Welcome to the latest edition of Gem Compliance’s monthly regulation newsletter. The aim of the newsletter is to present a summary of relevant industry news which has occurred during the month in an easily digestible format. As such, not all sources of industry information or FCA publications (and no PRA publications unless specified) may be included.
Clients and associates of Gem Compliance should periodically check the FCA’s, and where relevant, the PRA’s websites for regulatory developments. We hope you find this newsletter useful and should you have any feedback, compliance queries or require advice on any of these topics, please do not hesitate to contact us.
The news in the UK continues to be dominated by restriction easing and vaccine roll outs. While UK and devolved governments have decided to delay the full easing, the FCA continues to remind firms to check the dedicated coronavirus section (for firms and consumers) on the FCA’s website on a regular basis for updated information.
The 47th G7 summit was held this month in Cornwall, where the leaders discussed how to help build back economies since the Covid-19 pandemic and create a greener, more prosperous future.
The FCA Handbook Notice no. 88 has been issued and the latest policy developments updates can be found here. The FCA’s Market Watch edition 67 has also been published.
The FCA continues to update its designated Brexit webpage and firms are encouraged to regularly review. The PRA has also issued the latest Regulatory Digest for May 2021.
The Ombudsman has also published its newsletter, edition 161.
The ICO has not published a newsletter since March 2021.
On the 5th of June 2021, the G7 finance ministers and central bank governors issued a communication following their meeting in London. The participants in the meeting included the heads of the International Monetary Fund (IMF), World Bank Group, Organisation for Economic Cooperation and Development (OECD), Eurogroup and Financial Stability Board.
In the communique, among other things, the ministers and governors agreed:
To commit to embed climate change and biodiversity loss considerations into economic and financial decision-making, including addressing the macroeconomic impacts and the optimal use of the range of policy levers to price carbon.
To commit to a global minimum corporate tax of at least 15% on a country-by-country basis
To recognise that climate change poses increasing physical and transition risks to regulated financial institutions and to financial stability, and that these risks have distinct characteristics. G7 authorities consider it important for financial firms to manage the financial risks of climate change using the same risk management standards as applied to other financial risks.
To reach an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises.
To emphasise the need to green the global financial system so that financial decisions take climate considerations into account. They support moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants, which are based on the Task Force on Climate-related Financial Disclosures (TCFD) framework.
To commit to work together to consider the wider policy implications of central bank digital currencies (CBDCs). CBDCs should be resilient and energy-efficient, support innovation, competition, inclusion, and could enhance cross-border payments. Conclusions on common principles are due to be published later in 2021.
To reiterate that no global stablecoin project should begin operation until it adequately addresses relevant legal, regulatory, and oversight requirements through appropriate design and by adhering to applicable standards.
On the 16th of June, the UK Government published a report that the Taskforce on Innovation, Growth and Regulatory Reform (‘TIGRR’) had compiled, which included its recommendations to the Prime Minister on how the UK can reshape regulation and seize new opportunities from Brexit. The Taskforce was asked by the Government to explore methods of ways to refresh the UK’s approach to regulation following Brexit. The report focuses on various sectors, but also covers financial services and investment reform.
The recommendations discussed in that section include:
Amending the Seed Enterprise Investment Scheme and the Enterprise Investment Scheme to maximise private equity and venture capital investment in growth industries.
Supporting FinTech and digitalisation.
The TIGRR recommends increasing competition in the banking sector by introducing a graduated regulatory approach for challenger banks, reducing anti-money laundering requirements for new Open Banking or Fintech services, and accelerating plans to develop a central bank digital currency – with the launch of a pilot within 12 to 18 months.
Restoring a principles-based approach to financial service regulation.
Amending the MiFID II position limits to introduce greater flexibility while preserving protections on critical contracts.
Introducing a more discretionary and judgement-based approach to calculating central counterparty clearing house margins.
Mandating the expansion of open banking to open finance quickly, and taking a more market-led, Australian-style approach.
The Government will consider and respond to the report’s recommendations in due course.
On the 14th of June, the Financial Stability Board (FSB) published a note providing an overview of the responses it received to its November 2020 discussion paper on regulatory and supervisory issues relating to outsourcing and third-party relationships.
The FSB advised it received 39 responses from a variety of parties, including banks, insurers, asset managers, financial market infrastructures and third-party service providers. Those who replied, for the most part, welcomed the discussion paper and agreed with the challenges and issues it identified.
In the FSB discussion paper financial institutions and third parties were invited to provide comments on:
The key challenges in identifying, managing and mitigating the risks relating to outsourcing and third-party relationships (including risks in sub-contractors and the broader supply chain).
Possible ways to address these challenges and mitigate related risks, including in a cross-border context.
Lessons learnt from COVID-19 relating to outsourcing and third-party relationships, which included the reliance on cloud arrangements.
The FSB suggested the following measures to address these challenges and issues:
The development of global standards (which could include both regulatory and industry standards) on outsourcing and third-party risk management. These standards should be proportionate to the complexity, size, nature and risk profile of different financial institutions and they should be principles-based, outcomes-focused and proportionate to the criticality of the functions, services or technologies provided or supported by third parties.
To establish a consistent definition for the terms "outsourcing" and "third-party relationships", so it is clear what activities are in scope of regulation.
The use of pooled audits, certificates and reports as an effective form of third-party risk management that can help to reduce the burden on the relevant stakeholders. Pooled audits are already recognised by supervisory authorities and carried out by financial institutions in several jurisdictions, however the report did caution that in order for pooled audits to be effective the issues of anti-trust/competition would need to be addressed.
To create an enhanced cross-border cooperation and dialogue with stakeholders. This could be achieved via a regular international forum comprising relevant stakeholders to exchange views and best practices.
CP21/16: Quarterly Consultation Paper No.32. The FCA are consulting on proposed miscellaneous amendments to the Handbook. The paper is consulting on Consumer Credit Act activities, rules on credit card instalment plans and amending Mortgage Lenders & Administrators Return (MLAR) reporting instructions.
PS21/5: General insurance pricing practices market study – feedback to CP20/19 and final rules. The market study found that the home and motor insurance markets are not working well for all consumers, and the final rules address what has been described as the ‘loyalty penalty’ paid by existing general insurance product customers. The rules aim to ensure that customers receive fair value and include:
A requirement that when firms offer renewal prices to a customer, it can be no greater than the equivalent new business price for a new customer
Rules to enable firms to offer accessible options for customers wishing to cancel auto-renewal
Reporting requirements to support ongoing supervision
The rules relating to systems and controls come into effect on the 1st of October 2021, the rules on pricing and autorenewal will come into place on the 1st of January 2022.
The FCA published a statement on Gefion Insurance A/S, an insurance firm authorised by the Danish Financial Supervisory Authority (DFSA). The firm operated in the UK on a freedom of services basis and has now been declared bankrupt. Although there are no remaining live policies in the UK, claims may still be made against Gefion policies, and a number of previously submitted claims currently remain unsettled.
The FCA and the PRA have sent a Dear Chief Risk Officer letter to firms which outlines observations on good practices related to monitoring and mitigating counterparty credit risks in relation to Delivery versus Payment clients. The FCA and the PRA encourage firms to incorporate these observations within their control framework.
The FCA has published a webpage which sets out all its public statements on the LF Woodford Equity Income Fund Investigation. The page will be updated as further information is provided.
The FCA published a press release regarding research conducted that revealed an increase in cryptoasset ownership. The research estimates that 2.3 million adults now hold cryptoassets, up from 1.9 million last year. 78% of adults were found to now have heard of cryptoassets, which is up from 73% in a year. The research also found that 38% of crypto users regard the investments as a gamble, which is down from 47% last year. However, the level of overall understanding of cryptocurrencies is declining, suggesting that some people who have heard of crypto may not fully understand, with only 71% correctly identified the definition of cryptocurrency from a list of statements. The research is the FCA’s fourth consumer research publication on cryptoassets ownership. It is part of the FCA’s strategy to develop its thinking on the potential harms and benefits to consumers from cryptoassets and help better understand consumers’ attitudes and patterns of use.
The FCA advised that the Temporary Registration Regime has been extended for cryptoassets businesses. The extended end date will allow cryptoasset firms to continue trading while the FCA continues with its assessments. This date has been amended from the 9th of July 2021 to the 31st of March 2022.
Lyndon Nelson, Deputy CEO & Executive Director of Regulatory Operations and Supervisory Risk Specialists at the PRA, gave the speech ‘Cyber Risk: 2015 to 2027 and the Penrose steps’. Mr Nelson highlighted that cyber risk is ever changing and the industry knows it needs to remain vigilant. The speech discusses the steps to counter it, including simulation exercises, penetration testing and international collaboration.
Andrew Bailey, the Governor of the Bank of England, gave the speech ‘Tackling climate for real: progress and next steps’. In his speech Mr Bailey addressed three main areas of the BoE’s work, being improving the understanding of climate-related financial risks across the financial system and macro-economy, developing and embedding climate risk management in the financial firms that the BoE regulates and seeking to achieve best practice through the BoE’s operations as a central bank.\
The Pensions Regulator published a speech given to the FT and Pensions Expert DB Forum by David Fairs, its Executive Director for Regulatory Policy, Analysis and Advice. The speech focused on the new powers granted to the Regulator by the Pension Schemes Act 2021. In particular, Mr Fairs discussed the recent consultation on the Regulator's draft policy concerning its approach to prosecuting the new criminal offences, including the circumstances in which a target may have a "reasonable excuse" defense. The new criminal offences will carry a potential seven-year jail term and an unlimited fine, these are: for avoiding employer debt to a scheme or behaviour risking accrued scheme benefits.
The FCA issued a Final Notice for Ms Sherrie Jean Thackray for a lack of fitness and propriety. Ms Thackray became a controller of a regulated firm, Transfer Gurus Limited, without consent. The firm had failed to register with the HRMC, had not submitted regulatory returns and had not updated its Payment Services Directive individuals. Ms Thackray was also absent from the UK and gave the FCA concern that the acquisition was at risk of money laundering activities. By a warning notice dated 25th of February 2021, the FCA gave notice that is proposed to object to the acquisition by Ms Thackray of 100% of the shares of Transfer Gurus Limited.
The FCA also published a first supervisory notice to ICC Intercertus Capital Ltd imposing a number of requirements with immediate effect. ICCICL The notice concerns the FCA’s use of its power of intervention in respect of the firm operating post-Brexit under the Temporary Permissions Regime. The firm is registered in Cyprus but has temporary permissions under the TPR to provide investment services to UK customers. The firm is part of a group of companies, the EverFX Group, which includes two other overseas CFD trading firms, which provide the ability to trade CFDs through two separate websites. Neither of the overseas firms has permission to conduct regulated activities in the UK. The FCA received 76 complaints or expressions of concern about the activities of the Group, but most of the overseas customers did not have the same level of protection as they are not regulated in the UK. In the circumstances, the FCA considers that the continuing provision of regulated services by the EverFX Group in respect of UK consumers presents unacceptable risks. The FCA is imposing requirements on the Firm which prevent it from conducting regulated activities in respect of, and marketing its products to, UK consumers, ensures that the effect of these measures is brought to the attention of its current and potential future UK clients and requires it to take reasonable steps to ensure that the other members of the EverFX Group also cease conducting regulated activities in respect of UK consumers.
The European Central Bank (ECB) launched a consultation on the draft of a revised and more comprehensive version of its guide to fit and proper assessments and a new fit and proper questionnaire. The enhancements contained in the documents aim to raise the bar, increase transparency and improve the quality and efficiency of fit and proper assessments and processes. They also introduce supervisory expectations on climate-related environmental risks and explain the ECB’s approach to diversity. The ECB also proposes to explain in more detail in the guide how board members will be reassessed if new material facts emerge after their appointment. It also encourages banks that are subject under national law to an ex-post assessment regime to file their fit and proper applications before making appointments. The deadline for comments on the consultation is 2 August 2021.
The Proceeds of Crime Act (POCA) 2002 (References to Financial Investigators Order 2021) expands the list of organisations whose accredited financial investigation staff can exercise powers provided for in the POCA. The list now includes accredited financial investigators of the London Fire Commissioner, the Information Commissioner's Office, the Department for Transport and the Department for the Economy, Northern Ireland. The Order entered into force on the 28th of June 2021.
The Financial Ombudsman Service published its annual complaints data for 2020/21. The overall number of new complaints received increased by 2% to 278,033, compared to 271,468 complaints received in the 2019/20 financial year. The complaints data published also shows:
162,420 non-PPI complaints were resolved by the Ombudsman Service in 2020/21 (compared with 172,216 in 2019/20);
40% of non-PPI complaints resolved in 2020/21 were upheld in favour of the consumer (compared with 44% in 2019/20); and
42,040 complaints about PPI were received (compared with 122,153 in 2019/20).
The increase in non-PPI complaints has largely been driven by a 66% increase in complaints about banking and credit products, with 170,648 complaints being received in 2020/21, compared with 103,070 in 2019/20.
The data also highlights a 91% increase in complaints about investments and pensions, with 20,854 complaints being received in 2020/21 compared with 10,920 in 2019/20.
The ICO has fined three companies a total of £415,000 for sending nuisance marketing regarding car finance, solar panels and funeral plans. The messages were sent by the companies from October 2018 to January 2020. This evidence was gathered from complaints made by people who had received them. The complaints received by both the Commissioner and the TPS suggest that one company in particular was seen to be rude and persistent when making calls, ignoring stop requests. In all cases, the companies did not have the valid consent required to send direct marketing which is a breach of data protection legislation.
The High Court has refused to sanction the scheme of arrangement proposed by subprime lending group Amigo. The scheme, which sought to compromise consumer redress claims for inappropriate or unaffordable loans, had been approved by over 95% by number and value of voting scheme creditors. However, only 10% or less (by number and value) of scheme creditors had turned out to vote. The FCA had issued a letter of objection to the scheme and opposed it at the sanction hearing.
The Pensions Dashboards Programme published a call for input on proposals for the staging timetable under which pension schemes and providers will be obliged to meet the new statutory requirements concerning pensions dashboards enacted in the Pension Schemes Act 2021.
The FCA issued a statement regarding the publication of costs and charges data by workplace personal pension providers. In the statement, the FCA refers to its earlier consultation paper on requirements for scheme providers to publish costs and charges data, and the resulting policy statement which contained final rules. The FCA states that the first publication of data under these rules is expected to take place this summer, once the Independent Governance Committees (IGCs) publish their annual reports. The FCA found that it had since received correspondence from firms and has held discussions with both firms and IGC members. These discussions have revealed different views among stakeholders as to whether the data should be published at the level of the arrangement with each individual employer, or whether it should be published at a higher level, with the data indicating the range of charges paid by members in different employer arrangements in one overarching scheme. In the statement the FCA outlines these 2 views and its expectations of firms for the first publication of the data.
The Bank of England issued its second annual climate disclosure report, which sets out its approach to managing risks from climate change across its operations. In particular, the report covers the BoE’s climate change strategy, the governance structures and processes around its climate-related work, and the measurement and management of climate-related risks across its physical and financial operations. For the first time, the report includes scenario analysis drawing on the latest data and modelling techniques to estimate the financial impact of climate-related risks associated with the BoE’s financial asset portfolios. In addition, the report includes preliminary analysis of the emissions impact of staff working remotely during 2020.
This newsletter contains generic information and has been generated for professional clients and associates of Gem Compliance Consulting Limited only and should not be regarded as advice. We will not be liable for loss, however caused by parties acting on the information contained herein.