FCA Updates & Developments

The Financial Conduct Authority (FCA) has updated its webpage on the Temporary Permissions Regime (TPR) to announce extension of the notification window from 28th March 2019 until the end of 11 April 2019. This decision follows the European Council and the UK Government’s decision on a short delay to the process of the UK’s withdrawal from the EU. The Bank of England (BoE) has also updated the TPR webpage accordingly.

The FCA has published guidance ‘FG19/2 Senior Managers and Certification Regime: Guidance on statements of responsibilities and Responsibilities Maps for FCA firms’. The purpose of this guidance is to give FCA solo-regulated firms practical assistance and information on preparing the Statement of Responsibilities (SoR) and Responsibilities Maps.

The FCA has published a policy statement that sets out the final rules on the Directory, a new public register that enables consumers, firms and other stakeholders to find information on key individuals working in financial services.

Publishing this information on a regular basis will empower customers to make sure they only deal with individuals whom an Authorised Firm has assessed as fit and proper or otherwise suitable, and those who have appropriate qualifications. It will also support the FCA, law enforcement, professional bodies and other regulators to monitor the market, build intelligence and target interventions.

The Directory’s interface (public-facing interface) will go live in March 2020 with information on banking and insurance firms. Information reported by solo firms will be made public on the Directory in December 2020.

The ‘PRIIPs Call for Input Feedback Statement’ (FS19/1) has been published, in which. it summarises the responses to its call for input on the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation and outlines next steps. The FCA stressed the importance of addressing issues arising from uncertainty about scope and the unintended effects of compliance with PRIIPs requirements, which may pose risks to consumers. The FCA will consider the extent domestic interpretive guidance will have on mitigating these issues, taking into account the UK’s future relationship with the EU. For more details refer to the FCA webpage.

The European Supervisory Authorities (ESA) submitted a letter to the European Commission on the draft regulatory technical standards to amend the Delegated Regulation covering the rules for the Key Information Document (KID) for PRIIPs. The amendment clarifies the application of the KID to investment funds where these are offered as underlying investment options to a PRIIP (so-called ‘multi-option products’ or ‘MOPs’). The amendment follows a recent decision by the European co-legislators to defer the application of the KID to these investment funds by two years from the end of this year until the start of 2022.

The FCA published a consultation paper (CP19/10) that sets out the proposed rules to require scheme governance bodies to disclose costs and charges information on an ongoing basis to scheme members. It also sets out some amendments to the Conduct of Business Sourcebook (COBS 19.8) rules. The consultation closes on 28 May 2019. See detailed information on the FCA webpage.

In addition, the FCA published two further webpages that set out the review on disclosure of costs by asset managers and the review of charges disclosure under the revised Markets in Financial Instruments Directive (MiFID) and associated Regulation.

The FCA has published Statements of Policy and press release outlining how it will operate the MiFID transparency regime, if the UK leaves the EU without an implementation period. The statements outline how the FCA may expect to use the new powers given by the MiFID in terms of transparency and the onshored UK regimes, as well as giving further clarity to market participants about the FCA’s approach in advance of Brexit.

The FCA published two pieces of research looking at UK consumer attitudes to cryptoassets, such as Bitcoin or Ether:

  1. Cryptoassets: Ownership and attitudes in the UK. This report contains a survey of a sample of 2,132 UK consumers looking at their awareness, understanding and purchasing habits related to cryptoassets.
  2. Revealing Reality: How and why consumers buy cryptoassets. This report explores the attitudes, understanding and motivations behind people’s decisions to purchase and use different cryptoassets through qualitative interviews with a small number of cryptoasset owners.

See also the FCA press release. Information about the regulation of cryptoassets and the risks of investing in cryptoassets is available on the FCA’s webpage.

The FCA has published a policy statement confirming that the Financial Ombudsman Service (FOS) will soon be able to require financial services firms to pay significantly more compensation to consumers and businesses. From 1 April, the current £150,000 limit will increase to £350,000 for complaints about actions by firms on or after that date. For complaints about actions before 1 April that are referred to the FOS after that date, the limit will rise to £160,000. The award limits will be automatically adjusted every year to ensure they keep pace with inflation. The FOS related content is available on the FCA’s webpage.

The FCA has published a report on its website on the pilot phase of the digital regulatory reporting. The pilot explored how firms and regulators could use technology to make the current process of regulatory reporting more accurate, efficient and consistent and this included exploring the broader implications of those technological changes and developing a vision for what regulatory reporting might look like in the future.

The FCA has published a document and associated press release, bringing together industry insights on cyber resilience. Cyber risks pose a threat to consumers and markets, and part of the FCA’s role is to help firms become more resilient to cyber-attacks, so reducing the risk and frequency of disruption.

The FCA published Handbook Notice 63, which sets out changes made to the FCA Handbook and other material made by the FCA Board under its legislative and other statutory powers in January and February 2019.

PRA Updates & Developments

The Bank of England (BoE) has published a document on the key elements of the 2019 annual cyclical scenario (ACS) used for stress testing the UK banking system. The ACS will test the resilience of the UK banking system to deep simultaneous recessions in the UK and global economies, a financial market stress, and an independent stress of misconduct costs. Details and relevant documents are published on the BoE’s webpage.

The results of the 2019 ACS will be published in 2019 Q4, along with the Bank’s Financial Stability Report.

PRA has published  a policy statement (PS6/19) that provides feedback to responses to Chapters 3 to 7 of Consultation Paper (CP) 24/18 ‘Occasional Consultation Paper’. The policy statement sets out the PRA’s feedback to the responses and outlines its final policy decisions, including the final rules amending parts of the PRA Rulebook (the Rulebook), the final Supervisory Statements (SSs) and Statements of Policy (SoPs). This PS is relevant to all PRA-authorised firms. The detailed information and the relevant appendices are available on the website.

Following an earlier consultation on the definition of default for credit risk, the PRA has issued a policy statement (PS7/19). It provides feedback to responses and contains the PRA’s final policy comprising an amendment to the Credit Risk Part of the PRA Rulebook to set thresholds, and an update to its expectations in a supervisory statement.  This PS is relevant to UK Banks, building societies and PRA-designated investment firms. Relevant appendices are available on the BoE webpage. The changes will apply from 31 December 2020, unless a firm attains supervisory approval to extend this application date.

PRA has published a policy statement (PS8/19) on the eligibility of guarantees as unfunded credit protection. The policy statement provides feedback on consultation responses and contains the PRA’s final policy updates, which amend previous supervisory statements on credit risk mitigation and the internal capital adequacy assessment process (ICAAP) and the supervisory review and evaluation process (SREP).

The new policy is relevant to all firms bound by the Capital Requirements Regulation and will take effect on Friday 13 September 2019. Prior consultation papers and appendices are available on the webpage.

PRA has published a consultation paper (CP5/19) that proposes to update the Pillar 2 capital framework to reflect continued refinements and developments in setting the PRA buffer (also referred to as Pillar 2B). The proposals in this CP cover the hurdle rate in stress, buffer interactions and usability. PRA proposes to amend the hurdle rates, risk management and governance assessment, updating the benchmarks used to calculate the Pillar 2A requirement for credit risk and some minor drafting errors.

This CP is relevant to PRA-authorised banks, building societies and PRA-designated investment firms and the consultation closes on Thursday 13 June 2019.

PRA’s consultation papaerCP6/19) Pillar 2 liquidity: Updates to the framework’ is relevant to UK banks, building societies, PRA-designated investment firms and non-EU EEA banks. It includes proposals to update: the PRA110 template and reporting instructions; Statement of Policy ‘Pillar 2 liquidity’; Supervisory Statement 24/15 ‘The PRA’s approach to supervising liquidity and funding risks’; SS34/15 ‘Guidelines for completing regulatory reports’; and the Regulatory Reporting Part of the PRA Rulebook.

This consultation period closes on Friday 19 April 2019. This CP is also available on the Bank of England’s webpage on regulatory reporting for the banking sector.

EU Regulatory Updates

The Basel Committee on Banking Supervision (BCBS) has published a statement on the growth in cryptoassets. It states that the continued growth of crypto-asset trading platforms and new financial products related to crypto-assets have the potential to raise financial stability concerns and increase risks faced by banks. In response to the risks posed, the BCBS suggests that banks that acquire cryptoasset exposures or provide related services should conduct due diligence and comprehensive analyses of the risks, establish clear governance and risk management frameworks, especially relating to money laundering and terrorist financing, disclose publicly any material cryptoasset exposure or services, and inform the relevant supervisory authority of actual and planned cryptoasset exposure in a timely manner.

The European Banking Authority (EBA) has published an updated methodological guide on how to compile risk indicators and detailed risk analysis tools. This guidance, which describes how risk indicators are computed in EBA publications, allows competent authorities and users of EBA data to interpret key bank figures in a consistent fashion when conducting their risk assessments.

The Council of the EU has released a statement and a press realeasewith its decision to reject the European Commission’s draft list of 23 ‘high-risk third countries’ in the area of money laundering and terrorist financing. In the statement, the Council justifies its decision on the grounds that it ‘cannot support the current proposal that was not established in a transparent and resilient process that actively incentivises affected countries to take decisive action while also respecting their right to be heard’. The Commission will now have to propose a new draft list of high-risk third countries that will address member states' concerns.

The European Money Markets Institute (EMMI) has announced a public consultation on the change in the methodology of the Euro OverNight Index Average (EONIA), as recommended by the Working Group on euro risk-free rates. By conducting this consultation, EMMI intends to raise awareness of the implications of the suggested changes and ensure a timely preparation for the upcoming changes by EONIA’s users. 

The European Securities and Markets Authority (ESMA) has made available the results of the annual transparency calculations for equity and equity-like instruments under the revised Markets in Financial Instruments Directive (MiFID 2). The transparency requirements based on these results will apply from 1 April 2019 until 31 March 2020. Due to late data submissions by some reporting entities and adaptations necessary, should the UK leave the EU on 29 March 2019 under a no-deal scenario, ESMA will have to update the results after 29 March 2019.

ESMA has published a statement on its approach to the application of some key MiFID II/MiFIR and Benchmark (BMR) provisions should the UK leave the EU under a no-deal Brexit.  ESMA’s statement aims to inform stakeholders on the approach it will take in relation to these provisions. It sets out details on the following MiFID II and BMR aspects under a no-deal Brexit.

ESMA has issued its notice that provides details of the Decision 2019/509 to renew the prohibition on the marketing, distribution or sale of binary options to retail clients. The renewal is made on the same terms as the previous renewal decisions in September and December 2018 and has been in effect since 2nd July 2018. This Decision shall apply from 2 April 2019 for a period of 3 months.

ESMA has issued its notice that provides details of the Decision 2019/509 to renew the prohibition on the marketing, distribution or sale of binary options to retail clients. The renewal is made on the same terms as the previous renewal decisions in September and December 2018 and has been in effect since 2nd July 2018. This Decision shall apply from 2 April 2019 for a period of 3 months.

ESMA has updated its questions and answers (Q&A) on MiFID II and MiFIR commodity derivatives topics. These Q&As provide clarification on issues related to the MiFID II/MiFIR regime for commodity derivatives, including on position limits, position reporting and ancillary activity.

Financial Crime

Trace International has published its annual global corruption enforcement report. Trace’s Global Enforcement Report (GER) provides graphic and textual analyses of all known investigations and enforcement actions involving transnational commercial bribery since the passage of the U.S. Foreign Corrupt Practices Act. The report includes statistics for open US and worldwide investigations into foreign-bribery allegations, enforcement actions, investigations concerning bribery of domestic officials by foreign sources and the industry sectors including financial services.  

The Organisation for Economic Co-operation and Development (OECD) Working Group on Bribery has published  “Implementing the OECD Anti-Bribery Convention Phase 4 Two-year Follow-up Report: United Kingdom”. The report outlines the steps taken by the UK to implement the recommendations received and addresses the follow-up issues identified during its Phase 4 evaluation in March 2017.

The Joint Money Laundering Steering Group (JMLSG) has issued a press release containing publications of proposed revisions to two of the sectors 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 made to Sector 4: Credit unions, and Sector 20: Brokerage services to funds. The revisions describe in more current terms how to assess the risks in the sectors and how to identify who the customers are.

Enforcement Action

The FCA has issued a final notice and associated press release on fining UBS £27,599,400 (after 30% early settlement discount) for failings relating to 135.8 million transaction reports between November 2007 and May 2017. Failings include incomplete or inaccurate information or erroneous reporting of non-reportable transactions. The FCA found that the bank failed, in breach of Principle 3 of the FCA’s Principles for Businesses, to take reasonable care to organise and control its affairs responsibly and effectively in respect of its transaction reporting.

The FCA has published its final notice and press release on imposing a £34,344,700 (after 30% discount) fine on Goldman Sachs International (GSI) for failing to provide accurate and timely reporting relating to 220.2 million transaction reports between November 2007 and March 2017. The GSI has breached Principle 3 of the Principles for Businesses by failing to organise and control its affairs responsibly and effectively with adequate risk management systems in relation to its compliance with the FCA’s MiFID transaction reporting requirements.

Following an investigation and prosecution, the Serious Fraud Office (SFO) has published a news release with details of conviction of a Former Managing Director at Barclays, Colin Bermingham, for manipulating the Euro Interbank Offered Rate (EURIBOR) at the height of the financial crisis. This follows the conviction of former Barclays Vice President of Euro Rates, Carlo Palombo, on 26 March 2019. Both men conspired together with former Principal Trader at Deutsche Bank, Christian Bittar and former Barclays Director Phillipe Moryoussef to submit false or misleading EURIBOR submissions to change the published rate and benefit their positions.

The FCA has issued a final notice and press release about fining the Carphone Warehouse £29,107,600 for breaching Principle 3 (failing to take reasonable care to organise and control affairs), Principle 6 (failure to pay due regard to the interests of its customers) and Principle 9 (failure to take reasonable care in ensuring the suitability of advice) of the FCA’s Principles for Businesses.

The FCA found that the Carphone Warehouse failed to give its sales consultants the right training to give suitable advice to customers purchasing Geek Squad. Sales consultants were not trained adequately to assess a customer’s needs to determine whether Geek Squad was suitable. They were trained to recommend Geek Squad to customers who already had cover, for example through their home insurance or bank accounts.

The Chair of the Treasury Committee, Rt Hon. Nicky Morgan MP, has written two letters addressed to the economic secretary to the Treasury and to the chair of the FCA. The letters request to consider whether the tests around the need for a statutory investigation into possible regulatory failure surrounding London Capital and Finance (LC&F) have been met. LC&F went into administration in January 2019 after being investigated by the FCA in late 2018 for the promotion of mini-bonds. Press releases on the House of Commons and SFO website have more information.

EU Exit

The following Brexit related statutory instruments (SIs) have been made:

Both SIs will come into force in accordance with regulations made by the Treasury under section 56 of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). They are designed to ensure that the UK implements its international obligations under UN Security Council Resolution 1373 and further its aims at prevention of terrorism in the UK and elsewhere.

The Sanctions Regulations (Commencement No. 1) (EU Exit) Regulations 2019 (SI 2019/627) have brought into force certain provisions of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA 2018). SAMLA 2018 is enabling legislation to allow the UK to impose economic and other sanctions, and money laundering regulations, after departure from the EU.

As a result of Brexit discussions,the FCA has published a consultation paper (CP19/11) on changes to its Decision Procedure and Penalties manual (DEPP) and Enforcement Guide (EG) The proposed changes relate to securitisation repositories (SRs) under the Securitisation Regulation and the transfer of responsibility for SRs from ESMA to the FCA. The deadline for comments is 8 April 2019. See detailed information on the webpage.

ESMA has announced that in the event of a no-deal Brexit, the Central Securities Depository (CSD) established in the United Kingdom (UK) – Euroclear UK and Ireland Limited – will be recognised as a third country CSD to provide its services in the European Union (EU). The recognition decision would take effect on the date following Brexit date, under a no-deal Brexit scenario.

FCA has issued a statement on the reporting of derivatives under the UK EMIR regime in a no-deal scenario. This statement explains what Trade Repositories (TRs), and UK counterparties that use them, should do to make sure they are compliant with their EMIR reporting obligations after the UK leaves the EU. After Brexit, all UK firms that enter into a derivative contract (both over-the-counter (OTC) and exchange-traded derivatives) are in scope of the UK EMIR regime and required to report details of those transactions to an FCA-registered, or recognised, TR according to the UK EMIR regime. The FCA will become the UK authority responsible for the registration and ongoing supervision of TRs operating in the UK.

The Bank of England (BoE) and Prudential Regulatory Authority (PRA) have issued a joint policy statement (PS5/19) on amendments to financial services legislation under the European Union (Withdrawal) Act 2018.

The supplementary documents have been published on the BoE webpage. This webpage sets out the legal and regulatory framework which would be expected to operate following the UK withdrawal from the EU without an implementation period in place. The supplementary documents include BoE and PRA Statement of Policy, PRA Rulebook, PRA supervisory statements, Binding Technical Standards, BoE Financial Market Infrastructure materials, BoE guidance documents, PRA guidance documents and Directions.

The Financial Conduct Authority (FCA) has published a policy statement regarding Brexit and transitional directions (PS19/5). The policy statement sets out responses to feedback received by the FCA from previous Brexit consultations, near-final rules and Binding Technical Standards and the use of the temporary transitional power. The FCA webpage contains supplementary appendices and directions.

ESMA has published a statement clarifying its approach to aspects of the MiFID position limits regime, post-trade transparency requirements, derivatives trading obligation and benchmarks regulation if the UK leaves the EU without an implementation period (a no-deal scenario).

HM Treasury has published the following draft regulations:   

Brexit related statutory instruments (SIs) have been made to ensure that relevant legislation continues to operate effectively at the point at which the UK leaves the EU. The following come into force on the day the UK leaves the EU:

The following are already in force either fully or in part, with the remainder of the SIs coming into force on the day the UK leaves the EU: 

These Regulations are made in order to address failures of retained EU law to operate effectively as well as other deficiencies arising from the withdrawal of the UK from the EU.

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