Includes developments in relation to: FOS future funding model; net-zero transition; the future of UK financial services regulation; removal of Pillar 2A buffer adjustment; rising cost of living; EMIR; and Solvency II Review
Click on the headings below to access each section:
Issue 1164 / 16 June 2022
- European Parliament
- HM Treasury
- Financial Ombudsman Service
- Glasgow Financial Alliance for Net Zero
EU Taxonomy Complementary Delegated Act on gas and nuclear activities – Objection from ECON published - 14 June 2022
The European Parliament has published a press release containing details of an objection to a proposal by the European Commission (the Commission) for a Complementary Climate Delegated Act (C(2022) 631) (the Delegated Act) specifying the conditions under which nuclear and natural gas energy activities may be included in the list of environmentally sustainable economic activities for the purposes of the EU Taxonomy Regulation ((EU) 2020/852). The objection is set out in a draft motion for a European Parliament resolution (2022/2594(DEA)) and was adopted in a joint meeting of the Economic and Monetary Affairs Committee (ECON) and the Environment, Public Health and Food Safety Committee (ENVI).
According to the press release, while MEPs “recognise the role of nuclear and fossil gas in guaranteeing stable energy supply during the transition to a sustainable economy …they consider that the technical screening standards proposed by the Commission, in its delegated regulation, to support their inclusion do not respect the criteria for environmentally sustainable economic activities as set out in Article 3 of the Taxonomy Regulation.”
The resolution also asks for any new or amended delegated acts to be subject to a public consultation. It is scheduled for a vote during the European Parliament’s plenary session between 4 and 7 July 2022. The European Parliament and the Council of the EU will have until 11 July 2022 to decide whether to veto the Commission’s proposal. If an absolute majority of MEPs object to the proposal, the Commission will have to withdraw or amend it.
Draft motion for a resolution on Commission delegated regulation of 9 March 2022 amending Delegated Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those economic activities (2022/2594(DEA))
UK-Japan Financial Regulatory Forum – HM Treasury publishes joint statement following June 2022 meeting - 10 June 2022
HM Treasury has published a joint statement by members of the UK-Japan Financial Regulatory Forum following a meeting held on 9 June 2022. Participants included senior officials from HM Treasury, the Bank of England, the FCA, the British Embassy in Tokyo, the Department for Environment, Food and Rural Affairs, the Japanese Financial Services Agency (FSA) and the Japanese Embassy in London. The joint statement builds on the arrangements for regulatory cooperation outlined in Annex 8-A of the UK-Japan Comprehensive Economic Partnership Agreement, which also provides for the establishment of new ‘working groups’ to bring experts together from both sides to examine specific issues of mutual interest.
Forum participants discussed a wide range of topics, including the need to establish an effective regulatory framework for stablecoins based on the principle of “same activity, same risk and same rules” as well as the importance of having a transparent and efficient authorisation process for innovative firms. Separately, the parties agreed to maintain momentum to drive the transition to net zero and agreed to establish a dedicated sustainable finance working group.
The parties also reaffirmed the importance of deference and noted that they will continue to cooperate to seek out mutually beneficial opportunities to defer to each other’s regulatory and supervisory regimes.
Financial Ombudsman Service
FOS future funding model – discussion paper published - 14 June 2022
The Financial Ombudsman Service (FOS) has published a discussion paper on possible changes to its funding model, building on the commitments made in its December 2021 Action Plan. The Action Plan set out the key strategic and operational changes that the FOS would be undertaking to improve its effectiveness and efficiency.
The FOS is currently funded through a combination of case fees, a general levy on firms in the compulsory jurisdiction (CJ) (which is charged and collected by the FCA) and a levy (which the FOS charges and collects) on participants in the voluntary jurisdiction (VJ). One future funding option proposed in the discussion paper would involve updating the levy structure, so that the CJ levy would recover the FOS’s fixed overheads such as IT, property and other support functions, rather than covering a particular proportion of the FOS’s income, as is currently the case.
The discussion paper also raises the prospect of introducing a differentiated case fee model to reflect case complexity. This could involve charging a different fee depending on the stage at which a complaint is closed or varying case fees depending on the type of product or service that is the subject matter of the complaint.
The deadline for responses is 5 August 2022. The FOS will publish a feedback statement in October 2022. The options the FOS takes forward from this discussion paper will form part of its consultation on its 2023/24 budget, later this year.
Glasgow Financial Alliance for Net Zero
Net-zero transition – GFANZ publishes a common framework of recommendations and guidance for consultation - 15 June 2022
The Glasgow Financial Alliance for Net Zero (GFANZ) – a practitioner-led, global coalition of financial institutions working to accelerate the world’s transition to net-zero greenhouse gas emissions by 2050 – has published for consultation a draft Net-zero Transition Plan Framework (the Plan) for the financial sector. The document seeks to enable financial institutions to demonstrate, and stakeholders to judge, the credibility of transition plans to accelerate and scale clean energy and transition-related finance to levels consistent with limiting global warming to 1.5 degrees. Mark Carney, Co-Chair of GFANZ and the UN Special Envoy on Climate Action and Finance, commented as follows:
“The GFANZ common framework for net-zero transition will help ensure that capital will flow to companies that have robust and credible plans to reduce their emissions while growing jobs and our economies. The supporting tools will promote the responsible and transparent phase out of stranded assets as part of an orderly transition. Together, these tools, frameworks, and resources will guide the financial sector to support real-world decarbonisation, not the false comfort of portfolio decarbonisation. In the process, they will reveal the contribution of financial institutions to solving one of humanity’s greatest challenges.”
In the Plan, GFANZ has identified the following four essential approaches for financial institutions to support the real-economy transition to net-zero emissions:
- financing the development and scaling of net-zero technologies or services to replace high-emitting sources;
- increasing support for companies that are already aligned to a 1.5 degrees pathway;
- enabling high and low-emitting real-economy companies to align business activities consistent with a 1.5 degrees pathway for their sector; and
- accelerating managed phasing out of high-emitting assets through early retirement.
Alongside the Plan, GFANZ has published a set of connected tools, frameworks and resources, including:
- guidance on sectoral pathways for financial institutions: this sets out guidance and a framework to help financial institutions evaluate the suitability of sectoral pathways in their transition planning process and implementation efforts;
- an introductory note on expectations for real-economy transition plans: this introduces GFANZ’s work on supporting and accelerating the development of real economy transition plans by providing clarity around the expectations of financial institutions;
- a concept note on portfolio alignment measurement: this describes GFANZ’s findings on the use of portfolio alignment metrics and outlines the goals and work plan of the GFANZ portfolio alignment measurement workstream. GFANZ will release a full report on portfolio alignment measurement before COP27; and
- a report on the managed phasing out of high-emitting assets: this provides a preliminary and high-level approach to support the identification of assets where managed phase out could be appropriate. It offers an initial overview of potential financial mechanisms that could support managed phasing out and includes initial guidance on the features of a credible asset-level phasing out plan.
The recommendations and guidance are voluntary. The deadline for responses to the consultation on GFANZ’s draft Plan is 27 July 2022. GFANZ will publish an updated report containing final recommendations and guidance in autumn 2022, before COP27.
Issue 1164 / 16 June 2022
- UK Parliament
Regulating after Brexit – Inquiry launched by House of Commons European Scrutiny Committee - 13 June 2022
The House of Commons European Scrutiny Committee has launched a ‘Regulating after Brexit’ inquiry looking at the opportunities for, and the challenges of, policy and law-making following the UK’s withdrawal from the EU. In particular, it will examine the “complexities of making changes to regulations in areas that have been controlled at EU-level in the context of overlapping commitments in the Withdrawal Agreement, new trade deals and the devolution settlements”.
The Committee asks interested parties to submit written evidence in response to a range of questions as set out on the Committee’s website, before 22 July 2022.
The future of UK financial services regulation – House of Commons Treasury Committee publishes report - 16 June 2022
The House of Commons Treasury Committee (the Committee) has published its first report of session 2022-23 on the future of UK financial services regulation. In the report, the Treasury Committee sets out its recommendations for the future overall direction of travel and regulatory objectives and priorities, reaffirms its commitment to regulatory independence, and comments on specific areas of regulation, including Solvency II and payments innovation.
The Committee notes that “while there are real opportunities to improve competitiveness through regulatory reform, competitiveness should not become a primary objective of financial regulators,” it warns against any “inappropriate weakening of the UK’s strong regulatory standards.” It wants to see the regulators take the importance of growing the economy into account and recommends that the FCA and the PRA should each be given a secondary objective to promote long-term economic growth. This objective should “reflect the ways in which financial services facilitate economic growth by providing capital, credit and insurance to firms outside of the financial services sector.” It also recommends that the FCA should have regard to financial inclusion in its rule-making and should consider how to improve its engagement with the poorest consumers, and seek data on the issues vulnerable consumers experience directly.
The Committee urges the PRA to consider what more can be done to level the playing field between smaller banks and insurers, and larger firms which model their own capital requirements.
Commenting on the Solvency II review, the Committee suggests that the Treasury and the PRA should aim to secure a robust insurance regulatory regime, tailored to the UK market, which adequately captures risk and incentivises investment in infrastructure and business. Innovation, including in the payments space, is identified as one of the areas of investigation for the FCA with a view to providing larger firms with opportunities to develop and conduct experiments. The Committee will be conducting further work on managing challenges associated with payments innovation, including customer protection, preventing crime and financial stability.
See also the General section above for an item on the outcome of a June 2022 meeting of the UK-Japan Financial Regulatory Forum.
BANKING AND FINANCE
Issue 1164 / 16 June 2022
- Basel Committee on Banking Supervision
- European Commission
- Council of the European Union
- Single Resolution Board
- Bank of England
- Prudential Regulation Authority
- Financial Conduct Authority
Basel Committee on Banking Supervision
Climate-related financial risks – Basel Committee issues principles for effective management and supervision - 15 June 2022
The Basel Committee on Banking Supervision (the Basel Committee) has issued a set of principles for the effective management and supervision of climate-related financial risks (the Paper), following its November 2021 consultation, as previously reported in this Bulletin.
The Paper sets out 18 principles covering topics such as corporate governance, internal controls, risk assessment, management and reporting. Principles 1 to 12 provide guidance for banks on the effective management of climate-related financial risks, while principles 13 to 18 are aimed at prudential supervisors. The principles aim to provide a common baseline for internationally active banks and supervisors, while retaining sufficient flexibility given evolving practices in this area.
The Paper seeks to accommodate a diverse range of banking systems and is intended to be applied on a proportionate basis depending on the size, complexity and risk profile of the bank or banking sector for which the authority is responsible. The principles relating to scenario analysis and stress testing are aimed primarily at large internationally active banks and to supervisory and other relevant financial authorities in member jurisdictions.
The Basel Committee expects implementation of the principles as soon as possible.
CRD IV – European Commission adopts Commission Delegated Regulation on RTS on authorisation of credit institutions - 10 June 2022
The European Commission has adopted Commission Delegated Regulation C(2022) 3342 (final), supplementing the Capital Requirements Directive IV (2013/36/EU) (CRD IV) with regard to regulatory technical standards (RTS) specifying the information to be provided in an application for authorisation in accordance with Article 8a of CRD IV. The European Banking Authority consulted on the draft RTS in June 2020 and published its final report containing the draft RTS in December 2020.
The draft RTS set out the details required for authorisation as a credit institution in accordance with the new definition in Article 4(1)(1)(b) of the Capital Requirements Regulation (575/2013/EU) (CRR), as amended by Article 62(3)(a) of the Investment Firms Regulation ((EU) 2019/2033) (IFR).
The European Parliament and Council of the EU will now scrutinise the Commission Delegated Regulation. If neither object, it will enter into force and apply on the 20th day following its publication in the Official Journal of the European Union.
Commission Delegated Regulation (EU) …/… of 10.6.2022 supplementing Directive 103/36/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the information to be provided by an undertaking in the application for authorisation in accordance with Article 8a of that Directive (C(2022) 3342 final)
CRR – European Commission adopts two Delegated Regulations on RTS on market risk - 14 June 2022
The European Commission (the Commission) has adopted the following two Delegated Regulations containing regulatory technical standards (RTS), supplementing the Capital Requirements Regulation (575/2013/EU) (CRR):
- Commission Delegated Regulation (EU) …/… supplementing CRR with regard to RTS specifying the criteria for assessing the modellability of risk factors under the internal model approach (IMA) and specifying the frequency of that assessment under Article 325be(3) of CRR (C(022) 3801 final); and
- Commission Delegated Regulation (EU) …/… supplementing CRR with regard to RTS specifying the technical details of back-testing and profit loss attribution requirements under Article 325bf and 325bg of CRR (C(2022) 3800 final).
The European Banking Authority consulted on the draft RTS in June 2019, before submitting the final draft RTS to the Commission in March 2020.
The European Parliament and Council of the EU will now scrutinise the Commission Delegated Regulations. If neither object, they will enter into force on the 20th day following their publication in the Official Journal of the European Union.
Commission Delegated Regulation (EU) …/… of 14.6.2022 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards specifying the criteria for assessing the modellability of risk factors under the internal model approach (IMA) and specifying the frequency of that assessment under Article 325be(3) of that Regulation (C(2022) 3801 final)
Commission Delegated Regulation (EU) …/… of 14.6.2022 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards specifying the technical details of back-testing and profit and loss attribution requirements under Articles 325bf and 325bg of Regulation (EU) No 575/2013 (C(2022) 3800 final)
Council of the European Union
Consumer Credit Directive – Council of the EU publishes general approach - 10 June 2022
The Council of the EU (the Council) has published the text of its general approach to the proposed Directive on consumer credit (2021/0171(COD)), which will revise and replace the Consumer Credit Directive (2008/48/EC) (CCD) (CCD II). The legislative proposal was adopted by the European Commission in July 2021, and the European Parliament published its draft opinion (2021/0171(COD)) on the proposal in February 2022. The Council agreed its general approach on 9 June 2022, as reported in last week’s Bulletin.
The Council may now begin negotiations with the European Parliament.
Single Resolution Board
Expectations for banks to demonstrate resolvability – SRB publishes updated guidance on bail-in playbooks and data - 15 June 2022
The Single Resolution Board (SRB) has published several documents – notably, an operational guidance document on bail-in playbooks and instructions relating to bail-in data – supplementing its “expectations for banks” document, which outlines how banks should demonstrate resolvability, published in April 2020.
A bail-in playbook refers to the internal document used by a bank to establish a minimum set of objectives, processes and governance structures to support the implementation of write-down and conversion powers by resolution authorities. The updated guidance adds more detail to the expectations relating to intra-group loss transfer and recapitalisation mechanisms between the resolution entity and its subsidiaries, as well as the required management information systems (MIS) capabilities. It also introduces a dedicated section on the testing of bail-in playbooks and MIS capabilities by banks and includes targeted amendments based on the SRB’s experience since the previous update of the guidance.
The accompanying instructions and explanatory notes on bail-in data outlines the SRB’s expectations around the submission of timely, high-quality data to resolution authorities to enable the execution of write-down and conversion powers and the bail-in tool.
Bank of England
Resolvability Assessment Framework for major UK banks – Bank of England publishes findings - 10 June 2022
The Bank of England (the Bank) has published the findings from its first assessment of the resolvability of the eight major UK banks within the scope of the resolvability assessment framework. The Bank has also shared a video in which Sasha Mills, Executive Director for Resolution, introduces the assessment and explains the findings. In short, the exercise demonstrates that “if a major UK bank failed today it could do so safely: remaining open and continuing to provide vital banking services to the economy. Shareholders and investors, not taxpayers will be first in line to bear the costs, overcoming the ‘too big to fail’ problem”.
The Bank explains that “resolvability is best understood as a spectrum… and therefore the Bank has not made a pass-or-fail assessment”. However, a number of thematic and firm-specific areas have been identified where further work is needed for firms to meet the Bank’s expectations and ensure they remain ready for resolution. Funding in resolution and restructuring planning, in particular, are areas requiring relatively more work across the sector.
Section 5.1 of the findings explains the issues identified with each firm’s ability to achieve the resolvability outcomes needed to support a resolution if they fail. Although the findings are specific to individual firms, their business models and resolution strategies, and cannot be compared directly with one another, these terms provide a consistent way of describing the impact the issues identified would have on the Bank’s ability to execute a firm’s preferred resolution strategy.
The Bank has identified ‘shortcomings’ for three firms. These are issues that may complicate unnecessarily the Bank’s ability to undertake resolution. It has also found ‘areas for further enhancement’ for six firms. These are specific areas where continued work is needed by firms to enhance or embed capabilities in order to further reduce execution risks associated with resolution.
The Bank will repeat its assessment in 2024 to review the progress firms have made in addressing these findings and enhancing their preparation for resolution. The Bank notes that future assessments are likely to be focused on particular areas of importance or weakness, and will include more detailed verification of firms’ preparations, building on the Bank’s review of firms’ own assurance arrangements considered in this first assessment. The Bank and the PRA have made resolvability a continuing obligation for banks and require them to publish their own summaries of their preparations for resolution.
Prudential Regulation Authority
Removal of Pillar 2A buffer adjustment – PRA publishes statement - 13 June 2022
The PRA has published a statement on its approach to buffer adjustments. In July 2020, in light of the COVID-19 outbreak, and high uncertainty surrounding the extent of the stress, the PRA announced a temporary increase of the PRA buffer for all firms that received a Pillar 2A (P2A) reduction under Policy Statement (PS15/20) “Pillar 2A: Reconciling capital requirements and macroprudential buffers”. The PRA has been setting firm-specific PRA-buffer adjustments in line with the implementation of PS15/20 from 2020, aligning these to 56.25% of the firm-specific total Pillar 2A reduction (which is the minimum amount of CET1 the PRA requires for firms to meet Pillar 2A requirements). This regulatory measure is no longer considered necessary and therefore the PRA buffer adjustment will be removed with effect from the end of December 2022.
Financial Conduct Authority
Branch and ATM access – FCA publishes guidance consultation (GC22/2) on closures or conversions - 14 June 2022
The FCA has published a guidance consultation (GC22/2) which sets out its expectations for firms considering closing a branch or an ATM or converting a free-to-use ATM to pay-to-use. The FCA previously published finalised guidance on branch and ATM closures or conversions in September 2020 (FG20/3) and has been supervising firms’ closure and conversion processes closely against those expectations. The FCA also published examples of good practice and areas for improvement in February 2022, which have now been updated alongside the consultation.
Key points emerging from the guidance consultation are as follows:
- the FCA proposes to extend its guidance to the ‘partial closure’ of a branch (to be defined as “a long-term reduction in branch opening hours or days or reduction in branch services where this would have a significant impact on customers”);
- firms must consider whether the services they are providing through emerging models meet the broad definition of a branch, meaning that the guidance would apply;
- before closing a branch, the FCA expects firms to conduct a robust analysis, including usage trends and overall transaction volumes across a suitably representative time period. Firms should share details of any commercial evaluation they have completed with the FCA;
- as well as customers, firms should ensure stakeholders, such as relevant consumer groups (for example, charities representing local carers and the elderly) and local councils, are proactively contacted about closure or conversion plans;
- the FCA proposes to add further examples to the guidance to highlight how firms can meet the FCA’s expectations on the treatment of customers in vulnerable circumstances. For example, account opening, proving identity and issues with powers of attorney are likely to be dealt with by face-to-face meetings in a branch. Where a firm identifies a branch for closure, it should make the effective migration of these services to a channel which customers will find accessible part of the pre-closure planning.
The deadline for responses is 26 July 2022. The FCA intends to finalise the guidance later in 2022.
Rising cost of living – FCA publishes Dear CEO letter to lenders - 16 June 2022
The FCA has published a Dear CEO letter sent to approximately 3,500 lenders to remind them of the standards they should meet as consumers are affected by the rising cost of living. The FCA also encourages authorised firms offering consumer credit products (including ‘buy-now-pay-later’ products) to follow the relevant guidance in the letter.
The FCA notes that most firms need to have a better understanding of their customers’ individual circumstances, so they can provide appropriate tailored support and ensure that arrangements to pay back debt are suitable. Firms’ frontline services may have to deal with more customers faced with a complex range of vulnerable circumstances and non-financial knock-on effects of the rising cost of living.
In light of these concerns, the FCA has outlined the following non-exhaustive list of its expectations:
- providing customers with an appropriate level of care and support, and appreciating that the level of care needed for customers who have characteristics of vulnerability may be different from that for others;
- giving borrowers in financial difficulty appropriate tailored forbearance that is in their interests and takes account of their individual circumstances;
- supporting borrowers showing signs of financial difficulty by making them aware of and helping them access money guidance or free debt advice;
- ensuring that any fees and charges levied on borrowers in financial difficulty are fair and do no more than cover firms’ costs;
- making sure firms’ approach to taking on new borrowers takes account of the financial pressure they may be facing and the impact on their expenditure;
- considering what more firms can do to encourage mortgage borrowers to think about switching to a less costly option where that is available; and
- helping consumers avoid falling victim to scams or illegal money lending.
The letter also refers to the FCA’s findings from its review of outcomes for borrowers in financial difficulty and its vulnerable customer guidance. The FCA intends to publish the detailed findings of its work on borrowers in financial difficulty later this year. It plans to consult on the future of the FCA’s tailored support guidance for mortgages, consumer credits and overdrafts, which may involve changes being made to the FCA Handbook. The FCA also notes that it will finalise any rules in relation to the new consumer duty later in 2022.
SECURITIES AND MARKETS
Issue 1164 / 16 June 2022
- European Commission
- European Supervisory Authorities
- European Securities and Markets Authority
EMIR – European Commission adopts six Delegated and Implementing Regulations on RTS and ITS on reporting, data quality, data access and the registration of trade repositories - 10 June 2022
The European Commission has adopted six Delegated Regulations and Implementing Regulations, containing regulatory technical standards (RTS) and implementing technical standards (ITS) respectively, supplementing the European Market Infrastructure Regulation (648/2012/EU) (EMIR):
- Commission Delegated Regulation (EU) …/… supplementing EMIR with regard to RTS specifying the procedures for the reconciliation of data between trade repositories and the procedures to be applied by the trade repository to verify the compliance by the reporting counterparty or submitted entity with the reporting requirements and to verify the completeness and correctness of the data reported (C(2022) 3581 final);
- Commission Delegated Regulation (EU) …/… amending the RTS laid down in Delegated Regulation 150/2013/EU as regards the details of the applications for the registration as a trade repository and for applications for extension of registration as a trade repository (C(2022) 3585 final);
- Commission Delegated Regulation (EU) …/… supplementing EMIR with regard to RTS specifying the minimum details of the data to be reported to trade repositories and the type of reports to be used (C(2022) 3589 final);
- Commission Delegated Regulation (EU) …/… amending the RTS laid down in Delegated Regulation 151/2013/EU by further specifying the procedure for accessing details of derivatives as well as the technical and operational arrangements for their access (C(2022) 3590 final);
- Commission Implementing Regulation (EU) …/… amending the ITS laid down in Implementing Regulation 1248/2012/EU as regards the format for applications for registration as trade repositories and for applications for extension of registration as trade repositories (C(2022) 3580 final);
- Commission Implementing Regulation (EU) …/… laying down ITS for the application of EMIR with regard to the standards, formats, frequency and methods and arrangements for reporting (C(2022) 3588 final).
The European Securities and Markets Authority published a final report containing final draft versions of the RTS and ITS in December 2020, reflecting mandates under the EMIR Refit Regulation ((EU) 2019/834).
The European Parliament and Council of the EU will now scrutinise the Commission Delegated and Commission Implementing Regulations. If neither objects, they will enter into force on the 20th day following their publication in the Official Journal of the European Union.
Commission Delegated Regulation (EU) …/… of 10.6.2022 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards specifying the procedures for the reconciliation of data between trade repositories and the procedures to be applied by the trade repository to verify the compliance by the reporting counterparty or submitted entity with the reporting requirements and to verify the completeness and correctness of the data reported (C(2022) 3581 final)
Commission Delegated Regulation (EU) …/… of 10.6.2022 amending the regulatory technical standards laid down in Delegated Regulation (EU) No 150/2013 as regards the details of the applications for the registration as a trade repository and for applications for extension of registration as a trade repository (C(2022) 3585 final)
Commission Delegated Regulation (EU) …/… of 10.6.2022 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards specifying the minimum details of the data to be reported to trade repositories and the type of reports to be used (C(2022) 3589 final)
Commission Delegated Regulation (EU) …/… of 10.6.2022 amending the regulatory technical standards laid down in Delegated Regulation (EU) No 151/2013 by further specifying the procedure for accessing details of derivatives as well as the technical and operational arrangements for their access (C(2022) 3590 final)
Commission Implementing Regulation (EU) …/… of 10.6.2022 amending the implementing technical standards laid down in Implementing Regulation (EU) No 1248/2012 as regards the format for applications for registration as trade repositories and for applications for extension of registration as trade repositories (C(2022) 3580 final)
Commission Implementing Regulation (EU) …/… of 10.6.2022 laying down implementing technical standards for the application of Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to the standards, formats, frequency and methods and arrangements for reporting (C(2022) 3588 final)
European Supervisory Authorities
EMIR – ESAs propose to extend the temporary exemptions regime for intra-group contracts - 13 June 2022
The European Supervisory Authorities (ESAs) (comprising the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority) have published a final report containing draft regulatory technical standards (RTS) proposing to amend Commission Delegated Regulation (EU) 2016/2251. It has also published a new draft RTS proposing to amend three Commission Delegated Regulations ((EU) 2015/2205, (EU) 2016/592 and (EU) 2016/1178) on the clearing obligation under the European Market Infrastructure Regulation (648/2012/EU) (EMIR).
These measures originally introduced temporary exemptions for intra-group contracts with third-country group entities to facilitate centralised risk management procedures for groups. These measures provide a temporary solution in parallel with the assessment period for the relevant equivalence decisions under EMIR’s permanent exemption framework.
The ESAs propose to extend by three years the existing temporary exemptions regime (which is due to expire on 30 June 2022) for intra-group contracts where one counterparty is established in a third country and the other counterparty is established in the EU to accommodate the ongoing assessment of third-country equivalence and allow for a review of the intra-group exemptions framework.
The draft RTS have been submitted to the European Commission for endorsement. They will be subject to scrutiny by the European Parliament and the Council of the EU before being published in the Official Journal of the European Union. They will come into force on the day after that publication.
European Securities and Markets Authority
EMIR – ESMA publishes statement on implementation of the clearing obligation for pension scheme arrangements - 16 June 2022
The European Securities and Markets Authority (ESMA) has published a statement on the implementation of the clearing obligation (CO) for pension scheme arrangements (PSAs) under the European Market Infrastructure Regulation (648/2012/EU) (EMIR). The statement follows ESMA’s letter (dated 25 January 2022) to the European Commission (the Commission) recommending the end of the current exemption from the CO with a one-year implementation period. On 9 June 2022, the Commission published Commission Delegated Regulation C(2022) 3584 (final) exempting PSAs from the CO until 18 June 2022.
ESMA expects national competent authorities to act proportionately in the period between June 2022 and the approval of the Commission Delegated Regulation. The Commission Delegated Regulation is currently being scrutinised by the European Parliament and Council of the EU. If neither objects, it will enter into force on the day after its publication in the Official Journal of the European Union.
Issue 1164 / 16 June 2022
- HM Treasury
The Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2022 - 14 June 2022
The Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2022 (the draft Regulations) have been laid before the Parliament and published, together with an explanatory memorandum. The draft Regulations follow HM Treasury’s March 2022 response to its September 2021 consultation on amending the definition of ‘investment firm’ in section 48D of the Banking Act 2009 to reflect the FCA’s Investment Firms Prudential Regime (IFPR), as well as HM Treasury’s call for evidence on the functioning of the retained EU law version of the Securitisation Regulation ((EU) 2017/2402).
Among other things, the Financial Services Act 2021 (the Act) introduced the framework for the IFPR and enabled the PRA to implemented Basel III standards through its rules. The draft Regulations make consequential amendments following the introduction of the IFPR and Basel III standards on 1 January 2022, including:
- repealing the Banking Act 2009 (Exclusion of Investment Firms of a Specified Description) Order 2014, as it is redundant following the removal of FCA-regulated investment firms from the UK resolution regime;
- making transitional provisions in respect of risk retention requirements for certain securitisations following the implementation of the IFPR. These relate to the retention of a material net economic interest in a securitisation by the originator, sponsor, or original lender to better align their interest with those of investors;
- ensuring that short-term liabilities owed to both PRA- and FCA-regulated investment firms with permission to underwrite or deal on own account will continue to be exempt from bail-in; and
- addressing deficiencies arising under the European Union (Withdrawal) Act 2018. This includes amending references in the Banking Act 2009.
It is not clear when the draft Regulations will be made or will come into force.
Draft Statutory Instrument: The Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2022 (2022 No. XXX)
Issue 1164 / 16 June 2022
- International Association of Insurance Supervisors
- European Parliament
- Council of the European Union
- European Insurance and Occupational Pensions Authority
- Prudential Regulation Authority
- Financial Conduct Authority
International Association of Insurance Supervisors
Aggregation Method – IAIS publishes consultation on draft criteria - 15 June 2022
The International Association of Insurance Supervisors (IAIS) has published a consultation on the draft criteria that will be used to assess whether the US’s aggregation method (AM) provides comparable outcomes to the Insurance Capital Standard (ICS). The IAIS began developing the draft comparability criteria in April 2021, following agreement in March 2021 on the definition of ‘comparable outcomes’ and ‘high-level principles’ to inform the draft criteria.
The consultation aims to gather perspectives and technical input, in particular to assist in the development of specific scenarios for the sensitivity analysis envisaged in the draft criteria for high-level principle 1. The IAIS is also seeking feedback on considerations for determining the representativeness of the non-life insurance sample.
The IAIS explains that this is a key milestone in the comparability assessment project and marks further progress of its 2017 agreement on the implementation of ICS version 2.0, including a unified path to convergence of group capital standards in furtherance of its ultimate goal of a single ICS that achieves comparable outcomes across jurisdictions.
The deadline for responses is 15 August 2022. Following consideration of stakeholder feedback, the IAIS will finalise the criteria, which are planned for adoption in the fourth quarter of 2022. The criteria will then be used to assess whether the AM provides comparable outcomes to the ICS in the third quarter of 2022.
Solvency II – ECON publishes draft report on proposed amending Directive - 10 June 2022
The European Parliament’s Economic and Monetary Affairs Committee (ECON) has published a draft report (dated 6 June 2022) (2021/0295(COD)) on the proposal for a Directive amending the Solvency II Directive (2009/138/EC) as regards proportionality, the quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision. ECON published a working document on the proposal in March 2022.
The proposed amendments are described in an explanatory statement, grouped under a number of broad headings:
- proportionality: the proposed amendments would exclude a number of small insurance undertakings from the scope of the proposed Directive and introduce higher thresholds in the definition of “low-risk profile undertakings”;
- the use of Level 1 and Level 1 legislation: the amendments would provide more detail in the Directive itself, rather than in Delegated Acts, in relation to: (i) the risk-free interest rate curve; (ii) the risk margin; (iii) the volatility adjustment; and (iv) long-term equity investments; and
- cooperation between supervisors: The rapporteur, Markus Ferber proposes amendments which would make collaboration and information exchange between home and host supervisors mandatory.
Mr Ferber notes that “there is little evidence to suggest that insurance undertakings are systematically underestimating sustainability risks” and therefore cautions that any amendments related to sustainability and social risks could lead to viable and sustainable businesses becoming ‘un-insurable’ or ‘un-investable’ for no good reason.
ECON I Draft Report: on the proposal for a directive of the European Parliament and of the Council Amending Directive 2009/138/EC as regards proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision (2021/0295(COD))
Council of the European Union
Solvency II – Council of the EU publishes final compromise text of proposed amending Directive - 16 June 2022
The Council of the European Union (the Council) has published the final council presidency compromise text (dated 2 June 2022) (9676/22) on the proposed Directive amending the Solvency II Directive (2009/138/EC) as regards proportionality, the quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision (2021/0295(COD)). The European Parliament’s Economic and Monetary Affairs Committee (ECON) published a draft report (dated 6 June 2022) on the proposed amending Directive on 10 June 2022.
The Council has also published a note (dated 14 June 2022) (10221/22) from the General Secretariat of the Council, recommending that the Council adopt the text set out in the compromise text as its general approach, ahead of negotiations with the European Parliament.
Proposal for a Directive of the European Parliament and of the Council amending Directive 2009/138/EC as regards proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision (2021/2095(COD)) (9676/22)
European Insurance and Occupational Pensions Authority
Open insurance – EIOPA publishes feedback statement - 15 June 2022
The European Insurance and Occupational Pensions Authority (EIOPA) has published a feedback statement on its January 2021 discussion paper on ‘open insurance: accessing and sharing insurance-related data’.
Respondents to the discussion paper noted the potential of open insurance to improve pricing practices and transparency and suggested that open insurance would allow supervisors to access real-time data and help identify poor advice and monitor automatic compliance. Most respondents agreed with the benefits of open insurance identified in the consultation as well as the potential risks, including security and misuse of data, the question of exclusions due to data or technological illiteracy, discrimination against certain consumers as well as concerns about consumers’ informed consent.
There was no strong agreement among respondents on next steps. Accordingly, EIOPA will continue to monitor legislative developments in this area and notes several relevant initiatives, including the European single access point proposal, the Data Act proposal, and proposals for a new open finance framework as signalled in the Commission’s digital finance strategy, published in September 2020.
Solvency II – EIOPA consults on the advice on the review of the securitisation prudential framework - 15 June 2022
The European Insurance and Occupational Pensions Authority (EIOPA) has published a consultation paper in response to the European Commission’s (the Commission) Call for Advice (CfA) on the securitisation prudential framework in Solvency II. The consultation paper seeks views from stakeholders on the main components of the CfA, and includes a questionnaire for data collection.
Through the CfA, the Commission is seeking advice from EIOPA (and other members of the Joint Committee of the European Supervisory Authorities) on assessing performance of the rules on capital requirements (for banks and (re)insurance undertakings) and liquidity requirements (for banks) relative to the framework’s original objective of contributing to the sound revival of the EU securitisation market on a prudent basis.
EIOPA considers that the current framework is fit for purpose and the evidence is not sufficient to justify a change in the calibration for securitisation which meets the simple, transparent and standardised securitisation (STS securitisation) criteria. To respond to EIOPA’s consultation paper, stakeholders are invited to fill in an online questionnaire by 13 July 2022. For the purpose of the review of the framework, the Commission would need to receive EIOPA’s advice by no later than 1 September 2022.
Prudential Regulation Authority
Solvency II Review – PRA launches data collection exercise - 8 June 2022
The PRA has launched a data collection exercise (DCE) on the matching adjustment (MA) and fundamental spread calibration (FS) reforms to further support the review of the Solvency II (2009/138/EC) regime. This follows the publication of HM Treasury’s consultation on the Solvency II review, and the PRA’s statement and discussion paper (DP2/22) on ‘Potential Reforms to Risk Margin and Matching Adjustment within Solvency II’, all published in April 2022. DP2/22 included an annex setting out the evidence which informed the PRA’s current view that reform to the FS is required, and provided the details of the PRA’s initial thinking on a possible new design for the FS.
The PRA notes that the DCE should not be taken as an indication of any preferred course of action for Solvency II reform and is intended to complement its quantitative impact study on the Solvency II Review.
The DCE will cover three main areas:
- phase 1: a qualitative view of firms’ current asset valuation methods;
- phase 2: valuation methods for each individual asset in the MA asset and liability data template; and
- phase 3: quantitative impacts of the proposed base FS methodology design, solvency capital requirement impacts (quantitative and qualitative) under various specifications, as well as qualitative questions covering phasing-in considerations.
Selected UK insurance firms have been asked to respond to phase 1 by 21 July 2022, phase 2 by 1 August 2022, and phase 3 by 12 September. Participation in the DCE is voluntary, but strongly encouraged. The PRA welcomes responses from other firms that wish to participate.
Solvency II Review – PRA publishes speech - 14 June 2022
The PRA has published a speech delivered by Charlotte Gerken, PRA Executive Director, Insurance, at the JP Morgan European Insurance Conference. Ms Gerken talks about the goals of competitiveness and productive investment, and the impact these are having on the review of the Solvency II (2009/138/EC) regime, noting that changes to regulations for UK insurers could help to achieve these goals. She comments as follows:
“To put the review in context, though: the core framework underlying the Solvency II regime and its principles are broadly fit for purpose, and are in line with existing and emerging international standards. The review does not involve tearing it up and starting again – not least because of the substantial sums invested by industry in the last decade in adopting it.”
However, the review does give an opportunity to deal with those areas of Solvency II that “are not working as well as they could”. She goes on to discuss investment flexibility, including proposed reforms relating to assets with prepayment risk and/or that are subject to construction risk, which could unlock further opportunities for productive investment in matching adjustment portfolios. She also focuses on the valuation of liabilities and process improvements.
Ms Gerken notes that simultaneous reform of both the risk margin and the matching adjustment can correct a potential distortion in the current regulatory framework resulting in life insurers retaining less and less insurance risk, but acquiring additional credit risk, including counterparty credit risk.
Financial Conduct Authority
Supervision of personal and commercial lines insurance intermediaries – FCA publishes portfolio letter - 13 June 2022
The FCA has published a portfolio letter (dated 25 May 2022) which it has sent to the boards of personal and commercial lines insurance intermediaries, outlining its supervisory strategy for these firms. It sets out the FCA’s view of the key risks of harm in the general insurance intermediary sector, outlines the FCA’s expectations, and provides an overview of the FCA’s strategy and its programme of work across certain areas, including in relation to:
- pricing practices and value for money: the FCA expects firms to have fully implemented the rules on pricing practices set out in its May 2021 policy statement (PS21/11), alongside an oversight framework that ensures continuous compliance and the consideration of customer outcomes;
- product oversight and governance: manufacturers should identify their target market for products and ensure that distribution methods are appropriate. The FCA also stresses that intermediaries that are product distributors need to understand the intended value of products and ensure that their distribution arrangements are consistent with providing fair value to the customer; and
- client assets and orderly wind-down: the FCA expects firms that hold client money to have rectified the issues identified in its July 2021 Dear CEO letter on maintaining adequate client money arrangements. The FCA also expects firms to maintain up-to-date wind-down plans, specific to their business and operating models, with appropriate triggers for action, and to adopt a prudent approach to the management of their financial resources.
Additional topics covered in the letter include: (i) diversity and inclusion and ESG considerations; (ii) the Senior Managers and Certification Regime; (iii) cyber threats and operational resilience; (iv) regulatory responsibilities; (v) oversight of appointed representatives; and (vi) post-sale verification. The FCA also refers in the letter to the recent findings published in its thematic review (TR22/1).
The FCA will continue to engage with personal and commercial lines insurance intermediaries in 2022 and 2023 through its planned programme of work. It will write to their boards again towards the end of 2023 to provide an updated view of the key risks these firms pose, the extent to which they are being mitigated, and the FCA’s updated supervisory plans.
Supervision of Lloyd’s and London market insurance intermediaries – FCA publishes portfolio letter - 13 June 2022
The FCA has published a portfolio letter (dated 25 May 2022) which it has sent to the boards of Lloyd’s and London market insurance intermediaries (and managing general agents) (LLMIs) outlining its supervisory strategy for these firms. Key themes addressed in the letter include:
- product suitability and price transparency: the FCA expects firms to have implemented the rules on product governance set out in its May 2021 policy statement (PS21/5), which became effective on 1 January 2022. It also expects firms to consider the value products deliver for consumers during the product development and review process, and to take appropriate action when products that do not provide fair value are identified. Manufacturers should identify their target market for products and ensure that distribution methods are appropriate. The FCA expects senior managers and boards to be fully engaged on issues related to value and pricing;
- uncertainty over insurance cover due to ambiguous contract terms: the FCA expects firms to have robust product governance arrangements in place which meet its rules to ensure that irrespective of a firm’s position within the distribution chain, customers receive insurance products that deliver when they are needed;
- culture: diversity and inclusion and non-financial misconduct: the FCA expects firms to be able to show how they are working towards having a diverse workforce at all levels and an inclusive culture. It expects high standards of character, probity, and fitness and propriety from those who operate in the financial services industry; and
- financial and operational resilience: the FCA will continue to contact firms where it considers that there is an enhanced risk of failure. It expects firms to have adopted a prudent approach to the management of financial resources, overseen by senior management, and to ensure that they maintain an up-to-date wind-down plan. The FCA also expects firms that hold client money to have rectified the issues identified in its July 2021 Dear CEO letter on maintaining adequate client money arrangements.
The FCA will continue to engage with LLMI firms over the next two years through its planned programme of work. It will write to firms again in 2024 to provide its updated view of the key risks LLMI firms pose, the extent to which these risks are being mitigated, and the FCA’s updated supervisory plans.
Issue 1164 / 16 June 2022
- European Banking Authority
- HM Treasury
- The Economic Crime (Transparency and Enforcement) Act 2022 (Commencement No. 2 and Saving Provision) Regulations 2022-10 June 2022
- Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022 – HM Treasury publishes consultation response-15 June 2022
- The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 – Draft statutory instrument and explanatory memorandum published-15 June 2022
European Banking Authority
MLD4 – EBA publishes final report on guidelines on role of AML/CFT compliance officers - 14 June 2022
The European Banking Authority (EBA) has published a final report on guidelines specifying the role and responsibilities of the anti-money laundering and countering the financing of terrorism (AML/CFT) compliance officer and of the management body of credit or financial institutions, under Article 8 and Chapter VI of the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4). The EBA consulted on the guidelines in July 2021.
The EBA is proceeding with the guidelines as consulted on, with several minor changes.
The guidelines will be translated into the official EU languages and published on the EBA website. The deadline for national competent authorities to report whether they comply with the guidelines will be six months after the publication of the translations. The guidelines will apply from 1 December 2022.
EBA Final Report: Guidelines on policies and procedures in relation to compliance management and the role and responsibilities of the AML/CFT Compliance Officer under Article 8 and Chapter VI of Directive (EU) 2015/849
The Economic Crime (Transparency and Enforcement) Act 2022 (Commencement No. 2 and Saving Provision) Regulations 2022 - 10 June 2022
The Economic Crime (Transparency and Enforcement) Act 2022 (Commencement No. 2 and Saving Provision) Regulations 2022 (SI 2022/638) (the Regulations) have been published. The Regulations were made on 9 June 2022 under section 69(2) and (5) of the Act of the Economic Crime (Transparency and Enforcement) Act 2022 (the Act). They bring into force on 15 June 2022 three provisions in Chapter 1, Part 3 of the Act, which relate to financial sanctions.
Section 54 of the Act amends section 146 of the Policing and Crime Act 2017 (the 2017 Act) so that civil monetary penalties can be applied to persons for breaches of financial sanctions with no requirement for HM Treasury to prove that the person had knowledge or reasonable cause to suspect their activity breached sanctions.
Section 55 of the Act amends section 147 of the 2017 Act to remove the requirement for a review of a decision by HM Treasury to impose a monetary penalty to be carried out by the Minister personally.
Section 56 amends section 149 of the 2017 Act to allow HM Treasury to publish notices detailing violations by persons of financial sanctions in cases where HM Treasury has decided not to impose a penalty.
Regulation 3 is a saving provision that relates to the amendments to section 146 of the 2017 Act. The new law will not apply to breaches of financial sanctions that took place before the coming into force of section 54 of the Act.
Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022 – HM Treasury publishes consultation response - 15 June 2022
HM Treasury has published a response to the July 2021 consultation on the government’s proposed approach to amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). The government conducted a consultation between 22 July and 14 October 2021, inviting views and evidence on the steps the government proposed to take to amend the MLRs. The consultation response sets out the findings and the decisions the government has taken as a result. Many of these changes will be implemented through the Money Laundering and Terrorist Financing (Amendment) (No.2) Regulations 2022 (the Statutory Instrument).
Alongside the consultation for the Statutory Instrument, HM Treasury also published a call for evidence to inform a broader review of the UK’s AML/CTF regulatory and supervisory regimes, which will be published in June 2022.
The government is proceeding with the measures largely as consulted on, albeit with a few amendments, including:
- removing account information service providers (AISPs) from the scope of the regulated sector (but not payment initiation service providers (PISPs)), noting the potential higher risk posed by these latter providers, relative to AISPs;
- not removing bill payment service providers (BPSPs) and telecoms, digital and IT payment service providers (TDITPSPs) from the scope of the MLRs at this time; and
- not introducing a measure clarifying the range of activities considered to make a person a credit and financial institution for the purposes of regulation 10. HM Treasury explains that this work will require longer-term discussions with the industry to ensure that any change does not have unintended consequences.
The EU 5th Anti Money Laundering Directive (5MLD) required the UK to build a centralised automated mechanism which would help law enforcement and anti-money laundering supervisors access information on the identity of holders and beneficial owners of bank and payment accounts and safe-deposit boxes. The government has concluded that it should not build a system fulfilling this purpose, and the Statutory Instrument will remove the redundant obligations on the private sector under Part 5A of the MLRs.
The Statutory Instrument will also require proposed acquirers of cryptoasset firms to notify the FCA ahead of such acquisitions, allowing the FCA to undertake a ‘fit and proper’ assessment of the acquirer, providing the FCA with powers to object to any such acquisition before it takes place and cancel registration of the firm being acquired. The measure will also capture change in control offences under the MLRs in the new schedule 6B.
It will also allow the FCA and HMRC the discretion to publish information about decisions not to register an applicant for MLRs registration, aligning the treatment of notices of refusal with powers to publish notices for the cancellation and suspension of registrations. The measure will also allow the FCA to publish notices where it has objected to the acquisition of an already registered cryptoasset firm.
The changes have now been made through the Statutory Instrument. Many of the measures will come into force on 1 September 2022, subject to parliamentary approval.
The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 – Draft statutory instrument and explanatory memorandum published - 15 June 2022
The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 (the draft Regulations) have been laid before the Parliament and published, together with an explanatory memorandum. The Regulations follow the government’s response to HM Treasury’s July 2021 consultation on the government’s proposed approach to amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
The draft Regulations make time-sensitive updates to MLRs, which are being made to ensure that the UK continues to meet international standards on anti-money laundering and counter-terrorist financing (AML/CFT), whilst also strengthening and clarifying how the UK’s AML regime operates, following feedback from industry and supervisors.
Issue 1164 / 16 June 2022
- Financial Conduct Authority
Financial Conduct Authority
Consumer credit affordability checks – FCA publishes final notice - 10 June 2022
The FCA has published a final notice (dated 9 June 2022) with respect to TFS Loans Limited (In Administration) (TFS) and has issued a fine of £811,900 in relation to deficient affordability checks on 3,150 guarantors in its consumer credit business between 2 November 2015 and 10 April 2018. The FCA has also imposed a requirement on TFS to redress the guarantors that were harmed by the firm not conducting appropriate checks.
TFS offered guarantor loans to customers who typically struggled to obtain other forms of credit. These loans required the customer to nominate a third party, often a family member or friend, to provide a guarantee of their loan repayments. The FCA found that TFS failed to undertake adequate affordability checks on the guarantors who were liable when borrowers were unable to pay their debts. TFS’ failure to collect appropriate information on the guarantors’ financial circumstances meant some guarantors were unable to afford the guarantees they entered into, risking significant personal financial repercussions and distress, if those guarantees were called upon. TFS also placed an additional financial burden on customers who were already in arrears by charging excessive late payment management fees, in violation of its own policies. The FCA found that TFS failed to treat customers fairly or to take reasonable care to organise and control its affairs responsibly and effectively. The FCA has required TFS to provide redress to the guarantors, and where needed, to repair their credit history and to release guarantors from liability under any continuing guarantees.
TFS qualified for a 30% discount to the fine under the FCA’s executive settlement procedures. The affected customers will be the subject of a review by the joint administrators, in accordance with a redress programme, to be agreed with the FCA. They will then be contacted by the joint administrators about redress and how to make a claim in the administration of TFS.