Financial institutions general regulatory news, 17 January 2020

FIG Bulletin

Recent regulatory developments of interest to financial institutions generally.



Financial Services Duty of Care Bill 2019-20 reintroduced to Parliament

The Financial Services Duty of Care Bill 2019-20 has been reintroduced to the House of Lords. The Bill requires the Financial Conduct Authority (FCA) to make rules for authorised persons to owe a duty of care to consumers in their regulated activities.

The Bill was originally introduced in the 2017-19 parliamentary session as a private members' bill and so had to be reintroduced for the 2019-20 session. The Bill received its first reading in the House of Lords on 9 January 2020. A date for the second reading of the Bill is yet to be scheduled.

LIBOR transition: BoE, FCA and RFRWG next steps

The Bank of England (BoE), the FCA and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) have published the following documents, outlining priorities and milestones for 2020 on LIBOR transition:

Cryptoasset businesses: FCA registration fees

The FCA has published the Fees (Cryptoasset Business) Instrument 2020 (FCA 2020/1) which amends the FCA's Fees manual (FEES) setting the fees payable by applicants to the FCA to register as cryptoasset businesses. The fees are:

  • £2,000 for businesses with UK cryptoassets revenue up to and including £250,000; and
  • £10,000 for businesses with UK cryptoassets revenue over £250,000.

The instrument came into force on 13 January 2020.

FSCS: PRA and FCA joint consultation on management expenses levy limit

The Prudential Regulation Authority (PRA) and the FCA are jointly consulting on the 2020/21 management expenses levy limit (MELL) for the Financial Services Compensation Scheme (FSCS) (PRA CP1/20 and FCA CP20/2). This consultation is supported by the publication of the FSCS's Plan and Budget for 2020/21 (reported below).

Under the Financial Services and Markets Act 2000 (FSMA), the PRA and the FCA must set a limit for the total management expenses that the FSCS can levy on financial services firms. The MELL is the maximum amount that the FSCS may levy in a year for its operating costs without further consultation; it ensures that the FSCS has adequate funding to exercise certain functions conferred on it by Part XV of FSMA and by rules made by the PRA and the FCA.

The proposed MELL is £83.2 million for 2020/21, consisting of a management expenses budget of £78.2 million and an unlevied contingency reserve of £5 million. The proposed MELL would apply from 1 April 2020, the start of the FSCS's financial year, to 31 March 2021.

The consultation closes on 17 February 2020. Once responses have been considered, the PRA will issue a policy statement and the FCA will issue a Handbook Notice so that the final rules can be in place by 1 April 2020.

FSCS: 2020/21 plan and budget

The FSCS has published its plan and budget for 2020/21, setting out its expected management costs and the latest forecast of potential claims volumes.

The FSCS proposes an indicative levy for 2020/21 as £635m, an increase of £87m from the levies raised in 2019/20. The FSCS states that this increase is due to a rise in SIPP operator claims, which is consistent with the trend FSCS has seen in recent years. The FSCS expects the investment provider class to reach its annual limit as a result of these latest levy predictions, which will trigger the retail pool.

In addition, the FSCS needs to raise a supplementary levy of £50m for 2019/20 from the "Life Distribution, Pensions and Investment Intermediation" class of firms. The main cause for this supplementary levy is increased claims volumes and new defaults. The FSCS will also provide a refund of £30m to firms in the "Deposits" class.

The total management expenses budget (that is, the cost of running the FSCS and of paying claims) will be £78.2m, a 1.3% increase on the latest full-year forecast for 2019/20 of £77.2m, and an increase of £3.6m (4.8%) compared to the 2019/20 budget. The key drivers for this increase are the costs of core support and making recoveries.

The FSCS will confirm the final levy in April 2020.

RDR and FAMR evaluation: FCA update

The FCA has updated its webpage on its evaluation of the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR) setting out progress and next steps. The FCA indicates that it expects to publish its final RDR/FAMR review report later in the year.

The FCA is analysing data it obtained from a survey of approximately 400 firms in August 2019 under which the FCA asked for information on their advice services, including business models and strategies, target customers, charging structures, future plans, use of technology and any recent innovations.

The FCA has also commissioned qualitative research on how consumers interact with the market. This research will explore consumers' view of their needs for support with financial issues, how they go about getting that support, and their experiences. Together with the quantitative findings from the FCA's "Financial Lives" survey, the FCA states that this will inform its view of the current state of the market and how it is developing from a consumer perspective.

In particular, the FCA:

  • is keen to hear from firms about their plans to use technology in making efficiencies, in offering innovative services, and what challenges and barriers they are facing in doing so;
  • wants to explore further the potential for new services to emerge in the market, both alternative advice services and unregulated information services. It wants to understand more about the barriers to providing alternative services, for example, is there a lack of demand for new services or are there economic or regulatory barriers that prevent them from emerging; and
  • wants to hear from firms about the effect open finance could have on the market and what role the FCA may be able to play in helping this. In the beginning of 2020, the FCA plans to host roundtable events with a number of trade bodies and firms to discuss open finance and how it may affect the market to benefit consumers. Read more in our update, FCA consults on how open finance could transform financial services.
Loyalty penalty: FCA update on Citizens Advice super-complaint to CMA

In response to the Citizens Advice super-complaint on the loyalty penalty, the Competition and Markets Authority (CMA), in December 2018, made several recommendations relating to the cash savings, home insurance and mortgage markets. The FCA has published an update on its website where it consolidates summaries of the work it has been undertaking that address the CMA recommendations.

Among other things, the FCA states that it plans to publish updates on its work relating to fair pricing in financial services and its consultation on guidance for firms on the fair treatment of vulnerable customers (GC19/3) in the first quarter of 2020.

FCA policy development update

The FCA has updated its policy development update webpage for January 2020, setting out information on recent and future FCA publications.

EU equivalence regime: AFME recommendations

The Association for Financial Markets in Europe (AFME) has published a paper assessing the EU equivalence framework for financial services and providing recommendations to further enhance its functioning. The paper considers last year's European Commission Communication and recent developments in the EU equivalence framework. The paper addresses the EU's relationship with third countries generally as opposed to the specific future relationship with the UK post-Brexit.

AFME proposes four key principles which should be considered in the context of equivalence determinations:

  • decisions should be proportionate and risk-sensitive, based on sound regulatory and supervisory arrangements;
  • the equivalence assessment should be focused on alignment of regulatory and supervisory outcomes in the area under consideration;
  • there should be transparency in the decision-making process; and
  • decisions should be made in a timely manner and provide certainty and stability for market participants.


Data protection and financial services: European Commission slides on future EU-UK relationship

The European Commission has published slides outlining internal preparatory discussions on the future EU-UK relationship relating to personal data protection (adequacy decisions) and cooperation and equivalence in financial services. The slides relate to the Commission's work in preparing negotiating directives for the EU for the negotiations on the future EU-UK relationship.

In the area of data protection, the Commission states that personal data protection for the future partnership will be based on Commission adequacy decision(s) if conditions are met and there are provisions in the EU-UK agreement on cooperation between regulators. The Commission will endeavour to finalise the adequacy assessment by the end of 2020 and will prioritise assessment in the context of law enforcement. The Commission sets out the necessary steps for an adequacy decision and timeline.

In the area of financial services, the slides set out the Commission's proposed approach to cooperation and equivalence. On equivalence, the Commission notes that, under the political declaration, the EU and the UK are to endeavour to conclude equivalence assessments before the end of June 2020. It suggests that the EU should make equivalence decisions in protection of its own interests and that its autonomy on equivalence should not be restricted by any free trade agreement.

The Commission states that the assessment of UK legislation and supervision should be based on a risk-based and proportional approach and, as for other third countries, the higher the possible impact on EU markets and interests, the more granular the assessment.

CRAs: FCA updates webpage to reflect Brexit developments

The FCA has updated its webpage for credit rating agencies (CRAs), for which the FCA will become the UK regulator post-Brexit. In its update, the FCA says it is making changes to its systems implementation activities.

Written on the assumption that the UK leaves the EU with a withdrawal agreement in place, the FCA explains that firms will not be required to submit outstanding credit ratings to it on 1 February 2020. During the implementation period, the European Securities and Markets Authority (ESMA) will continue to operate as the direct supervisor of UK CRAs. UK firms using credit ratings for regulatory purposes can continue to use EU ratings over the course of the implementation period in accordance with the existing rules.

If a firm has submitted either a notification for conversion or advance application to register with the FCA, it does not need to take any additional action at this stage. The FCA will continue to assess advance applications that are in progress.

Hogan Lovells Brexit resources

Given the moving Brexit target at the moment we recommend that for an up-to-date take on Brexit impact please try the Hogan Lovells Brexit Hub, an open resource online.

Hogan Lovells Brexit Hub


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Authored by Yvonne Clapham


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