Issue 78 - March 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.


  1. Other Newsletters and Updates
  2. Main Features:
  3. Other Publications
  4. FCA Press Releases & Statements
  5. Speeches
  6. Enforcement Actions and Prosecutions
  7. Industry News:
  8. Regulation 
  9. Financial Crime
  10. Brexit
  11. HMRC
  12. Complaints
  13. Cyber
Other Newsletters & Updates
The March news have been dominated by the ongoing pandemic with the UK and devolved governments publishing their respective roadmaps for easing restrictions over the coming months. As the rollout of the coronavirus vaccine across the UK continues, the UK Chancellor delivered the 2021 Budget where he announced new measures to help business and jobs through the pandemic, and to support the UK's long-term economic recovery and a series of tax-raising plans to help rebalance the public finances. Firms are recommended to check the dedicated coronavirus section (for firms and consumers) on the FCA’s website on a regular basis for any updated coronavirus news. 
The FCA is launching a new online fees portal on 12 April 2021 for users to access their invoices and arrange payment of their fees. The existing portal Chrysalis will no longer be available after 31 March 2021 and there will be no portal available until the new portal launches. The FCA’s news and publications are also now available in a daily email alert and you can find FCA’s latest board meeting minutes here from the January 28thmeeting. The FCA Handbook Notice 85 has been issued and the latest policy development updates can be found here.  The FCA also issued its March Regulation round-up. The FCA continues to update its dedicated Brexit webpage and encourages firms to visit this for any updates. 
The Financial Ombudsman has published newsletter 158 and February’s PRA Regulatory Digest can be found here. The ICO’s (Information Commissioner’s Office) most recent newsletter for March is available here
FCA would also like to remind the solo-regulated firms that they must conclude the certification of their staff in compliance with SM&CR and submit their Directory Persons data via Connect by 31 March 2021. 
The FCA is continuing to send out Covid-19 surveys to different firms and therefore firms may receive another survey around mid April for submission deadline early May.

Main Features

1. FG21/1 Guidance for firms on the fair treatment of the vulnerable customers

The Financial Conduct Authority (FCA) has published final guidance clarifying its expectations of firms on the fair treatment of vulnerable customers. The aim of the guidance is to improve the way firms treat vulnerable customers. ‘A vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care’. 
The guidance consists of:
  • Understanding the needs of vulnerable customers
  • Skills and capability of staff
  • Taking practical action
  • Monitoring and evaluation 
The FCA would like the fair treatment of vulnerable customers to form part of firms’ healthy culture including policies, processes and areas such as product development. Staff should be supported by senior managers to take responsibility for reducing the potential for harm to vulnerable customers. The FCA reminds firms that this Guidance is driven by Principle 6: Customers’ interests: A firm must pay due regard to the interests of its customers and treat them fairly. 
According to the guidance, firms should:
  • understand the needs of their target market / customer base 
  • ensure their staff have the right skills and capability to recognise and respond to the needs of the vulnerable customers
  • respond to customer needs throughout product design, flexible customer service provision and communications
  • monitor and assess whether frims are meeting and responding to the needs of customers with characteristics of vulnerability, and make improvements where this is not happening 
Although this Guidance only applies to firms’ dealing with retail customers who are natural persons, firms should remember that the Principles, including the obligation to treat customers fairly, extend to all customers. 
The FCA also issued a feedback statement FS21/4 which sets out FCA’s response to feedback received and the changes FCA made to the Guidance Consultation (GC20/3), which was published in July 2020. 

2.  MiFID II: product governance review 

The Product Governance regime, as detailed in the FCA’s rule book at PROD, was introduced as part of MiFID II in January 2018. However, the FCA has had concerns on how much firms could evidence under this regime and therefore has carried out a thematic review, the results of which have now been issued. 

The FCA assessed product governance in a sample of 8 asset management firms. The regulator examined how these firms, as product providers (manufacturers), take MiFID II’s product governance rules into account, particularly the interests of the end clients, throughout the product lifecycle. All the products assessed were UK-authorised collective investment schemes, available to retail investors through platforms on both an advised and an ‘execution-only’ (non-advised) basis and were measured against relevant requirements and guidance in the FCA Handbook, especially the ‘Regulatory Context’ sections and Systems and Controls (SYSC).
The overall findings suggest that some asset managers are not undertaking activities in line with MiFID II’s PROD regime, which could increase the risk of investor harm. The FCA also found that manufacturers often rely on those who distribute their products to give them relevant information on the end consumer. However, the findings suggest this information is passed on to asset managers very rarely, which can hinder firms’ ability to effectively meet best practice on product governance. 
The FCA grouped their findings into 4 main areas:
Product Design- how well firms assess the negative target market and conflicts of interest
  • Negative target market -  only 1 manufacturer considered this
  • Conflict of interest – all firms had this framework but it was not always effective 
Product Testing – focused on scenario and stress testing
  • Scenario and stress testing – all manufacturers could evidence this but the approach varied 
  • Cost disclosures – some areas where firms need to improve costs and disclosures  
Distributors - focus around firms’ due diligence, the information they sought from distributors and their use of management information (MI) 
  • Due diligence - some firms assessed a distributor’s arrangements more robustly than others
  • Information from distributors - all asset managers faced challenges in getting end-client data from distributors
  • Management information – the systems and procedures for monitoring data internally varied, as did how firms use MI.
Governance and Oversight -almost all firms carried out an annual review in varying degrees.  However, different firms showed varying levels of oversight and challenge across these governance channels:
  • Second line of defence and committees – all firms had product governance committees but fell short of the FCA’s expectations
  • Authorised Fund Manager (AFM) Board - while firms were aware of the AFM Board’s product governance obligations and the need for oversight of the relevant committees’ work or their second-line functions, there was variation in the quality of contribution from the independent Non-Executive Directors.
  • Record keeping - Most asset managers had poor record keeping 
  • Training - relevant training generally in place, however the quality and focus areas of this training varied. 
Following this review, the FCA is likely to undertake further work on the subject of PROD. The regulator expects firms to ensure their activities prioritise good customer outcomes and that they comply with the relevant regulatory rules and requirements. 

In this review, the FCA also explained the regulatory context of the review: ‘Authorised Fund Managers (AFMs) i.e mangers of authorised funds are required to act in the best interests of the funds they manage and of those who invest in those funds, under rules in the Conduct of Business Sourcebook (COBS), the Collective Investment Schemes (COLL) Sourcebook and the FCA’s Principles for Businesses (the Principles). While PROD rules apply to AFMs as guidance, we expect firms to carefully consider them when meeting their obligations to ensure they comply with our Principles and other relevant rules. Notably, acting in line with PROD will enable AFMs to comply with some of these other requirements.’

Whilst this review focused on authorised funds for retail customers, it is recommended that all firms should bear the general guidance and principles in mind when acting as either a manufacturer or distributor of investment vehicles and services. 

Other Publications

FCA Coronavirus Publications 
The FCA issued its final guidance on business interruption insurance test case – proving the presence of coronavirus (Covid-19). The guidance sets out the types of evidence and methodologies which policyholders may wish to use when proving the presence of coronavirus (Covid-19) in a particular area around their premises. This guidance builds on the High Court’s judgment and declarations and the additional statements from the Supreme Court in the context of insurers’ obligations under the FCA’s rules to handle claims fairly. 
The guidance is intended to:
  • provide clarity for all parties
  • help ensure that the process of proving the presence of Covid-19 is made as simple as possible for eligible policyholders and
  • enable those policyholders to receive claim payments as early as possible.
The FCA has also issued feedback from the draft guidance FS21/5, which summarises the feedback FCA received to the draft guidance published for consultation on 11 December 2020. 

The Financial Conduct Authority has championed the UK’s green approach to rebuilding the economy after the pandemic. Alexander Smith, head of department for strategic and cross-cutting policy at the FCA, said adopting a green approach is especially important in 2021 when the UK will host the G7 summit this summer and Cop26 (Conference of the Parties) in November.

The coronavirus pandemic has seen a higher proportion of people who identify as BAME dipping into their savings to cover expenses, prompting warnings of longer-term consequences for this group. The regulator’s latest Insights article on ethnicity, personal finance and coronavirus, published on February 24, found the effects of Covid-19 have left BAME savers in a more vulnerable position than their white counterparts.

Consultation Papers
CP21/4: Funeral plans: proposed approach to regulation
CP21/5: Quarterly Consultation Paper No. 31. Once a quarter, the FCA consults on proposed miscellaneous amendments to the FCA Handbook. In this consultation, the FCA is proposing Amendments to the Compensation (COMP) rules relating to the Financial Services Compensation Scheme and Changes to the Training and Competence (TC) sourcebook and list of appropriate qualifications. Comments welcomed until 30 April 2021. 
CP21/6: Regulating bidding for Emissions Allowances under the UK Emissions Trading Scheme

Policy and Guidance
PS21/1: Breathing Space Regulations: changes to our Handbook. The FCA is making changes to the Consumer Credit sourcebook (CONC). This is to clarify how the FCA rules apply where the Regulations also apply; and to avoid duplicating the effects of the Regulations in a disproportionate way.
PS21/2: Amendments to single and cumulative transaction thresholds for contactless payments. The FCA has confirmed changes to its rules to allow for an increase in the single transaction contactless payment threshold from £45 to £100. The contactless threshold for multiple transactions will also increase from £130 to £300.

FG21/2: Summary of feedback received. The FCA consulted on an addendum to the Sourcebook for professional body anti-money laundering supervisors (PBSs). This relates to the prohibition against a person being a beneficial owner, officer or manager of a relevant firm (BOOM), or a relevant sole practitioner (SP) unless this has been approved by a PBS. 


The FCA along with the Prudential Regulation Authority (PRA) published a ‘Dear CEO’ letter on transforming data collection. The letter provides an update on the work the FCA and the PRA have done to transform the way they collect data and reaffirms the regulators’ commitment to work in partnership with firms to tackle the challenges of data collection. 

The Financial Conduct Authority (FCA) has extended the relaxation of the 10% depreciation rule until the end of the year with the possibility of completely removing the requirement after that. The rule, which came in with MiFID II in January 2018, required wealth and advice firms to report a 10% drop in portfolios within 24 hours.

On 23 February 2021, the FCA published the memorandum of understanding (MoU) that it has entered into with the Equality and Human Rights Commission (EHRC).

FCA Press Releases & Statements 

The FCA makes senior appointments as part of its transformation programme to build a data-led regulator able to make fast and effective decisions. 
The FCA has confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative:
  • immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings; and
  • immediately after 30 June 2023, in the case of the remaining US dollar settings.
This is an important step towards the end of LIBOR, and the Bank of England and the FCA urges market participants to continue to take the necessary action to ensure they are ready.

The FCA have published the annual equity transparency calculations as required by the UK Markets in Financial Instruments Regulation (MiFIR). These calculations are available through FCA FITRS (Financial Instrument Transparency Reference System), the FCA’s transparency calculations publications database.

Speech by Mark Steward, Executive Director of Enforcement and Market Oversight, delivered at the Expert Forum: Market Abuse 2021. 

Here are the main highlights:
  • Surveillance and investigation work has reduced trading by certain actors whose trading prompted high numbers of suspicious transaction and order reports
  • Increase in the FCA’s proactive market monitoring and the introduction of some new initiatives, notably a new approach to short selling reporting
  • Introduction of a new market cleanliness measure, the Potentially Anomalous Trading Ratio
  • Enforcement action taken in key market abuse cases against individuals and firms.
Speech by the FCA’s chief executive, Nikhil Rathi, at the launch of the HM Treasury Women in Finance Charter Annual Review. In his speech, the CEO said the regulator would consider how to best use its powers if it did not see improvements in diversity at senior levels in the years ahead.

Keynote speech by Edwin Schooling Latter, Director of Markets and Wholesale Policy at the FCA, delivered at the ISLA's Post Trade Conference on 16 March: A forward look at regulation of the UK’s wholesale financial markets.

Speech by Georgina Philippou, Senior Adviser to the FCA on the Public Sector Equality Duty, delivered at the Building Ethnic Diversity and Inclusion in Investment Management - Report Launch. 
Enforcement Actions and Prosecutions 
The FCA has obtained High Court Approval to return £3.42m to compensate victims of a series of unauthorised deposit taking and collective investment schemes. The schemes were run by Samuel and Shantelle Golding and their companies Digital Wealth Limited also known as Digital Wealth Society (DWS) and Outsourcing Express Limited (OEL) also known as Kerchiing.

The FCA has fined Mr Adrian Geoffrey Horn, formerly a market making trader at Stifel Nicolaus Europe Limited (‘Stifel’), £52,500 for market abuse and prohibited him from performing any functions in relation to regulated activity. Mr Horn was found to have engaged in market abuse by executing trades with himself in the share McKay Securities Plc (‘McKay’), a practice also known as ‘wash trading’.
A wealth management firm Dolfin Financial (UK) Ltd has been forced to cease regulated activities after the FCA imposed a number of restrictions on the company due to concerns about the way it conducts its business  including the Dolfin’s Tier 1 investor visa business activities and financial crime controls. The restrictions will stop Dolfin from carrying on any regulated activity and prevent it from reducing the value of its assets, or any of the client money or custody assets it holds, without the consent of the FCA.
The FCA has launched criminal proceedings against National Westminster Bank Plc (NatWest) in respect of offences under the Money Laundering Regulations 2007 (MLR 2007). The FCA alleges that NatWest failed to adhere to the requirements of regulations 8(1), 8(3) and 14(1) of MLR 2007 between 11 November 2011 and 19 October 2016 over the handling of funds deposited into the accounts of a UK customer of the bank. These regulations require the firm to determine, conduct and demonstrate risk sensitive due diligence and ongoing monitoring of its relationships with its customers for the purposes of preventing money laundering. According to the FCA, £264m was paid into the customer’s bank account in cash ‘following increasingly large cash deposits’. Around £365m was paid into the customer’s accounts overall. The proceedings mark the first time the regulator has ever launched a criminal case against a bank for money laundering. NatWest is scheduled to appear at Westminster Magistrates’ Court on 14 April 2021. No individual has been charged in the case.
The Commercial Court saw its first initial coin offering (ICO) fraud case: Ion Science Limited & Duncan Johns v Persons Unknown & Ors.  The court granted permission to serve disclosure orders on two cryptocurrency exchanges through which the claimants' stolen bitcoin had been traced, granted a world-wide freezing order against persons unknown, and gave ground-breaking guidance on the lex situs of crypto-assets.
Premier FX Limited (Premier FX) was publicly censured by the FCA for payment rule breaches. Premier FX was authorised by the FCA under the Payments Services Regulations to perform the regulated payment service of money remittance.  However, the firm misled its customers by informing them that it was able to hold their funds indefinitely, that their funds would be held in secure, segregated client accounts and that their funds would be protected by the Financial Services Compensation Scheme. None of these claims were true. 

Industry News


According to reports, the FCA was warned about Woodford compliance issues less than a year after Woodford Investment Management opened (WIM), however the regulator did not intervene at the time. The FCA learned about the issues during exit interviews it conducted in January 2015 following the two WIM founding partners departure from the business. 

Specialists have warned that the end of passporting will mean UK financial advisers with clients in Europe will not be covered by their professional indemnity insurance (PII). The end of passporting between the UK and the European Economic Area came into effect in January this year when the Brexit transition period ended.

Financial Crime

National Crime Agency published updated guidance on submitting better quality suspicious activity reports (SARs). All reporters (AML supervisors) in the regulated sector must submit a SAR under either the Proceeds of Crime Act 2002 (POCA) or Terrorism Act 2000 (TACT) via SAR Online. According to the guidance, the SARs should be clear and concise, include explicit reason for suspicion, all SAR information fields should be completed as fully as possible and any previous SARs must be included. The guidance includes further tips and also examples and good practice.

The Financial Action Task Force (FATF) and Egmont Group issued a report on trade-based money laundering risk indicators. The report aims to provide guidance on detecting trade-based money laundering by using case studies from FATF’s global network. The report also highlights recommendations to address the trade-based money laundering risks. 

On 26 February 2021, the Financial Action Task Force (FATF) published a document setting out the outcomes from its plenary meeting on 22, 24 and 25 February 2021. Delegates representing the 205 members of the Global Network and observer organisations, such as the International Monetary fund (IMF), the United Nations and the World Bank, worked through a full agenda to strengthen global safeguards to detect, prevent and disrupt the financial flows that fuel crime and terrorism.


It has been confirmed that the UK will agree to extend provisional application of the UK-EU trade and co-operation agreement to 30 April 2021 in a letter dated 23 February 2021 from the Chancellor of the Duchy of Lancaster Michael Gove to the Chair of the House of Lords European Union Committee. 


HM Revenue & Customs (HMRC) hopes to raise £2.2bn over the next five years as it hires to a new division heading a fresh clampdown on tax evasion. The Taxpayer Protection Taskforce will recruit more than 1,200 new HMRC investigators to combat fraud within Covid-19 support packages. The government said it would be investing £100m into the taskforce.


Life and pensions consolidator ReAssure has been the subject of hundreds of complaints at the Financial Ombudsman Service (FOS) in the second half of 2020, after advisers complained about increasingly poor levels of service at the company and claimed it was “ill-equipped” and “under-resourced” to deal with its growing administration book. Complaints data published by the Ombudsman on 03 March 2021, showed that ReAssure was the subject of 341 new cases. Two-thirds of these (224) related to decumulation life and pensions. 
It was revealed that the FOS is experiencing a logjam of 158,000 complaints where 1 in 6 are at least one year old and almost 12000, more than 2 years old. Due to the revelation, the FOS’s CEO, Caroline Wyman, has stepped down. 

Coronavirus research lab at Oxford University experienced a cyber-attack at the Division of Structural Biology which has been carrying out research into the Covid-19 virus. The university contained the problem and is now investigating the incident, that occurred mid-February, along with the National Cyber Security Centre (NCSC). The incident was identified and contained with no impact on clinical research. This shows that more criminals are targeting health bodies and vaccine scientists during the pandemic. 
The UK Government funds a Cyber Security Council, a  new independent body to set standards and define career and learning paths for the cyber security sector. The UK Cyber Security Council will be a simple one-stop shop for information for people looking to enter or further their career. The Council will actively pursue opportunities to attract more talent and increase diversity in the cyber security workforce.

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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