FCA Updates & Developments

The FCA has published near-final rules on the extension of the Senior Managers and Certification Regime (SM&CR) to solo regulated firms along with a guide providing a summary of the rules and guidance on the SM&CR. The near-final rules include a summary of feedback and responses from the FCA’s previous consultation paper along with the changes made as a result of the responses. Firms affected will move to the new regime on 9 December 2019.

The Regulator has explained that the rules are near-final as it is subject to commencement regulations to HM Treasury. However, it does not expect to make any significant changes.

The paper contains a summary of what firms should do under the regime and how the FCA plans to convert firms under the APR to the SM&CR.

CCL can help you with your SM&CR project with our consultancy and IT solutions.

CCL C.O.R.E is a compliance technology platform that has been developed with the SM&CR in mind. Many of our clients already utilise CCL C.O.R.E’s functionality to meet the requirements of SM&CR with great success and enhanced control.

We offer the following consultancy services in relation to the SM&CR.

  • Undertaking gap analysis
  • Providing project expertise and direction
  • Drafting or reviewing documentation
  • Preparation of responsibility map
  • Drafting individual statements of responsibility
  • Developing and implementing procedures to comply with SM&CR
  • Assisting with FCA submissions
  • Advising on general SM&CR matters

If you would like advice or support, please click here to contact us.

SM&CR Event

CCL is holding a complimentary SM&CR breakfast briefing in London on the 12th September. For more information on the event and how to apply, please click here.

The FCA has issued a statement welcoming the Institutional Disclosure Working Group’s (IDWG) recommendation. The IDWG, as a finding some the FCA’s Asset Management Market Study, worked towards the objective of providing an agreement on disclosure templates for asset management services provided to institutional investors.

The IDWG recommendations include:

  • Templates for data collection and disclosure
  • What arrangements will be needed to ensure the templates are maintained
  • How to encourage the use of templates
  • How to encourage users to request information in the format of the templates

The FCA will work with interested parties to begin the process of supporting IDWG’s recommendations.

The FCA has published its latest policy development update which includes:

  • Recovering the costs of the Office for Professional Body Anti-Money Laundering Supervision (OPBAS): Rates Proposals 2018/2019

The FCA has published on its website a summary of the temporary permissions regime.

The regulator is preparing for a range of scenarios involving Brexit, one of which concerns the UK leaving the EU without a deal and without an implementation period. This has led to the temporary permissions regime. The regime is intended to provide a backstop should an implementation regime and passporting regime fall away when the UK leaves EU. The regime, for a limited period of time, will allow firms to continue operating in the UK within their current permissions while seeking UK authorisation.

The Treasury has published a draft of several legislations which will establish the regime for financial services firms and funds. The legislation covers firms operating in the UK under a financial services passport. The Treasury has confirmed its intention to provide regulators with a general power to phase in post-exit requirements, allowing more flexibility to transition to a full domestic UK regulatory framework. This will be available to firms in the regime, further details will be published in due course.

Firms in the regime will have Part 4A permission, the home-host state restrictions on regulatory action will no longer apply and will subject the Firms to the full scope of the FCA’s supervision and rule-making powers. These will include compliance with, but not limited to, the following:

  • All FCA Handbook rules and guidance (which currently apply)
  • Financial Services Compensation Scheme
  • Financial Ombudsman Service
  • Senior Manager & Certification Regime

The regime will be consulted on a proposal in Autumn 2018. The regulator expects the regime to be in place for a maximum of three years to allow firms and funds to obtain authorisation or recognition in the UK.

If you would like advice or support with any licensing applications or compliance matters, please click here to contact us.

The FCA has published a statement regarding the European Securities and Markets Authority’s (ESMA) temporary measures to restrict the sale, marketing and distribution of Contracts for Differences (CFDs) to retail clients. The FCA is its statement iterates it is in full support of ESMA’s measures to protect retail clients.

The regulator is concerned that firms may consider getting around the restriction by selling similar complex products and will, therefore, work with ESMA and other European regulators to monitor and assess sales of alternative, speculative products to retail clients. 

PRA Updates & Developments

The PRA has published a consultation paper (CP18/18) setting out its proposed rules relating to the extension of the Senior Managers and Certification Regime (SM&CR) to insurers. The CP sets out technical corrections, cross-references and other minor amendments.

The CP should be read alongside policy statements PS15/18 and PS18/15.

The consultation ends on 1 October 2018 and is intended to provide certainty on technical details prior to the commencement on 10 December 2018.

EU Regulatory Updates

The European Securities and Markets Authority (ESMA) has published a policy statement to raise awareness on the importance to prepare for the possibility of no agreement in relation to Brexit.

It is noted by ESMA that entities need to consider the scenario of a hard Brexit and emphasise the importance of the timeline to submit requests for authorisation to National Competent Authorities (NCAs) and ESMA should they wish to relocate.

On 30 March 2019, firms must have a fully authorised legal entity located in the EU27 in order to continue providing services in the EU27.

ESMA has updated the following Questions and Answers (Q&As):

  • Temporary product intervention measures on the marketing, distribution or sale of Contract for Differences (CFDs) and binary options to retail clients
  • The update clarifies clients established outside the Union and non-Union nationals
  • Investor protection and intermediaries dealing with the provision of free research during trial period in relation to portfolio management or independent advice
  • Markets in Financial Instruments Directive II (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) transparency topics regarding the systematic internaliser regime and double volume cap mechanism
  • Benchmark Regulation in relation to calculation agent and regulated data benchmark
  • Application of the Undertakings for the Collective Investment in Transferable Securities Directive (UCITS) and Alternative Investment Fund Managers Directive (AIFMD) in relation to the supervision of branches of AIFMs providing MiFID investment services.
  • European Markets Infrastructure Regulation (EMIR) regarding amendments to existing questions on identification of counterparties and legal entity identifier

The European Supervisory Authorities has published further guidance on Key Information Documents (KID) for Packaged Retail and Insurance-based Investment Products (PRIIPs). The guidance consists of Q&As and updates to flow diagrams on risk and reward calculations.

Financial Crime

The Financial Action Task Force (FATF) has maintained its public documents which identify jurisdictions that may pose a risk to the international financial system.

It has identified that Iraq and Vanuatu have made significant progress in addressing its Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) deficiencies. This has resulted in both countries to no longer be subject to the FATF’s monitoring under its on-going global AML/CFT compliance process and will work with their respective regional bodies to continue strengthening their regime.

The FATF has further identified Pakistan as a jurisdiction with AML/CFT deficiencies. The FATF has developed with the country an action plan to address its deficiencies.

Following the FATF’s publication, the HM Treasury have updated their advisory notice on AML/CTF controls in higher risk jurisdictions. The notice considers the Democratic People’s Republic of Korea to be high risk and advises firms to apply countermeasures and enhanced due diligence measures. The notice also considers Iran to be of high risk and advises for firms to apply enhanced due diligence measures.

The FATF is developing guidance to assist the securities sector in the application of a risk-based approach to AML/CFT. It is intended to provide support to the private sector by focusing on ML/TF risks and associated mitigation measures.

The FATF is awaiting responses which must be submitted no later than 17 August 2018. The guidance has not yet been approved by the FATF and will be subject to revisions and amendments. 

The Law Commission has published a consultation paper in relation to its review of the AML regime and counter-terrorism financing regime. The paper addresses the problem that the current system for reporting Suspicious Activity Reports (SARs) is not as effective as it should be.  The paper proposes the following:

  • Guidance on what to look for and a set format for submitting SARs
  • Query into whether new tools could help enforcement like US-style Geographic Targeting Orders
  • New power to required additional detail and record keeping requirements in specific transactions
  • Cutting back on low-quality reports by focusing on accounts with reasonable grounds to suspect criminal property
  • Legal protection for banks which choose to lock into an account the suspected criminal funds but leave the rest of the account open to trade thereby minimising the risk of severe financial loss for those who are the subject of a disclosure
  • Detail as to what amounts to a defence of ‘reasonable excuse’ for not making a SAR
  • Query into whether commercial organisation, rather than individual employees, should be liable for failure to prevent a criminal offence when an employee fails to disclose a suspicion

Deadline for comments is by 5 October 2018.

Enforcement Action

The Serious Fraud Office (SFO) lead an investigation against two former senior bankers which resulted in the conviction of the individuals for manipulating the Euro Interbank Offered Rate (EURIBOR). The two individuals had manipulated EURIBOR between 2005 and 2009 with a view to making dishonest profits.

False or misleading submissions were made by the two traders in order to benefit their positions.

ESMA has fined the following five banks for breaching the Credit Rating Agencies (CRA) Regulation:

  • Danske Bank
  • Nordea Bank
  • SEB
  • Svenska Handelsbanken
  • Swedbank

Each bank was issued a fine of €495,000 along with five public notices for the banks’ negligence in breaching the CRAR. The banks were found to have infringed the regulation by issuing credit ratings without being authorised by ESMA.

The FCA has banned four former directors, David James Carter Mullins, Edward John Booth, Christopher Paul Brotherton and Mark Robert Kennedy, and shareholders of Secure My Money Limited for misleading customers between the period November 2013 and July 2014.

The individuals were found to lack honesty and integrity as they deliberately mislead vulnerable customers in relation to fees and services provided. The FCA had taken the strongest action possible to prevent the individuals from working in financial services for life or for as long as necessary for consumer protection. Due to the case occurring before the FCA had the power to fine individuals at consumer credit firms, this was the strongest sanction available.

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