers 25. FMLC Report: "Contract of insurance" definition in the Regulated Activities Order |
1. House of Commons (Treasury Committee): Letter from the Governor of the Bank of England on the Financial Services and Markets BillOn 11 August 2022, the House of Commons Treasury Committee published a letter (dated 27 July 2022) sent by Andrew Bailey, the Governor of the Bank of England, in respect of the Financial Services and Markets Bill 2022-23 (the Bill). The letter refers to Mr Bailey's recent appearance at the Treasury Committee, and states that the Bank supports measures in the Bill concerning implementing aspects of the Future Regulatory Framework review, particularly those aimed at providing regulators with increased responsibility for setting regulatory requirements. Mr Bailey also expresses support for the provisions in the Bill aimed at increasing accountability. The PRA states that it expects to publish a discussion paper in September 2022 in respect of the regulatory framework and this will include a discussion of accountability, responsiveness and accessibility. 2. FCA: Policy Statement (PS22/11): Improvements to the Appointed Representatives regimeOn 3 August 2022, the FCA published a Policy Statement on the regulatory regime concerning Appointed Representatives (ARs), following its December 2021 Consultation Paper (CP 21/34) (see entry 7 in Ashurst Financial Services Speedread 9 December 2021 edition). The Appointed Representatives regime is set out in primary legislation and allows Appointed Representatives to offer certain financial services or products under the responsibility of and within the scope of permission of authorised firms (known as Principals). The new rules within amended Appointed Representatives regime is in response to concerns that many Principals are not providing adequate oversight of the activities of their ARs. Under the new rules, Principals will need to:
The FCA is working with HM Treasury to consider whether any legislative changes are needed to the AR regime. For more information, please see our briefing. 3. FCA: Policy Statement (PS22/10): Strengthening financial promotion rules for high risk investmentsOn 1 August 2022, the FCA published a policy statement on financial promotion rules for high risk investments and introducing rules to strengthen the role of authorised person who approve financial promotions for unauthorised persons. The FCA intends to rationalise the current classifications of high risk investments under two categories of 'Restricted Mass Market Investments' and 'Non‑Mass Market Investments'. The FCA is concerned that too many consumers are accessing high risk investments which do not suit their needs, and intends to introduce new measures to strengthen risk warnings, inducements and positive friction and stronger categorisation and appropriateness tests in the consumer journey. Additionally, the FCA wishes to strengthen the Section 21 FSMA approval regime, as authorised firms which approve unauthorised firms' financial promotions act as an important gateway. The FCA intends to introduce measure to ensure that approving firms have the relevant expertise in the promotions they approve and the quality of financial promotions in the market is high. 4. ESMA: Call for Evidence: Pre-HedgingOn 29 July 2022, the European Securities and Markets Authority (ESMA) published a call for evidence on pre-hedging. ESMA sets out the arguments in favour and against the practice of pre-hedging, noting that that in the context of the Market Abuse Regulation, stakeholders have diverging views on the practice of pre-hedging. Some stakeholders were of the view that pre-hedging is essential for risk management and the correct functioning of markets, whereas others consider that pre-hedging may amount to insider dealing. ESMA is undertaking further analysis of the practice of pre-hedging in order to develop appropriate guidance. |
Banking and Prudential |
5. FCA: Statement on IFPR and eligibility for enhanced SMCR status as a Significant SYSC firmOn 16 August 2022, the FCA issued a statement on the Investment Firms Prudential Regime (IFPR) and firms' categorisation for enhanced status under the Senior Managers and Certification Regime (SMCR) as a significant SYSC firm. The implementation of the IFPR resulted in the FCA deleting the Prudential sourcebook for Investment Firms (IFPRU), including the replacement of "significant IFPRU firm" with the term "significant SYSC firm". Whether a firms is a "significant SYSC firm" is one of the criteria for determining whether a firm is an Enhanced Scope SMCR firm. A number of stakeholders argued that the new definition of "significant SYSC firm" following the implementation of the IFPR could result in more firms falling within the scope of the Enhanced Scope SMCR regime than under the previous definition as it had been understood and applied. The FCA confirmed plans for a consultation to clarify that only firms that would have been both Significant IFPRU firms and IFPRU investment firms under the pre-IFPR arrangements will fall within the new definition of "significant SYSC firm" for the purposes of the Enhanced Scope SMCR regime. Firms that have unintentionally come under the Enhanced Scope SMCR Regime under the new new definition of "significant SYSC firm" are advised to take no action. |
6. FCA: Portfolio Letter: Alternatives Supervisory StrategyOn 9 August 2022, the FCA issued a letter on its alternatives supervision strategy. The letter provides an update on the FCA's views of the key risks for the alternatives sector as set out in its January 2020 portfolio letter. Key points in the letter include the following:
7. European Central Bank (ECB): Opinion on a proposal for a directive regarding delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by alternative investment funds (CON/2022/26)On 9 August 2022, the ECB issued an opinion following the European Commission's publication of legal acts in support of the Capital Markets Union, including a proposal for a directive amending the Alternative Investment Fund Managers Directive (AIFMD) and the Undertakings for the Collective Investment in Transferable Securities Directive (UCITS) regarding delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by alternative investment funds on 25 November 2021 (the Proposed Directive). The ECB observes that it generally welcomes the Proposed Directive and the regulatory gaps in that it attempts to fill, along with the aim to better align AIFMD and UCITS. The ECB also makes a number of specific obligations in relation to:
8. FCA: Consultation Paper (CP22/14): Broadening retail access to Long-Term Asset FundsOn 1 August 2022, the FCA issued a consultation paper containing draft rules concerning the marketing of Long Term Asset Funds (LTAFs) to a wider group of retail investors and pension schemes. LTAFs are a type of open-ended authorised fund intended to encourage investment in long-term illiquid assets. The FCA is proposing that units in LTAFs be treated as Restricted Mass Market Investments (RMMI) under the three tier classification introduced by the FCA in its Policy Statement PS22/10 (Strengthening our financial promotion rules for high-risk investments) so that a wider category of retail investors can access them. Currently, this is restricted to sophisticated or high net-worth retail investors. The FCA is also proposing to align some LTAF rules with the investor protection rules that apply to other retail authorised funds. The FCA states that that all firms that manufacture, manage or distribute the LTAF to retail investors and retail clients must comply with the Consumer Duty. The deadline for responses is 10 October 2022, and the FCA intends to publish a final policy statement and final rules early in 2023. |
No updates for this edition of the FSS. |
9. FCA: Final Notice: Citigroup Global Markets LimitedOn 19 August 2022, the FCA issued a Final Notice and accompanying press release to Citigroup Global Markets Limited (Citigroup) for failing to properly implement the Market Abuse Regulation (MAR) trade surveillance requirements for the detection of market abuse. Citigroup were found to have improperly implemented the requirements introduced in 2016 to monitor both orders and trades to detect potential and attempted market abuse, taking 18 months to identify and assess the market abuse risks its business may have been exposed to, resulting in gaps in its procedures. Citigroup were subject to a fine of £17,934,030 for this failure, but qualified for a 30% discount as a result of its agreement to resolve the case, meaning that the final fine was £12,553,800. 10. FCA: Statement: Larry Barreto pleads guilty to carrying on regulated activities without authorisationOn 10 August 2022, the FCA released a statement in relation to Mr Larry Barreto's guilty plea to two counts of carrying on regulated activities without authorisation. The charges relate to advice provided and arrangements made regarding a series of regulated mortgage contracts between June 2014 and March 2018 for which Mr Barreto was not authorised to provide. 11. FCA: Final Notice: Sir Christopher GentOn 5 August 2022, the FCA issued a Final Notice imposing a fine of £80,000 on Sir Christopher Gent, the former non-executive Chair of ConvaTec Group Plc (ConvaTec), for unlawfully disclosing inside information to senior individuals at ConvaTec's major shareholders otherwise than in the normal exercise of his employment, profession and duties. The disclosure concerned an expected RNS announcement on amendments to ConvaTec's revenue growth guidance (guidance disclosure) and the retirement of the CEO of ConvaTec (retirement disclosure). The key points of the Final Notice are as follows:
The FCA considered that Sir Christopher acted negligently in making the disclosures, for the following reasons:
The FCA considered that Sir Christopher acted negligently notwithstanding the following:
The FCA found no evidence Sir Christopher traded on the information or intended to make personal gain, or avoid loss, from making the disclosures. |
12. FCA: Press Release: Dear CEO Letter and letter to British retail consumers warning Buy Now Pay Later firms about misleading advertsOn 19 August 2022, the FCA issued a press release, a Dear CEO Letter and a letter to British retail consumers clarifying its concerns about misleading financial promotions in connection with the provision of 'Buy-Now-Pay-Later' (BNPL) products. The FCA highlights its particular concerns with authorised firms selling unregulated or exempt BNPL products, including that the promotions must be clear, fair and not misleading. The FCA's particular concerns lie around the use of influencers and social media advertising, which emphasise the benefits of the products without clear disclaimers as to the risks, including:
These letters come in the wake of broader engagement of the FCA with BNPL providers including a roundtable to discuss upcoming regulation and working with BNPL firms to secure changes to potentially unfair and unclear terms in BNPL contracts. 13. FCA: Updated webpages relating to authorisation and the consumer dutyOn 18 August 2022, the FCA updated its authorisation application webpages ('How to apply for an authorisation' and 'Authorisation: what's involved?') to clarify expectations for compliance with the Consumer Duty. The amendments makes clear that firms are not only expected to show that they can comply with the Consumer Duty on an ongoing basis, but that they will be able to comply with the rules due to come into effect next year. 14. FCA: Authorisation webpage updated to include the Consumer DutyOn 29 July 2022, the FCA updated is webpage on authorisation for financial activities to include the Consumer Duty. The webpage states that while the implementation period for the Consumer Duty ends on 31 July 2023 for new products and on 31 July 2024 for existing products, assessments of firms and individuals applying for authorisation must demonstrate how Consumer Duty requirements will be met from now onwards. 15. FCA: Policy Statement (PS 22/9): A New Consumer Duty (Final Rules)On 27 July 2022, the FCA published its final guidance on the Consumer Duty. The new Consumer Duty applies to firms engaging in regulated activities in the UK across the retail distribution chain and to UK distributors of non-UK products/services to UK retail clients. One of the key developments is the introduction of a new overarching Principle 12 to the FCA Principles for Business, under which "firms must act to deliver good outcomes for retail consumers". Further, the policy statement implements various 'outcomes' that firms should seek to achieve, including:
A proposed new rule in COCON will be implemented as part of the Consumer Duty, requiring all conduct rule staff to 'act to deliver good outcomes for retail consumers'. The FCA reiterates its focus on prioritising vulnerable customers, particularly in light of the cost of living crisis. For further details, please see our briefing here. 16. FCA: Data on Retail Intermediary Market 2021On 21 July 2022, the FCA published data on the retail intermediary market for 2021. The FCA receives information firms which arrange or provide advice on mortgages, insurance policies or retail investment products about their activities. Key aspects of this data included:
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17. European Commission: PSD2: Commission Delegated Regulation amending the regulatory technical standards in Delegated Regulation (EU) 2018/389 as regards the 90-day exemption for account accessOn 16 August 2022, the European Commission adopted a Delegated Regulation amending the regulatory technical standards set out in Commission Delegated Regulation (EU) 2018/389 (the RTS) in relation to the 90-day exemption for account access. The amendments to the RTS:
The Delegated Regulation will enter into force 20 days after its publication in the Official Journal, and apply seven months after the date of its entry into force. |
Digital Finance and Fintech |
18. UK Jurisdiction Taskforce: Public Consultation: The issuance and transfer of digital securities under English private lawOn 9 August 2022, the UK Jurisdiction Taskforce (UKJT) issued a public consultation to address how English law can support the issue and transfer of equity or debt securities on blockchain and DLT systems. Responses should be submitted before 23 September 2022. 19. Law Commission: Consultation Paper on Digital AssetsOn 28 July 2022, the Law Commission published a consultation paper on digital assets. The consultation paper focuses on principles of private law, particularly property rights and how these relate to digital assets. The Law Commission believes that limited legal reform is required in order to ensure that digital assets benefit form legal recognition and protection in such a way that recognises the nuanced characteristics of digital assets. The suggested reforms include:
For further details, please see our briefing here. |
ESG |
20. Glasgow Financial Alliance for Net Zero (GFANZ): Consultation on Measuring Portfolio Alignment, Enhancement, Convergence and AdoptionOn 9 August 2022, the GFANZ published a consultation on its proposed new and enhanced guidance on measuring the alignment of financial institutions' investment, lending and underwriting activities with net-zero commitments. The consultation seeks input on enhancements to critical inputs for measuring portfolio alignment. The consultation closes on 12 September 2022, and responses should be submitted using this link. 21. FCA: Multi-firm review of TCFD-aligned disclosuresOn 29 July 2022, the Financial Reporting Council (FRC) and the FCA reported on the improvement in the quality of climate-related information which premium listed companies include in their financial reports. Premium listed companies have been required to include a statement in their annual financial report setting out whether they have made disclosures consistent with the Task Force of Climate-related Financial Disclosures' (TCFD) recommendations since 2021. If such companies have not made disclosures, they are required to explain the reasons for not doing so. The FCA found 81% of companies indicated that they had made disclosures consistent with all seven recommended disclosures which the FCA would ordinarily expect a company to comply with. Further, the FRC reported that the number of companies making disclosures that were either partially or mostly consistent with the TCFD framework increased significantly compared with 2020. The FCA stated that the findings were encouraging, however reported that there were clear reporting gaps on resilience of strategy, risk management and metrics used to assess risks and targets. |
Brexit and Divergence |
22. FCA: Updated Webpage: Temporary Permissions Regime (TPR) and landing slots for firms in the TPROn 12 August 2022, the FCA updated its TPR webpage to clarify that all firms in the TPR which the FCA are expecting to apply for authorisation in the UK should now have received formal direction confirming their 'landing slot'. If any firms are expecting to apply for full UK authorisation (and will be solo-regulated by the FCA), they can still apply to be authorised, but the application must be received by 31 December 2022. Any applications from firms in the TPR after this date will be treated as invalid. The FCA has also updated its dedicated landing slot page with the same message. |
Others |
23. FCA: Updated webpage: CP21/34: Improving the Authorised Representatives regimeOn 19 August 2022, the FCA updated its webpage for CP21/34 to clarify that, as part of the FCA's enhanced reporting requirements, Principal firms should expect to receive a request for data thorough a section 165 FSMA request in December 2022, rather than 'later in 2022', as the page previously read. 24. FCA: Updated webpage on change in control requirements for cryptoasset providersOn 11 August 2022, the FCA updated its webpage on change in control requirements to reflect that FCA registered cryptoasset firms (i.e. cryptoasset exchange providers and/or a custodian wallet providers) are subject to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), and will now be required to comply with certain elements of the change of control regime which have been brought into scope through amendments to the MLRs through a statutory instrument. As a result, persons acquiring 'control' of FCA registered cryptoasset firms of 25% or more will be required to submit change of control notification forms and receive prior approval from the FCA. For further details, please see our briefing here. 25. FMLC Report: "Contract of insurance" definition in the Regulated Activities OrderOn 9 August 2022, the Financial Markets Law Committee (FMLC) published a report on Article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) which extends the meaning of the term "contract of insurance" for regulatory purposes to include "fidelity bonds, performance bonds, administration bonds, bail bonds, customs bonds or similar contracts of guarantee". The FMLC considers the phrase "similar contracts of guarantee" has caused significant uncertainties and recommends factors to mitigate these uncertainties including:
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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.