FCA consults on BRRD implementation: FCA has published its consultation paper on implementing the Bank Recovery and Resolution Directive (BRRD) into its rules.  Treasury and PRA have already published papers (see FReD 25 July and FReD 1 August). FCA needs to implement the BRRD in respect of the 230 firms that are solo-regulated by it and that are categorised as IFPRU 730K firms. FCA refers to the Directive as the Recovery and Resolution Directive (RRD) in recognition of the fact its affected firms will be investment firms.  It notes the BRRD applies also to group entities that contain an IFPRU 730K firm so other regulated firms may be affected because of this link. In most respects, the FCA paper follows the PRA paper. Like the PRA, FCA notes it may need additional powers from Treasury to carry out some of the responsibilities the BRRD could give it. The paper covers:

  • scope of requirement for recovery plans including application of general and simplified obligations. This covers how FCA will use its discretion to apply a proportionate, simplified approach to firms whose failure would not cause a significant impact. FCA has designed an assessment based on various thresholds on which to make its decision. It thinks that if it applies this model, only 40 of the 230 IFPRU 730K firms will fall above the simplified approach threshold;
  • conditions for notification of failure or likely failure: FCA proposes to copy out the relevant BRRD provisions;
  • information requirements for resolution plans, including baseline and supplementary information and keeping information up to date. FCA, with PRA where appropriate, is developing a proportionate model for requesting information from firms that will allow it, as resolution authority, to meet its obligations;
  • conditions for intra-group financial support arrangements: again, FCA will copy out the relevant BRRD provisions;
  • contractual recognition that liabilities may be subject to bail-in; and
  • discussion on early intervention triggers, records of financial contracts and minimum requirement for own funds and eligible liabilities. Because of the nature of the FCA regulated firms subject to the new requirements, FCA welcomes firms' views on the metric or metrics it should have as early intervention triggers and on whether firms should be required to maintain detailed records of financial contracts as part of their recovery plans. On the latter point, FCA sets out what "financial contracts" encompasses and says it would be interested to know what records firms already keep.

The paper includes FCA's draft rules, which it plans to implement as a new Chapter 11 of IFPRU. It needs comments by 1 October and because of the short implementation timeframe is consulting now only on rules it needs to have in place for 1 January 2015.  (Source: FCA Consults on BRRD Implementation)

FCA finds best execution problems: FCA has published the results of a thematic review involving 36 firms and their compliance with FCA's best execution rules. It found several areas of concern including:

  • firms do not understand the rules;
  • firms do not control the costs to customers;
  • there is a lack of sufficient management oversight and front office involvement;
  • many firms could not properly monitor execution or identify when there was customer detriment; and
  • firms that use connected parties could not identify whether they faced any conflicts.

The review even found four firms tried to change the description of their services so they could continue to receive payment for order flow after FCA rules changed to prohibit it. The thematic review report explains FCA's position and gives examples of good and poor practice.  FCA will be writing individually to all firms involved in the sample. FCA now expects all firms to review their execution arrangements in the light of the findings and ensure they comply with FCA's expectations. (Source: FCA Finds Best Execution Problems)

FCA publishes Handbook changes: FCA has published the text of two instruments making changes to its Handbook.

  • the Crowdfunding (Amendment) Instrument 2014 took effect on 4 August and changes various modules of the Handbook, to consistently apply, or disapply certain provisions to those who operate an electronic lending platform and in relation to P2P lending.  The changes in principle make it clear these do not comprise designated investments and should often be treated in a similar way to traditional credit-related regulated activities;
  • the Personal Pension Scheme Operators (Capital Requirements) Instrument 2014 will take effect from 1 September 2016 and will amend the interim prudential sourcebook for investment firms (IPRU (INV)) and the Supervision Manual (SUP) to create a new prudential regime for self-invested personal pension scheme operators; and
  • the Temporary Marketing Restriction (CoCos) Instrument 2014: this represents FCA's first use of its temporary product intervention powers and will restrict firms from mass marketing of CoCos to the retail markets from 1 October 2014 for one year. FCA thought it necessary to use the powers as it believes these products are rarely suitable for retail investors, and it is following the lead of the ESAs (see above).  It did not need to consult on this temporary measure, but will consult on a permanent rule change which will take effect from 1 October 2015.

(Source: Handbook Notice 14)

Up next from FCA: FCA's latest Policy Development Update highlights, before the end of 2014:

  • consultation on the Mortgage Credit Directive and transfer of second charge mortgages (in September);
  • consultation on fees and levies policy for 2015/16 (in October); and
  • policy statements on the consultations on remuneration and the new individual regulatory framework (in December).

(Source: FCA Policy Development Update 15)

FCA issues guidance to mortgage lenders on meeting LtI cap: FCA is consulting on its guidance to mortgage lenders supervised by FCA on meeting the loan-to-income (LtI) cap recommended by the Financial Policy Committee. The cap is set at 4.5 for at least 85% of the total number of each lender's mortgage loans and would come into force on 1 October. (Source: Guidance on LtI Recommendation)

FCA consults on financial promotions in social media: FCA is consulting on its approach to financial promotions in social media. It has been looking at how firms are using social media, such as Twitter, Facebook, Google +, and Youtube as well as blogs and forums. It does not wish to stop firms doing so, but reminds them of their obligation to ensure promotions are compliant on a self-standing basis. The consultation looks at how firms can achieve this particularly on media that limits the use of number of characters or time. It gives some guidance and tips to firms such as:

  • ensuring individuals do not confuse tweeting on their personal accounts with business ones;
  • meeting the requirement that firms make it clear on the face of promotions that they are promotions by using the #ad hashtag;
  • the difficulties and possibilities for using signposting to take users to required information;
  • the benefits of using image advertising or promotion of non-regulated activities where space or time is limited;
  • use of dynamic banners and embedded pictures; and
  • the dangers of promotions being passed on to others.

It asks for comment by 6 November. (Source: FCA Consults on Financial Promotions in Social Media)

FCA consults on independent governance committees: FCA is consulting on the requirement that all providers of workplace pensions have in place an independent governance committee (IGC). FCA proposes to insert in Chapter 19 of the Conduct of Business Sourcebook (COBS) new rules that will require the creation of IGCs within firms and ensure that they act in the interests of scheme members. FCA proposes minimum requirements for IGCs, which are:

  • to act in the interests of relevant policyholders;
  • to assess the value for money of the firm’s workplace personal pension schemes and to raise concerns about this with the firm’s board;
  • to publicise concerns and findings and alert FCA, relevant scheme members and employers; and
  • to produce an annual report of its findings.

FCA suggests a “comply or explain” duty on firms, so that the firm must address the IGC’s concerns or explain to the IGC why it does not intend to do so. Smaller firms, with less complex schemes, can put in place a governance advisory arrangement (GAA), as an alternative to an IGC, whereby they appoint another independent firm (a third party, who may provide the service to several firms) to take on their IGC responsibilities. FCA asks for comments by 10 October. (Source: FCA Consults on Independent Governance Committees)