Financial institutions general regulatory news, 30 November 2020

FIG Bulletin

Recent regulatory developments of interest to all financial institutions. See also sector specific updates in the Related materials links.


Draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2020

draft version of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2020 has been published, together with a draft explanatory memorandum. The draft Order, which has been laid before Parliament, will amend the regulatory framework for providers of pre-paid funeral plan contracts, bringing plan providers and intermediaries within the FCA's remit and requiring providers of funeral plan contracts to obtain authorisation under the Financial Services and Markets Act 2000 (FSMA) when entering into, or carrying out, such contracts. The Order also makes amendments relating to the intermediation and financial promotion of funeral plan contracts and expands the permitted business of appointed representatives to allow them to intermediate the sale of funeral plan contracts as either an arranger or an agent.

If made, the draft Order will amend the:

  • FSMA (Regulated Activities) Order 2001 (SI 2001/544) (RAO);
  • FSMA (Collective Investment Schemes) Order 2001 (SI 2001/1062);
  • FSMA (Appointed Representatives) Regulations 2001 (SI 2001/1217); and
  • FSMA (Financial Promotion) Order 2005 (SI 2005/1529).

The draft Order also makes transitional modifications to the ombudsman scheme established under FSMA, to allow complaints made on or after the date on which the Order comes fully into force relating to acts or omissions that occurred before that date to be dealt with by the Financial Ombudsman Service (FOS).

The FCA has published a statement welcoming the draft Order and confirming that it expects to take responsibility for the regulation of the sector in summer 2022. The FCA will publish more detailed information in the coming weeks to help firms get ready. It will consult in spring 2021 on plans for regulating the sector, including its proposed rules and approach to authorising firms, and expects to finalise the rules later in 2021. Firms wishing to carry out regulated funeral plan activities must be authorised by the time the FCA takes responsibility for regulation. Firms not intending to seek authorisation should start planning now for how to wind down their business in an orderly way before FCA regulation comes into force.

Investment in productive finance: HM Treasury, BoE and FCA working group

HM Treasury, the Bank of England (BoE) and the Financial Conduct Authority (FCA) have announced that they will convene a working group to facilitate investment in productive finance. Investment in productive finance refers to investment that expands productive capacity, furthers sustainable growth and can make an important contribution to the real economy. Examples include plant and equipment, research and development, technologies, infrastructure and unlisted equities related to these sectors.

The working group will build upon work already undertaken to investigate the challenges and potential barriers to investment in productive finance assets in the UK, including the Treasury's Patient Capital Review in 2016 and the Asset Management Taskforce's UK Funds Regime Working Group's Long-Term Asset Fund (LTAF) proposal in 2019.

The working group will:

  • propose solutions for barriers to investment to be implemented by industry participants. This includes considering potential fund structures, such as an LTAF, to invest viably in long-term assets and that meet the demands of a wide range of investors, including defined contribution pension funds; and
  • propose a roadmap, timetable and set of actions to implement those solutions.

The working group will be co-sponsored by the Economic Secretary to the Treasury, the BoE Governor and the FCA Chief Executive. Its membership will be drawn from market participants including banks, asset management firms, pension funds and insurance companies, corporates, infrastructure firms, wealth managers, investment platforms and trade associations representing relevant sectors and markets. Further details relating to the membership of the working group, which will be by invitation from HM Treasury, the BoE and the FCA, will be announced in the coming weeks.

EU financial services reform: House of Commons EU Scrutiny Committee report

The House of Commons European Scrutiny Committee has published its 29th report of the 2019-21 session. Section 4 of the report considers, in particular, the EU's reform agenda set out in the European Commission's second Capital Markets Union Action Plan and its Communication on a Digital Finance Strategy. It also provides an overview of important pending and upcoming EU financial services proposals in the Annex to the report.

The Committee intends to continue monitoring changes in EU financial services policy closely and will engage with the Treasury where necessary to discuss the potential implications of specific European proposals for the UK.

Socio-economic diversity in financial and professional services sectors: new Taskforce

HM Treasury has published a letter, sent to Catherine McGuinness, City of London Corporation Policy Chair, setting out the commission for a new Taskforce to boost socio-economic diversity at senior levels in the financial and professional services sectors.

The taskforce will be chaired by Catherine McGuinness, Chair of the Policy and Resources Committee, City of London Corporation and three Co-Chairs: Alderman Vincent Keaveny (Senior Alderman, City of London Corporation), Sandra Wallace (Interim Chair of Social Mobility Commission), and Andy Haldane (Chief Economist, Bank of England).

The taskforce is launched alongside a research report commissioned by the City of London Corporation and authored by the Bridge Group. The research finds that almost nine in ten senior roles in financial services are held by people from higher socio-economic backgrounds. This compares with a third of the UK working population as a whole.

The Taskforce will have three workstreams:

  1. leading an industry consultation on how government, regulators and sector bodies can incentivise employer action on socio-economic diversity;
  2. creating a membership body or peer network for financial services, to increase employer engagement and accountability in delivering socio-economic diversity at senior levels; and
  3. producing a productivity analysis, to build the business case for increasing socio-economic diversity at senior levels in financial and professional services.

Workstreams 1 and 3 will make recommendations for industry, regulators, sector bodies and policy makers, which will be presented to the government for consideration. Workstream 2 will set up a membership body or peer network, which will launch and be functioning during the 2021/22 City of London mayoralty.

The Taskforce will meet four times before the end of November 2022, with the first meeting due to take place in May 2021. The CLC is expected to report back on the impact and findings of the Taskforce by November 2022.

LIBOR transition: FCA updates Q&As on conduct risk

The FCA has updated its Q&As about conduct risk during LIBOR transition. Two new Q&As are added:

  • Given that the spread between LIBOR and SONIA will vary, how can firms address this fairly when actively transitioning customers from LIBOR to alternative rates?
  • Can LIBOR contracts can be converted on LIBOR cessation or loss of representativeness to Bank Rate plus an appropriate spread, rather than SONIA plus an appropriate spread?

COVID-19: FCA and FOS correspondence on firms' handling of complaints

On 20 November 2020, the FCA published correspondence with the FOS reconfirming the FOS' approach to assessing complaints arising from firms' acts or omissions during the COVID-19 pandemic. The correspondence follows the publication of updated and additional guidance by the FCA to enhance the support for mortgage and consumer credit borrowers facing payment difficulties due to COVID-19.

In a letter Sheldon Mills, FCA Interim Executive Director of Strategy and Competition asks Caroline Wayman, FOS Chief Ombudsman and Chief Executive to confirm that, in determining what is fair and reasonable in all the circumstances of the individual case, the FOS will continue to take account of the operational challenges faced by firms during this period, and the FCA's revised expectations of what constitutes compliance with its rules, guidance and standards, as well as good industry practice at the time. In particular, he refers to FCA guidance or statements of regulatory forbearance that give firms additional flexibility to help them deal with difficult conditions.

In her response, Ms Wayman confirms the FOS' approach to complaints. She is confident that the FOS continues to provide an appropriate framework, which should give financial businesses the certainty that complaints will be dealt with fairly. Ms Wayman explains that in deciding what is fair and reasonable in the circumstances of an individual complaint, the FOS must take account of relevant law, regulators' rules, guidance and standards, codes of practice and what the ombudsman considers to have been good industry practice at the time. The FOS does not make decisions with the benefit of hindsight. Ms Wayman clarifies that the FOS will continue to take account of the FCA's revised expectations of what constitutes compliance with the requirements and material referred to by Mr Mills. The FOS will continue to engage with firms directly on the issues affecting them.

FCA digital sandbox update

The FCA has updated its webpage on the digital sandbox pilot which aims to provide enhanced support to innovative firms and organisations looking to tackle challenges relating to, or exacerbated by, the COVID-19 pandemic. The FCA explains that 30 organisations will take part in the pilot. It received 94 applications across the three use cases of fraud and scams, vulnerability and SME lending.

A key feature of the pilot is the building of a community of interested stakeholders to interact with the teams and solutions as they are being developed in the testing environment, sharing knowledge, experience and expertise. Firms or individuals that do not have a proposition to test in the digital sandbox, but who want to observe or potentially be involved with a team, can register an account on the digital sandbox pilot website.

FCA RegData platform: FCA announces benefits

The FCA has published a press release in which it sets out the benefits of RegData, its new data collection platform which will replace Gabriel. The FCA is moving firms and their individual users to RegData in groups to minimise the impact. Firms' moving dates are determined by their reporting requirements. The first firms moved from Gabriel to RegData over the weekend of 17 and 18 October 2020. The press release contains links to videos describing what firms can expect from the move and from RegData.

The FCA has also updated the registration process information on its RegData webpage. All users must register for RegData before their move by logging into Gabriel and completing the one-time registration when prompted. Until they are moved, firms should continue reporting through Gabriel, using their existing Gabriel login details.

Financial Services Register: FCA directory persons data now live

The FCA has updated its webpage on the Financial Services Register to confirm that the directory persons data submitted by dual-regulated firms under the Senior Managers and Certification Regime is now live.

The FCA also reminds solo-regulated firms that they must submit their directory persons data via Connect by 31 March 2021 using the single-entry submission form. Earlier dates apply if solo-regulated firms wish to use the multiple entry submission form, or if they wish their data to appear from earlier dates starting in December 2020. Further details are on the FCA's directory persons webpage. The FCA will begin to incrementally display data from solo-regulated firms as it is submitted, starting from 14 December 2020.

Business of social purpose: FCA speech

The FCA has published a speech by Jonathan Davidson, FCA Executive Director of Supervision – Retail and Authorisations, on the business of social purpose. Highlights flagged in the speech include:

  • culture remains a key area of focus for the FCA;
  • during the coronavirus crisis, financial services firms have supported consumers (being part of the solution rather than the problem), providing an opportunity to rebuild trust in financial services moving forwards;
  • while coronavirus might be the most immediate challenge firms are facing, it isn't the only one – the need to break barriers around diversity and inclusion, and climate change and sustainability are key challenges that also require urgent attention;
  • firms with healthy cultures that are purposeful, safe, and support environments that are diverse and inclusive, will be better placed to tackle these challenges; and
  • the financial services industry has the opportunity to make real progress, driven by social purpose.

Building trust in sustainable investments: FCA speech

The FCA has published a speech by Richard Monks, FCA Director of Strategy, on building trust in sustainable investments. Mr Monks discusses sustainable investments, data and information, measuring impact and, building these, he explains that the FCA is considering whether it would be helpful to articulate a set of guiding principles to help firms with environmental, social and governance product design and disclosure to tackle some of the FCA's concerns and ensure consumers are protected from greenwashing.

FSCS levy position: FSCS Outlook newsletter

The Financial Services Compensation Scheme (FSCS) has published the latest edition of its Outlook newsletter, which provides an overview of its levy position at the mid-point of the 2020/21 financial year.

Given the current high levels of uncertainty, the levy figures the FSCS has announced are its best estimates and are subject to change. It expects to confirm any additional levies, along with its forecast 2021/22 annual levy figures, in its plan and budget, which will be published in January 2021. Invoices will be issued to firms shortly after that date.

The FSCS calls on the financial services industry to take collective action to tackle the root cause of the rising levy by reducing the number of poor consumer outcomes.

UK's future international regulatory cooperation strategy: FMLC response

The Financial Markets Law Committee (FMLC) has published its response to the call for evidence issued in September 2020 by the Department for Business, Energy and Industrial Strategy (BEIS) on the UK government's future international regulatory cooperation (IRC) strategy. The FMLC notes that divergent national approaches and differences present a serious challenge to effective cross-border regulation. Particularly considering Brexit, among other things, the FMLC urges the UK government to prioritise coordination with authorities around the world.

Green and sustainable finance: ECB interview

The European Central Bank (ECB) has published the transcript of an interview given by Yves Mersch, ECB Executive Board Member and Vice-Chair of Supervisory Board, on green and sustainable finance.

Among other things, Mr Mersch made the following points:

  • there is a risk that green finance degenerates into a pure marketing tool. Investors need to know how their investments contribute to more sustainability. However, there is a risk of informational market failures if information on the sustainability of businesses and financial products is inconsistent, largely not comparable and at times unreliable or even completely unavailable. Definitions of what constitutes a sustainable investment are often subjective and inconsistent;
  • the Taxonomy Regulation is important. However, the taxonomy was designed with green bonds in mind. Its application to other financial products may not be as straightforward and the overall design might need to be adjusted. The system is also very complex. Mr Mersch sees a gap between its envisaged objective and its practical usability. Plans are under way for widely applicable industry standards;
  • however useful the taxonomy may be for green investment decisions, it will not help in the risk assessment of economic activities exposed to climate risk;
  • financial institutions, including banks, need to ensure they can identify at an early stage, and deal with, the risks emerging from climate change and a rapid transition to a carbon-neutral economy. Only when these prerequisites are met will sustainable finance have a tangible impact on the real economy. Otherwise, there remains a risk of "greenwashing" and of an unsustainable "green bubble" detached from fundamental data; and
  • although disclosure of climate-related risks has improved, the information is generally not detailed enough and is not always supported by quantitative data. The ECB will publish a guide on climate-related and environmental risks, which will set out how, in its view, institutions should take climate and environmental risks into consideration. The ECB will also publish a report on banks' disclosure of environmental risks, having reviewed disclosures for last year from a sample of banks. More than half did not meet the minimum requirements set out in the guide.

Taxonomy Regulation: European Commission consults on Delegated Regulation on climate change mitigation and adaptation

The European Commission is consulting on the text of Commission Delegated Regulation supplementing the Taxonomy Regulation relating to climate change mitigation and adaptation. It has also updated its webpage on the EU taxonomy for sustainable activities.

The purpose of the Delegated Regulation, which reflects a mandate in Articles 10(3) and 11(3) of the Taxonomy Regulation, is to specify technical screening criteria for determining the conditions under which a specific economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation, respectively, and to establish, for each relevant environmental objective laid down in Article 9 of the Taxonomy Regulation, technical screening criteria for determining whether that economic activity causes no significant harm to one or more of those environmental objectives.

The consultation closes on 18 December 2020.

PEPP Regulation: European Commission consults on draft Delegated Regulations

The European Commission has published for consultation the following two draft Delegated Regulations supplementing the Regulation on a pan-European personal pension product PEPP Regulation:

The consultations close on 18 December 2020.

Financial stability: FSB report on implications of climate change

The Financial Stability Board (FSB) has published a report on the implications of climate change for financial stability. The report investigates channels through which climate-related risks might impact the financial system. It also examines potential mechanisms within the financial system that might amplify the effects of climate-related risk as well as the cross-border transmission of risks.

G20 communique

The G20 has published a communique setting out the G20 leaders' declaration following its summit held on 21 and 22 November 2020. Relevant to financial services, the G20 states that it:

  • commits to the FSB principles underpinning the national and international responses to COVID-19, including the need to act consistently with international standards. The FSB is asked to continue monitoring financial sector vulnerabilities, working on procyclicality and credit worthiness, and coordinating regulatory and supervisory measures. The G20 welcomes the FSB's holistic review of the March 2020 turmoil, and its forward work plan to improve resilience of the non-bank financial sector;
  • recognises that COVID-19 has reaffirmed the need to enhance global cross-border payment arrangements to facilitate cheaper, faster, more inclusive and more transparent payment transactions, including for remittances. The G20 endorses its Roadmap to Enhance Cross-Border Payments. It asks the FSB, in co-ordination with international organisations and standard-setting bodies, to annually report to the G20 on progress in this area;
  • looks forward to the FSB completing its evaluation of the effects of the "too-big-to-fail" reforms in 2021;
  • reaffirms the importance of orderly transition away from LIBOR to alternative reference rates before the end of 2021;
  • recognises that mobilising sustainable finance is important for global growth and stability. The FSB is continuing to examine the financial stability implications of climate change. The G20 welcomes growing private sector participation and transparency in this area;
  • is closely monitoring developments in technological innovations and remains vigilant to existing and emerging risks. Among other things, the G20 considers that no so-called "global stablecoins" should commence operation until all relevant legal, regulatory and oversight requirements are adequately addressed through appropriate design and by complying with applicable standards. It welcomes the reports in this area produced by the FSB, the Financial Action Task Force (FATF) and the International Monetary Fund. The G20 looks forward to standard-setting bodies reviewing the existing standards in the light of these reports and making necessary adjustments; and
  • supports the policy responses set out in the FATF's paper on COVID-19 and reiterates its commitment to tackle all money laundering and terrorist financing threats. The G20 also calls for the full, effective and swift implementation of the FATF standards worldwide, and welcomes the strengthening of the FATF's standards to enhance global efforts to counter proliferation financing.

Governance, risk management and financial inclusion IFSB standards: FAQs

The Islamic Finance Standards Board (IFSB) has published the following sets of FAQs relating to four of its standards:

The FAQs aim to enhance the implementation of the four IFSB standards among the member jurisdictions through presenting clarifications and explanative directions on the issued standards.

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Authored by Yvonne Clapham


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