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Issue 75 - December 2020

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.

Contents:

  1. Other Newsletters and Updates
  2. Main Features:
    1. Financial Services and Brexit  
    2. Consultation Paper (CP 20/24): New Prudential Regime for MiFID firms.  
    3. LCF and Connaught Independent Reviews
    4. FCA’s evaluation of the impact of the RDR and the FAMR
  3. Other Publications
  4. FCA Speeches
  5. FCA Press Releases and Statements
  6. Enforcement Actions and Prosecutions
  7. Industry News:
  8. Regulation
  9. Coronavirus - industry updates
  10. Brexit
  11. Financial Crime
  12. Complaints and Compensation 
  13. Pensions and SIPPs
  14. Other
 
Other Newsletters & Updates

Firstly we would like to wish all newsletter recipients a Happy New Year and best wishes for a prosperous and healthy 2021.
 
As has been the case for the last few months, headlines in December have continued to be dominated by two main subjects, namely Brexit and Covid-19. This includes for Brexit, the signing of the Trade and Co-operation Agreement on 24 December between the EU and the UK, which took effect at the end of the transition period on 31 December. For Covid-19, since the end of last month, a return to full lockdown across the UK for at least the month of January.
 
With regard to the ongoing pandemic, 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 information.
 
In addition to the normal monthly Regulation Round up for December, the FCA also issued a Brexit specific edition, albeit this was based on circumstances on 21 December which was prior to the signing of the Trade and Co-operation Agreement. The FCA continues to update its dedicated Brexit webpage and firms are reminded to check this regularly for any updates. We have also included a short summary of financial services aspects which firms may need to consider.
 
The FCA has published minutes from recent Board meetings including from 21st and 22nd October and also three board meetings in November on 2nd, 12th and 26th November. FCA Handbook Notices 82 and 83 can be found here and here.
 
December’s PRA Regulatory Digest can be found here and the ICO’s (Information Commissioner’s Office) most recent newsletter is available here.
 
The Financial Ombudsman has published newsletter 156.  The FSCS also issued its regular publication, 'Outlook' in November 2020 which included an update on the FSCS levy.
 
Finally, the FCA issued a reminder on the FS Register but also including general reminders on the content and purpose of the Register.
 
Main Features

1. Financial Services and Brexit


As detailed above, the Trade and Co-operation Agreement between the UK and the EU was signed on 24 December and took effect after the end of the transition period on 31st December 2020. Given the proximity of the signing to the end of the transition period, firms are still continuing to seek clarity on what the terms of the agreement means in practice for many industries.

Prime Minister Boris Johnson told the House of Commons that the deal would provide certainty for businesses, including in financial services. However the trade deal has concentrated mainly on the sale of goods. It does not in itself do much to help UK financial services companies access EU markets.

As was expected, EU passporting rights for financial services and marketing of funds have been withdrawn and whilst the FCA has put in place temporary permissions regimes for certain incoming EU firms and activities, this has not been reciprocated in the opposite direction by EU member states. Therefore, firms no longer have the automatic right to offer their services across the EU, as they did when the UK was a member state. Instead, they will have to navigate the rules in each of the individual member states in which they want to do business, which will likely involve seeking direct authorisation in each relevant member state. Alternatively, firms could stop servicing certain EU clients or conducting certain activities (to the extent that they have not done so already) whilst they wait for any reliance that can be placed on future decisions that UK regulations have “equivalence” with those in EU member states. Equivalence decisions may be withdrawn with 30 days notice and they exclude some core banking services. What constitutes equivalence may also vary from state to stage.

The EU has said that decisions on equivalence would not be made before the beginning of January.

Chancellor of the Exchequer Rishi Sunak has said that by March 2021, the UK and the EU would agree on a memorandum of understanding (“MoU”) establishing a framework for regulatory cooperation on financial services to outline how the financial services relationship will work. However, it has been said that the MoU will not have the same legal effect and status as an international treaty and may not be published in full.
 
The trade body for financial services, UK Finance, welcomed the deal saying it “brings much needed certainty for businesses”, but added that “it will be important to build on the foundations of this trade deal by strengthening arrangements for future trade in financial services".

Therefore uncertainty remains as to how financial services firms can operate globally without the need to consider direct authorisation in each relevant country including EU member states or, in the case of marketing of funds, without needing to follow the current National Private Placement Regime, on which the FCA has updated its guidance, or other equivalent regimes and local rules.   
 
However there are already some encouraging signs on a country-by-country basis of action being taken to agree to equivalence, for example with Luxembourg reported to have been one of the early EU member states to discuss co-operation agreements.
 
Therefore firms are recommended to continue to review the FCA’s website on guidance on this including specific questions that they have recommended firms consider when reviewing Brexit impacts.
 
Having done so, firms may also wish to consult with legal/fund advisers or compliance consultants depending upon the activity and location involved, to identify what, if any, updated guidance is available at any given time for any particular EU member state or service involved because, at present, this is likely to vary from state to state for the foreseeable future.


2. Consultation Paper (CP 20/24): New Prudential Regime for MiFID firms

The FCA has issued a consultation paper CP20/24 to seek views on its proposed new rules which introduce a new investment firm prudential regime (‘IFPR’) for FCA prudentially regulated firms, including those firms deemed to be ‘MiFID investment firms’. This includes firms which are currently ‘exempt CAD firms’.
 
This consultation follows the Discussion Paper DP20/2 issued in June 2020. This is the first of 3 consultations that the FCA will issue to introduce the regime in January 2022, having been pushed back from the original implementation date of June 2021. Final rules will be published over the course of next year. Where possible the FCA is consulting earlier on the more complex topics to give investment firms as much time as possible to ready themselves. A table of proposed consultations is shown at page 5 of the CP.  
 
This first consultation paper includes at Chapter 2, paragraph 2.10, new categorisations for firms which will also depend upon the size of the firm and nature of its business. Distinctions will be made on the application of rules for small non-interconnected firms (“SNI” firms as defined) and those that aren’t SNI firms, as described at Table 2 or Figure 1 in Chapter 2. It will also introduce new capital adequacy requirements for firms including current ‘exempt CAD firms’ which will be based on expenditure costs, subject to a higher minimum than currently which will increase incrementally over 5 years (according to DP20/2) to €75k compared to that at present of €50k. Chapter 4 of the CP also describes the new rules on which type of capital can be treated as ‘own funds’ including the narrowing down of the types of capital that can contribute to the definition of ‘own funds.   
 
The new regime will streamline and simplify the prudential requirements for solo-regulated investment firms in the UK and replace such definitions of ‘BIPRU 50k’ firms. At present, there are many different regimes which apply depending on size of firm and type of investment business.
 
The new rules will extend the framework for prudential requirements to consider the potential harm FCA investment firms pose to clients, consumers and the market. This includes the amount of capital and liquid assets the FCA investment firm should hold so that if it does have to wind down, it can do so in an orderly manner. It will also include new reporting requirements and templates that will need to be completed as part of routine financial reporting.
 
Introducing the IFPR means that there will be a single prudential regime for all FCA investment firms. It should reduce barriers to entry and allow for better competition between investment firms.
 
It is also designed to mirror many of the provisions of the EU’s Investment Firms Directive/Regulation (IFD/IFR), which will come into force across EU member states on 26th June 2021, and of which the FCA was a strong advocate and heavily involved in policy discussions when the regime was being created. Therefore, UK provisions are aimed to be broadly equivalent bearing in mind the position on financial services post Brexit. However, since the implementation was post Brexit, this also gives the FCA a degree of flexibility as to which provisions of the IFD/IFR it considers is necessary to mirror.
 
The consultation period for this first consultation closes on 5th February 2021.  

3. LCF and Connaught Independent Reviews

The FCA has responded to the independent reviews of its regulation of London Capital & Finance plc (‘LCF Review’), and separately the Connaught Income Fund Series 1 (‘Connaught Review’). The FCA has accepted the nine recommendations of the LCF review and the five lessons identified by the Connaught Review.
 
LCF Review
This review assessed FCA actions, policies and approach when regulating LCF between April 2014 and January 2019. LCF issued non-transferrable securities (i.e. mini-bonds) to 11,625 investors and in December 2018 the FCA ordered LCF to withdraw its promotional material. Following this, LCF entered into administration and the FSCS has paid out just over £50m in compensation. The FCA is investigating whether LCF’s collapse was caused by serious misconduct and criminal and regulatory investigations by the Serious Fraud Office and the FCA are continuing.
 
Connaught Review
This review assessed the Financial Services Authority’s (‘FSA’s) and FCA’s approach and response to intelligence and the FCA’s approach to mediated negotiations before the launch of enforcement investigations in March 2015. Connaught was a fund administered in due course by Blue Gate Capital Ltd (against which the FCA has also take action against – see further below) and was an unregulated collective investment scheme which provided short-term bridging finance. In December 2012, Connaught entered administration and investors have received settlements of more than £80m.
 
Charles Randell, Chair of the FCA stated that ‘there were a number of things that the FCA could have done better in their supervision of both firms and both reports highlight the need for the FCA to continue to change to better protect consumers from harm’. He also indicated that the FCA accepts all the recommendations outlined in the reviews and apologies for mistakes made.
 
Actions that the current CEO, Nikhil Rathi intends to follow include:
  • restructuring the FCA to join up its policy, supervision and competition functions under two new Executive Directors so it has a better approach to translating insights into risks and warnings before taking action to tackle them;
  • becoming a more data-enabled regulator through the recruitment of a Chief Data, Information and Intelligence Officer and the establishment of a separate programme of change that transforms the way it handles and prioritise information and intelligence;
  • undertaking a “use it or lose it” exercise with firms that have not used their regulatory permissions to earn any regulated income for the last 12 months at risk of having their Authorisation revoked, to reduce the risk of firms having a permission to carry out regulated activity purely to add credibility to their unregulated activities;
  • taking forward new measures to tackle pension scams with DWP, once the Pension Schemes Bill has received Royal Assent; 
  • enhanced training for all frontline Supervisory, Authorisation and Enforcement staff, who will have completed mandatory training on ‘FCA Powers and Unregulated Activities’, ‘Financial Accounting’ and ‘Business Model Analysis’ by the end of the first quarter next year. It will also add to existing training on supervisory tools to give staff greater confidence in knowing when and how to intervene using relevant intelligence held across the FCA;
  • recruit additional prudential specialists to act as quality assurance and assess firms with complex business models, including where they combine regulated and unregulated activity, within the Authorisation Division;
  • work with the Government to tackle scams advertised and promoted on Google and other online platforms; and
  • disrupt scams and warn consumers of the risks by stepping up its consumer campaigns, including ScamSmart and targeted digital activity.
The full report on the LCR review can be found here and the FCA’s response here. The report on the Connaught Review can be found here with the FCA’s corresponding response found here.  


4. FCA's evaluation of the impact of the RDR and the FAMR

In early December, the FCA published its evaluation of the impact of the Retail Distribution Review (RDR) (implemented at the end of 2012) and the Financial Advice Market Review (FAMR), launched in 2015.
 
Both the RDR and FAMR (the latter carried out in collaboration with HM Treasury) sought to improve the distribution of retail financial services products, and the FCA committed to evaluate their impact, to test whether they delivered their desired outcomes.
 
The aim of the RDR was to establish a resilient, effective and attractive retail investment market that consumers had confidence in and trusted. The objective of FAMR was to identify ways to make the UK’s financial advice market work better for consumers. 
 
The evaluation found evidence of some improvements in the market since the conclusion of FAMR including:
  • approximately 8% (4.1m) of all UK adults have received financial advice, an increase from 6% (3.1m) in 2017
  • adviser numbers were up from 35,000 in 2012 to 36,400 in 2019 (4% increase)
  • the creation of the FCA’s Advice Unit has helped firms to develop new automated advice models (it has received 137 applications for support, with 65 accepted)
  • estimated assets under automated advice services increased from £0.4bn in 2016 to £3.2bn in 2019
  • consumer awareness of automated advice has increased, with 19% of consumers reporting having heard of these services (compared to 10% in 2017)
The evaluation also found that while more consumers are getting the support they need, further innovation could help even more consumers make better use of their finances.
  • Many consumers are still holding money in cash that could be invested to provide potentially higher returns, but they have not sought or received the help with their finances that would help them to make better investment decisions.
  • The industry offers a range of services but there is significant clustering around certain service types and price points. More innovation in services can help drive greater competition between firms across the market. 
  • More tailored guidance services and simpler advice services could help to attract more consumers towards the help they need. However some firms raised concerns about understanding the point at which more general forms of consumer support become advice, suggesting this limits their ability to innovate.
Sheldon Mills, Interim Executive Director of Strategy and Competition, said: ‘We want consumers to have access to high-quality advice and guidance at the right time in their lives, to give them the confidence to make better investment decisions. Our evaluation has found the advice and guidance market is moving in the right direction, but still has further to go. We will play our role to support the market to improve further, in the interest of more consumers. We will use the evidence base this evaluation has given us, along with the responses to our Call for Input on consumer investments, (which closed on 15th December) to shape our work to improve the market.’
 
The FCA expects to carry out more work on the retail investment sector during the first half of 2021 and will provide a further update at that point.
 
Other Publications

FCA Coronavirus Publications
 

The FCA has issued an update on its expectations of solo-regulated firms during the pandemic regarding the SM&CR following the implementation of additional flexibility in the application of the rules during the period of the pandemic. It has also issued a similar update in relation to the additional flexibility applied for the same reasons for any firms that continue to be in scope of the approved persons regime rather than the SM&CR, including appointed representatives.

Corporate Documents 

FCA has issued Primary Market Bulletin 32.  
 
The FCA has issued its annual report for 2020 in relation to its obligations under the Small Business, Enterprise and Employment Act which provides additional transparency over the cost of its regulation to business.

Policy Guidance Statements

PS20/15: The FCA confirmed proposals to permanently ban the mass-marketing of speculative illiquid securities, including speculative mini-bonds, to retail investors. This followed the introduction of a temporary ban from January 2020 following concerns that these products were being promoted to investors who neither understood the risks involved, nor could afford the potential financial losses. The new rules apply from 1 January 2021.
 
PS20/16: Policy statement including revised rules and general guidance documents to reflect changes made to the Dual-regulated firms Remuneration Code to reflect the 5th EU Capital Requirements Directive (CRD V) which member states and the UK were required to transpose for certain firms by 28th December 2020.
 
PS20/17: Policy Statement and final rules and guidance issued for promoting better climate-related financial disclosures for UK premium listed companies. The new rules will apply for accounting periods beginning on or after 1 January 2021 meaning the first annual financial reports subject to this new rule would be published in early 2022.

Consultation Papers

The FCA has issued a short consultation on draft guidance to help policyholders, insurers and insurance intermediaries judge how the presence of Covid-19 may be proven in relation to insurance claims.  The consultation is being issued now so that it will be in a position to issue it as soon as possible, following any final judgement issued by the Supreme Court in relation to consideration of business interruption insurance. Comments are required by 18th January.  
 
CP 20/23 (Quarterly Consultation): A quarterly consultation paper has been issued covering a number of different topics including:
  • Clarifying the FCA’s expectations for temporary long-term absences under the SM&CR.   
  • Amending certain COBS 4 rules to narrow the scope of their application to communications relating to fund benchmarks which could influence a retail investor’s investment decision.
  • Making changes to the minimum levels of professional indemnity insurance cover to align this with revised limits related to the Insurance Distribution Directive.
Consultation on all chapters closes on 4th February other than on Chapter 6 (regarding a change in the form for permission cancellation applications) which was 4th January.
 
GC 20/5: The FCA has issued a consultation paper on guidance for insolvency practitioners (‘IPs’) on how to approach regulated firms. This is designed to help IPs comply with FCA rules and guidance as well as relevant legislation in order to achieve a better outcome for consumers and markets following a failure of a regulated firm. The FCA does not regulate IPs but has worked with relevant industry bodies which do have such oversight in developing such guidance. This also includes guidance on the FCA’s expectations on suspicions of phoenixing’ firms following earlier concerns expressed on this issue. Responses are requested by 18th January 2021.

Miscellaneous Publications

The FCA issued half year complaints data covering the first six months of 2020. This includes both complaints data on individual firms which have reported more than 500 or more complaints but also aggregate data across all firms.

FCA Speeches

The Business of Social Purpose: Speech by Jonathan Davidson, Executive Director of Supervision, Retail and Authorisations, given at the 6th Annual Culture and Conduct Forum.
 
Building Trust in Sustainable Investments: Speech by Richard Monks, FCA Director of Strategy, given at the SRI Services and Partners ‘Good Money Week’ panel discussion.  

FCA Press Releases and Statements

The FCA has issued a statement outlining the benefits of the new data collection platform, RegData, which will replace the existing GABRIEL system.
 
The FCA has issued a Dear CEO letter to SIPP operators setting out the FCA’s supervisory concerns and regulatory expectations regarding operators in this sector. This included topics such as financial resources, complaints handling, product governance, pension scams and ‘International’ SIPPs.   
 
The FCA has separately stated that it has been contacted by consumers about overseas advisory firms advising expatriates to transfer or switch their UK pensions into SIPPs, with one being marketed as an ‘international’ SIPP. The FCA expressed concerns regarding the charging structure of such plans and is encouraging consumers to ensure that any such arrangements are in their best interests
 
Two new FCA executive appointments, Sheldon Mills and Siobhan Sheridan announced.
 
The FCA issued a warning over festive season loan fee fraud. Loan fee fraud is when consumers are asked to pay an upfront fee for a loan or credit that they never receive. This was the third most reported scam at a similar time in December 2019.
 
The FCA has established a Temporary Registration Regime to allow existing cryptoasset firms, (those trading before 10 January 2020) who have applied to be registered with the FCA, to continue trading. The FCA is also advising customers of cryptoasset firms which should have applied to the FCA but have not done so, to withdraw their cryptoassets or funds before 10 January 2021. New businesses who began operating after 10 January 2020 were required to obtain full registration with the FCA before conducting business.
 
The FCA issued a statement that it was aware of an ongoing cyber incident affecting the SolarWinds Orion suite of IT management tools. The National Cyber Security Centre (‘NCSC’) has published guidance to firms to help identify if they may be affected. The FCA has been asked to assist the NCSC to promote this guidance.
 
The FCA has published the final onshoring instruments, related guidance and Temporary Transitional Power (TTP) directions that will apply at the end of the Brexit transition period.
 
The FCA has appointed Paul Feeney, current CEO of Quilter plc, as the Chair of its Independent Practitioner Panel.
 
Enforcement Actions and Prosecutions 

Stephen Allen has pleaded not guilty to the FCA’s charge that he has conspired to pervert the course of justice. This related to allegations against Mr Allen that he disguised another individual’s interest in a property and its availability as an asset for the part satisfaction of any order that the FCA might make in enforcement proceedings against that individual.  
 
The FCA has issued a final notice against Mark Ireland (trading as MPI Motors) and suspended Mr Ireland’s Part 4A permission as a result of failure to satisfy the Effective Supervision and Suitability Threshold Conditions. This is because of Mr Ireland’s failure, in line with Principle 11, to respond to the FCA’s information requirements and attempt to communicate.  
 
Following a joint investigation by the FCA and the City of London Policy, Richard Jonathan Faithfull has been charged with one offence of money laundering, contrary to Section 327 of the Proceeds of Crime Act.
 
LJ Financial Planning Ltd has been fined £107,200 by the FCA relating to providing its customers with unsuitable pension switching and transfer advice and failing to manage its conflicts of interests.
 
Barclays Bank and associated group entities have been fined £26m for failures in relation to their treatment of consumer credit customers who fell into arrears or experienced financial difficulties. Barclays has pro-actively redressed the customers, paying over £273m to at least 1.5m accounts since 2017.
 
The FCA has fined Corrado Abbattista, formerly a portfolio manager, partner and Chief Investment Officer at Fencian Capital Management LLP, £100,000 for market abuse and has prohibited him from performing any functions in relation to regulated activity. This related to Mr Abbattista creating a false and misleading impression as to the supply and demand of equities during January to May 2017.
 
The Court of Appeal has upheld the convictions of Fabiana Abdel-Malek and Walid Choucair for insider dealing. This followed an FCA investigation and trial in June 2019 when both were convicted of five offences from 2013-14 and were sentenced to 3 years imprisonment. They appealed, alleging that insufficient disclosure by the FCA throughout the process made the convictions unsafe. The Court dismissed the recent appeals and the individuals must now complete their sentences of imprisonment. Ms Abdel-Malek was employed as a senior compliance officer by UBS AG and abused her position to access inside information and pass this onto her friend, Mr Choucair who was a trader.
 
The FCA has publicly censured Blue Gate Capital Ltd and ordered it to pay £203,007 in restitution to investors who lost money investing in the Connaught Income Fund. This related to a failure of Blue Gate as operator of the Fund to carry out sufficient due diligence on the Fund as part of its appointment as operator and also failure to establish that the Fund was operating as it was supposed to. This action is also linked to Feature 3, above.  
 
The FCA has fined Charles Schwab UK Ltd  £8.96m for failing to adequately protect client assets, carrying out a regulated activity without permission and making a false statement to the FCA. Customers affected by the breaches were all retail clients.
 
UK fund manager, BlueCrest Capital Management has been ordered to pay $170m (£125m) to former investors as it was found to have misled them as to who was managing their money. The US Securities & Exchange Commission found that the firm had replaced its top traders in its flagship fund with an underperforming algorithm.

Other industry news: 

Regulation

The FCA has updated on the work that it has stopped or postponed in order to allow it to focus on more urgent work that has been required as a result of Covid-19 and the resultant economic turmoil. This includes a new timeline for consultation on duty of care for regulated firms.
 
The Investment Association has issued a publication entitled ‘Investing with Purpose’ relating to its approach of placing stewardship at the heart of sustainable investment growth. This includes 16 recommendations for improvements.  
 
It is reported that the FCA, FSCS, HM Treasury and other industry bodies including professional indemnity insurers continue to meet to discuss proposed remedies to the FSCS levy and current PI market.  This followed an earlier Call to Input from the FCA on retail investments and its views that the market is not working as well as it should and too many firms are failing.  
 
It is reported that almost 1,000 advice firms have stopped offering defined benefit transfer advice over the last 14 months. It is considered that the FCA’s ban on contingent charging has continued to fuel the exodus from the pension transfer market.
 
Unsustainable regulatory costs and little budget for innovation are likely to hamper the FCA’s own vision for the future of the industry, advisers have claimed. According to many advisers, it is considered that the current regulatory framework is ‘too onerous’ and the bottom-line cost of being in business is to high to allow businesses to answer the FCA’s calls for greater innovation and lower fees for advised clients.
 
HM Treasury has issued a 'Call for Evidence' as part of its review and information gathering to help it understand how the current framework for regulating overseas firms supports the UK’s position as a global financial centre.
 
ESMA has issued its finalised guidelines on outsourcing to cloud service providers following previous consultation on draft guidance. The guidelines are intended to help firms identify, address and monitor the risks arising from such arrangements.  Given these take effect post 1 January 2021, the FCA has not yet announced whether it will adopt these guidelines for UK firms. However in previous similar EU guidance for insurance companies, it had stated that it did not intend to impose that guidance formally and considered that its own guidance on this topic in FG 16/5 is sufficient and remains in place.
 
A group of MPs have demanded an external investigation into what they believe is a failure of the FCA to prosecute mis-selling cases, days after the report condemning the regulator in its handling of the London Capital & Finance collapse.  
 
The former interim CEO of the FCA, Christopher Woolard has been awarded a CBE in the New Year Honours List 2021 for ‘services to financial regulation and financial technology innovation’.

Coronavirus - industry updates 

The FCA is reported to have received 47 whistleblowers reports on coronavirus-related conduct at financial services firms up to 30 September. Many of the reports related to a lack of personal protective equipment and non-compliance with the government guidance on social distancing.

Brexit

Prior to Brexit, it was reported that tens of thousands of investors who have ploughed more than £60bn into EU-domiciled funds managed by UK firms will not be covered by the UK compensation scheme arrangements post-Brexit. The Treasury has agreed to continue allowing 9,000 EU based funds to be sold to UK investors despite the FCA having no regulatory oversight of these products. However following this, the FCA sought to clear confusion on this matter and has confirmed that such investors would be able to make FSCS claims assuming they are eligible investors, although it is yet to confirm guidance on how this would work in practice.

Financial Crime

The EU’s 6th Money Laundering Directive (“6MLD”), which aims to establish minimum harmonising rules concerning the definition of criminal offences and sanctions in respect of money laundering across the EU, came into force on 2nd December 2018 and member states were required to implement it by 3rd December 2020. As confirmed in point 23 of the Directive’s summary, the UK opted out of 6MLD because it felt its existing AML regime was “largely compliant with the Directive”. Therefore, the UK is not bound by the Directive or subject to its application. However, it’s advisable for firms to be aware of the main provisions of MLD6 particularly as the UK’s decision not to adopt the Directive may result in EU member states having a stricter corporate offence in relation to money laundering than the UK with the requirement for member states to introduce a “failure to prevent” type of offence.
 
HM Treasury has published its third National Risk Assessment of money laundering and terrorist financing for 2020 under the 2017 Money Laundering Regulations. Key findings include that whilst the traditional high-risk areas of money laundering remain, including financial services, money service businesses and cash, new methods continue to emerge as criminals seek to exploit vulnerabilities in different sectors and emerging technology.  
 
FATF (‘Financial Action Task Force’) has issued an update on Covid-19 related Money Laundering and Terrorist Financing, following its earlier publication in May. FATF considers that changes in behaviour as a result of the pandemic – whether the behaviour of individuals, companies or governments – have in turn presented criminals with new opportunities to commit crimes and launder the proceeds.

Complaints and Compensation

In its November Outlook report, the Financial Services Compensation Scheme (‘FSCS’) announced that it will ask advisers to pay an extra £8m to cover a shortfall in the money available to compensate clients of collapsed firms.  
 
A £3m claims bill is just the ‘tip of the iceberg’ lawyers have warned in relation to firms that have advised members of the British Steel Pension Scheme (‘BSPS’) and are no longer in business.  
 
The Treasury Committee published a letter to Caroline Wyman, Chief Ombudsman responding to her evidence to the Committee in November ‘20 on the work of FOS and raising further queries including on FOS funding, complaints against FOS and case handling amongst other matters.   
 
The Financial Ombudsman Service (‘FOS’) has issued its 2021/2022 plans and budget. This also reports on the challenges and trends that FOS has been managing in 2020/2021 including how Covid-19 has impacted on its work. The plans are open for consultation and responses are requested by 31 January 2021.

Pensions & SIPPs

The Government has committed to the state pension 'triple-lock' for 2021 with an increase of 2.5% from April 2021 to £179.60 per week.  
 
TWS Pensions Ltd, a small self-administered scheme (SSAS) provider, has entered into liquidation after being found potentially liable for a tax charge exceeding £11m relating to unauthorised payments.
 
Master trust Now Pensions has confirmed that some of its members have had their personal data shared online by a service partner. Reports of a data breach at the 1.8m member auto-enrolment provider occurred after the scheme emailed members to inform them. It is reported that the leak impacted less than 2% of members and has taken swift action to resolve this.   

Other

A new taskforce is being launched to improve socio-economic diversity at senior levels in financial and professional services across the UK. The independent taskforce has been commissioned by HM Treasury and BEIS (the Department of Business, Energy and Industrial Strategy) and will be run by the City of London Corporation. It will focus particularly on increasing representation at the top of these sectors.

The Chartered Insurance Institute (CII) is reported to be contacting adviser directory Unbiased after research found that 47% of firms claiming to be chartered financial planners were not listed on the CII’s chartered firm database.

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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