Issue 95 - August 2022

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

In general news during August, the UK media continued to follow the election by Conservative members of a new party leader and therefore UK Prime Minister. The decision of which of Liz Truss or Rushi Sunak will replace Boris Johnson will be announced on 5th September. Whoever is successful will be faced with early challenges taking into account general economic conditions including the current rate of inflation and rising costs including on energy and mortgages, and overall impact of cost of living for much of the UK public, including on the most vulnerable. The impact of the increase in costs of living can also be seen in the increased number of strikes for improved pay conditions including on travel networks and public services.  
Outside of the UK, the Ukrainian crisis continues. To stay up to date with the latest Russian sanctions, firms should ensure they are signed up to the OFSI’s sanctions alerts, which they can do here. Linked to this is also updated guidance from the FCA on related cybercrime and operational resilience risks as the war wages on.
The FCA published its August regulation round-up but no further PRA digest has been issued since the July 2022 edition included in our July newsletter. The ICO’s latest e-newsletter for August has been issued. No new newsletter has been issued by the Financial Ombudsman Service since no. 173 featured in the July newsletter. The minutes of the FCA Board meetings on 23 June and 15 July have been issued.

Main Features

1. PS22/9: New Consumer Duty

The FCA has confirmed plans to bring in a new Consumer Duty which will fundamentally improve how firms service consumers. It will set higher and clearer standards of consumer protection and require firms to put their customers’ needs first. The Duty is made up of a new overarching principle and new cross-cutting rules firms will have to follow.
Policy statement PS22/9 has been issued with final rules on the new duty and the FCA has also published final guidance in FG22/5 to provide firms with the information they need to implement the Duty. The final rules follow previous consultation on proposals in CP21/13 and CP21/36.
The changes include a new Consumer Principle that ‘a firm must act to deliver good outcomes for retail clients’. This is considered to impose a higher standard of conduct than existing FCA Principles for Businesses 6 and 7 which will be disapplied for firms within Consumer Duty scope. By its nature, the outcomes required will also overlap with such existing systems and controls as Treating Customers Fairly and Product Governance rules.
There are four prescribed outcomes as follows: :

  • Products and services (i.e. including product governance considerations).
  • Price and value (i.e. including fees and charges).
  • Customer understanding (i.e. including clear communications). 
  • Customer support (i.e. including obtaining consumer feedback).  

Management information in the key areas of consideration will be a priority and areas such as communications and complaints are likely to feature in more than one of the above outcomes. There is also an overlap with the SM&CR and Consumer Duty with the proposal to appoint a member of the board/management group as Consumer Duty Champion. However there will not be a specific Senior Management Function role or Prescribed Responsibility directly related to Consumer Duty as this is considered a ‘whole firm’ responsibility rather than allocated to one individual. 
As a result of the changes required, implementation of rules is being delayed until July 2023 to allow firms sufficient time to consider the requirements, carry out a gap analysis and make required changes. However firms are required to set a deadline of October 2022 to agree plans to implement the new rules and the FCA will start following up with relevant firms from Q4 2022 to identify what changes are being considered. Consideration of Consumer Duty will also now form part of authorisation requirements for relevant new firms and as detailed in the FCA’s updated guidance on authorisation.  
By 31 July 2023, relevant firms will be required to obtain Board attestation of compliance with the new consumer duty. If firms do not consider they will be able to meet the FCA’s deadline, they should notify the FCA in advance of the deadline and also notify them if products or services are withdrawn as a result of implementation of Consumer Duty.
Although the final rules focus on the retail sector, firms that deal with professional clients only should also be aware of the new rules given that the desired outcomes should be for all clients, not just retail consumers and also relate to FCA Principles. Firms should also consider situations where a firm deals with retail clients indirectly i.e. a firm manufactures a product that is then sold by another regulated firm to retail clients. In addition, the Duty may also impact on firms which issue financial promotions to recipients that either do not satisfy the definition of a professional client or that this is not checked prior to issue.
The FCA will expect all firms to proportionally adhere to the spirit of the code to all customers and to ensure fair treatment and that communications are tailored effectively.

2. PS22/10: Strengthening financial promotion rules for high risk investments and firms approving financial promotions. 

The FCA has finalised stronger financial promotion rules to help tackle misleading adverts that encourage investing in high-risk products. Previous research has shown that too many consumers are investing in high-risk products which are not aligned with their risk tolerance and are unlikely to meet their needs, which in turn can lead to unexpected and significant losses. Under the revised rules in PS22/10, firms approving and issuing marketing must be able to evidence appropriate expertise in the relevant products. In addition, firms marketing certain types of high-risk investments will need to conduct and evidence better checks on recipient consumers to ensure that these communications are being appropriately targeted at the right audience.
Firms will also need to use clearer and more prominent risk warnings and certain incentives often used to encourage investment such as ‘refer a friend bonuses’ are now banned.
Scope of high risk products
The type of high-risk products in scope includes speculative illiquid securities, non-readily realisable securities and also unregulated investment funds which are now to be entitled ‘non-mass market investments’ (NMMI). COBS 4 rule references will be amended to include such phrases as ‘non-mass market investments’, which will replace existing phrases of ‘non-mainstream pooled investments’ (NMPI).
It is noted that at this stage, that the scope of PS22/10 does not include promotions on cryptoassets communications. It is the intention that once it has been decided how cryptomarketing can be brought into the FCA’s rules, the FCA will publish final rules on such promotions in this sector, although it is likely that these will follow a similar approach as other high-risk products.
The rules also strengthen the client categorisation process in respect of evidencing that a consumer is eligible to receive certain material. This includes evidence of such areas as ‘high net worth’ and appropriate declarations.
A new ‘cooling off’ period has also been introduced for non-mass market investments which requires a waiting period of 24 hours between receiving a request from a consumer to issuing the material. This may present some practical issues for firms both to implement this and to monitor that the cooling off period is complied with.
Finally, new rules will also impact on firms who approve and issue financial promotions on behalf of unauthorised firms with additional prescriptive requirements being introduced for such communications to disclose this approach.
Risk Warnings
The policy statement also gives examples of revised risk warnings that may be required instead of ‘capital at risk’ wording. This can include:
‘Don’t invest unless you’re prepared to lose all the money you invest. This is a high‑risk investment and you are unlikely to be protected if something goes wrong. Take 2 mins to learn more’.
Next steps
Firms involved in financial promotions for in-scope investment products should review the policy statement and identify what the new rules mean in practice for any future financial promotions. The new rules on risk warnings will come into effect from 1 December 2022, which implies that any material which exists at present and still in use by this date should also be able to evidence up to date risk warnings.
Therefore firms may need to review existing material before that date to update the disclosure wording in addition to ensuring that new communications comply, and updating any internal financial promotions checklists used when approving such communications.  The remainder of the rules come into effect from 1 February 2023.

 3. PS22/11: Improving the Appointed Representatives Regime. 

The FCA has issued PS22/11 giving feedback and confirming final rules following previous consultation on changes to the Principals and Appointed Representatives regime as detailed in CP21/34.
As background, appointed representatives (ARs) are not FCA authorised firms but can be treated as exempt under s. 19 of the Financial Markets and Services Act. This states that a firm must be authorised or exempt to conduct regulated activities, otherwise a criminal offence may occur. Not all regulated activities can be carried out under this regime, but AR firms can carry out certain activities as exempt provided an existing authorised firm with a related scope of permission acts as ‘Principal’ as defined and takes responsibility for and carries out appropriate oversight on the activities of the Appointed Representative.
Whilst it is recognised that the regime has some benefits for both consumers and firms, the FCA has expressed concern on the regime in the past including on the strength of Principals’ oversight, both initially for registration and on an ongoing basis. It had consulted in CP21/34 on changes to protect consumers and address harms across all sectors where Principals and ARs operate.
The proposed rules focused on two main areas:
  • collecting additional information on ARs and strengthening reporting requirements for principals, and
  • clarifying and strengthening the responsibilities and expectations of principals. 
The recent policy statement confirms that a number of firms supported the original proposal although certain proposals have been modified having taken industry feedback on board including practical elements on timescales. Amongst other things, the new rules require principal firms to:
  • Apply enhanced oversight of their ARs, including ensuring they have adequate systems, controls and resources.
  • Assess and monitor the risk that their ARs pose to consumers and markets, providing similar oversight as they would to their own business.
  • Review information on their ARs’ activities, business and senior management annually, and be clear on the circumstances when they should terminate an AR relationship.
  • Provide updates to the FCA on changes to ARs information, in the main within 10 days of the event and also conduct an annual verification of the AR’s ‘core’ firm details. 
  • Provide complaints and revenue information for each AR to the FCA on an annual basis
  • Prepare an annual self-assessment document 

The requirements will also require Principals to consider the ARs regulated and unregulated business both in respect of oversight but also information requirements including revenue.
Table 2.81 of the policy statement also sets out the final rules on AR data and notification requirements and refers to a forthcoming s165 request from the FCA for information from principal firms about their existing ARs. According to the FCA’s latest Regulation Round-up, the information request will be issued in December with an anticipated 60 days from the date of the request to submit the data to the FCA.  
The FCA’s webpage on principals and ARs has already been updated with the new rules and expectations and the table at 1.36 of the policy statement (starting at page 8) summarises the proposals, feedback received and the FCA’s response to feedback. Enhanced reporting rules come into effect by 8 December 2022.
The consultation paper also included a discussion chapter (Chapter 5) on potential areas for further changes on the overall regime, which linked to HMT’s Call for Evidence. This also included consideration of ‘regulatory hosting’ services. In the policy statement, the FCA confirms that it is continuing to work with HMT and expects to publish a consultation paper on the discussion areas in 2023. Therefore, other changes to the regime may follow in time. 
The policy statement has provided a clearer definition on what constitutes regulatory hosting services and in future, Principals will be required to notify the FCA whether they currently provide, or intend to provide, regulatory hosting services. The notification must be provided at least 60 days before providing those services. The FCA has noted that the only current obligation remains to provide a notification, and the relevant definitions will remain subject to review should obligations be extended in future.
The FCA encourages both Principals and ARs to review the recent policy statement to understand the changes required and Principal firms will need to carry out a detailed gap analysis on existing systems and controls, procedures and information and reporting requirements to identify what changes may be required to oversight procedures prior to implementation on 8th December.
As part of its new three-year strategy to improve outcomes for consumers and markets, the FCA is also undertaking targeted supervision of principal firms across the whole financial services sector, using improved data and analytical tools to focus its work. It is also increasing scrutiny on firms as they appoint ARs, with increased procedures on new registrations already introduced in September 2021.

Other Publications

Consultation Papers
CP22/14: The FCA has issued a consultation paper with proposals to broaden retail access and distribution changes to the Long Term Asset Fund, which is a new category of authorised open-ended funds. Consultation closes on 10th October 2022.
CP22/15: Relating to Pension Transfer activity, a consultation has been issued on changes to redress calculations for unsuitable pension transfer advice. The deadline for responses is 20th September 2022.
CP22/16: A consultation paper has been issued proposing updates to the sourcebook of the Office for Professional Body Anti-Money Laundering Supervision (OPBAS). This is to drive improvements in how professional body supervisors (PBSs) reduce money laundering in the sectors they oversee. Consultation closes 29th September 2022.
Feedback Statements
The FCA issued an update on its ongoing work including previous feedback on accessing and using wholesale data (FS22/1 issued in January 2022) and has issued an information request in late July to a sample of trade data suppliers and users. 
Press Releases
The regulation of pre-paid funeral plans was implemented from 29th July, with the FCA authorising 26 providers as listed which have now been added to the FS Register. The attached list also shows those existing providers which failed to obtain appropriate authorisation. 
The FCA is recruiting for a large number of new staff as it plans to open its office in Leeds in September. It has also appointed Ruairi O’Connell, who joins from the Home Office, as the new Director of International.
A Dear CEO letter has been issued to firms that offer Buy Now Pay Later (BNPL) products relating to the promotion of such products. In a connected press release, the FCA has warned such providers that the financial promotions of all BNPL products must comply with the financial promotion rules even if some of the agreements are unregulated.
The PRA and FCA joint review of the enforcement outcome in relation to certain former managers at HBOS plc has now concluded with a decision taken that no further action is required. The review was into the reasonableness of the scope of the regulators’ previous enforcement approach against the individuals.  
Updated statement issued on switching in the mortgages market including that the number of mortgage borrowers not switching their mortgage deal when they could save money by doing so has declined significantly since 2016.
The FCA issued updated information on its approach in relation to assessing non-UK firms under the temporary permissions regime (TPR) post Brexit.
Updated change of control guidance and application forms have been posted on the FCA website for different sectors, including new forms for change of control of registered cryptoasset firms, with advance consent required at 25% control for such firms. 
The FCA has updated its guidance pages for firms regarding its expectations for supporting consumers facing rising living costs.
The FCA has issued its conclusions of a thematic review of the TCFD (Task Force on Climate-Related Financial Disclosures) aligned disclosures by premium listed commercial companies. 
A new initiative entitled ‘Diversity, Equity and Inclusion Innovation (DEI) Spotlight’ has been 
launched by the FCA which is aimed at firms which are developing innovative products focusing on this area to work with the FCA’s Innovation Services. 
The FCA has confirmed that it is establishing a new advisory committee to work on ESG issues and is looking for expressions of interest from stakeholders to join. The Committee’s role will be to provide advice to the Board on how the FCA should develop its ESG strategy, in keeping with its statutory objectives and regulatory principles.
A joint Dear CEO letter has been issued by the PRA and the FCA giving an update on the regulators’ progress and plans for transforming data collection.
Quarterly data for FCA whistleblowing activity has been issued covering data between January and March 2022. This includes listing the top 10 allegations made in reports during the period. 
The FCA has issued webinar recordings from its Innovation Day in July 2022 which set out its roadmap for the future of its Innovation department and plans to support responsible innovation within the industry. In the meantime, an update on the Regulatory Sandbox has also been issued outlining the number of applications it has received since launch and also separately giving more market insights on the sectors, technologies, areas of innovation and locations involved.  
A Dear CEO letter has been issued to the FCA’s ‘Alternatives Portfolio’ sector which focuses on authorised firms that manage alternative investments or vehicles such as hedge funds or private equity funds. This highlights the FCA’s supervisory priorities for this sector including conflicts of interest, ESG amongst others. Even if firms have not received this directly, relevant firms are expected to be able to evidence consideration of the points highlighted.
The FCA issued a response regarding complaints from consumers who complained to the FCA after losing money when Premier FX, a payment services firm authorised for money remittance, collapsed in 2018. Following an independent internal assessment of each complaint, the FCA has upheld or partially upheld 5 of 31 allegations. 
A statement has been issued for the attention of issuers and bondholders of outstanding LIBOR-linked bonds to encourage market participants to encourage transition to fair alternative rates.
New emergency asset retention rules now apply to 101 firms which provided pension transfer advice to former British Steel Pension Scheme members, Twenty six of those firms are subject to an asset restriction having failed an initial financial resilience assessment to establish whether they have sufficient resources to meet potential compensation liabilities. 

Enforcement Actions and Prosecutions

The FCA has announced that it has published Decision Notices for Carillion plc, and three of its former executive directors, Richard Howson (former CEO) and former finance directors Richard Adam and Zafar Khan relating to published announcements in 2016 and 2017 which did not accurately or fully disclose the true financial performance of Carillion. The announcements had made misleadingly positive statements about the firm’s financial performance and the UK construction business in particular. 
The Financial Reporting Council (FRC) confirmed that it has taken sanctions against KPMG (the firm), and one partner and four employees of KPMG in relation to false and misleading information and documents provided to the FRC in connection with the FRC’s Audit Quality Reviews of the audit of Carillion plc and one other firm.
The FCA has prohibited Phillippe Moryoussef from performing any function in relation to any regulated activities as a result of his conviction (and imprisonment) in 2018 of one count of conspiracy to defraud relating to EURIBOR submissions made at Barclays under his supervision.
Sir Christopher Gent, former non-executive chairman of ConvaTec Group plc, has been fined £80,000 for unlawfully disclosing inside information. In the final notice the FCA considered that given his experience, he should have realised that the disclosure was of inside information and that he had acted negligently, although he had not gained personally.
Following an investigation by the Serious Fraud Office, David Ames, the chairman of Harlequin Group (a Caribbean Hotel and Resort Developer), has been found guilty of two counts of fraud by abuse of position in relation to a Caribbean property investment scheme that led investors to lose £400m.
Mr Larry Barreto has pleaded guilty to two counts of carrying on regulated activities without authorisation. This related to advice and arrangements made relating to a series of mortgage contracts.
The FCA has fined Citigroup Global Markets a sum of £12,553,800 for failing to properly implement the Market Abuse Regulation (MAR) trade surveillance requirements relating to the detection of market abuse.
The FCA has called on victims of Richard Faithfull to come forward in order to ensure that they can be part of any claim for compensation. Mr Faithfull was found guilty of money laundering in September 2021 under s.327 of the Proceeds of Crime Act, laundering the proceeds of at least 7 professionally run overseas investment funds.
Following a prosecution brought by the Pensions Regulator (tPR), two pension trustees, Andrew Kyprianou and Colin Werb, connected to textile industry firm Eastman Staples, have plead guilty to taking loans from a company pension scheme.

Industry News:


It has been announced that the FCA will ask employees to work from the office for at least 40% of each month from September, with senior staff members being expected to attend the office more frequently.
In an article written for Citywire New Model Adviser, the FCA’s Executive Director, Emily Shepherd has said that delays to authorisation applications need to be improved.
It is reported that cryptoasset firms pushed back against new FCA rules that require businesses to demonstrate that they have expertise in the financial products they promote. This relates to new rules introduced by PS 22/10 as detailed above in this newsletter’s features. The FCA said that most of the respondents who disagreed with the original consultation proposals were from the cryptoasset sector.
It is reported that the FCA’s long-term asset fund, introduced in November 2021, has failed to attract asset managers and the FCA has not received any applications from fund groups. Proposals in a recent consultation paper (CP22/14) are designed to improve this by widening access.
The BBC has reported that more than 16,000 businesses which took out a type of government backed Covid loan have gone bust without paying the money back.
Bank of England governor Andrew Bailey (previously CEO at the FCA) has warned that any political interference in regulatory decision making could harm the UK’s global reputation. This follows Prime Minister candidate Liz Truss’s backing of the Financial Services and Markets Bill which includes proposals to allow the government to override decisions by the Bank of England, the FCA and the PRA if it was deemed to be in the public interest to do so.
It is reported that a recent BBC Panorama documentary regarding consumer losses arising from the Blackmore Bonds scandal demonstrated that the FCA must step up and improve on how it deals with whistleblowers.
Prime Minister candidate, Liz Truss, is reportedly considering a review into UK Financial Regulation that could mean a merger of City regulators. This is reportedly part of a ‘wider war on technocrats’. The current ‘twin peaks’ regulation was introduced in April 2013.

Financial Crime

A joint red alert has been issued by the National Economic Crime Centre, a multi-agency unit in the National Crime Agency (NCA) and HM Treasury’s Office of Financial Sanctions Implementation (OFSI). This is with the aim of prompting awareness and bringing about preventative action relating to current financial sanctions evasions approaches involving Russian Elites and Enablers.

The new Register of Overseas Entities which has been introduced through the new Economic Crime (Transparency and Enforcement) Act 2022 has gone live from 1 August 2022.


A law firm representing British Steel Pension Scheme claimants has called for the FCA, FSCS and FOS to delay redress actions over concerns that economic conditions will lead to inadequate compensation. 


An Oxford Risk report has revealed that wealth managers have not done basic due diligence on their clients’ attitudes to ESG investing. It is reported that only 37% of retail investors have portfolios that accurately reflected their views on ESG

Complaints and Compensation 

The FSCS has declared investment manager, Curzon Capital, in default with 173 claims made against it.
Brown Shipley, a UK wealth manager, has paid £5.3m in compensation to redress misleading pension scheme advice.
Portal Financial Services, also known as Portafina, is reported to be disputing a High Court ruling that found it was 100% responsible in 16 cases of unsuitable pension transfer advice. A total of 107 complaints have been upheld.
FOS has upheld a complaint against a Tilney adviser having ruled that advice provided did lead to a customer investing in two now collapsed mini-bonds providers, London Capital & Finance (LCF) and Blackmore Bonds. 

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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