Financial institutions general regulatory news, 7 June 2021

FIG Bulletin

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


Following a short break, the next update will be published on 21 June 2021.

SMCR: PRA PS11/21 and FCA Handbook Notice 88 on temporary, long-term absences

The UK Prudential Regulation Authority (PRA) has published a policy statement, PS11/21, which confirms its final policy relating to temporary, long-term absences by senior managers under the Senior Managers and Certification Regime (SMCR). PS11/21 gives feedback to responses received to Chapter 2 of the Financial Conduct Authority's (FCA) Quarterly Consultation Paper No. 30, CP20/23, in which the FCA and the PRA jointly proposed their expectations regarding temporary, long-term absences for senior management functions (SMFs). It also sets out the PRA's final policy as follows:

  • consequential amendments to the following parts of the PRA Rulebook:
    • Senior Managers Regime – Applications and Notifications;
    • Insurance - Senior Managers Regime – Applications and Notifications;
    • Large Non-Solvency II Firms - Senior Managers Regime – Applications and Notifications; and
    • Non-Solvency II Firms - Senior Managers Regime – Applications and Notifications.
  • an updated supervisory statement, (SS), SS28/15: Strengthening individual accountability in banking;
  • an updated SS35/15: Strengthening individual accountability in insurance; and
  • an updated Form D - Changes to personal information/application details and conduct breaches/disciplinary action related to conduct.

The changes in PS11/21 took effect from 2 June 2021.

The FCA confirmed equivalent rule and guidance changes to the FCA Handbook on 28 May 2021 in FCA Handbook Notice 88. It makes changes to the following parts of the FCA Handbook:

  • SYSC 25.4;
  • FIT 1.3;
  • SUP 10A.14, 10C.9, 10C.10, 10C.11, 10C.14, 10C Annex; and
  • 2G and 10C Annex 6R Form D.

Cryptoasset businesses: FCA extends temporary registration regime

The FCA has announced that it has extended the temporary registration regime (TRR) for certain existing cryptoasset businesses that have applied to it for registration under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLRs 2017). The TRR for these businesses was due to expire on 9 July 2021. It has now been extended to 31 March 2022.

The FCA explains that a significantly high number of businesses are not meeting the required standards under the MLRs 2017, which has resulted in an unprecedented number of businesses withdrawing their applications. The extension is designed to enable cryptoasset firms to continue to carry on business while the FCA proceeds with its assessments.

The FCA warns that many cryptoassets are highly speculative and can quickly lose value. Even if a firm is registered with it, the FCA has no consumer protection powers for their cryptoasset activities, and it is not responsible for ensuring cryptoasset businesses protect client assets (among other things). In addition, the FCA explains that it is unlikely that consumers will have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme.

Publication of workplace personal pension costs and charges data: FCA statement

The FCA has published a statement setting out its expectations for the first publication by workplace pension providers of costs and charges data required under the new rules published in PS20/2.

Independent governance committees (IGCs) are required to publish and disclose to members of workplace pension schemes certain administration charges and transaction costs information. This information must be published for the first time by 31 July 2021, when IGCs are expected to publish their annual reports.

The FCA notes that there are differing stakeholder views on whether the data should be published at the level of the arrangement with each individual employer, or whether it should be published at a higher level, with the data indicating the range of charges paid by members in different employer arrangements in one overarching scheme. 

The FCA explains its expectation that the data to be published at the level of the arrangement with each individual employer. It believes that employer-level comparisons could help to improve value for money in workplace pensions.

However, as the FCA's expectation was not explicit in its consultation paper and policy statement, and considering the time remaining until the disclosures will be needed by IGCs, the FCA will not take regulatory action against firms that, for this reporting year:

  • disclose each set of costs and charges that they levy (and the number of employer schemes which have these costs and charges); or
  • show the distribution of costs and charges by employer arrangement in some other way, for example by dividing the range of charges into deciles (that is, without also disclosing the relevant employer or scheme details against the particular costs and charges).

The FCA will consider if changes to its Handbook are necessary to provide clarity and ensure consistent good outcomes. The FCA also plans to publish a policy statement in relation to CP20/9 in summer 2021, which, it says, will further clarify the FCA's expectations.

More generally, the FCA clarifies that the information does not need to be published in the IGC's annual report but must be available on a publicly accessible website which can be linked to form the report.

The FCA also clarifies the circumstances in which it would generally support an approach to comparisons that aggregates charges at the level of cohorts of similar employer arrangements.

RegTech: FCA Insight article

A new FCA Insight article has been published on "The future of RegTech – what do firms really want?". It also refers to a previous Insight article published in 2020, "RegTech – a watershed moment?".

RegTech – a watershed moment?

This article notes that the COVID-19 pandemic and remote working may prove to be a pivotal moment in the RegTech story and a chance for both firms and regulators to take a leap forward in its development. The authors recognised recent developments in the use of RegTech, identifies some of the remaining challenges, and considers the potential for the FCA's role going forward and opportunities.

The future of RegTech – what do firms really want?

The authors of this article consider what financial services firms think of RegTech and what is the role of the FCA in its future evolution. The article looks at the results of quantitative research among large UK financial services firms, commissioned by the FCA. The authors conclude that customers are very satisfied with what RegTech can provide. However, there is also demand for better communications from the RegTech industry, better technology integration and for standards and certification.

The authors state that "One of the more thought-provoking conclusions and asks from the buyer side is the wish to explore a RegTech certification or accreditation scheme, an issue raised in the recent Kalifa Review of UK FinTech. As demonstrated in other markets, such as cyber security, certifications have been successful at establishing markets and ensuring a certain level of quality of products and services". However, the authors note that the FCA itself is not in a position to act as a certifying body as it could conflict with the regulator's competition remit. They state that "other institutions could 'step-up' and explore whether such a scheme would be feasible and would enable a stronger and more robust RegTech ecosystem".

The authors conclude the article with their belief that "there is a need for a definitive RegTech taxonomy to differentiate it from related fields such as FinTech and SupTech, so that policymakers, industry and academia alike can better understand the needs of the sector, and importantly its undoubted benefits".

UK green taxonomy: IRSG paper on reviewing EU taxonomy for UK application

The International Regulatory Strategy Group (IRSG) has published a paper setting out recommendations for reviewing the EU taxonomy for application in the UK.

In the paper, while recognising some of the limitations of the EU's approach, the IRSG endorses the approach that the UK Government has set out for the UK to stay aligned to the EU taxonomy in the short-term, and urges the UK government to accelerate progress on this with a view to providing significant clarity to UK issuers and financial market participants in advance of the 2021 United Nations Climate Change Conference (COP26).

The paper considers the purpose and usability of the EU taxonomy as well as practical challenges when implementing a version of the EU taxonomy that reflects the needs and specificities of the UK economy.

UK's G7 presidency: IRSG report on financial services priorities

The International Regulatory Strategy Group  has published a paper setting out recommendations for financial services priorities for the UK's G7 presidency. The IRSG suggests that the UK's G7 presidency can tackle the most pressing challenges for the global economy by focussing on the following areas:

  • how global regulatory coherence can aid pandemic recovery, recapitalisation and resolution;
  • the importance of leadership on sustainable finance ahead of UK co-hosting COP26 with Italy;
  • the need for digital policy continuity, including on digital taxation, to build on the efforts of G7 presidency predecessors; and
  • opportunities for cooperation and alignment with the G20 Italian presidency on global policy priorities for financial services.

European financial integration and stability: European Commission speech

The European Commission has published a speech by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability, and Capital Markets Union (CMU), in which she considers European financial integration and stability. Points of interest in her speech include:

  • three main risks to financial stability remain: disruptive repricing of assets, the sustainability of debt and possible stress in the banking sector. The Commission's 2020 financial stability and integration report did not account for the COVID-19 pandemic, which became the defining economic event of the year. Given this, it is vital to be aware of the need to prepare for unexpected events and build up a stronger financial system that is resilient to shocks;
  • the massive relocation of capital in the wake of COVID-19 creates new relationships between market participants. It is important to avoid these new linkages creating undue risks to financial stability;
  • converging supervision and coordination of national supervisors is vital. The Commission has now concluded its targeted consultation on supervisory convergence and the single rulebook. It received over 100 responses and is assessing them;
  • although there are risks to financial stability as a result of COVID-19, it can also work as a catalyst. The big disruption in normal business and working methods due to lockdowns forced financial services providers to use technology. COVID-19 has also shown that sustainability is not sufficiently integrated in EU economies, but the recovery presents an opportunity to support sustainable finance. These green and digital transitions affect all market participants: banks, asset managers, insurers, regulators and retail investors;
  • digitalisation will need to be carefully considered in the Commission's retail investment strategy, on which it is currently consulting. Technological changes may pose challenges to retail investors and the existing investor protection rules may no longer be fit for purpose. A framework is therefore required to take advantage of digitalisation while addressing potential emerging risks; and
  • the Commission will shortly be presenting its renewed sustainable finance strategy. This strategy will aim to ensure that climate and environmental risks become mainstream in the financial system, which is essential for a stable system that is resilient to the impacts of climate change.

IFR own funds: EBA and ESMA provisional list of instruments and funds for smallest investment firms

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have published a provisional list of additional instruments and funds that competent authorities may allow some of the smallest investment firms to use as own funds under Article 9(4) of the Investment Firms Regulation (IFR).

The aim of the list is to provide guidance to investment firms and competent authorities ahead of the application of the IFR requirements on 26 June 2021. It is based on information received from national competent authorities (NCAs) across the EU, and includes instruments and funds that NCAs may permit to use as own funds in addition to the instruments included in the Common Equity Tier 1 (CET1) list published by the EBA in accordance with the Capital Requirements Regulation (CRR). Going forward, instruments and funds of investment firms will be allocated either to this list or the existing CET1 list, depending on their nature.

The EBA, together with ESMA, will assess the terms and conditions of all instruments and funds included in the provisional list against regulatory provisions at a later stage, and subsequently, will update, maintain and publish the list on a regular basis.

DMD review: European Commission inception impact assessment

The European Commission has published an inception impact assessment on its review of the Directive on Distance Marketing of Consumer Financial Services (the Distance Marketing Directive or DMD). The review aims to ensure a framework for the distance marketing of financial services that is future proof, protects consumers in a digital environment, delivers a level playing field and reduces unnecessary burden for financial service providers.

The inception impact assessment summarises the main problems the review aims to tackle (as identified in an earlier Commission evaluation), the policy options and a preliminary assessment of expected impacts.

The deadline for comments on the inception impact assessment is 25 June 2021. The Commission aims to publish the next stage of its review in Q1 2022.

CRD: EBA consults on draft guidelines on cooperation and information exchange between prudential supervisors, AML/CFT supervisors and FIUs

The EBA has published a consultation paper on draft guidelines on cooperation and information exchange between prudential supervisors, anti-money laundering and countering financing of terrorism (AML / CFT) supervisors and financial intelligence units (FIUs) under the Capital Requirements Directive (CRD) as amended by CRD V.

Comments can be made until 27 August 2021. The EBA will finalise the guidelines once it has considered the responses.

The draft guidelines complement the Joint Committee of the European Supervisory Authorities' AML/CFT guidelines, which were published in December 2019, and form part of the EBA's wider work to strengthen the link between prudential and AML/CFT supervision.

LIBOR transition: FSB statements

The Financial Stability Board (FSB) has published the following statements to support a smooth and timely transition away from LIBOR by the end of 2021:

  • an updated global transition roadmap that, drawing on national working group recommendations, summarises the high-level steps financial and non-financial firms will need to take now and over the course of 2021 to complete their transition;
  • paper reviewing overnight risk-free rates and term rates, building on the concept that the tools necessary to complete the transition are currently available. The FSB cautions market participants against waiting for the development of additional tools, in particular forward-looking term risk-free rates;
  • statement on the use of the ISDA spread adjustments in cash products to support transition, particularly in loan markets, which remains an area of concern with much new lending still linked to LIBOR; and
  • statement encouraging authorities to set globally consistent expectations that regulated entities should cease the new use of LIBOR in line with the relevant timelines for that currency, regardless of where those trades are booked.

The FSB also welcomes the statement on benchmarks transition published by the International Organization of Securities Commissions (IOSCO), which reiterates the importance of ensuring a smooth and timely transition away from LIBOR.

In the light of the limited time available until the end of 2021, the FSB strongly urges market participants to act now to complete the steps set out in its global transition roadmap.

The FSB intends to publish a full report on progress in November 2021.


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Authored by Yvonne Clapham


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