Contents
Holding company regulatory transaction fees: PRA PS3/21
The UK Prudential Regulation Authority (PRA) has published a policy statement, PS3/21, on holding company regulatory transaction fees. The PRA received no responses to its proposal, in CP21/20, to make a regulatory transaction fee of £2,500 payable in respect of an application for approval or exemption as a holding company made under section 192Q of the Financial Services and Markets Act 2000. Therefore, the PRA has taken forward the proposed amendment to the Fees Part of the PRA Rulebook. A new rule 4.5A came into force on 19 March 2021.
PS3/21 is relevant to PRA-authorised banks, PRA-designated investment firms, and their parent undertakings, which, for this purpose, comprise financial holding companies and mixed financial holding companies, as well as those intermediate holding companies that sit at the top of a sub-consolidation group. It is not relevant to credit unions or insurers.
Diversity and inclusion: FCA speech and IA report
The UK Financial Conduct Authority (FCA) has published a speech by Nikhil Rathi, FCA Chief Executive, on why diversity and inclusion are regulatory issues. Of particular note, Mr Rathi comments that he would like to see the FCA's five conduct questions expanded – and a sixth question added – for all firms: "is your management team diverse enough to provide adequate challenge and do you create the right environment in which people of all backgrounds can speak up?" Mr Rathi explains that this is much broader than representation. It is about a firm's culture, not only about diversity, but also inclusion. "Do people feel comfortable in the work environment such that they can demonstrate, share and bring to bear their diversity of experience and background?"
Mr Rathi also states that, in the years ahead, if the FCA does not see improvements in diversity at senior levels and better answers, it will consider how to best use its powers. For example, Mr Rathi wants to consider whether the diversity of management teams, and the inclusivity of the management culture they create, could be part of the FCA's consideration of senior manager applications.
Separately, the Investment Association (IA) has published a report titled "Ethnicity in investment management: building positive intentions into meaningful action". The report reflects on the actions investment management firms are taking to better understand their workforce and identify where minorities are under-represented, as well as the reasons behind this. It is designed to provide practical examples through case studies to share good practice.
IRHP redress scheme independent review: FCA update
The FCA has published an update on the independent review of the supervisory intervention on interest rate hedging products (IRHPs). The FCA confirms that John Swift QC, the Independent Reviewer, has now completed his discovery exercise and recently provided the FCA with his draft report. There will now be the usual fact-checking and representations process. The report is expected to be finalised and published in summer 2021.
Duty of care: FCA update
The FCA has updated its webpage relating to its April 2019 feedback statement on a duty of care and potential alternative approaches (FS19/2) to indicate that it is aiming to consult on options for change in May 2021. This follows delays due to COVID-19.
Money laundering offences: FCA brings first criminal prosecution against a bank
The FCA has announced that it has started criminal proceedings against a major bank for alleged offences under the Money Laundering Regulations 2007 (MLR 2007). This is the first criminal prosecution under the MLR 2007 by the FCA and the first prosecution against a bank. No individuals are being charged as part of the proceedings.
The MLR 2007 are no longer in force and have been replaced with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692).
FCA policy development update
The FCA has updated its policy development update webpage for March 2021, setting out information on recent and future FCA publications.
Supporting the wind-down of critical benchmarks: FMLC response to HM Treasury consultation
The Financial Markets Law Committee (FMLC) has published a letter it has sent to HM Treasury responding to its February 2021 consultation on critical benchmarks and, in particular, whether there is a case for introducing safe harbours for legacy contracts and the design and scope of any such legislation.
Supervisory convergence and single rulebook: European Commission consultation
The European Commission has published a consultation paper on supervisory convergence and the single rulebook, taking stock of the framework for supervising European capital markets, banks, insurers and pension funds.
The aim of the consultation paper is to take stock of what has been achieved so far, particularly as regards supervisory practices among national competent authorities, supervisory convergence and how the EU single rulebook works in practice. The Commission is also seeking targeted views on certain aspects related to its 2019 review of the European Supervisory Authorities (ESAs), including the amendment of existing tools, conferred new tasks and governance changes.
The consultation closes on 21 May 2021.
MLD4: EBA consults on revising risk-based supervision guidelines
The European Banking Authority (EBA) has published a consultation paper on proposed changes to the guidelines on the risk-based supervision of credit and financial institutions' compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) obligations, produced under Article 48(10) of the Fourth Money Laundering Directive (MLD4).
Since the guidelines were originally published in 2016, the EBA has observed that supervisors across the EU have been finding implementation of the risk-based approach to AML and CFT supervision difficult. As a result, AML and CFT supervision has not always been as effective as MLD4 and the guidelines had envisaged.
The EBA explains that the changes proposed address the key obstacles to effective AML and CFT supervision identified during its review of the existing guidelines. They also consider changes to the EU legal framework that have come into force since 2016, as well as new guidance from the Financial Action Task Force (FATF) and the Basel Committee on Banking Supervision.
The EBA will hold a virtual public hearing on the draft guidelines on 22 April 2021. Comments can be made on the proposals until 17 June 2021. When the final version of the revised guidelines comes into force, the original version of the guidelines will be repealed. The draft revised guidelines state that they will apply three months after publication in the official EU languages.
SFDR: ESAs consult on taxonomy-related sustainability disclosures
The ESAs have published a joint consultation paper on draft regulatory technical standards (RTS) with regard to the content and presentation of sustainability disclosures under Articles 8(4), 9(6) and 11(5) under Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR).
Article 25 of the Taxonomy Regulation amends the SFDR to empower the ESAs to develop further RTS on additional disclosure obligations for products making use of the environmental taxonomy. To satisfy these empowerments, and to minimise duplication and complexity in this area, the ESAs have agreed to:
- amend the draft RTS on the content, methodologies and presentation of disclosures under the SFDR. The ESAs aim to create a single rulebook for RTS on sustainability disclosures for both the SFDR and the Taxonomy Regulation; and
- create one set of RTS for all the environmental taxonomy-related disclosures, covering the six objectives of Article 9 of the Taxonomy Regulation, with two different application deadlines (as laid down in Article 27 of the Taxonomy Regulation), depending on the product's environmental objectives.
The ESAs' proposals on how, and to what extent, activities funded by the product are taxonomy-aligned consist of a graphical representation of the taxonomy-alignment of investments of the financial product and a key performance indicator (KPI) calculation for that alignment, together with a statement that the activities funded by the product that qualify as environmentally sustainable are compliant with the detailed criteria of the Taxonomy Regulation.
The ESAs also propose to standardise the presentation of the disclosures by amending the templates in the draft SFDR RTS to add a new section that includes the Taxonomy Regulation disclosures.
The disclosure requirements added in Articles 8(2a), 9(4a), and 11(1)(c)-(d) of the SFDR refer to information required to be published under Articles 5 and 6 of the Taxonomy Regulation. The European Commission consulted on a draft Delegated Regulation in November 2020, with the final text expected to be adopted later in 2021.
The consultation closes to responses on 12 May 2021. The ESAs intend to publish a final report with final draft RTS, for submission to the Commission, by late June or early July 2021.
Trade-based money laundering risk indicators: FATF and Egmont Group report
The FATF and the Egmont Group of Financial Intelligence Units have published a joint report on trade-based money laundering (TBML) risk indicators. The risk indicators included in the report are taken from a sample of the data received by the FATF and the Egmont Group in the course of their TBML project. They are designed to enhance the ability of entities to identify suspicious activity associated with this form of money laundering, but the list of indicators is not conclusive. Several of the indicators identified may not appear to have a direct or exclusive connection with TBML and may be indicative of other forms of money laundering or another illicit activity. However, they may nevertheless be relevant when seeking to identify TBML.
The FATF and the Egmont Group explain that the indicators are relevant to both the public and private sectors. They are relevant to financial institutions, including banks and money value transfer services, designated non-financial businesses and professions, and SMEs and large conglomerates. They are intended to be used by individuals with responsibility for compliance, transaction monitoring, investigative analysis, client on-boarding and relationship management, as well as other areas working to prevent financial crime.
Before using the risk indicators, the FATF and the Egmont Group advise reading the notes in the report, together with their December 2020 joint report on TBML trends and developments, which provides a comprehensive overview of current TBML risks and outlines best practices in mitigating these risks.
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Authored by Yvonne Clapham
