FCA Updates & Developments

HM Treasury has released on its website information regarding new accountability rules for insurers. It relates to the extension of the Senior Managers and Certification Regime (SMCR) which will include insurance firms from 10 December 2018. The extension to insurers will hold senior executives personally responsible for misconduct.

The FCA has published a statement on its website regarding the Royal Bank of Scotland’s (RBS) Global Restructuring Group. The FCA’s statement welcomes the statement made by RBS which states that it  won’t object to the FCA publishing the s166 report into the treatment of small and medium sized enterprise customers transferred to the Global Restructuring Group.

The document will be published after the FCA obtains the relevant requirement of consent from the individuals identified.

The FCA has published a press release regarding the appointment of Nausicaa Delfas as the Executive Director of International.

Mr Delfas will be responsible for setting and growing the FCA’s strategy for international engagement and leading its delivery. It will also involve leading relationships with foreign regulators, governments, stakeholders and facilitating global agendas and policies.

The FCA has published its latest policy development update containing a timetable for future publications. These include the following:

  • Payment Services and Electronic Money (expected date March 2018)
  • FCA regulated fees and levies: rates proposals 2018/19 (expected date April 2018)

The FCA has published on its website a modification by consent regarding the obligation to obtain regulatory references as set out in Senior Management Arrangements, Systems and Controls (SYSC) of the FCA Handbook.

Within this, certain firms are required to obtain a regulatory reference when appointing a person to perform a controlled function or issuing a certificate for the SMCR. The modification by consent allows a firm to not be under the obligation to obtain a regulatory reference, but only applies where:

  • An individual is transferring between two firms in the same group.
  • There have been no significant changes in the individual’s responsibilities.
  • The individual is transferring as part of a ring-fencing transfer scheme under s106B of the Financial Services and Markets Act 2000 (FSMA).

The FCA and the Information Commissioners Office (ICO) has published a joint update on the General Data Protection Regulation (GDPR). The GDPR is set to apply in the UK from 25 May 2018. The GDPR will be regulated in the UK by the ICO and regulated firms will need to consider how the GDPR will apply to them.

The FCA believes that the GDPR rules do not impose requirements that are incompatible with the rules in the FCA handbook. Both regulators are working closely in preparation for the implementation of the GDPR through roundtables and through receiving industry concerns.

The FCA and ICO will continue to collaborate in the near future to address concerns and support firms’ preparations for the introduction of the GDPR in May 2018.

The FCA has published a report on the supervision of algorithmic trading in wholesale markets. The report summarises the key areas of focus for algorithmic trading and highlights areas of good and bad practice noted from previous reviews.

The report focuses on the following five key areas:

  • Definition of Algorithmic Trading
  • Development and testing process
  • Risk controls
  • Governance and oversight
  • Market conduct

The report is applicable to all firms developing and using algorithmic trading strategies in wholesale markets.

The FCA has published a ‘Dear CEO’ letter towards IFPRU investment firms and BIPRU firms to review their firms’ regulatory reporting practices to ensure they are fit for purpose as well as comply with the relevant reporting provisions. Issues have been observed where firms have submitted returns that contain inaccurate and/or incomplete data resulting in a hindrance to the use of the data from the returns.

A review of a sample of firms’ returns will be conducted on 1 October 2018. If findings suggest that firms continue to submit materially inaccurate, incomplete and/or poor quality data, steps will be considered to improve the standards of returns.

The FCA has published Handbook Notice 52 setting out the changes made to the Handbook which include the following sections:

  • Decision procedure and penalties manual (amendment) instrument 2018 (FCA 2018/6)
  • Financial services compensation scheme (transitional levy provisions) instrument 2018 (FCA 2018/4)
  • Supervision manual (financial crime report) (amendment) instrument 2018 (FCA 2018/5)

The FCA has published a policy statement setting out the its response to feedback on the new perimeter guidance on what constitutes a personal recommendation (published in CP17/28).

A recommendation was made by the Financial Advice Working Group (FAWG) regarding the adoption of a single consistent set of consumer-friendly explanations for the terms ‘advice’ and ‘guidance’. In order to address that concern, the FCA has published a guide to offer a basic introduction for consumers who are potential investors.

This policy statement will be applicable to the following:

  • Financial advisers
  • Consumers and organisations representing consumers
  • Providers of retail investment products (RIPs),
  • Trade and professional bodies that represent financial advisers, product providers, and other firms involved in the distribution of RIPs
  • Compliance consultants and other firms that assist stakeholders
  • Discretionary investment managers

The FCA has published its response to previous consultation feedback regarding a proposal (July 2017) to extend the SMCR to almost all regulated firms. The feedback received on the proposal relates to the public value of the FCA in maintaining a central public record of certification employees and other important individuals in regulated firms, who will no longer appear on the FS Register.

The FCA will consult by summer 2018 on policy proposals to address the above feedback.

HM Treasury has prepared the Financial Services and Markets Act 2000 (Benchmarks) Regulations 2018 and it has been laid before Parliament.

The Regulation provides the FCA as the designated competent authority for the purposes of the EU Benchmarks Regulation 2016. This ensures that the FCA is responsible for regulating benchmarks and their administrators.

The FCA’s Chief Executive, Andrew Bailey, has delivered a speech centred on two issues in relation to Brexit: issues around the transition and issues around the future steady state.

The issues surrounding transition were discussed in the speech and separated into contract continuity and data concerns. Mr Bailey put forward examples to demonstrate the issues around this area: services provided each way in an existing contract between UK and EU counterparties may be in breach of local law as UK leaves the EU rendering passport reliance to fall away.

Secondly, the issue concerning a large amount of data held by EU and UK firms on respective individuals must be addressed. The FCA is currently working with the Government to ensure a regime from day one by implementing the EU withdrawal bill. The aim is to ensure that the same rules and laws will apply on the day after exit as on the day before and at the same time, provide certainty and confidence to business. The speech discusses possible solutions to address the operational issues as legislation alone cannot solve the matter. Mr Bailey’s speech discussed the possibility for leaving the responsibility with firms to sort out themselves. Whilst this is the least desirable option, the best solution proposed was a mutually agreed and enacted plan so that the actions are consistent.

Mr Bailey used an analogy of fishing to discuss the issue of the steady state of the future relationship between the EU and UK, saying that if it was possible to envisage a partnership agreement on fishing based on convergence of regimes, then it is possible to have open financial markets and mutual recognition of regulatory regimes. The speech then followed on to discuss what that mutual recognition may look like and the negative arguments on the issue.

The speech concluded that it is possible to have an open financial market based on mutual recognition of regulatory standards and that it is possible to assess the application of those standards to ensure broad equivalence.

PRA Updates & Developments

The PRA has issued directions regarding waivers and modifications of rules under the PRA Rulebook. The PRA is able to grant a waiver or a modification on application or consent from the person subject to the rules. The application will be assessed on a case by case basis against the s138(4) test of the FSMA.

The direction issued by the PRA contains information regarding how to apply for the waiver or modification, help on what an application should include, and the types of different applications.  

The PRA has published a consultation paper on proposed expectations regarding a firm’s governance and risk management of algorithmic trading. This document is a formal consultation which sets out the expectations for the prudential aspects of risk management and governance of algorithmic trading at PRA regulated firms.

The PRA will work together with the FCA for a coordinated approach.

The PRA has published a policy statement (PS2/18) regarding pillar 2 liquidity reporting. The document provides feedback to responses to CP21/16 and 13/17 regarding the following:

  • Methodologies in future PRA liquidity assessments
  • Introduction of a Cashflow Mismatch Risk (CFMR) framework and associated reporting template (PRA110 from 1 January 2019
  • Survival guidance on the liquidity coverage requirements within the CFMR framework

This document is applicable to UK banks, building societies and PRA-designated investment firms.

The Basel Committee has issued a consultation on Pillar 3 disclosure requirements. The consultation includes new or revised requirements in the following areas:

  • credit risk
  • operation risk
  • the leverage ratio
  • credit valuation adjustment
  • overview templates on risk management
  • risk-weighted assets
  • risk-weighted asset outcomes

The publication also proposes new disclosure requirements on asset encumbrance and capital distribution constraints.

The deadline for comments is by the 25 May 2018.

The Banking Standards Board (BSB) has published a supporting guidance to its fitness and propriety (F&P) assessment principles. The guidance aims to help firms to identify and deal with risks and issues that may arise when assessing the F&P of the firms certified staff.

EU Regulatory Updates

HM Treasury has prepared the Alternative Investment Fund Managers (Amendment) Regulations 2018 (SI 2017/134) and it has been laid before Parliament.

The Regulations make changes to UK legislation to align with the European Venture Capital Fund (EuVECA) Regulation and the European Social Entrepreneurship Fund (EuSEF) Regulation.

The European Commission has contracted an independent consultant to carry out research on how the Alternative Investment Fund Managers Directive (AIFMD) has functioned in practice and the extent of which its objectives have been met. It has released a survey with the aim to gather the views of stakeholders on:

  • AIFMD requirements.
  • Their experiences in applying the AIFMD requirements.
  • The market impacts of the AIFMD.

The Financial Services and Markets Act 2000 (Benchmarks) (Amendment) Regulations 2018 (SI2018/204) have been laid before Parliament regarding the amendment to regulation 61.

The amendment will see a new requirement for the transitional provision to apply to existing benchmark administrators in respect of benchmarks administered on, or before, 30 June 2016, as well as benchmarks administered by existing administrators after that date, during the transitional period set out in regulation 61.

The amending regulation is in force from 26 February 2018.

The European Securities and Markets Authority (ESMA) has published various updated questions and answers (Q&A) regarding the Benchmarks Regulation, European Markets Infrastructure Regulation (EMIR)

Benchmarks Regulation

The implementation of the Benchmarks Regulation now includes two additional answers regarding commodity benchmarks and the definition of a benchmark and investment fund.


New questions and answers have been added regarding the operational aspects of access to the trade repository data.


Information has been inserted in regards to transparency and market structures under the MiFID II and MiFIR.

The following documents have been published in the Official Journal of the EU:

  • Commission Implementing Regulation (EU) 2017/2382 implementing technical standards with regard to standard forms, templates and procedures for the transmission of information in accordance with MiFID II.
  • Commission implementing Regulation (EU) 2018/292 implementing technical standards with regard to procedures and forms for exchange of information and assistance between competent authorities on market abuse

The European Securities and Markets Authority (ESMA) is launching an interactive single rulebook for market participants and other interested stakeholders across the European Union.

The tool includes 3 levels, which can be assessed through ESMA’s website, with the level 1 text being the Undertakings For the Collective Investment of Transferable Securities (UCITS). Level 2 and level 3 measures are already available on ESMA’s website.

ESMA aims to supply a consistent application of the EU rulebook for the securities markets area. The tool will provide an overview of all implementing or delegated acts, guidelines, opinions and Q&As.

The International Organisation of Securities Commissions (IOSCO) has issued a consultation report proposing policy measures for its members to consider when addressing the risks from the offer and sale of Over the Counter (OTC) leveraged products to retail clients.

The report identifies various regulatory approaches aimed at enhancing the protection of retail investors and covers the offer and sale by intermediaries of rolling-spot forex contracts, contracts for differences and binary options.

IOSCO encourages members to improve practices of licensed firms that offer OTC leveraged products to better inform investors of the features and risks of the products as well as to effectively combat illegal cross-border activity in the area.

Financial Crime

The European Parliament and the EU Member States have agreed on amendments to the Anti-Money Laundering Directive (AMLD). The conclusion of the Committee is in regard to the changes in the Directive which will require business and public authorities in the EU to face the following new requirements: 

  • The extension of the obligation to perform anti-money laundering checks to auditors, accountants, tax advisors, auction houses and estate agents (when over a certain amount).
  • EU countries to create a central register or retrieval mechanism for ownership of bank accounts, enabling Financial Intelligence Units to identify account holders.
  • Member States to grant public access to information held on each EU country’s Register of Trusts, subject to a test, the conditions of which will be defined by each Member State.
  • Access to the Register of Trusts must also be granted to any member of the public in relation to a trust which holds or owns a controlling interest in a company that is not incorporated in the EU.
  • Members States to put in mechanisms to ensure that information on beneficial ownership of both companies and trusts are ‘adequate, accurate and current’.
  • Member States to ensure the interconnection between each other’s respective registers on companies and trusts via a platform by early 2021.

The document notes that although the date when most of the Directive takes effect is outside of the UK’s scheduled date of exit from the EU in 2019, it now seems likely that a transitional arrangement will be agreed in which the UK would stay in the Single Market. This would mean that the UK would have to continue to apply EU law for the duration of that arrangement.

The European Parliament has published a press release regarding confirmation of the Commission blacklist of countries at risk of money laundering. The published document is part of the European Commission’s obligation under the EU’s AMLD to produce a list periodically of high-risk third countries.

The Commission has now added Tunisia, Sri Lanka and Trinidad and Tobago onto the money laundering blacklist.

HM Treasury has updated its advisory notice on anti-money laundering (AML) and counter-terrorist financing (CFT) controls in higher risk jurisdictions. The notice serves as guidance to be followed as part of the due diligence procedures by the Money Laundering Regulations 2017.

HM Treasury in its notice would like to draw attention to the FATF’s statement in relation to identified high-risk countries based on assessments. The FATF identifies in its statement a number of jurisdictions that have deficiencies in their AML/CTF regimes. Firms are advised to take appropriate actions for the following jurisdictions:

  • Ethiopia
  • Iraq
  • Serbia
  • Sri Lanka
  • Syria
  • Trinidad and Tobago
  • Tunisia
  • Vanuatu
  • Yemen
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