Issue 80 - May 2021

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.


Other Newsletters & Updates

The industry news has continued to be influenced by the easing of restrictions and the rollout of the coronavirus vaccines across the UK. 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 any updated information.
The FCA issued its May Regulation round-up in which the hot topics include the Senior Managers and Certification Regime now being fully effective for all firms authorised under the Financial Services and Markets Act. It also focuses on its proposal that would see pension firms focusing on ‘nudging’ consumers to seek advice from Pension Wise.
The FCA Handbook Notice no.87 has been issued and the latest policy development updates can be found here.
The FCA’s news and publications are also now available in a daily email alert. The FCA published its latest board meeting minutes for March and April. The latest PRA Regulatory Digests have been published for April & May.
The FCA continues to update its designated Brexit webpage and firms are encouraged to regularly review.
The ICO’s (Information Commissioner’s Office) most recent newsletter can be found here. The Financial Ombudsman has published newsletter 161 at the end of May.

Main Features

1. The FCA sets out to strengthen its financial promotion rules

The FCA has set out its proposals to strengthen its financial promotion rules for high-risk investments. The FCA published a discussion paper (DP 21/1: Strengthening our financial promotion rules for high-risk investments and firms approving financial promotions) seeking views on three areas of change that have been identified with the aim of strengthening financial promotion rules to help investors make more effective decisions that meet their savings and investment needs:
1. Classification of high-risk investments: 

The classification of investments determines the level of marketing restrictions. The FCA is seeking views on whether more investment types should be subject to marketing restrictions and what restrictions should apply.
2. Segmentation of the high-risk investment market: 

The FCA has expressed concerns that despite existing marketing restrictions, too many consumers still invest in inappropriate high-risk investments that don’t meet their needs. The FCA plans to further segment high-risk investments from other investments and is seeking views on how best to achieve this. The discussion paper suggests requiring consumers to watch educational videos or to pass online tests to demonstrate sufficient knowledge about financial products.
3. Responsibilities of firms which approve financial promotions: 

Firms approving financial promotions for unauthorised persons play a key role in ensuring financial promotions meet FCA standards. The FCA is seeking views on whether there should be more requirements for these types of firms to monitor financial promotions on an ongoing basis after approval, to ensure it remains clear, fair and not misleading.
Sheldon Mills, Executive Director, Consumers and Competition at the FCA said:
'We have been clear that we want to deliver a consumer investment market that works well for the millions of people who stand to benefit from it. We are concerned that too often consumers are investing in high-risk investments they don’t understand and can lead to significant and unexpected losses. We have already taken action by banning the mass-marketing of speculative mini-bonds. We continue to address harm in this market through our ongoing supervisory and enforcement action but recognise more needs to be done. Our latest proposals would further reduce the risk of people taking on inappropriate, high-risk investments that don’t meet their needs’.
The FCA is inviting feedback on its discussion paper by 1 July 2021. It will consider the feedback received alongside further analysis and testing, and intends to consult on rule changes later this year.

2. FCA Consultation: Long Term Asset Funds 

The FCA has launched a consultation (CP21/12: A new authorised fund regime for investing in long term assets) on a new type of fund to support investment in long-term assets. The proposal would mean that funds would be open-ended and would be allowed to invest in assets such as venture capital, private equity, private debt, real estate and infrastructure. The introduction of the proposed long-term asset fund (LTAF) would provide a fund structure that investors could invest in less liquid assets as the fund structure would specifically be designed to accommodate relatively illiquid assets. The illiquid assets have the potential to offer appealing returns to investors. Additionally, if successful, the LTAFs could allow businesses and infrastructure projects better access to long-term capital to support investment and wider economic growth.
In a statement to the Parliament on the Financial Services Bill, on 9 November 2020, the Chancellor committed to the launch of the first LTAFs being launched within a year. Under current rules, investors can invest in such assets through close-ended structures, or a range of private structures. However, some investors prefer to invest in open-ended funds where they can put money in or take it out at the net asset value of the assets. The problem with this, as seen with property funds, is that open-ended structures investing in illiquid assets can face issues if they offer daily dealing to investors. The FCA is therefore proposing that LTAF rules include longer redemption periods, increased disclosures and specific liquidity management and governance features – considering the risks that LTAFs may be exposed to and providing comfort to investors that funds are being managed appropriately and in their interests.
Not only would the LTFA offer an alternative investment opportunity to experienced retail investors, but it would also be aimed at defined contribution (DC) pension schemes which may be interested in investing part of their assets into an LTAF, in line with their investment horizons and risk appetite. The Department for Work and Pensions (DWP) recently published the results of a survey that found two thirds of DC schemes do not invest in illiquid assets, while the remaining third invests between 1.5% and 7%. Therefore, the FCA consultation proposes amending the permitted link rules to allow pension schemes to consider the proportion of illiquid assets across their investment portfolios.
Nikhil Rathi, Chief Executive of the FCA commented on the proposals:
‘It is important for overall economic growth that the financial system supports investment that may take time to deliver a return. This is in addition to the potential benefit to investors themselves. We think our proposals would enable the establishment of authorised funds that are appropriate for both professional investors and sophisticated retail investors that want this type of investment risk and opportunity… Nevertheless, it is important that the LTAF commands the confidence of target investor groups and can meet their needs. We therefore propose rules to secure an appropriate level of consumer protection and to address specific risks related to investments in illiquid assets’.
In order to create an environment in which investment in longer-term, less liquid assets can succeed, the FCA has assembled the Productive Finance Working Group, alongside Her Majesty’s Treasury (HMT) and the Bank of England. The Group will consider how the wider ecosystem can operationally support the LTAF as a non-daily dealing fund. The working group is expected to draw its conclusions in July 2021. The FCA will consider any recommendations of the Productive Finance Working Group when making final rules.
The FCA is open to feedback from stakeholders on its proposals and the consultation is open for feedback until 25 June 2021.
3. FCA proposes stronger protection for consumers in financial markets

The FCA has set out plans for a new Consumer Duty (CP21/13: A new Consumer Duty), which will set a higher level of consumer protection in retail financial markets for firms to adhere to. All firms are currently bound by FCA rules and principles to treat customers fairly. While many firms are delivering the right outcomes for consumers, the FCA has seen evidence of practices that cause consumer harm, including firms providing information that is misleadingly presented or difficult for consumers to understand. This may explain why one in four respondents to the FCA’s 2020 Financial Lives Survey said they lacked confidence in the financial services industry and only 35% of respondents agreed that firms are honest and transparent in their dealings with them. The FCA is proposing to expand its existing rules and principles to ensure firms provide a high level of consumer protection consistently, which will enable consumers to achieve good outcomes. The Consumer Duty, which firms will have to follow or face regulatory action, will have three key elements:
  1.  The Consumer Principle – reflecting overall standards of behaviour expected by the FCA. The wording being consulted on is ‘a firm must act in the best interests of retail clients’ or ‘a firm must act to deliver good outcomes for retail clients’.
  2.  Cross-cutting rules which would require 3 key behaviours from firms, which include taking all reasonable steps to avoid foreseeable harm to customers, taking all reasonable steps to enable customers to pursue their financial objectives and to act in good faith.
  3. It will also be underpinned by a suite of rules and guidance that set more detailed expectations for firm conduct in relation to 4 specific outcomes – communications, products and services, customer service and price and value.
The consultation is open for comment until 31 July 2021 and the FCA expects to have an additional consultation on the proposed rule changes by the end of 2021 and make any new rule changes by the end of July 2022.
Other Publications

Consultation Papers

CP21/9: Changes to UK MiFID's conduct and organisational requirements. The FCA and Treasury are considering reforms to capital markets looking at changes to the UK's regulatory regime. This consultation paper covers change to two areas to the conduct and organisational rules in UK MiFID: research and best execution reporting.


The FCA issued a statement confirming FCA and Bank of England support and encourage market users and liquidity providers in the sterling exchange traded derivatives market to switch the default traded instrument to SONIA instead of LIBOR from 17 June this year. This is to facilitate a further shift in market liquidity toward SONIA, bringing benefits for a wide range of users as they move away from LIBOR.
The FCA has extended its deadline for implementing Strong Customer Authentication (SCA) for e-commerce transactions to 14 March 2022. The extension will ensure minimal disruption to merchants and consumers and will be the latest the FCA expects full SCA compliance for e-commerce transactions.

The FCA has published the number of skilled persons reports commissioned in FCA fee year Q4 2020/2021 (Jan – March 2021), showing a total number of 19.
The FCA has issued a Call for Input regarding the pension consumer journey. The FCA found that consumers often fail to make the most of their pensions and it is keen understand consumer behaviour at key points in the pension journey to improve pension outcomes, The deadline for final responses is 30 June 2021.
FCA Press Releases

The FCA has launched a consultation (CP21/10: Investor protection measures for special purpose acquisition companies: Proposed changes to the Listing Rules) on proposed changes to its Listing Rules for certain special purpose acquisition companies (SPACs). The proposal would amend rules to allow an alternative approach for listed SPACs that can demonstrate higher levels of investor protection that have developed in certain overseas jurisdictions. The current rules mean that a SPAC listing is usually suspended at the point it identifies as an acquisition target in order to preserve market integrity during a period when limited information on a prospective deal could result in disorderly trading in a SPAC’s shares. However, suspension results in investors being locked into a SPAC at the point a target is announced and this can potentially be for several months until completion. The FCA is  proposing that SPACs complying with higher levels of investor protection should not be subject to this requirement. The proposal suggests that in order to avoid suspension that SPACs should:
  • Set minimum amount of £200m to be raised when a SPACs shares are initially listed – encouraging high levels of institutional investor participation.
  • Ring-fencing monies raised from public shareholders to either fund an acquisition, or to be returned to shareholders (excluding any amounts agreed to be used for the running costs of the SPAC).
  • Shareholder approval for any proposed acquisition – based on sufficient disclosures of key terms and confirmation that terms are fair and reasonable.
  • ‘Redemption’ option allowing investors to exit a SPAC prior to any acquisition being completed, and a deadline on a SPACs operating period if no acquisition is completed.
  • Sufficient disclosures provided to investors on key terms and risks from the SPAC IPO through to the announcement and conclusion of any reverse takeover deal.
The proposal would mean that any SPAC issuers unable to meet the conditions, or those who choose not to, will continue to be subject to a presumption of suspension.
The FCA is consulting for four weeks on the above proposals.
The FCA and Practitioner Panel has issued a joint survey for 2021 to a sample of 12,000 flexible firms, requesting feedback on how the FCA regulates the industry. The last survey was carried out in 2019 and it was decided not to conduct a survey in 2020 due to the challenges firms faced with the Covid-19 pandemic. The survey will be used to understand the issues affecting firms and how the FCA can adjust its approach to become a better regulator. The results are presented to the Panels and the FCA Board and will be published in Autumn 2021.
The Financial Services Regulatory Initiatives Forum has issued the third edition of the Regulatory Initiatives Grid. The Grid publication marks the end of a one-year pilot exercise that will continue and with bi-annual publications. Upcoming work will include eight new environmental, social and governance (ESG) initiatives, the Bank of England and the FCA’s work to transform data collection, HM Treasury’s Future Regulatory Framework Review and the Pensions Regulator’s work to introduce a single code of practice to make their expectations simpler and easier to understand. The Financial Reporting Council has also joined the Forum and will be contributing towards the Grid. The latest Regulatory Initiatives Grid can be found here.
The FCA has completed the migration of 52,000 firms and 120,000 users from Gabriel to RegData. The new reporting platform was designed to be user-friendly with increased speed and faster navigation. The changes also mean users will be able to use the same credentials for both Connect and RegData, minimising the number of usernames and passwords individuals and firms need to remember. The FCA has published a collection of short RegData user guides and explainer videos to guide users through the full suite of functionality in the new platform. Firms are invited to take part in a short survey to provide feedback on their experience of the migration and the new system.
The FCA has announced plans to stop the practice of ‘claims management phoenixing’, by banning Claims Management Companies (CMCs) from managing Financial Services Compensation Scheme (FSCS) claims where they have a relevant connection to the claim. Claims management phoenixing occurs when individuals from financial services firms go out of business, but later reappear in connection with CMCs and charge consumers for seeking compensation against their former firm’s poor conduct by bringing claims to the FSCS. Stopping CMCs from managing FSCS claims with which they have a relevant connection, the FCA will ensure CMCs are not able to seek profit from past misconduct of individuals connected with the CMC. The consultation is open for comment until 21 June 2021.
The FCA has published a consultation on its proposed policy framework for exercising two of its new powers under the Benchmarks Regulation (BMR), which will be introduced by the Financial Services Act 2021. The consultation is an important step in the wind down of LIBOR. The FCA will receive new powers under the BMR to organise a smooth wind down of benchmarks like LIBOR. The FCA has already established its policy framework for how it would exercise its new powers to require continued publication of critical benchmarks using a changed methodology, and when it could access those powers. Soon it will be consulting on using those powers to implement a ‘synthetic LIBOR’ rate for some sterling and yen LIBOR settings. As noted in the FCA’s 5 March 2021 announcement, these synthetic rates would no longer be ‘representative’ under the terms of the BMR. Where synthetic LIBOR rates are implemented, the FCA will need to determine who is permitted to use it as the use of a permanently non-representative benchmark would be prohibited under the BMR, but the FCA can permit some or all legacy use to continue. However, FCA reminds market participants that any permitted use of synthetic LIBOR would not be a permanent solution, so parties will need to continue their efforts to amend their contracts. Edwin Schooling Latter, Director of Markets and Wholesale Policy at the FCA, commented:
‘We have provided certainty over when the LIBOR panels will end, so there is no longer a reason for firms to delay their transition plans. It’s time to act. While we are taking steps to provide a safety-net for contracts that cannot transition, firms should be taking all reasonable steps to ensure the end of LIBOR does not lead to markets being disrupted or harm to consumers’.
The FCA will finalise its policies after reviewing feedback received and aims to consult in Q3 2021 on its proposed decisions on precisely what legacy use to allow for any synthetic sterling and yen LIBOR.

Enforcement Actions and Prosecutions 

The FCA has launched criminal proceedings against Ian James Hudson for fraudulent trading and carrying on regulated activities without authorisation. Hudson was charged with carrying on a business, Richmond Associates, with the intention to defraud creditors and carrying on regulated activities, advising on investments and accepting deposits without authorisation. It is alleged that between 1 January 2008 and 31 July 2019, Mr Hudson advised on investments and purported to invest deposits received by him from clients on their behalf and at no point during this time was he authorised by the FCA to undertake these financial services, as required by law. Furthermore, Hudson told clients that their money would be invested in various financial vehicles or otherwise put to specific uses however, this was not always the case. Hudson is expected to appear at Southwark Crown Court for a Plea and Trial Preparation Hearing on 17 June 2021.
The FCA has fined Sapien Capital Ltd £178,000 for failings which led to the risk of facilitating fraudulent trading and money laundering. This is the first FCA case in relation to cum/ex trading, dividend arbitrage and withholding tax (WHT) reclaim schemes. The FCA found that between 10 February 2015 and 10 November 2015, Sapien failed to have adequate systems and controls to identify and mitigate the risk of being used to facilitate fraudulent trading and money laundering in relation to business introduced by the Solo Group. Sapien agreed to resolve all issues of fact and liability and entered a Focused Resolution Agreement and qualified for a 30% discount. The amount was further reduced from £219,100 to reflect Sapien’s serious financial hardship. The FCA continues investigations into the involvement of UK based brokers in cum/ex dividend arbitrage schemes.
The FCA has secured the bankruptcy of three individuals involved in an unauthorised share scheme. After a trial, the High Court ordered the payment of nearly £3.62 million in restitution to members of the public who had bought shares that were marketed unlawfully. The defendants failed to satisfy the order which has resulted in the FCA making applications to the court to petition for the bankruptcy of Lee Skinner, Tyrone Miller and Clive Mongelard (aka Clive Harris). The financial affairs of the defendants will be investigated by the Official Receiver (or Trustee in Bankrupcy). The fourth defendant, Karen Ferreira has appealed the Judgement against her, and the enforcement of the Judgement has been suspended pending the Court of Appeals decision.

Compliance, Culture and Evolving Regulatory Expectations. Speech by Mark Steward, Executive Director of Enforcement and Market Oversight, delivered at NYU Law School.
Regulation for a different world. Speech delivered by FCA’s CEO, Nikhil Rathi on the UKs regulatory landscape post-Brexit and beyond.
Outcomes-focussed regulation: a measure of success? Speech by Charles Randell, Chair of the FCA and PSR.
Protecting access to cash and banking services. Speech by Sheldon Mills, Executive Director, Consumers and Competition.
The rise in scams and the threat to a legitimate financial services industry. Speech by Mark Steward, Executive Director of Enforcement and Market Oversight.
Industry News

Pensions & SIPPs 

The FCA has proposed new rules that will require pension providers to ‘nudge’ consumers to seek guidance from Pension Wise before accessing their defined contribution pension savings – including booking an appointment with Pension Wise if the consumer wishes to do so. Current rules require pension providers to signpost consumers to Pension Wise guidance or advice to help them understand their options. However, the utilisation of Pension Wise guidance remains low. The new proposal would mean that once a consumer has decided, in principle, how to access their savings, the provider must:
  • Refer the consumer to Pension Wise guidance
  • Explain the nature and purpose of Pension Wise guidance
  • Offer to book an appointment, and where the consumer accepts the offer, book the appointment or provide the consumer with sufficient information to book their own appointment.
Sheldon Mills, Executive Director, Consumers and Competition at the FCA said: ‘Our proposal will help to ensure that consumers get more information about the service, are further encouraged to use it and can have an appointment booked for them there and then’.
The Government’s proposals on protected pension ages have been criticised as overly complex. Experts have warned that the proposals will create a complex two-tier system for advisers when the minimum age rises to 57 in 2028. Tom Selby, senior analyst at AJ Bell said the government’s plans should be “avoided at all costs”. He explained that the problem with the proposals is that they will allow people with an ‘unqualified right’ under their scheme rules to access their pension from age 55 as long as they don’t transfer to another scheme, while others will have to wait until they are 57 and this would mean people would find themselves in the position of having two similar pension pots that can be accessed at different ages. Selby said:
“This approach risks creating damaging and entirely avoidable complexity. Furthermore, those who randomly find themselves in a scheme which allows access at age 55 may be deterred from moving their pension elsewhere, even if this is in their best interests to take advantage of lower costs, more investment options or better administration. This would clearly be a deeply undesirable outcome and must be avoided at all costs”.
The Government’s consultation on the proposed pension age increase closed on 22 April.


The Financial Services Compensation Scheme warns savers drawn to riskier investments. The FSCS found that one in five retirees have considered turning to higher risk pensions as they offer a higher rate of interest. Research found that the UK’s prolonged low interest savings environment has had a direct impact on retirees; financial decisions, tempting them to review high risk investment products they would not normally consider. It also found that of 2,000 55- to 75-year-olds surveyed, only 12 per cent have taken advice from an IFA to go through their financial options. The FSCS also found that more than a third had invested their money after retiring. While the majority (69 per cent) said they knew their investments were FSCS protected, only 36 per cent knew the exact amount of FSCS protection available – this means that savers could be unknowingly be investing in investment products beyond its compensation limit, which would likely be lost if the provider went out of business.

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.

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