FCA Updates & Developments

The FCA has published a policy development update which contains a timetable for future publications, including:

  • a consultation paper on ‘Payment Services and Electronic Money’; changes to our rules and guidance under the Payment Services Regulations 2017

The FCA has published a consultation paper (CP18/6) on proposed miscellaneous amendments to the Handbook. Although the changes are minor, the FCA is still asking for feedback on the proposal.

The following areas are where the proposed changes are being made:

  • IFPRU 3.2 for consistency of application and to align with the existing rule in IFPRU 11.6
  • IFPRU 11.5 to promote clarity for firms and groups within the scope of IFPRU 11 and to ensure continued compliance with the Recovery and Resolution Direction
  • Proposed transitional provision for the large exposures treatment of certain public-sector exposures denominated in the domestic currency of any Member State
  • Regulatory reporting requirements
  • FCA address in the Handbook with the upcoming move to Stratford
  • SUP to implement the European Banking Authority (EBA) Guidelines on payment services and to implement the requirements of Regulation 98 of the Payment Services Regulations 2017

The deadline for comments is between 3 April 2018 – 3 May 2018.

The FCA has published its review on product governance in small and medium-sized retail banks. The review examines how well banks consider customers’ needs when they design and sell products and provide after-sales services.

The review assessed the following:

  • How firms identify and respond to risks from the changing needs of customers and other external factors
  • Whether firms’ product governance frameworks provide sufficient challenge to their risk assumptions
  • How product reviews identify potential customer harm and provide effective management information

The review sets out its findings alongside examples of good practices and areas of improvement for firms to consider.

The FCA has published an addendum to its Quarterly Consultation Paper No 20 (CP 18/6) relating to the removal of the Appointed Representatives’ annual reporting requirement.

The removal of the reporting requirement is mentioned in the consultation paper, yet the text making this change is omitted from the legal instrument. The addendum is advised to be inserted into the instrument as indicated.

The FCA has published a discussion paper on transforming culture in financial services. The paper presents views from academics and industry leaders and is intended to provide a basis for further debate on transforming culture in the sector.

The paper is a set of essays that discusses what a good culture might look like, the role of regulation and regulators, how firms might go beyond incentives and how to change their behaviour for the better. Culture and governance is a priority for the FCA as demonstrated through the Senior Managers and Certification Regime (SM&CR).

The FCA would like all those who are interested to consider the issues in the paper and to engage in the debate regarding a healthy culture and the ways to promote it.

Sarah Rapson, Director of Authorisations, has delivered a speech at a conference regarding authorisations. The speech focused on three aspects; how the FCA uses authorisation to deliver the FCA mission, how the FCA help firms to meet the minimum standards, and how it is improving its approach to being more transparent about its performance.

The FCA has published two corporate consultation documents on its approach to supervision and enforcement. The documents aim to explain the FCA’s approach to regulation by providing more transparency to its thought process and decision making.

The approach to supervision document outlines the supervisory principles that guide their work, which complement the principles for business expected from firms. It clarifies the regulator’s pre-emptive and forward-looking approach with its engagement with regulated firms.

The approach to enforcement document sets out the FCA’s role to achieve a fair and just outcome in response to misconduct and to ensure compliance of its rules and requirements. The overriding principle identified is substantive justice and to ensure investigations carried out are in a consistent and open-minded way in order to achieve the right outcomes.

The deadline for comments on both documents is 21 June 2018.

The FCA has published Handbook Notice 53 which sets out changes made to the Handbook subject to the various instruments listed below:

  • Consumer Credit (Earlier Intervention and Persistent Debt) Instrument 2018 (CP17/43)
  • Dispute Resolution: Complaints (Politically Exposed Persons and Pensions Ombudsman) Instrument 2018 (CP17/39)
  • Fees Manual (Financial Ombudsman Service Case Fees 2018/19) Instrument 2018
  • Fees (Payment Systems Regulatory) Instrument (No 6) 2018 (CP17/44)
  • Fees (Payment Services) (No 4) Instrument 2018 (CP17/39)
  • Conduct of Business Sourcebook (Pension Transfer) Instrument 2018 (CP17/16)
  • Retirement Interest-only Mortgages Instrument 2018 (CP17/32)
  • Consumer Credit (Staff Incentives, Remuneration and Performance Management) Instrument 2018 (CP17/20)
  • Handbook Administration (No 48) Instrument 2018

The FCA has published a consultation paper regarding changes to the Financial Crime Guide for firms. It proposes to include an additional chapter on insider dealing and market manipulation and makes miscellaneous changes reflecting recent regulatory changes to keep the guide up to date.

The guidance will be of interest to firms that are subject to the financial crime rules in SYSC 6.1.1R and firms who arrange or execute transactions in financial markets.

The deadline for comments is 28th June 2018.

The Financial Services Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2018 (SI 2018/394) came into force on 22nd March 2018.

The order clarifies that certain persons carrying out the specified activity of accepting deposits do not do so ‘by way of business’ when borrowing money via an electronic system in relation to lending.

PRA Updates & Developments

The European Central Bank (ECB) has launched a public consultation on the draft principles underlying its expectations for banks’ internal capital adequacy assessment processes (ICAAPs) and internal liquidity adequacy assessment processes (ILAAPs).

The consultation deadline for submitting comments is 4th May 2018.

The PRA has published an updated application form for banks that seek authorisation to carry on regulated activities in the UK. The form contains:

  • Guidance on the information required from EEA banks operating in the UK or as a third-country branch in the UK
  • Updated sections on capital and liquidity requirements
  • Updated instructions on how to submit the application

The information is applicable to credit union, insurers and managing agent of a Lloyd’s syndicate.

EU Regulatory Updates

The European Securities and Markets Authority (ESMA) has updated its validation rules regarding the European Markets Infrastructure Regulation (EMIR) in relation to the revised technical standards on reporting.

The validation rules have been updated to:

  • Allow for the reporting of exchange-traded derivatives in products for which the effective date may be earlier than the date of execution
  • Clarify how the identification of the product should be validated for reports submitted on or after 3 January 2018

ESMA has published on its website an update to the Legal Entity Identifier (LEI). The update is in regard to an amendment to the LEI validation rule which has been implemented in the Market Data Processor (MDP) on 10 March. Firms should resubmit from 12 March any outstanding transaction reports where the trade data precedes the LEI registration data.

This update is applicable to any firm subject to the Markets in Financial Instruments Directive II’s (MiFID II) transaction reporting obligations. It will also be of interest to clients who are legal entities or structures, including a company, charity or trust.

The following have been published in the Official Journal of the EU (OJ):

  • The Commission Delegated Regulation (EU) 2018/389 supplementing the Payment Services Directive (PSD 2) regarding regulatory technical standards (RTS) for strong customer authentication and common and secure open standards of communication.

The European Securities and Markets Authority (ESMA) has published the following updated questions and answers (Q&A):

ESMA has agreed on measures on the provisions of contract for differences (CFDs) and binary options to retail investors in the EU. The measures include:

  • CFDs – a restriction on marketing, distribution or sale of CFDs to retail investors.
  • Binary Options – a prohibition on the marketing, distribution or sale of binary options to retail investors.

The agreed measures on CFDs include:

  • Leverage limits on the opening of a position by a retail client from 30:1 to 2:1 which vary according to the volatility of the underlying:
    • 30:1 for major currency pairs
    • 20:1 for non-major currency pairs, gold and major indices
    • 10:1 for commodities other than gold and non-major equity indices
    • 5:1 for individual equities and other reference values
    • 2:1 for cryptocurrencies
  • A margin-close out rule on a per account basis. This rule will standardise the percentage of margin at which providers are required to close out one or more retail client’s open CFDs
  • Negative balance protection on a per account basis
  • A restriction on the incentives offered to trade CFDs
  • A standardised risk warning including the percentage of losses on a CFD provider’s retail investor account

ESMA can only introduce temporary intervention measures on a three-monthly basis in accordance to the Markets in Financial Instruments Regulation (MiFIR). Before the end of this period, ESMA will consider the need for the measures to be extended.

Financial Crime

The Financial Action Task Force (FATF) has updated its guidance on assessing technical compliance with the FATF recommendations and the effectiveness of anti-money laundering (AML) and counter-terrorist financing (CTF) systems.

The document consists of three sections: an introduction to the overview of the assessment methodology, the criteria for assessing technical compliance with FATF recommendations, and the factors used to assess the effectiveness of the implementation of the recommendations.

The guidance is designed to assist assessors when conducting an assessment of a country’s compliance with the international AML/ CTF standards.

The Home Office has issued guidance to set out the principles for sharing information with the regulated sector and between the regulated sector and an authorised officer of the National Crime Agency (NCA).

The introduction of new sections of the Criminal Finances Act 2017 allows banks and businesses in the regulated sector to share information voluntarily in relation to suspicions of money laundering, terrorist financing offences or the identification of terrorist property or its movement or use.

The document distinguishes the different ways of information sharing, the processes and procedures to be followed and mechanisms for disclosure, as well as the interplay with the Suspicions Activity Reporting regime.  Flowcharts are present in the document to aid applicable businesses in information sharing.

HM Treasury has published its sixth report on AML and CTF supervision. The report contains the activities undertaken in 2015/16 and 2016/17, which supervisors provided to support the UK’s submission to the FATF to demonstrate the effectiveness of UK’s supervisory regime.

The report covers the following key areas:

  • Supervisors’ understanding of ML/TF risk
  • Supervisors’ adoption of a risk-based approach
  • Information sharing with law enforcement
  • Impact of awareness on compliance
  • Enforcement action

The report also includes discussion on the intended impact of the Money Laundering Directive as well as the expectation that supervisors are to work closely with businesses regarding AML/CTF.

The Joint Money Laundering Starring Group (JMLSG) has received Ministerial approval of Parts I, II and III of its Guidance published on 21 December 2017. The Ministerial approval will give the guidance legal status.

The Wolfsberg Group has published an updated Correspondent Banking Due Diligence Questionnaire (CBDDQ) alongside related guidance material (completion guidance, frequently asked questions and glossary).

The CBDDQ aims to set an enhanced and reasonable standard for cross-border and/or other high risk correspondent banking due diligence pursuant to the Wolfsberg definition and FATF guidance. It is the Group’s expectation that the Group member will begin to use the CBDDQ in a phased approach with all respondents.

The JMLSG has published proposed revisions of two of the sections in Part II of its guidance on the prevention of money laundering and the financing of terrorism for the UK financial services industry.

The proposed revisions are to asset finance and syndicated lending. The changes do not seek to amend the substance of the guidance but provide in a more descriptive manner the way the sector operates and how to assess the risks within the sector as well as how to identify who the customers are.

The deadline for comments are 30 March 2018.

Enforcement Action

The FCA has imposed a fine on credit card lender, Vanquis, for an amount of £1,976,000. The fine is in regard to Vanquis for failing to disclose the full price of an add-on product. While selling the product, Vanquis did not inform customers that the full cost of the product included an interest component where there was an end of month unpaid balance on their credit card.

Vanquis has voluntarily agreed to pay back the interest customers were charged as the FCA was not responsible for regulating the consumer credit market during the period in which Vanquis failed to disclose the necessary information.

The fine of £1,976,000 was reduced by 30% as Vanquis had agreed it had breached the Principles. In addition, Vanquis will pay an estimated £168,781,000 in compensation reflecting the amount of charges not disclosed to customers.

The FCA has fined and banned Guillaume Adolph for improperly influencing several of Deutsche’s LIBOR submissions in disregard of standards governing LIBOR’s submissions.

Mr Adolph’s misconduct was found to have threatened the integrity of important benchmarks and he should have no further role in the financial services industry. The FCA placed a fine of £180,000 and banned Mr Adolph from performing any function in relation to any regulated financial activity.

The FCA has banned the former Chair of Co-operative Bank PLC, Paul Flowers, from the financial services industry.

It has found that Mr Flowers had demonstrated an unwillingness to comply with the FCA’s requirements and standards as well as other legal, regulatory and professional requirements. Mr Flowers’ disregard for the standards expected of him, shows a lack of integrity and any future involvement in the financial services industry would risk undermining consumer and market confidence.

The FCA has agreed with PerfectHome, a rent to own firm, a package of redress amounting to over £2.1 million. It has identified that the firm’s affordability assessments did not adequately take into account customer circumstances which led to customers being issued with loans they could not afford.

PerfectHome has conducted a major programme to ensure that loans are affordable and customers are treated fairly. The redress will be made up of cash payments and balance write-offs for 37,000 customers. The action is aimed at resolving the concerns previously identified by the FCA.

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