Blog: Financial institutions general regulatory news, April 2021 # 3 | Hogan Lovells – JDSupra – JD Supra

Contents

  • Financial Services Bill 2019-21: amendments proposed in House of Lords
  • UK FinTech and financial services plans
  • LC&F compensation scheme and complaints to FCA
  • Lessons from Greensill Capital: Treasury Committee inquiry
  • Diversity: BoE launches “Meeting Varied People” initiative
  • PRA authorisations: updates on rule waivers and modifications and CRR and Solvency II permissions
  • UK Investment Firms Prudential Regime: FCA second consultation CP21/7
  • FCA transformation programme: update to HM Treasury
  • FCA appoints sustainability and technology directors
  • FCA regulated fees and levies for 2021/22: CP21/8
  • FCA Business Plan 2021/22 due July 2021
  • FOS appoints Interim Chief Executive and Chief Ombudsman
  • JMLSG guidance: consultation on revised trade finance section
  • Sustainable finance and taxonomy: European Commission communication and legislation
  • EU retail investment strategy: European Commission consults on roadmap
  • Making financial services work for citizens: European Commission speech

Financial Services Bill 2019-21: amendments proposed in House of Lords

A list of amendments made to the Financial Services Bill 2019-21 and explanatory notes have been published on the UK Parliament website, reflecting amendments made at the report stage of the Bill in the House of Lords. Amendments include new clauses that:

  • amend the Financial Services and Markets Act 2000 (FSMA). One provision will require the FCA to have regard to the general principle that firms should not profit from exploiting a consumer’s vulnerability, behavioural biases, or constrained choices when considering the appropriate degree of protection that it should secure for consumers. Another provision will require the FCA to make rules introducing a duty of care by 6 April 2022. These rules will mean that authorised persons under FSMA owe a duty of care towards consumers when carrying on regulated activities under FSMA;
  • will give HM Treasury the ability to bring interest-free buy-now-pay-later products into the scope of FCA regulation. HM Treasury will be able to exclude provisions of the Consumer Credit Act 1974 from applying to activities that currently fall within the relevant exemptions in the Regulated Activities Order;
  • remove a provision in Article 28 of the retained EU law version of the Market Abuse Regulation (UK MAR) that restricts the FCA from holding personal data collected for the purposes of UK MAR for more than five years;
  • amend the Payment Services Regulations 2017 to provide that, in certain circumstances, the provision of cash, where there is no corresponding purchase of goods and services, will be included in the list of activities that do not constitute a payment service;
  • will require the Financial Conduct Authority (FCA) to make rules imposing a cap on the standard variable rates charged to borrowers with inactive lenders or unregulated entities who cannot switch providers because of their financial circumstances (mortgage prisoners); and
  • will require the FCA and the Prudential Regulation Authority (PRA) to have regard to the carbon target for net zero emissions as set out in the Climate Change Act 2008.

The Bill completed its report stage and third reading in the House of Lords on 19 April 2021.

UK FinTech and financial services plans

Following announcements by Rishi Sunak, Chancellor of the Exchequer, at FinTech Week, HM Treasury published a press release setting out some proposals he discussed to enhance the UK’s competitive advantage in FinTech. The plans follow the publication of the Kalifa Review of UK FinTech and the Listing Review led by Lord Hill and include the following strands of work:

  • the FCA will progress with a “scale box” to support FinTech firms to scale up. This is a package of measures that will enhance the FCA’s regulatory sandbox and support growth stage firms. In a speech, FCA CEO, Nikhil Rathi refers to the introduction of the scalebox as a “regulatory nursery”, offering enhanced oversight as newly authorised firms develop and grow. The FCA will develop the plans for it by autumn 2021;
  • the FCA will also launch the second phase of its digital sandbox to enable firms to test concepts that tackle sustainability and climate change-related challenges;
  • the Chancellor supports the creation of a Centre for Finance, Innovation and Technology (CFIT), which will work with regional hubs to identify and address sector challenges to support FinTech growth;
  • a new taskforce has been established to explore a possible UK central bank digital currency (CBDC). The Bank of England (BoE) has updated its webpage on CBDC and published a statement announcing it is creating the CBDC Taskforce as well as a CBDC Engagement Forum, a CBDC Technology Forum and a CBDC Unit to lead the BoE’s internal exploration around CBDC and its external engagement on the topic. The Government and the BoE have not yet decided on whether to introduce a UK CBDC;
  • the BoE has launched an omnibus account to support delivery of faster wholesale payment and settlement using central bank money; and
  • HM Treasury is working with the BoE and the FCA to create a new sandbox, which will allow firms exploring technologies to improve financial market infrastructure.

The government will set out a detailed response to the Kalifa Review “shortly”.

The FCA has also indicated that it will “shortly” begin allowing year-round applications for the Regulatory Sandbox and will better advertise the support it already offers to those firms looking to build out their innovative offering. In his speech, Mr Rathi reiterates his call for the government to take action to provide better financial protection for consumers using online platforms. He also refers to the FCA’s review of how the Regulatory Decisions Committee functions.

The BoE has published a keynote speech given by Dave Ramsden, BoE Deputy Governor, Markets and Banking, at UK FinTech week on how the BoE supports the safe development of FinTech services in the UK.

A separate press release from the Department for International Trade states that the UK will create a FinTech Export Academy and a FinTech Champions scheme to provide sector-specific advice. The programme will take selected high potential firms and provide them with intensive support to reach international markets.

Hogan Lovells recently ran a webinar series on the FinTech Strategic Review which is available to watch here.

LC&F compensation scheme and complaints to FCA

In a written ministerial statement, John Glen, Economic Secretary to HM Treasury, has set out details of the London Capital & Finance Compensation Scheme to be established by the government, as well as the government’s approach and the next steps for bondholders who suffered losses after investing in London Capital & Finance plc (LC&F), which entered administration in January 2019. HM Treasury has also published a related press release.

Separately, the FCA has published a statement setting out its broad approach to assessing complaints made to the FCA in relation to LC&F.

Lessons from Greensill Capital: Treasury Committee inquiry

The House of Commons Treasury Committee has launched a new inquiry: Lessons learned from Greensill Capital. A call for evidence explains that the inquiry will be divided into two strands:

  • lessons for the financial system and its regulation from the failure of Greensill Capital; and
  • lessons for HM Treasury (and associate public bodies) from its interactions with Greensill Capital during the COVID-19 crisis.

To inform the first strand of the inquiry, the Committee has written to Nikhil Rathi, Chief Executive of the FCA, seeking information, by 4 May 2021, about the regulation of Greensill Capital (UK) Ltd (in administration) and Greensill Capital Securities Ltd (now terminated). The Committee has also written to Andrew Bailey, BoE Governor, seeking information, by 6 May 2021, concerning the Covid Corporate Finance Facility (CCFF) and the involvement of BoE officials in discussions about options relating to Greensill. To further aid the inquiry, the Committee has written, requesting answers to various initial questions, to Rishi Sunak, Chancellor of the Exchequer, Charles Donald, CEO of UK Government Investments and David Cameron. The Committee will seek to take oral evidence in due course, including from Lex Greensill among others.

The Committee will hold a “scene-setting” oral evidence session with relevant experts on 28 April 2021. The deadline for submissions to the call for evidence from anyone with answers to the questions raised is 10 May 2021. The Committee will take evidence from the FCA on 12 May 2021, and from the BoE on 24 May 2021.

Diversity: BoE launches “Meeting Varied People” initiative

The BoE has published a speech by Andrea Rosen, Head of BoE Markets Intelligence and Analysis Division, as it launched its “meeting varied people” initiative. The aim of the initiative is to enable the BoE to hear from a more diverse range of people who work in financial markets. It will use this insight to inform the decisions it makes on, for example, setting interest rates and designing its market operations. The BoE has also published a speech by Andrew Bailey, BoE Governor, in which he talks about diversity.

As part of the Meeting Varied People initiative, the BoE has re-launched its market intelligence charter to reflect its diversity objectives more clearly and published an updated version of the UK Money Markets Code. The updated Code highlights much more prominently the importance and benefits of a diverse team.

PRA authorisations: updates on rule waivers and modifications and CRR and Solvency II permissions

The PRA has updated the following webpages:

In each case, the new paragraph states that the PRA is no longer providing the consolidated list of waivers, CRR and Solvency II permissions it has granted to PRA-authorised firms. Firms wishing to discuss their requirements can contact the PRA via a dedicated email address. Alternatively, firms can look at the FCA Register, which is the primary source of PRA waivers and EU permissions data. The PRA adds that firms are not required to provide details of a precedent direction or written notice when applying for a waiver or modification of PRA rules, or a CRR or Solvency II permission.

UK Investment Firms Prudential Regime: FCA second consultation CP21/7

The FCA has published its second consultation paper, CP21/7, on the Investment Firms Prudential Regime (IFPR). The IFPR is a new prudential regime for UK firms authorised under the Markets in Financial Instruments Directive.

To accompany the consultation, the FCA also published further proposed templates for the new reporting to support the IFPR; the guidance for completing these templates; and proposed forms for applications and notifications. The FCA welcomes feedback on these in addition to feedback on CP21/7.

The deadline for responses to CP21/7 is 28 May 2021. The FCA intends to publish a third consultation paper at the start of Q3 2021 and for its new rules relating to the IFPR to come into force on 1 January 2022.

FCA transformation programme: update to HM Treasury

The FCA has published a letter from Charles Randell, FCA Chair, to John Glen, Economic Secretary to HM Treasury, providing an update on the progress the FCA has made with its transformation programme. The letter is copied to the House of Commons Treasury Committee. Mr Glen notes that the FCA committed in December 2020 to provide this progress report, including in relation to implementing the recommendations made by Dame Elizabeth Gloster and the lessons learnt identified by Raj Parker following their independent reviews into the regulation of LC&F.

The topics covered in the letter include strengthening the FCA operating structure; operational improvements; actions to implement review recommendations; transformation; and recommendations for government.

Mr Randell advises that Nikhil Rathi, FCA Chief Executive, will write to the Treasury Committee with a further update before the FCA’s next accountability hearing on 12 May 2021.

FCA appoints sustainability and technology directors

The FCA has announced the appointment of:

  • Sacha Sadan as Director of Environment Social and Governance. This is a newly created role in which Mr Sadan will develop the FCA’s approach to sustainable finance domestically and internationally;
  • Ian Phoenix as Director of Intelligence and Digital. He will lead the enhancement of the FCA’s intelligence and surveillance capabilities, as well as lead digital work to disrupt harmful online activity; and
  • Ian Alderton as Chief Information Officer.

FCA regulated fees and levies for 2021/22: CP21/8

The FCA has published a consultation paper, CP21/8, on its periodic fees rates for 2021/22 and further FCA fees policy proposals, the Financial Ombudsman Service (FOS) general levy and the Money and Pensions Service, Devolved Authorities and HM Treasury illegal money-lending levies for 2021/22.

CP21/8 closes to responses on 25 May 2021. The FCA intends to publish feedback and the final fees and levy rates in a policy statement in July 2021, subject to FCA Board approval in June 2021.

FCA Business Plan 2021/22 due July 2021

The FCA has announced that it will be publishing its Business Plan for 2021/22 in July 2021, rather than April 2021. The Business Plan will be published alongside the FCA 2020/21 Annual Report and Accounts and will include an update on plans for transforming the FCA.

FOS appoints Interim Chief Executive and Chief Ombudsman

The FOS has announced that it has appointed Nausicaa Delfas as its Interim Chief Executive and Chief Ombudsman. Ms Delfas will join the FOS from the FCA, where she is currently Executive Director of International and Interim Chief Operating Officer. Ms Delfas will take up her FOS role on 17 May 2021 and will be in post while the FOS board carries out an open recruitment process for a permanent Chief Executive and Chief Ombudsman following the departure of Caroline Wayman.

The FOS advises that, until Ms Delfas joins the FOS, Julia Cavanagh, FOS Chief Financial Officer, will be Acting Chief Executive, and Garry Wilkinson, FOS Principal Ombudsman and Director of Investigation, will be Acting Chief Ombudsman.

JMLSG guidance: consultation on revised trade finance section

The Joint Money Laundering Steering Group (JMLSG) is consulting on proposed revisions to Sector 15 (trade finance) in Part II of its anti-money laundering and counter-terrorist financing guidance for the financial services sector. Comments can be made on the proposed revisions until 18 June 2021.

Sustainable finance and taxonomy: European Commission communication and legislation

On 21 April 2021, the European Commission published a communication on EU taxonomy, corporate sustainability reporting, sustainability preferences and fiduciary duties, and directing finance towards the European Green Deal. A Commission webpage gives links to the documents for a package of measures which include:

  • political agreement being reached on the text of a Commission Delegated Regulation supplementing the Taxonomy Regulation relating to climate change mitigation and adaptation (known as the Taxonomy Climate Delegated Act). The legislation contains a set of technical screening criteria that define which activities contribute to environmental objectives contained in the Taxonomy Regulation (climate change adaptation and climate change mitigation). It includes sectors such as energy, forestry, manufacturing, transport and buildings. Decisions on nuclear power and natural gas have been postponed. The Taxonomy Climate Delegated Act will apply from 1 January 2022;
  • a proposal for a Corporate Sustainability Reporting Directive (CSRD), which will amend reporting requirements contained in the Non-Financial Reporting Directive (NFRD). The Directive aims to extend EU sustainability reporting requirements to all large companies and listed companies; and
  • the Commission adopting delegated legislation integrating sustainability issues into the Markets in Financial Instruments Directive, the UCITS Directive, the Alternative Investment Fund Managers Directive, the Solvency II Directive and the Insurance Distribution Directive. These are expected to apply from October 2022.

EU retail investment strategy: European Commission consults on roadmap

The European Commission is consulting on its roadmap on a retail investment strategy for the EU. The strategy will assess the entire retail investor journey. It aims to provide a coherent approach to empower consumers to take financial decisions and benefit from the internal market, and to address the challenge of low capital market participation rates in the EU. Comments can be made on the roadmap until 18 May 2021.

The Commission has also commissioned a study, which involves consumer testing and mystery shopping, looking at disclosures to consumers, inducements and advice and the suitability and appropriateness assessment tests. It will publish the results in autumn 2021 and will represent an important input for the retail investment study.

Following the roadmap, the Commission intends to launch a three-month consultation on the strategy.

Making financial services work for citizens: European Commission speech

The European Commission has published a speech by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability, and Capital Markets Union, in which she considers how to make financial services work for citizens. Points of interest in Ms McGuinness’ speech include:

  • the Commission will be working with the Organisation for Economic Co-operation and Development (OECD) to create a joint EU and OECD financial competence framework to establish a common understanding of what financial literacy means;
  • as services increasingly become digital, it is important to ensure cash remains available and accepted. If necessary, the Commission may decide to take action towards the end of 2021 to protect the availability of cash;
  • the single euro payments area gives consumers and businesses the right to make payments from their account to another bank account regardless of whether these two accounts are in the same member state. However, consumers regularly complain that only domestic International Bank Account Number (IBAN) numbers are accepted by a company (or sometimes a public body) for a credit transfer or direct debit. This is a big issue for the single market and citizens, but also for some FinTech companies because it undermines their business model. The Commission is concerned about this lack of compliance and is stepping up efforts to ensure full enforcement of this rule since IBAN discrimination should not exist; and

in early 2022, the Commission will publish its retail investment strategy, which will be an opportunity to place retail investors at the heart of its policies and assess the entirety of the retail investor journey.

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