Financial institutions general regulatory news, 6 August 2021

FIG Bulletin

Recent UK and EU regulatory developments of interest to most financial institutions. See also our supplementary sector specific updates in the Related Materials links.


This is our last edition of the weekly regulatory news as we move to focus on more topic-driven material. We will send you notification of new publications from your area(s) of interest in the usual Hogan Lovells Engage Alerts. If you have any enquiries, please contact us.

FCA regulatory sandbox: new application guide and now always open

The Financial Conduct Authority (FCA) has published a new guide to assist firms making a regulatory sandbox application. The FCA has also updated its webpage on the regulatory sandbox to confirm that, following a recommendation in the Kalifa Review of UK FinTech, the regulatory sandbox is now always open so that firms can submit applications throughout the year. Previously the regulatory sandbox operated on a cohort basis, which meant that firms could only apply during a specific window in the calendar year.

Remuneration Committee: FCA Dear Remuneration Committee Chair letter

The FCA has published a letter it has sent to the Chairs of Remuneration Committees setting out its approach to remuneration and highlighting areas for Chairs and firms to consider in this context. In its letter covers, the FCA reminds Chairs of Remuneration Committees that they should remain satisfied that their firm's remuneration policies are aligned with their firm's purpose, business strategy and values, and that they incentivise the right behaviours. The FCA also highlights the following:

  • Accountability: the Senior Managers and Certification Regime is a key tool to ensure high standards of conduct and culture within firms and can provide a clear and evidenced link between behaviours and remuneration outcomes. For instances of poor behaviour or misconduct, ex-post risk adjustments should be made that are appropriate and timely. The reasons for adjustments should be transparent to the individuals concerned.
  • Non-financial measures: the FCA expects to see more firms using non-financial measures in scorecards to support environmental, social and governance factors.
  • Diversity and inclusion: the FCA urges firms to review pay data across all protected characteristics and to act swiftly to address any disparities.
  • FCA international work: the FCA refers to the Financial Stability Board's peer review of how the UK has implemented its remuneration standards, which was published in April 2021. It states that firms may find it useful to consider whether there are any points in this that they could incorporate into their remuneration policies and practices.

The FCA concludes by setting out its remuneration approach for 2021/22. It reminds firms that, in line with the Prudential Regulation Authority's (PRA's) May 2021 statement, they should submit their remuneration policy statement (RPS) by 30 September 2021. It should be submitted together with a short summary of the key points in the RPS with cross-references to the full RPS, including any key changes made in the last year. It should also include an explanation of how the Chair of the Remuneration Committee has assured themselves that the firm's overall remuneration policies support the firm's purpose, business strategy and values and incentivise the right behaviours, and how the firm's approach to paying variable remuneration will be considered in the continuing context of the COVID-19 pandemic.

FCA supervisors will coordinate their approach with the PRA and engage with firms as required, including providing any feedback as necessary.

UK Investment Firms Prudential Regime: FCA CP21/26 third consultation

The FCA has published its third consultation paper, CP21/26, on its proposed rules to introduce the Investment Firms Prudential Regime (IFPR), the new prudential regime for UK MiFID firms. CP21/26 should be read in conjunction with the FCA's first and second policy statements, PS21/6 (June 2021) and PS21/9 (July 2021).

The FCA's proposals relate to the following topics:

  • disclosure;
  • own funds: excess drawings by partners and members;
  • technical standards;
  • depositaries;
  • UK resolution regime;
  • Enforcement;
  • applications and notifications; and
  • consequential changes.

The FCA also published the proposed forms for MIFIDPRU 8 Disclosure templates. It also welcomes feedback on these.

The consultation closes on 17 September 2021. The FCA will consider the feedback and publish a policy statement and final rules for the whole of the IFPR in autumn 2021. The FCA expects the new regime to take effect in January 2022, subject to HM Treasury making the necessary secondary legislation under the Financial Services Act 2021.

FCA decision-making process: FCA CP21/25

The FCA has published a consultation paper, CP21/25, on "Issuing statutory notices – a new approach to decision makers".

In CP21/25, the FCA explains that a key part of the its transformation programme is a fresh approach to tackling firms and individuals that are not meeting the required standards. This involves streamlining FCA decision-making and governance to enable a quicker response. To achieve this, the FCA proposes moving some decision-making from its Regulatory Decisions Committee (RDC) to its Authorisations, Supervision and Enforcement Divisions. Which decision-making powers the FCA proposes to move are detailed in CP21/25.

The consultation closes on 17 September 2021. The FCA will consider the feedback received and expects to publish a policy statement in or around November 2021.

Pre-paid funeral plan sector: FCA updates

The FCA updated its webpage on regulating the pre-paid funeral plans sector. The FCA has added a new section outlining what firms need to do to prepare for FCA regulation, which will apply from 29 July 2022. From 1 September 2021, the FCA's authorisations gateway opens. Firms are encouraged to submit their authorisation application and supporting documents as soon as possible.

More information on authorisation and variation of permission (VoP) is provided on the FCA's webpage on pre-paid funeral plan firms: applying for authorisation. This webpage has also been updated to provide links to the following application forms and notes:

Inclusion Measurement Guide: UK FSSC launch

On 14 July 2021, the Financial Services Skills Council (FSSC) launched an Inclusion Measurement Guide to improve and develop inclusion data metrics and analysis across the UK financial services sector. The FSSC states that the guide is the first of its kind and was devised following in-depth research and discussions with FSSC members. It aims to enable organisations to:

  • measure inclusion in three priority areas including inclusive leadership, a safe and speak up culture, and inclusive systems and processes;
  • analyse the behaviours and actions of employees, including employee experiences and perceptions alongside the structures supporting behaviours within organisations; and
  • measure inclusion for the first time, as well as assist firms who are already using inclusion metrics to further develop their existing data and analysis.

The Guide contains three types of measurement tools, including questions for employee engagement and inclusion surveys, and data tracking metrics which organisations can map over time. This will allow firms to evaluate their working culture and values at a more granular level and pinpoint specific areas for intervention.

The FSSC received input from the FCA to ensure the guide is aligned with ongoing regulatory work to enable firms to ultimately build a more diverse, effective working culture, attracting and retaining highly skilled and talented employees.

On 5 August 2021, UK Finance published a blogpost by Mark Hoban, FSSC Chair, in which he refers to the guide and notes that the FSSC is working closely with its members to provide practical tools to enable firms to accelerate reskilling, widen talent pools and increase opportunities for digitisation, the need for which has been exacerbated by the COVID-19 pandemic. Mr Hoban believes there is more to be done on diversity and inclusion and adds that, while good progress has been made, the financial services sector needs to go "further and faster".

Sustainable finance: Delegated legislation amending UCITS Directive, AIFMD, MiFID II, Solvency II and IDD

On 2 August 2021, the following were published in the Official Journal of the European Union:

  • Commission Delegated Regulation (EU) 2021/1253 amending Delegated Regulation (EU) 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms. Delegated Regulation (EU) 2017/565 supplements the Markets in Financial Instruments Directive (MiFID);
  • Commission Delegated Regulation (EU) 2021/1254 correcting Delegated Regulation (EU) 2017/565 supplementing MiFID as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of MiFID;
  • Commission Delegated Regulation (EU) 2021/1255 amending Delegated Regulation (EU) 231/2013 as regards the sustainability risks and sustainability factors to be taken into account by alternative investment fund managers. Delegated Regulation (EU) 231/2013 supplements the Alternative Investment Fund Managers Directive (AIFMD);
  • Commission Delegated Regulation (EU) 2021/1256 amending Delegated Regulation (EU) 2015/35 as regards the integration of sustainability risks in the governance of insurance and reinsurance undertakings. Delegated Regulation (EU) 2015/35 supplements the Solvency II Directive;
  • Commission Delegated Regulation (EU) 2021/1257 amending Delegated Regulations (EU) 2017/2358 and (EU) 2017/2359 as regards the integration of sustainability factors, risks and preferences into the product oversight and governance requirements for insurance undertakings and insurance distributors and into the rules on conduct of business and investment advice for insurance-based investment products. Delegated Regulation (EU) 2017/2358 and Delegated Regulation (EU) 2017/2359 supplement the Insurance Distribution Directive (IDD); and
  • Commission Delegated Directive (EU) 2021/1270 amending Directive 2010/43/EU as regards the sustainability risks and sustainability factors to be taken into account for UCITS. Directive 2010/43/EU supplements the UCITS Directive.

The Delegated Regulations and Directive enter into force on 22 August 2021. Delegated Regulations (EU) 2021/1253, (EU) 2021/1255, (EU) 2021/1256 and (EU) 2021/1257 applied from 2 August 2022.

EU taxonomy: EU Platform on Sustainable Finance consults on preliminary recommendations for technical screening criteria

On 3 August 2021, the European Commission publisheddraft report produced by the EU Platform on Sustainable Finance on preliminary recommendations for technical screening criteria (TSC) for the EU taxonomy, with an accompanying call for feedback.

The draft report is a working document by the Platform and contains preliminary TSC developed by the Platform's Technical Working Group (TWG). Part A of the report and its Annex describes the EU taxonomy approach, the activities considered, and the methodological framework followed. Part B of the report and its Annex includes the feedback materials, comprising the questions on which stakeholders are invited to provide feedback and the proposed draft technical screening criteria on which feedback is sought.

The TWG's focus in the draft report is primarily on presenting a first set of priority economic activities and draft recommendations for associated substantial contribution and do no significant harm (DNSH) technical screening criteria regarding the four non-climate environmental objects covering water, circular economy, pollution prevention and biodiversity and ecosystems. However, a small number of economic activities and corresponding draft recommendations for TSC related to the climate mitigation and adaptation objectives have also been included. Non-inclusion by the Platform in the first set of priority activities does not imply that the activity will not be considered for inclusion in the EU taxonomy.

The call for feedback (to be submitted via an online questionnaire) closes to responses on 24 September 2021. This is not an official Commission consultation and the call for feedback neither commits the Commission nor precludes any policy outcomes.

The Platform will analyse the feedback received and submit its final report to the Commission in November 2021. The Commission will then analyse and consider the recommendations as part of its preparations for a delegated act containing activities and associated TSC for the remaining four environmental objectives and some additional activities and according criteria for the climate objectives.

MLD4: EBA consults on new guidelines on role of AML/CFT compliance officers

The European Banking Authority (EBA) is consulting on draft guidelines on policies and procedures relating to compliance management and the role and responsibilities of anti-money laundering(AML) and countering the financing of terrorism (CFT) compliance officers under Article 8 and Chapter VI of the Fourth Money Laundering Directive (MLD4).

The EBA notes that there have been a number of reports suggesting that the MLD4 requirements are implemented unevenly across sectors and member states, and that they are not always effectively applied. Therefore, through these guidelines, the EBA aims to achieve a common understanding, by competent authorities and financial sector operators, of financial sector operators' AML/CFT governance arrangements. The guidelines set clear expectations of the role, tasks and responsibilities of the AML/CFT compliance officer and the management body, and how they interact.

The provisions set out in the guidelines should be applied in a manner that is effective and proportionate to the financial sector operator's type, size, internal organisation, the nature, scope and complexity of its activities, and the money laundering and terrorism financing risks to which the financial sector operator is exposed. They complement, but do not replace, relevant guidelines issued by the European Supervisory Authorities on wider governance arrangements and suitability checks.

The consultation closes on 2 November 2021.

CPMI work programme for 2021/22

The Committee on Payments and Market Infrastructures (CPMI) has published its work programme for 2021/22. The CPMI is an international standard setter that promotes, monitors and makes recommendations about the safety and efficiency of payment, clearing, settlement and related arrangements, thereby supporting financial stability and the wider economy. The CPMI also serves as a forum for central bank cooperation in related oversight, policy and operational matters, including the provision of central bank services. The overarching themes of the 2021-22 work programme are:

  • shape the future of payments; enhance cross-border payments; address policy issues arising from innovations in payments; and monitor changing trends in payments; and
  • evaluate and address risks in financial market infrastructures (FMIs), including those that emerged or rose over the course of the COVID-19 pandemic.

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Authored by Yvonne Clapham


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