Includes developments in relation to: CRD IV; digital finance; cryptoassets; EMIR; antitrust, COVID-19; Brexit; and Solvency II.
Issue 1111 / 27 May 2021
- HM Treasury
- Prudential Regulation Authority
- Financial Conduct Authority
- Financial Ombudsman Service
UK – US Financial Regulatory Working Group – HM Treasury and US Department of the Treasury publish joint statement on the fourth meeting - 24 May 2021
The UK and US Financial Regulatory Working Group held its fourth meeting virtually on 20 May 2021. The Working Group was formed in 2018 to deepen bilateral regulatory cooperation with a view to the further promotion of financial stability, investor protection, fair, orderly and efficient markets, and capital formation in both jurisdictions. The Working Group meeting focused on seven themes:
- international and bilateral cooperation;
- sustainable finance;
- updates on domestic initiatives and priorities;
- benchmark transition;
- cross-border regimes;
- operational resilience; and
- banking and insurance.
The Working Group’s participants will continue to engage bilaterally on these topics, as well as other topics of mutual interest ahead of the next Working Group meeting, which is expected to take place in autumn 2021.
Prudential Regulation Authority
Firm feedback survey 2020 – PRA publishes results - 21 May 2021
The PRA has published the results of the firm feedback survey 2020. The annual firm feedback survey gives PRA-authorised firms the opportunity to comment on their experience of being supervised by the PRA and specifically in relation to:
- the PRA’s understanding of firms and its level of challenge of firms;
- firms’ understanding of the PRA’s regulatory objectives and expectations, and the effectiveness of their relationships with the regulator; and
- the PRA’s co-ordination with other regulators on data requests, and its approach to new technologies.
Feedback provided by firms to the 2020 survey and consequential steps being taken by the PRA include:
- SMCR approvals: firms commented that Senior Managers and Certification Regime (SMCR) approval timescales are, in some cases, too long. The PRA acknowledges this and indicates that the FCA has increased resources to deal with the increase in applications received. The PRA is considering ways that firms can improve the quality of their applications, and is having discussions with larger firms and trade bodies;
- Supervision: firms indicate that they prefer a consistent supervision team, but also recognise that handover quality has improved. Firms consider the quality of the PRA’s feedback to be high, but would also benefit from greater and more timely information;
- Operational resilience: the PRA’s approach to operational resilience has been generally well received, with firms noting the effectiveness of its guidance and the good level of co-ordination between the PRA and the FCA during the joint exercise;
- Data requests: firms commented on the increased demand of the regulator for data during COVID-19. The PRA has taken steps to increase notice periods and reduce the volume of data required where possible, as well as developing the consistency of data needed in times of stress and its own data capability, to reduce the burden on firms; and
- PRA website: the PRA has enhanced the search function on its website and is planning to introduce a ‘mega-menu’ to aid firms’ navigation of the site.
PRA business plan – PRA publishes business plan for 2021/22 - 24 May 2021
The PRA has published its business plan for 2021/22, which sets out its strategy, work plan and budget for the coming year. It also sets out the actions taken to mitigate the impact of COVID-19 on PRA-regulated firms. The PRA’s strategic goals and key workstreams for 2021/22 include the following:
- Robust prudential standards and supervision: this includes having in place robust prudential standards and holding regulated firms accountable in relation to meeting them. In addition, the PRA is supporting the Financial Policy Committee’s commitment to uphold firms’ resilience levels to ensure continuity in the supply of vital financial services. Other key work in this area includes reviewing the Solvency II regime, creating a simpler prudential framework for smaller non-systemic banks and building societies, and supporting LIBOR transition;
- Financial resilience: the PRA continues to focus on ensuring that firms are adequately capitalised and have sufficient liquidity for the risks they are running or planning to take, which includes resuming regular stress testing. Other key work in this area includes engaging with other jurisdictions on banking and insurance, and reviewing firms’ asset quality and management of investment risk while addressing weaknesses through supervisory action and setting expectations;
- Operational resilience: key work in this area is the assessment of firms’ ability to meet operational resilience policy expectations by the deadline of 31 March 2022 and ensuring the PRA’s policy is aligned with the Basel Committee on Banking Supervision’s operational resilience guidance;
- Recovery and resolution: banks and insurers should have credible plans in place to enable them to recover from stress events and firms should work to remove barriers to their resolvability to support the management of failure. The implementation of the Resolvability Assessment Framework and ensuring firms are held accountable for their recovery and resolvability, as well as developing an approach to recovery and resolution planning for insurers, are key areas of work;
- Competition: key work in this area includes active consideration of the proportionality of the PRA’s regulatory approach to ensure effective competition and implementing a tailored approach to the supervision of new non-systemic banks and building societies;
- EU withdrawal: key work in this area includes maintaining a sustainable and resilient UK financial regulatory framework following the UK’s exit from the EU. This includes ensuring the authorisation process for firms supervised under the temporary permissions regime and changes to the approval regime for holding companies and the designation of investment firms. The PRA also intends to work with the government and other regulatory authorities to understand the new regulatory environment and will develop its approach in line with this; and
- Efficiency and effectiveness: key work in this area includes operating efficiently and effectively by ensuring that resources are allocated to best advance the PRA’s strategy and provide an inclusive working environment. The PRA indicates that a strategic review of the regulator will be conducted and it will act on the review’s recommendations. It will also advance its diversity and inclusion agenda, expand the support provided to all areas of the PRA and transform data collection.
The PRA has also included details of its budget for 2021/22. This is set at £297 million, which includes implementation and transaction fees of £9 million and is an increase of £12 million (4%) on the 2020/21 budget.
Cyber risk – PRA publishes speech – 25 May 2021
The PRA has published a speech by PRA Deputy CEO and Bank of England (BoE) Executive Director for Regulatory Operations and Supervisory Risk Specialists, Lyndon Nelson, on cyber risk. In the speech, Mr Nelson considers the role of simulation exercises, penetration testing and international collaboration, and sets out details of the PRA’s future plans relating to cyber risk. Points of interest include:
- the PRA’s testing has demonstrated improvements, but there are still many instances of failures in what is called “cyber hygiene”. Examples of these failures include shortcomings in vulnerability management and information storage, poor configuration of IT infrastructure and poor user account and password management;
- the PRA is working on developing a testing strategy and a framework which will allow it to increase the coverage and frequency of assessments. This is expected to include a more approachable CBEST-style test that applies to a wider range of firms. CBEST is a threat-led penetration testing framework, and is part of the Bank of England and PRA’s toolkit to assess the cyber resilience of firms’ important business services; and
- the composition of cyber-attacks has shifted towards third party and outsourced relationships, and firms should view these as an additional exposure. Moreover, where a third party itself grows market share and a position of dominance, it also becomes a source of systemic vulnerability.
Financial Conduct Authority
COVID-19 – FCA publishes statement on the regulatory treatment of the UK Recovery Loan Scheme - 26 May 2021
The FCA has published a statement on the regulatory treatment of the UK Recovery Loan Scheme (RLS) which was launched as part of the government’s COVID-19 support for UK businesses.
The FCA confirms that most of the lending available as part of the RLS will not be a regulated activity, and therefore most lending applications will be outside the regulatory perimeter. The FCA’s rules will apply as usual to regulated lending under the RLS, in this case regulated asset finance. This includes FCA rules on creditworthiness assessments in CONC 5.2A.
The FCA adds that the relevant requirements under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) will continue to apply and lenders should undertake appropriate anti-money laundering and fraud checks on RLS applications.
Financial Ombudsman Service
Complaints data – FOS publishes data for 2020/21 - 25 May 2021
The Financial Ombudsman Service (FOS) has published its annual complaints data for 2020/21, together with an article analysing the data.
The FOS observes that new complaints received increased by 2% to 278,033. Payment protection insurance (PPI) complaints continue to be the most complained about product, accounting for 15% of complaints, although this figure is down from its peak of 78% in 2013/14. There has been a sharp increase in non-PPI complaints, largely driven by a 66% increase in complaints about banking and credit products. Within the banking and credit category, the data shows that current accounts were the most complained about product, and unaffordable lending was the most complained about issue.
Commenting on the figures published, Nausicaa Delfas, interim Chief Executive and Chief Ombudsman of the Financial Ombudsman Service, said:
“The sharp increase in complaints about issues other than PPI is a reminder that it has rarely been more important for financial businesses to support their customers when things go wrong. As people continue to deal with the impact of Covid-19 on their lives and finances, they know they can come to our service if they’re not happy with how a financial business has treated them.”
Cryptoassets – TheCityUK publishes report - 25 May 2021
The industry body, TheCityUK, has published a report ‘Shaping UK regulation for innovation and global leadership’. The report calls on UK government and regulators to act quickly to capitalise on the opportunities arising from the rapid growth of cryptoassets and the use of Distributed Ledger Technology (DLT) and take a world-leading position in this high-growth, high-potential sector.
The report sets out four key policy recommendations and five important principles for driving innovation and shaping regulation in this space, including that:
- the UK should act quickly to set a global gold standard in cryptoasset and DLT regulation, while recognising that not all uses of DLT need to be regulated;
- the specific features and risks associated with novel technologies and use cases should not be overlooked;
- industry engagement should be maintained, as it is crucial to achieve a proportionate and risk-based approach; and
- legislators and regulators should recognise the transformative potential of stablecoins and Central Bank Digital Currencies (CBDCs).
Miles Celic, Chief Executive Officer, TheCityUK, states in the report that:
“There is a fierce global race underway to see which applications of DLT and cryptoassets will win out, and who will grab the biggest slice of the value they promise. The ultimate winner is for markets to decide, but government and regulators have an important part to play. They must set safe and robust rules for this burgeoning sector – while ensuring they don’t inadvertently squash good ideas before they can mature and flourish.
The UK has a great track record in supporting innovation with regulation. Its regulatory FinTech sandboxes, for example, have been copied around the world. Now we need to show similar vision and nimbleness in our regulatory approach to cryptoassets.”
The report concludes that the optimum regulatory framework will take account of cryptoassets’ unique characteristics, features and use cases. The framework should be adaptable, flexible, tailored to specific emerging risks and clearly defined to serve both consumers and industry.
Issue 1111 / 27 May 2021
- Prudential Regulation Authority
Prudential Regulation Authority
Responsible openness in the insurance sector – PRA publishes speech by PRA Executive Director - 25 May 2021
The PRA has published a speech by PRA Executive Director, Anna Sweeney, on responsible openness in the insurance sector. The speech covers how the PRA aims to regulate insurance services following the UK’s departure from the EU, facilitating competition, and the UK’s role in setting international standards on issues such as climate change. Points of interest include:
- the PRA is remaining open to all insurers seeking to operate in the UK, and will assess applications against a clear and consistent set of criteria. This includes hosting business on a cross-border basis both from the EU and more broadly, provided that the PRA is satisfied that the level of ‘supervisability’ of the EU branch and its parent entity is commensurate to the level of potential risk it poses to the PRA’s statutory objectives;
- the PRA observes that branch hosting provides a relatively low cost, low impact route for overseas insurers seeking to operate in the UK;
- the PRA is aiming to rationalise the requirements branches are subject to, including considering the removal of branch capital requirements as part of the UK Solvency II Directive (2009/138/EC) review, while ensuring that insurance branches are not held to lower standards than insurers based in the UK; and
- the PRA is considering ways in which the process of obtaining authorisation for new insurers can be made more efficient while still ensuring prudential standards, observing that an unnecessarily prolonged application process can itself be a barrier to attracting new entrants to the UK market.
Banking and Finance
Issue 1111 / 27 May 2021
- International Organization of Securities Commissions
- European Commission
- European Parliament
- European Banking Authority
- Mapping climate exposures to risk – EBA publishes results of EU-wide pilot exercise- 21 May 2021
- CRR – EBA publishes final report and draft regulatory technical standards on own funds and eligible liabilities- 26 May 2021
- BRRD – EBA publishes report on application of the early intervention framework- 27 May 2021
- CRD IV – EBA publishes consultation paper on co-operation and information exchange- 27 May 2021
- European Central Bank
- European Securities and Markets Authority
- Single Resolution Board
- Prudential Regulation Authority
- Financial Conduct Authority
- Payment Systems Regulator
- Network for Greening the Financial System
- Recent Cases
International Organization of Securities Commissions
Conduct risks in leveraged loans and collateralised loan obligations – IOSCO launches surveys - 24 May 2021
The International Organization of Securities Commissions (IOSCO) has published four surveys for market participants on conduct risks in leveraged loans and collateralised loan obligations (CLOs). The surveys are for bank lenders, CLO investors, CLO managers, and leveraged loan sponsors.
The surveys seek to identify where potential conflicts of interest and conduct issues may exist and how they are managed by market participants. They form part of the work being carried out by relevant IOSCO committees to understand the potential conflicts of interest and misaligned incentives in the leveraged loan and CLO markets across the chain of intermediation, from credit origination to the sale to investors. IOSCO intends to consider the survey responses when formulating any report on leveraged loans and CLOs.
The deadline for completion of the surveys is 30 June 2021.
European Financial Integration and Stability – Commissioner McGuinness delivers speech at annual joint EC and ECB conference - 27 May 2021
Commissioner Mairead McGuinness has delivered a keynote speech at the annual joint European Commission and European Central Bank conference on the topic of European Financial Integration and Stability.
Commission McGuinness covered five key topics, namely:
- the impact of COVID-19 and the resulting risks to financial stability;
- the Capital Markets Union;
- supervisory convergence;
- digitalisation; and
McGuinness highlighted that, while it is clear that the economic consequences of the pandemic will occupy us for the near future, it is also important to address the question “what’s next?”, in particular, the impact of climate change on financial stability.
Regulation on cross-border payments – European Parliament’s Legal Affairs Committee publishes draft report on legislative proposal - 26 May 2021
The European Parliament’s Legal Affairs Committee (JURI) has published a draft report on the European Commission’s legislative proposal for a Regulation on cross-border payments in the Union, codifying and replacing the existing Regulation on cross-border payments (924/2009) (2020/0145(COD)).
The draft report contains a draft European Parliament legislative resolution, which notes that the proposed Regulation contains a straightforward codification of the existing texts without any change in their substance. The Parliament therefore adopts its position at first reading and instructs its President to forward its position to the Council, the Commission and the national parliaments.
The next step is for the draft report to be adopted. It is due to be considered in plenary on 23 June 2021.
European Banking Authority
Mapping climate exposures to risk – EBA publishes results of EU-wide pilot exercise – 21 May 2021
The European Banking Authority (EBA) has published the results of its first EU-wide pilot exercise on climate risk. The main objective of the exercise is to map banks’ exposures to climate risk and provide insight into the green estimation that banks have carried out so far.
CRR – EBA publishes final report and draft regulatory technical standards on own funds and eligible liabilities – 26 May 2021
The European Banking Authority (EBA) has published its final report (EBA/RTS/2021/05) on revisions to Commission Delegated Regulation (EU) 241/2014, which contains regulatory technical standards (RTS) on own funds and eligible liabilities, supplementing the Capital Requirements Regulation (575/2013/EU) (CRR). These revisions reflect new mandates introduced by the CRR II Regulation ((EU) 2019/876).
The draft RTS align existing provisions to changes introduced in the revised CRR in the area of own funds, in particular for provisions relating to the regime of supervisory prior permission for the reduction of own funds. In addition, the draft RTS specify some of the newly introduced criteria for eligible liabilities instruments derived from the own funds regime. These include the absence of direct or indirect funding for the acquisition of ownership of eligible liabilities, the absence of incentives to redeem and the need for the resolution authority’s prior permission for the reduction of eligible liabilities. The EBA is explicitly required to ensure full alignment between eligible liabilities and own funds for some of these aspects.
The EBA consulted on the draft RTS in May 2020. In light of feedback received, the calibration of the threshold for determining the predetermined amount for the general prior permission for reducing eligible liabilities instruments was increased from 3% to 10% of the total amount of outstanding eligible liabilities instruments. In addition, the final draft RTS have been revised to recognise some relief for the renewal of general prior permission both for own funds and eligible liabilities, and for introducing a proportionate approach for liquidation entities for which their minimum requirement for own funds and eligible liabilities (MREL) does not exceed the loss absorption amount.
The EBA aims to submit the final draft RTS to the European Commission for adoption and the RTS will enter into force on the day following its publication in the Official Journal of the European Union.
Report: Draft Regulatory Technical Standards on own funds and eligible liabilities amending Delegated Regulation (EU) 241/2014 supplement the Capital Requirements Regulation (575/2013/EU) with regard to regulatory technical standards for Own Funds requirements for institutions (EBA/RTS/2021/05)
BRRD – EBA publishes report on application of the early intervention framework - 27 May 2021
The European Banking Authority (EBA) has published a report (EBA/REP/2021/12) on the application of the early intervention framework under Articles 27-29 of the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD). The BRRD introduced early intervention measures (EIMs) to expand the existing set of powers available to supervisors when institutions are experiencing difficulties. The EBA monitored the application of EIMs in 2015-2018 and observed their limited use across the EU. It found that instead of resorting to EIMs, competent authorities often preferred to apply other pre-BRRD supervisory powers available to them. The EBA investigated the reasons for these supervisory practices and published a discussion paper in June 2020.
The first part of the report sets out the results of the survey on the application of the EIMs that the EBA conducted among competent authorities in 2019. The second part of the report focuses on key challenges faced by supervisors in the application of the current regulatory framework on the EIMs and various options for addressing them.
The EBA observed supervisory consensus on the need to eliminate existing overlaps between EIMs and other supervisory powers, as well as to remove the formal sequencing of EIMs specified in Articles 27-29 of the BRRD. In addition, the EBA observed that competent authorities supported the importance of amending Article 27(1) of the BRRD, which includes an example of a quantitative early intervention trigger. For early intervention triggers specified in regulatory technical standards, for example, based on supervisory review and examination process scores or monitoring of key risk indicators, the EBA intends to conduct further work and amend its current guidelines on the early intervention triggers when finalising its ongoing review of the BRRD.
CRD IV – EBA publishes consultation paper on co-operation and information exchange - 27 May 2021
The European Banking Authority (EBA) has published a consultation paper (EBA/CP/2021/21) on draft guidelines on co-operation and information exchange between prudential supervisors, anti-money laundering (AML)/countering financing of terrorism (CFT) supervisors and financial intelligence units (FIUs) under the Capital Requirements Directive (2013/36/EU) (CRD IV), as amended by the CRD V Directive ((EU) 2019/878).
Under Article 117(6) CRD IV, as amended by the CRD V Directive, prudential supervisors, AML/CFT supervisors and FIUs must co-operate closely within their respective competences and provide each other with relevant information for their respective tasks. The draft guidelines put the practical modalities of co-operation and information exchange in place, both at member state level and across the EU’s single market. They aim to facilitate and support the co-operation and information exchange throughout the supervisory life cycle covering authorisations of new institutions, ongoing supervision (including risk assessment), and, where relevant, the imposition of supervisory measures and sanctions (including the withdrawal of authorisation). The guidelines also help authorities exchange information in a more effective way and bring clarity on which information to exchange, with whom and at what stage.
The consultation closes on 27 August 2021. Following this, the EBA intends to consider the responses and finalise the guidelines.
Consultation paper: Draft Guidelines on cooperation and information exchange between prudential supervisors, AML/CFT supervisors and financial intelligence units under the Capital Requirements Directive (2013/36/EU) (EBA/CP/2021/21)
European Central Bank
SupTech – ECB publishes speech on the importance of supervisory technology – 27 May 2021
The European Central Bank (ECB) has published a speech by ECB Supervisory Board Member, Pentti Hakkarainen, on the importance of using supervisory technology (SupTech). In the speech Mr Hakkarainen notes that COVID-19 has underlined the need for banks to embrace fully the latest technology and digitalisation, and for banking supervisors to adapt. In addition, ECB Banking Supervision aims to be a ‘SupTech pioneer’ and is in the process of becoming a digital innovation house, with over 100 SupTech tools under development.
In particular, it was noted that frontline supervisors need impactful tools that use state-of-the-art technology. The ECB is developing tools and solutions in various areas, with a particular focus on tools that use natural language processing techniques, for example, to analyse bank documents and flag irregularities. Another key area of focus is advanced analytics and applications to help get the most from large quantities of data. The ECB has simplified the way it interacts with banks by introducing the IMAS portal, a digital gateway through which banks submit documents and communicate directly with the ECB.
Lastly, the ECB is developing a Virtual Lab to provide a unified suite of collaboration and communication tools available to all users across European banking supervision – it is due to go live later in 2021.
European Securities and Markets Authority
Digital finance – ESMA publishes call for evidence – 25 May 2021
The European Securities and Markets Authority (ESMA) has published a call for evidence on digital finance, following the European Commission’s publication of the digital finance package in September 2020. ESMA intends to use the information received when drafting its response to the Commission, due by 31 January 2022.
The call for evidence is relevant to financial firms who rely on third parties to fulfil important functions, including technology firms, digital platforms and mixed activity groups. ESMA is requesting information on the following areas:
- more fragmented or non-integrated value chains, arising as a result of financial firms increasingly relying on third parties for the delivery of their services and of technology companies entering financial services. ESMA has a particular interest on the extent to which this introduces new risks and creates regulatory and supervisory challenges;
- digital platforms and bundling of financial services – ESMA notes that a more holistic approach to the regulation of platforms may be relevant; and
- mixed activity groups providing both financial and non-financial services. ESMA aims to collect evidence on whether large technology groups should be specifically supervised, how interdependencies within groups can be identified and addressed and how supervisory co-operation could be improved for these groups.
The call for evidence closes on 1 August 2021.
Single Resolution Board
MREL – Single Resolution Board updates minimum requirement for own funds and eligible liabilities policy - 26 May 2021
The Single Resolution Board (SRB) has published an updated version of its policy for the minimum requirement for own funds and eligible liabilities (MREL) under the EU banking package (that is the Bank Recovery and Resolution Directive ((EU) 2019/879) (BRRD II), the Capital Requirements Regulation ((EU) 2019/876) (CRR II) and the Regulation on the Single Resolution Mechanism ((EU) 2019/877) (SRM II)). The updated policy introduces a number of new elements and refinements, based on the changes made under the EU banking package.
In particular, the updated policy introduces:
- the MREL maximum distributable amount, which allows the SRB to restrict banks’ earnings distribution in the event of MREL breaches;
- policy criteria to identify systemic subsidiaries for which granting an internal MREL waiver would raise financial stability concerns, based on the absolute asset size and relative contribution to the resolution group; and
- the approach to MREL-eligibility of UK instruments without bail-in clauses.
The updated policy also refines:
- the methodology to estimate the Pillar 2 requirements post-resolution (one of the components used for MREL calibration);
- the MREL calibration on preferred versus variant resolution strategy, confirming that the SRB computes MREL in line with the preferred strategy; and
- the MREL calibration methodology for liquidation entities, under which the SRB clarifies that the loss absorption amount may increase beyond the default adjustment in proportion to financial stability concerns.
The SRB notes that MREL is one of the key tools in resolvability, ensuring banks maintain a minimum amount of equity and debt to support an effective resolution.
Prudential Regulation Authority
CRD IV – Material risk takers – PRA publishes statement – 25 May 2021
The PRA has published a statement on updating requirements on the identification of “material risk takers” and its position concerning applications for exclusion of material risk takers in the current performance year.
There is a discrepancy between Commission Delegated Regulation (EU) 604/2014, which supplements the Capital Requirements Directive (2013/36/EU) (CRD IV) and contains regulatory technical standards (RTS) on the criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile, and a revised draft of the material risk takers RTS.
The PRA confirms that the RTS continue to apply and are binding in their entirety (together with technical changes made as part of the onshoring process). Firms must also apply the revised draft material risk takers RTS when determining the individuals to which the requirements of the Remuneration Part of the PRA Rulebook apply. In general, the application of the revised draft material risk takers RTS will result in the identification of a broader scope of individuals.
The PRA also confirms that in cases where the RTS require firms to identify individuals who do not meet any of the criteria under the revised draft material risk taker RTS, firms need not apply the requirements of the Remuneration Part of the PRA Rulebook solely on the basis that individuals meet the criteria of the RTS, provided the firm does not consider that the professional activities of these individuals have a material impact on the firm’s risk profile. The revised draft material risk taker RTS are a minimum standard and firms need to assess whether an individual’s professional activities have a material impact on the firm’s risk profile, even if they do not fall within any of the mandatory criteria.
The PRA indicates that firms with a fiscal year end of 31 December may require additional time to submit remuneration policy statement tables. For the 2021/22 remuneration round, firms are permitted to submit these by 30 September 2021.
The PRA plans to publish a consultation later in 2021. It is also reviewing the templates that firms can use to communicate material risk taker information to the regulator and amended templates will start to be published in summer 2021. The PRA also aims to provide more information on how firms can apply to it for a waiver if they wish to exclude a material risk taker.
Financial Conduct Authority
Consumer credit – FCA updates consumer information sheets – 24 May 2021
The FCA has updated its consumer credit webpage to include the publication of updated consumer information sheets in relation to arrears (both generally and in relation to peer-to-peer loans), defaults and high-cost short-term loans (both generally and those provided by peer-to-peer lenders).
Under section 86A of the Consumer Credit Act 1974, lenders are required to include a copy of the relevant information sheet when notifying a consumer that they are in arrears or default. Firms must use the new versions of the information sheets from 25 October 2021, in line with the requirement in section 86A(7) that new versions take effect three months after publication. In the meantime, current versions must be used.
Schemes of Arrangement – FCA publishes statement following High Court decision on Amigo Scheme of Arrangement - 25 May 2021
The FCA has published a statement in response to the High Court’s decision refusing to sanction the Scheme of Arrangement proposed by the Amigo Loans Group (the Group), previously reported in this Bulletin.
The Scheme was intended to manage claims in relation to unaffordable loans issued by the Group between 2005 and 2020. The FCA wrote to the Group in March 20201 indicating it did not support the proposed Scheme and set out its key concerns, including that borrowers with a valid redress claim stood to receive significantly less than the value of their claims.
The FCA indicates in its statement that it is carefully considering the court’s judgment and the Group’s response. It considers that Amigo can propose a fairer Scheme to customers, while also ensuring that they are fairly represented and receive advice on any alternative proposals.
The FCA also reminds firms that they must maintain adequate financial resources, which must take into account the need to pay redress liabilities. They should regularly assess the adequacy of these resources and inform the FCA immediately if they assess they are, or will be, in financial difficulty. The FCA refers firms to its finalised guidance FG20/1 on assessing adequate financial resources.
The statement also includes some brief Q&A on the Amigo Scheme and borrowers’ continuing rights to seek compensation from the Group or complain to the Financial Ombudsman Service.
See ’Re ALL Scheme Ltd  EWHC 1401 (Ch)’ below on the High Court’s decision refusing to sanction the Scheme of Arrangement.
Payment Systems Regulator
APP scams – Confirmation of Payee – PSR publishes consultation paper - 21 May 2021
The Payment Systems Regulator (PSR) has published a consultation paper (CP21/6) which contains a call for views on the second phase of delivering Confirmation of Payee (CoP). CoP is a name-checking service designed to prevent Authorised Push Payment (APP) scams and misdirected payments, and is already offered by the UK’s six largest banking groups.
CP21/6 outlines the PSR’s findings on the impact of Phase 1 of CoP and the feedback received on the upcoming rollout of Phase 2. Phase 1 required, by PSR Specific Direction 10, the UK’s six largest banking groups to introduce CoP for Faster Payments and CHAPS transactions by 30 June 2020.
Phase 2 will enable more Payment Service Providers (PSPs) to join CoP and the call for views requests stakeholders to provide:
- their views on the impact and progress of CoP so far;
- their views on the progress, dependencies and expected costs and benefits of Phase 2;
- feedback on whether certain types of accounts using secondary reference data to direct payments to their customers, such as accounts in building societies and credit card accounts, should be excluded from the scope of Phase 2 and whether alternative solutions are more appropriate to secure the benefit of CoP; and
- their views on how CoP messaging works and how it could be enhanced.
The consultation paper also sets out potential policy options to enhance the service and deliver increased implementation across a greater number of PSPs.
The consultation closes on 30 June 2021. The PSR intends to consult on next steps in July or August 2021 and to publish a policy statement with directions, if appropriate, in September or October 2021.
Network for Greening the Financial System
Climate-related data gaps – The Network for Greening the Financial System publishes a progress report with preliminary findings - 26 May 2021
The Network for Greening the Financial System (NGFS) has published a progress report on bridging climate-related data gaps. In the report, the NGFS notes that reliable and comparable climate-related data is crucial for financial sector stakeholders to assess financial stability risks, properly place and manage climate-related risks and take advantage of the opportunities arising from the transition to a low-carbon economy. However, persistent gaps in climate-related data impede the achievement of these objectives.
The report sets out the issues that need to be considered going forward and lays the foundation for a comprehensive assessment of climate-related data needs and gaps. One of the key points made in the report is that a mix of policy interventions is required to catalyse progress towards better data, based on the following “building blocks”: rapid convergence towards a common and consistent set of global disclosure standards; efforts towards a minimally accepted global taxonomy and the development and transparent use of well-defined and decision-useful metrics; and certification labels and methodological standards.
The NGFS intends to continue its evidence-based identification of the most prevalent data gaps, including by further engaging with other stakeholders, such as non-financial corporates, data providers and ratings agencies, and issuing recommendations on how to bridge them. The report forms part of the first phase of the work programme of the NGFS workstream on bridging the data gaps, initially established in July 2020.
Re ALL Scheme Ltd  EWHC 1401 (Ch)
Scheme of arrangement under Part 26 Companies Act 2006 – scheme of arrangement compatibility with FCA rules – Amigo Loans Group
The High Court has refused to sanction the scheme of arrangement proposed by Amigo Loans Group. Mr Justice Miles stated that he was “not satisfied that the court should sanction the scheme”. He explained that some form of restructuring of the group is “clearly desirable and indeed needed” but accepted the FCA’s submission that refusing to sanction the scheme “will probably not lead to the imminent insolvency” of the Amigo Loans Group.
Mr Justice Miles accepted the FCA’s view that the redress creditors lacked the necessary information or experience to enable them properly to appreciate the alternative options reasonably available to them.
The FCA issued a statement and published a letter of concerns in relation to the Scheme, and has published a statement in response to the court’s rejection, as reported in this Bulletin.
Securities and Markets
Issue 1111 / 27 May 2021
- European Securities and Markets Authority
- Commission Delegated Regulation (EU) 2021/822 as regards the annual supervisory fees charged by the European Securities and Markets Authority to trade repositories published in the Official Journal- 25 May 2021
- SFTR – ESMA publishes final report and guidelines on the calculation positions by trade repositories- 25 May 2021
- Commodity derivatives – ESMA publishes consultation paper on draft technical standards- 26 May 2021
- Functioning of the European Supervisory Authorities – ESMA publishes response to European Commission consultation- 26 May 2021
- Disclosure Requirements for Initial Reviews and Preliminary Ratings – ESMA publishes consultation paper- 26 May 2021
- CSDR Review – ESMA publishes proposals-26 May 2021
- Securitisation Regulation – ESMA publishes consultation paper on synthetic securitisations regulatory technical standards- 27 May 2021
- Bank of England
European Securities and Markets Authority
Commission Delegated Regulation (EU) 2021/822 as regards the annual supervisory fees charged by the European Securities and Markets Authority to trade repositories published in the Official Journal - 25 May 2021
Commission Delegated Regulation (EU) 2021/822, amending Delegated Regulations (EU) 1003/2013 and (EU) 2019/360 in relation to the annual supervisory fees charged by the European Securities and Markets Authority (ESMA) to trade repositories for 2021, has been published in the Official Journal of the European Union.
Delegated Regulations (EU) 1003/2013 and (EU) 2019/360 set out the methodology for the payment of fees to ESMA by trade repositories for the purposes of Article 72(3) of the European Market Infrastructure Regulation (648/2012/EU) (EMIR) and Article 11(2) of the Securities Financing Transactions Regulation ((EU) 2015/2365) (SFTR) respectively.
The amendments reflect the effect of two UK trade repositories transferring part of their services and activities to the EU to be able to continue providing services to EU counterparties. As the new EU trade repositories effectively started their EU activity in January 2021, their 2020 EU activity was minimal and their 2021 annual supervisory fee would be small, albeit their 2021 EU activities are likely to be significant. The Delegated Regulation changes the reference period for the calculation of the application turnover of trade repositories from 2020 to January-June 2021. This ensures that the annual supervisory fees for 2021 for these trade repositories will be calculated on the basis of their applicable turnover during the first half of 2021.
The Delegated Regulation was adopted on 24 March 2021 and enters into force on 26 May 2021.
Commission Delegated Regulation (EU) 2021/822 amending Delegated Regulations (EU) 1003/2013 and (EU) 2019/360 as regards the annual supervisory fees charged by the European Securities and Markets Authority to trade repositories for 2021
SFTR – ESMA publishes final report and guidelines on the calculation positions by trade repositories – 25 May 2021
The European Securities and Markets Authority (ESMA) has published its final report and guidelines (ESMA74-362-1986) on the calculation of positions by trade repositories under the Securities Financing Transactions Regulation ((EU) 2015/2365) (SFTR). The purpose of the guidelines is to ensure that a uniform methodology is used under the European Market Infrastructure Regulation (648/2012/EU) (EMIR) and the SFTR, while taking into account the specificities of securities financing transactions reporting. The guidelines clarify how to comply with:
- Article 12(2) of the SFTR, which requires trade repositories to collect and maintain details of securities financing transactions;
- Article 80(4) of EMIR, as referred to in 5(2) of SFTR, which sets out a general requirement for trade repositories to calculate positions; and
- Article 5 of regulatory technical standards on data aggregation, which requires trade repositories to calculate positions in securities financing transactions in a harmonised and consistent manner.
High-quality position data is necessary for the assessment of systemic risks to financial stability by the relevant authorities.
The guidelines will apply from 31 January 2022.
Commodity derivatives – ESMA publishes consultation paper on draft technical standards - 26 May 2021
The European Securities and Markets Authority (ESMA) has published a consultation paper (ESMA70-156-4067) on draft technical standards for commodity derivatives. The consultation paper seeks stakeholders’ views on the regulatory technical standards that ESMA is required to develop under the Markets in Financial Instruments Amending Directive ((EU) 2021/338) (MiFID II Amending Directive) and forms part of the post-COVID-19 MiFID II recovery package.
The MiFID II Amending Directive introduces significant changes to the MiFID II commodity framework, including to the position limit regime. ESMA’s proposals relating to the application of position limits to commodity derivatives focus on:
- developing procedures for financial entities undertaking hedging activities and for liquidity providers to apply for an exemption from position limits; and
- suggesting other technical adjustments to improve the application of the position limit regime in practice.
The consultation paper also contains ESMA’s proposals for technical standards on position management controls. The consultation closes on 23 July 2021, following which ESMA intends to consider the responses received, finalise the draft technical standards and submit a final report to the European Commission by November 2021.
Functioning of the European Supervisory Authorities – ESMA publishes response to European Commission consultation - 26 May 2021
The European Securities and Markets Authority (ESMA) has published its response to the European Commission’s targeted consultation on the functioning of the European Supervisory Authorities (that is ESMA, the European Banking Authority and the European Insurance and Occupational Pensions Authority).
The response reflects the views of the Board of Supervisors on existing issues and limitations that could be addressed in the Regulation establishing ESMA (1095/2010) and other relevant EU financial services legislation. The recommendations focus on:
- reinforcing ESMA’s approach to supervisory convergence;
- considering the merits of EU level direct supervision;
- building ESMA’s data capabilities;
- ensuring the single rulebook remains fit for purpose; and
- alleviating funding issues.
ESMA notes that the recommendations put forward aim to support the objectives of the Capital Markets Union and further promote and facilitate supervisory convergence across EU Member States.
Disclosure Requirements for Initial Reviews and Preliminary Ratings – ESMA publishes consultation paper – 26 May 2021
The European Securities and Markets Authority (ESMA) has published a consultation paper (ESMA33-9-413) on guidelines on disclosure requirements for initial reviews and preliminary ratings under the Credit Rating Agencies Regulation ((EU) 1060/2009) (CRA Regulation). The CRA Regulation includes a number of provisions that are designed to provide greater clarity to market participants as to whether entities or debt instruments have been subject to an initial review or a preliminary rating by credit rating agencies (CRAs) before receiving a credit rating. The objective of these provisions is to mitigate against the effects of ratings shopping through greater transparency.
ESMA has engaged with CRAs over a number of years to assess current market practices around initial reviews and preliminary ratings, with the aim of identifying possible inconsistences in CRAs’ practices and defining necessary steps to address these inconsistencies.
The purpose of this consultation paper is to propose guidance that will address inconsistencies in the interpretation of these provisions. ESMA seeks feedback on the following proposals that aim to clarify:
- how the term ‘initial review and preliminary rating’ should be understood for the purposes of the CRA Regulation’s public disclosure requirements;
- the content and timing of CRAs’ public disclosures for interactions that meet the standard of ‘initial review and preliminary rating’; and
- the steps to ensure that public disclosures are more accessible for investors and the market.
The consultation closes on 4 August 2021. ESMA is seeking feedback from debt issuers and users of credit ratings, as well as CRAs. ESMA intends to consider the responses it receives in Q3 2021 and publish a final report by the end of Q4 2021. The draft guidelines are stated to apply from 1 July 2022.
CSDR Review – ESMA publishes proposals - 26 May 2021
The European Securities and Markets Authority (ESMA) has published a letter to Commissioner McGuinness on its proposals regarding the European Commission’s current review of the Central Securities Depositories Regulation (909/2014) (CSDR). The review seeks to assess how EU rules on central securities depositories (CSDs) are working, especially how CSDs are able to operate in different countries across the EU, how requests to use their services are handled, and whether there are other substantive barriers to competition in this sector that need to be addressed.
In the letter, ESMA expressed its views on a number of key points that it believes should be addressed in this review, namely:
- the status of TARGET2-Securities (T2S);
- the arrangement for the supervision/oversight of T2S;
- the third-country CSD (TC-CSD) recognition regime; and
- the frequency of ESMA reports to the European Commission on CSDR implementation.
ESMA notes that in the coming months it will provide further input through the publication of two more reports on banking-type ancillary services, and on the use of technological innovation by CSDs.
Securitisation Regulation – ESMA publishes consultation paper on synthetic securitisations regulatory technical standards - 27 May 2021
The European Securities and Markets Authority (ESMA) has published a consultation paper on draft regulatory technical standards (RTS) implementing the amended Securitisation Regulation ((EU) 2021/557). The amended Regulation requires that certain securitisations meeting pre-defined simple, transparency and standardised (STS) requirements, must be reported using standardised templates for STS notification published on ESMA’s website.
The consultation paper sets out ESMA’s proposed draft RTS and implementing technical standards (ITS) specifying the content and format of the standardised templates for STS notification of on-balance sheet (synthetic) securitisations. It builds on the existing technical standards for STS notification of traditional securitisations, while taking into account specific features of synthetic securitisations. It also includes targeted technical amendments to the STS notification templates for traditional securitisations.
The consultation closes on 20 August 2021. ESMA is seeking feedback from originators, sponsors and institutional investors in securitisation. The draft RTS and ITS are expected to be submitted to the European Commission for endorsement by 10 October 2021.
Bank of England
UK EMIR – Bank of England publishes consultation paper on modifications to scope of contracts subject to the derivatives clearing obligation to reflect interest rate benchmark reform - 20 May 2021
The Bank of England (BoE) have published a consultation paper setting out its proposals to modify the scope of contracts that are subject to the derivatives clearing obligation under the retained EU law version of the European Market Infrastructure Regulation (648/2012/EU) (UK EMIR) to reflect the ongoing reforms to interest rate benchmarks.
The classes of OTC derivatives contracts that are mandated to be cleared in the UK comprise certain standardised interest rate derivative and credit default swap (CDS) contracts. Given the anticipated changes in market activity resulting from interest rate benchmark reform, the BoE intends to remove contracts that reference benchmarks being discontinued and replace them with overnight index swaps, with the same range of maturities, that reference the replacement near risk-free reference rate benchmarks selected for each currency.
The BoE’s proposed changes are limited to those relating to benchmarks currently within the scope of the clearing obligation that are due to be discontinued by January 2022. The BoE proposes to remove contracts referencing EONIA (to be replaced with contracts referencing €STR); GBP LIBOR (to be replaced with contracts referencing SONIA); and JPY LIBOR. The BoE’s proposals do not relate to the transition from USD LIBOR as publication of the most widely used USD settings will cease in June 2023.
The dates on which each of the modifications to the clearing obligation come into force will coincide with key dates associated with the broader transition of LIBOR to alternative risk-free reference rates. The BoE’s proposals will result in changes to the onshored version of Commission Delegated Regulation (EU) 2015/2205 supplementing EMIR in relation to regulatory technical standards on the clearing obligation.
The consultation closes on 14 July 2021. The BoE then intends to publish the final version of the technical standards instrument in autumn 2021, having considered consultation responses and subject to HM Treasury’s approval. The BoE also intends to keep the scope of the derivatives clearing obligation under review, including by monitoring developments in relation to the transition of JPY and USD interest rate derivatives.
Issue 1111 / 27 May 2021
- European Securities and Markets Authority
European Securities and Markets Authority
Funds’ marketing communications – ESMA publishes final report and guidelines - 27 May 2021
The European Securities and Markets Authority (ESMA) has published its final report (ESMA34-45-1244) on guidelines for funds’ marketing communications under Article 4 of the Regulation on cross-border distribution of collective investment undertakings ((EU) 2019/1156).
The aim of the guidelines is to specify the requirements for marketing communications sent to investors to promote undertakings for the collective investments in transferable securities (UCITS) and alternative investment funds (AIFs), including European social entrepreneurship funds (EuSEFs), European venture capital funds (EuVECAs) and European long-term investment funds (ELTIFs).
The guidelines note that among other things, marketing communications must be identifiable as such and contain clear, fair and not misleading information, taking into account the online aspects of marketing communications.
The final guidelines are set out in Annex IV of the report and will be translated and published on ESMA’s website. They will apply six months after the date of the publication of the translations.
Issue 1111 / 27 May 2021
- International Association of Insurance Supervisors
- European Insurance and Occupational Pensions Authority
- Pensions Dashboard Programme
International Association of Insurance Supervisors
Supervision of climate-related risks – IAIS publishes application paper - 25 May 2021
The International Association of Insurance Supervisors (IAIS) has published an application paper on the supervision of climate-related risks in the insurance sector. The paper aims to support supervisors in their work to integrate climate risk considerations into the supervision of the insurance sector, and sets out recommendations and examples of good practice which are consistent with the IAIS Insurance Core Principles (ICPs). Among other things, the recommendations cover:
- the role of supervisors: supervisors should assess the relevance of climate-related risks to their supervisory objectives and should collect quantitative and qualitative information on the insurance sector’s exposure to, and management of, physical transition and liability risks of climate change;
- corporate governance and risk management: when addressing climate-related risks it is expected that insurers integrate these risks into their overall corporate governance framework. For example, the control functions (including the risk management and actuarial functions) should properly consider climate-related risks and have appropriate resources and expertise to manage them;
- investment policy: insurers should assess the impact of physical and transition risks on their investment portfolio; and
- disclosures: material risks associated with climate change should be disclosed by insurers in line with ICP 20 (Public Disclosure). Supervisors may use the Financial Stability Board’s Task Force on Climate-related Financial Disclosures framework when designing best practices or as input for setting their own supervisory objectives.
European Insurance and Occupational Pensions Authority
New chairperson of EIOPA – Council of the EU adopts decision - 27 May 2021
The Council of the EU has announced that it has adopted a decision to appoint Petra Hielkema as the new chairperson of the European Insurance and Occupational Pensions Authority (EIOPA). The Council adopted this decision based on the shortlist of candidates drawn up by EIOPA’s board of supervisors and following confirmation by the European Parliament.
Ms Hielkema will take up her new role on 1 September 2021 for a period of five years, renewable once. She is currently Director for Insurance Supervision at De Nederlandsche Bank (the Dutch national central bank).
Pensions Dashboard Programme
New statutory pension dashboard requirements – Pensions Dashboard Programme publishes call for input - 27 May 2021
The Pensions Dashboards Programme (PDP) has published a call for input on its proposals for the staging timetable under which pension schemes and providers will be obliged to meet the new statutory requirements concerning pensions dashboards enacted in the Pension Schemes Act 2021.
The PDP recommends that staging should happen in three waves, starting with schemes with 1,000 or more members, before moving onto schemes with fewer members over two more waves. The key wave will be the first, which the PDP estimates will cover 99% of memberships overall. It recommends that this wave should run for up to two years and be divided into three cohorts:
- Cohort one: authorised master trusts and FCA-regulated providers of personal pensions (starting spring 2023);
- Cohort two: defined contribution schemes used for automatic enrolment, ordered largest to smallest (during 2023); and
- Cohort three: all remaining occupational schemes with over 1,000 members (largest to smallest), with the largest defined benefit schemes staging during 2023.
Among other things, the call for input also suggests that early staging of pension providers into the dashboard ecosystem on a voluntary basis would be helpful, particularly for enabling extensive user testing before dashboards become available for public use. The PDP notes that dashboards will not be launched to the public at the point that the staging process starts.
Recognising that the final staging timetable will be set out in Department for Work and Pensions regulations and FCA rules, the PDP indicates that respondents’ feedback to its recommendations will nonetheless inform policy development. The call for input closes on 9 July 2021.
Issue 1111 / 27 May 2021
- UK Parliament
The Covert Human Intelligence Sources (Criminal Conduct) Act 2021 (Commencement and Transitional Provisions) Regulations 2021 - 21 May 2021
These Regulations, made on 19 May 2021, bring into force the Covert Human Intelligence Sources (Criminal Conduct) Act 2021 (the Act) relating to the authorisation of criminal conduct by or in relation to a covert human intelligence source.
The Act amends Part 2 of the Regulation of Investigatory Powers Act 2000 (RIPA) to provide a statutory power for the intelligence services, law enforcement and certain other specified public authorities, including the FCA and the Competition and Markets Authority (CMA), to authorise criminal conduct by or in relation to a covert human intelligence source. A criminal conduct authorisation may only be granted if it is believed that the authorisation is necessary on certain specified grounds and the authorised conduct is proportionate to what is sought to be achieved.
The Regulations bring in the relevant provisions of the Act for: (i) intelligence services, on 10 August 2021; (ii) police forces, on 15 September 2021; and (iii) all other public authorities, including the FCA and the CMA, on 30 September 2021.
Regulation of Investigatory Powers (Criminal Conduct Authorisations) (Amendment) Order 2021 (SI 2021/601) – 25 May 2021
The Regulation of Investigatory Powers (Criminal Conduct Authorisations) (Amendment) Order 2021 (SI 2021/601) has been made and comes into force on 10 August 2021. The Order makes amendments to certain orders and regulations made under the Regulation of Investigatory Powers Act 2000 (RIPA), and reflects changes made to the authorisation of covert human intelligence sources (CHIS) participation in criminal conduct by the CHIS (Criminal Conduct) Act 2021 (CHIS(CC)A) to RIPA. Amendments are made to the following statutory instruments:
- the Regulation of Investigatory Powers (Source Records) Regulations 2000 (SI 2000/2725), to provide record-keeping requirements for criminal conduct authorisations granted under the CHIS(CC)A;
- the Regulation of Investigatory Powers (Covert Human Intelligence Sources: Matters Subject to Legal Privilege) Order 2010 (SI 2010/123), to, among other things, apply the enhanced safeguards already in place for CHIS use; and
- the Regulation of Investigatory Powers (Directed Surveillance and Covert Human Intelligence Sources) Order 2010 (SI 2010/521), to designate the rank of the person able to grant an authorisation within a public authority, including the FCA, and the statutory grounds upon which an authorisation can be granted by that public authority.
Issue 1111 / 27 May 2021
- European Commission
- Financial Conduct Authority
Antitrust – Commission fines investment banks for cartel participation - 20 May 2021
The European Commission has announced that it has found Bank of America, Nomura, RBS (now NatWest), UBS, UniCredit and WestLB (now Portigon) in breach of Article 101(1) Treaty on the Functioning of the European Union (TFEU) for their participation, between 2007 – 2011, in a cartel in the primary and secondary market for European Government Bonds (EGB).
The Commission found that the investment banks participated in the cartel through a group of traders working on their EGB desks who were in regular contact with each other, mainly in multilateral chatrooms on Bloomberg terminals. The traders exchanged commercially sensitive information and in particular, they:
- informed and updated each other on their prices and volumes offered in the run up to auctions and the prices shown to their customers or the market in general;
- discussed and provided each other with recurring updates on their bidding strategy when issuing Euro denominated bonds on the primary market; and
- discussed and provided information on trading parameters on the secondary market.
The Commission imposed fines totalling EUR371 million on Nomura, UBS and UniCredit. In setting the level of fines, the Commission took account of the EGB sales value achieved by the cartel participants; the seriousness of the infringement, including that the cartel related to a Euro-based financial product on the primary and secondary market; the infringement’s geographic scope across the EEA; and the respective duration of the banks’ participation in the cartel.
NatWest received full immunity under the Leniency Notice for revealing the cartel. Portigon’s fine was reduced to zero because it did not generate any net turnover in the last business year used to calculate the fine. No fines were imposed on the Bank of America or Natixis as their involvement in the cartel ended more than five years before the Commission began its investigation and, therefore, fell outside the limitation period.
Financial Conduct Authority
Oversight of appointed representatives – FCA publishes first supervisory notice to Marshall Sterling Investment Management Ltd - 24 May 2021
The FCA has published a first supervisory notice issued to Marshall Sterling Investment Management Ltd (MSIM), imposing a number of requirements in relation to its appointed representatives (ARs). Marshall Sterling acts as principal for three appointed representatives and the FCA is concerned that the firm is not meeting, or is likely not to meet, the following threshold conditions:
- appropriate resources: the firm does not have appropriate non-financial resources to monitor and enforce the ARs’ compliance with requirements applying to their regulated activities, and has failed to assess adequately the ARs’ business in order to identify and mitigate sufficiently the risks that their activities pose to consumers; and
- suitability: the firm’s systems and controls relating to the onboarding and ongoing monitoring of ARs are inadequate and mean the firm is failing to identify, assess and mitigate the risks arising from these processes.
As a result, the FCA has required MSIM to terminate its current AR agreements and can only appoint additional ARs with the FCA’s prior written consent.
Contracts for differences – FCA publishes First Supervisory Notice to EverFX – 26 May 2021
The FCA has published a First Supervisory Notice to Cypriot-based firm, ICC Intercertus Capital Ltd, and other members of its group which trade as EverFX, stopping them from offering high risk contracts for differences (CFDs) to UK investors. The EverFX Group used the fact that ICC Intercertus was regulated in the UK to convey legitimacy. However, many consumers were induced to transact with overseas members of the EverFX Group, which had no authorisation to provide regulated services in the UK, meaning that consumers lacked the same level of protection.
The FCA identified serious concerns with the sales and marketing practices of the Group, including the use of misleading financial promotions, failing to inform consumers about the nature of risks of CFDs, applying pressure to invest additional funds, instructing clients on which trades to make and failing to allow customers to withdraw funds. Some consumers consequently lost very large sums of money.
The FCA has stopped ICC Intercertus Capital Ltd from conducting any regulated or marketing activities in the UK and has directed it to take all reasonable steps to stop other members of the EverFX Group doing the same. The Group has also been ordered to close all trading positions and return the money to customers.
ICC Intercertus was operating the UK under the Temporary Permissions Regime, put in place for firms who used to operate in the UK under the EEA passporting regime and who wished to continue doing so following Brexit.