Includes developments in relation to: Queen’s speech; private sector climate transition plans; APP scam reimbursement; financial promotions; PRIIPs KID; and multi-occupancy buildings insurance

Click on the headings below to access each section:

GENERAL

Issue 1159 / 12 May 2022

HEADLINES

  1. European Commission
    1. SFDR disclosures - European Commission requests ESAs to propose amendments to RTS-6 May 2022
    2. Distance marketing of consumer financial services - European Commission adopts legislative proposal for a Directive-11 May 2022
  2. European Parliament
    1. EU digital finance package - Political agreement reached on DORA-11 May 2022
  3. UK Government
    1. Pro-competition regime for digital markets - DCMS and BEIS publish government response to consultation-6 May 2022
    2. Queen’s Speech - Financial Services and Markets Act Bill-10 May 2022
    3. Green Finance Strategy - BEIS publishes call for evidence-12 May 2022
  4. HM Treasury
    1. Private sector climate transition plans - Transition Plan Taskforce publishes call for evidence-10 May 2022
  5. Financial Conduct Authority
    1. Learning from innovation - FCA publishes speech-5 May 2022
    2. Disclosure obligations - FCA publishes response to decision and recommendations of Upper Tribunal-6 May 2022
    3. CryptoSprint - FCA publishes webpage-12 May 2022
  6. FICC Markets Standards Board
    1. Name change - announced by FMSB-9 May 2022

European Commission

SFDR disclosures - European Commission requests ESAs to propose amendments to RTS - 6 May 2022

The European Securities and Markets Authority (ESMA) has published two letters sent from the European Commission (the Commission) to the Joint Committee of the European Supervisory Authorities (ESAs) requesting that they propose amendments to the regulatory technical standards (RTS) in Commission Delegated Regulation C(2022) 1931 final (SFDR Delegated Regulation), which were adopted on 6 April 2022 under the Sustainable Finance Disclosure Regulation ((EU) 2019/2088) (SFDR).

In the letter dated 8 April 2022, the Commission notes that amendments to the SFDR Delegated Regulation are necessary to ensure that investors receive information reflecting the provisions set out in the proposed Complementary Climate Delegated Regulation, which is due to be adopted later in 2022 to cover natural gas and related technologies as transitional activity in as far as they fall within the limits of the EU Taxonomy Regulation ((EU) 2020/852). The ESAs are therefore invited to propose amendments to the RTS in relation to the information that should be provided in pre-contractual documents, on websites, and in periodic reports about the exposure of financial products to investments in fossil gas and nuclear energy activities. In view of the urgency of the matter, these amendments should be submitted by 30 September 2022 at the latest.

In the letter dated 11 April 2022, the Commission highlights its previous announcement that the RTS laid down in the SFDR Delegated Regulation are to be reviewed both to cater for the increased requests for transparency in areas that extend beyond the environment, and to strengthen the disclosure and effectiveness of decarbonisation actions by financial market participants for all financial products. In light of this, the Commission is inviting the ESAs to develop draft RTS and sets out detailed points for consideration. This input should be provided within 12 months of the ESAs receiving the letter.

European Commission letter: Re: amendments to regulatory technical standards under the Sustainable Finance Disclosure Regulation ((EU) 2019/2088) (Ares(2022)278608) (dated 8 April 2022)

European Commission letter: Re: amendments to regulatory technical standards under the Sustainable Finance Disclosure Regulation ((EU) 2019/2088) (Ares(2022)2937873) (dated 11 April 2022)

Distance marketing of consumer financial services - European Commission adopts legislative proposal for a Directive - 11 May 2022

The Commission has adopted a proposal for a Directive which reforms the current EU rules on distance marketing of consumer financial services, amending Directive 2011/83/EU concerning contracts concluded at a distance and repealing the Distance Marketing of Financial Services Directive (2002/65/EC) (COM(2022)204 final).

The proposal seeks to strengthen consumer rights and foster the cross-border provision of financial services in the single market, responding to the overall digitisation of the sector and the new types of financial services that have been developed since the rules were first introduced in 2002. To this end, the proposal introduces actions across several areas, including:

  • easier access to the 14-day withdrawal right for distance contracts for financial services;
  • clear rules on what, how and when pre-contractual information is to be provided;
  • special rules to protect consumers when concluding financial services contracts online;
  • an extension of the rules on enforcement and penalties; and
  • full legal harmonisation to ensure the same high level of consider protection across Member States.

The proposal will now be discussed by the European Parliament and the Council of the EU.

Proposal for a Directive of the European Parliament and of the Council amending Directive 2011/83/EU concerning financial services contracts concluded at a distance and repealing Directive 2002/65/EC (COM(2022)204 final)

Impact assessment (SWD(2022)141 final)

Impact assessment: Executive summary (SWD(2022)142 final)

Updated webpage

Press release

European Parliament

EU digital finance package - Political agreement reached on DORA - 11 May 2022

The European Parliament has published a press release announcing that political agreement has been reached on the proposed Digital Operational Resilience Act (2020/0266(COD)) (DORA). DORA aims to establish a comprehensive regulatory framework on digital operational resilience with a view to ensuring that all firms within scope can withstand information and communication technology- (ICT-) related disruptions and threats. DORA forms part of the Commission’s digital finance package, published on 24 September 2020, as previously reported in this Bulletin. The Council of the EU (the Council) adopted its negotiating mandate on DORA on 24 November 2021.

Under the provisional agreement, banks, stock exchanges, clearinghouses and other financial firms will have to respect strict standards to prevent and limit the impact of ICT-related incidents. The agreement also introduces an oversight framework on service providers that provide critical services such as cloud computing to financial institutions.

The European Parliament and the Council must now approve the provisional agreement before it goes through the formal adoption procedure. Once the DORA proposal is formally adopted, it will be passed into law by each EU member state. The European Supervisory Authorities will then develop technical standards for all financial services institutions to abide by. National competent authorities will take the role of compliance oversight and enforce DORA as necessary.

European Parliament press release

Council of the European Parliament press release

European Commission press release

UK Government

Pro-competition regime for digital markets - DCMS and BEIS publish government response to consultation - 6 May 2022

The Department for Digital, Culture, Media & Sport (DCMS) and the Department for Business, Energy & Industrial Strategy (BEIS) have published the government response to its July 2021 consultation on the proposed new pro-competition regime for digital markets, and the establishment of the Digital Markets Unit (DMU).

The vast majority of respondents to the consultation supported the government’s proposals for the regime. Many provided evidence of the need for urgent action to ensure the government has the regulatory tools needed to address the challenges arising from weak competition in digital markets. Respondents also emphasised the need to equip the Digital Markets Unit (DMU) with the ability to respond rapidly and flexibly to fast moving issues in digital markets.

Taking account of this feedback, the government outlines the core tenets of its new regime, which include:

  • a DMU with the core objective to promote competition in the digital markets for the benefit of consumers, with a duty to consult with other regulators where proportionate and relevant;
  • a targeted focus on a small number of firms with substantial and entrenched market power, which gives them a strategic position (‘Strategic Market Status’) in one or more activities, determined by a minimum revenue threshold;
  • a DMU which is empowered to make pro-competitive interventions, such as those made to support interoperability; and
  • a DMU with the power to impose financial penalties of up to 10% of a firm’s global turnover for regulatory breaches, and to apply to the court to disqualify individuals from holding directorship roles in the UK.

The government also intends to introduce new requirements for firms with Strategic Market Status to report merger transactions to the Competition and Markets Authority (CMA) prior to their completion. The proposed changes to the Phase 2 merger review threshold are not being taken forward.

The government intends to legislate to implement these reforms when parliamentary time allows.

Government response to the consultation on a new pro-competition regime for digital markets

Webpage

Queen’s Speech - Financial Services and Markets Act Bill - 10 May 2022

The Queen’s Speech has been delivered by Prince Charles at the Opening of Parliament, setting out the government’s legislative agenda for the next parliamentary session.​​​​​​​

The speech touched on three bills that will be of interest to financial market participants: the Retained EU Law Bill, also known as the Brexit Freedoms Bill; the Financial Services and Markets Bill; and the Economic Crime and Corporate Transparency Bill. The Retained EU Law Bill and the Economic Crime and Corporate Transparency Bill are covered in the Brexit and Financial Crime sections of this Bulletin, respectively.

The Financial Services and Markets Bill (the Bill) builds on the Financial Services Act 2021 and will “strengthen the UK’s financial services industry, ensuring that it continues to act in the interest of all people and communities”. The main elements of the Financial Services and Markets Bill are:

  • revoking retained EU law on financial services (including Solvency II) and replacing it with an approach to regulation that is designed for the UK;
  • updating the objectives of the financial services regulators to ensure a greater focus on growth and international competitiveness;
  • reforming the rules that regulate the UK’s capital markets to promote investment;
  • ensuring that people across the UK continue to be able to access their own cash with ease; and
  • introducing additional protections for those investing or using financial products, to make it safer and support the victims of scams.

In an associated press release, HM Treasury notes that the Bill will also enable the Payment Systems Regulator (PSR) to require banks to reimburse authorised push payment (APP) scam losses, totalling hundreds of millions of pounds each year. This statement coincides with the publication of a policy paper in which the government sets out its approach to APP scam reimbursements, covered in the Banking and Finance section of this Bulletin.

Queen’s Speech 2022

Briefing pack

HM Treasury press release: New law to protect access to cash announced in Queen’s speech

Policy Paper: Government approach to authorised push payment scam reimbursement

Green Finance Strategy - BEIS publishes call for evidence - 12 May 2022

The Department for Business, Energy and Industrial Strategy has published a call for evidence as part of the government’s update to the UK’s Green Finance Strategy (the Strategy). The Strategy, originally published in July 2019, with the update planned for publication in late 2022, sets out a comprehensive approach to greening financial systems, mobilising finance for clean and resilient growth, and capturing the resulting opportunities for the UK.​​​​​​​

The government explains that the updated Strategy will take stock of progress so far and set out how the UK can better ensure the financial services industry is supporting the UK’s energy security, climate and environmental objectives. It highlights key actions taken so far by the government, including:

  • publishing the Net Zero Strategy on how it will decarbonise the economy by 2050 (October 2021);
  • setting out a new Energy Security Strategy, which is designed to boost Britain’s energy security and independence following Russia’s invasion of Ukraine and rising global energy prices (April 2022);
  • adopting the landmark Environment Act 2021, which puts environmental goals such as reversing the decline in biodiversity on a statutory footing (November 2021); and
  • following the National Adaptation Programme, which sets out what the UK government, businesses and society are doing to better prepare for the impacts of climate change (July 2018 - July 2023).

In light of these developments, the call for evidence contains 39 questions on four key objectives:

  • capturing the opportunity of green finance;
  • mobilising finance for the UK’s energy security, climate and environmental objectives;
  • greening the financial system; and
  • leading internationally.

The deadline for responses is 22 June 2022.

BEIS Call for Evidence: Update to Green Finance Strategy

Webpage

HM Treasury

Private sector climate transition plans - Transition Plan Taskforce publishes call for evidence - 10 May 2022

The Transition Plan Taskforce (the Taskforce) has published a call for evidence on a ‘sector-neutral framework’ for private sector transition plans (the Framework).

The Taskforce, which was launched in April 2022 by HM Treasury to develop a gold standard for transition plans, explains that the Framework will aim to establish guidelines for financial and non-financial companies that set out how they will decarbonise and support economy-wide decarbonisation as part of the transition to net zero, and will directly inform emerging UK regulation.

The Framework will lay out:

  • the definition of a transition plan;
  • principles that should guide preparers of transition plans and provide a reference point for users seeking to understand the credibility of disclosed plans;
  • key elements that any private sector transition plan should cover, regardless of the sector of the organisation preparing them; and
  • accompanying guidance on the role of governance and assurance, third-party verification, and the implications of organisational transition plans for reporting.

Among other things, the Taskforce is seeking views on the prescriptiveness of the Framework (that is, whether it should take a principles-based approach, or a more prescriptive approach), and the location of transition plan disclosures.  

The deadline for responses is 13 July 2022. The Taskforce will publish a draft framework for consultation towards the end of 2022, with a view to finalising it in early 2023.

Transition Plan Taskforce: Call for Evidence: A Sector-Neutral Framework for private sector transition plans

Webpage

Financial Conduct Authority

Learning from innovation - FCA publishes speech - 5 May 2022

The FCA has published a speech delivered by Nikhil Rathi, CEO of the FCA, which provides the FCA’s perspective on the last 30 years and what can be learned from them, with a particular focus on innovation. Among other things, Mr Rathi highlighted that:

  • digital skills will be integrated in all future financial services education, including at the FCA, as the boundaries become blurred between tech and the industry;
  • the Digital Regulation Cooperation Forum (DRCF), of which the FCA is a member, is focusing on protecting children online, which is relevant for the FCA as it is seeing ever younger participants (including children) in new financial products like cryptoassets; and
  • in one year, the FCA has seen over 2,000 cases of screen sharing scams where victims have lost £25 million. The ‘ScamSmart’ campaign, launched on 5 May 2022, aims to tackle this.

Speech by Nikhil Rathi, FCA CEO at the Chartered Institute for Securities and Investment 30th anniversary dinner: Learning from the last 30 years to face the next

  1.  

Disclosure obligations - FCA publishes response to decision and recommendations of Upper Tribunal - 6 May 2022

The FCA has published its response to the July 2021 decision and recommendations of the Upper Tribunal (Tax and Chancery Chamber) (the Tribunal) in Forsyth v FCA and PRA [2021] UKUT 12 (TCC). In its decision, the Tribunal found serious failings by the FCA and PRA relating to their disclosure obligations in respect of a limitation period issue, and made several recommendations under section 133A(5) of the Financial Services and Markets Act 2000.

Notably, the FCA:

  • accepts the Tribunal’s recommendation that it should ensure its staff are adequately trained and have an adequate understanding of the importance of proper records management;
  • has updated its enforcement division’s disclosure training and guidance to reflect matters raised in the Tribunal’s decision about dealing with requests for document disclosure made after the usual disclosure process has been completed; and
  • states that, contrary to the recommendation of the Tribunal, it is not practicable for all internal legal professional privilege material to be separated from other material as soon as it is generated.

FCA actions in response to recommendations made by the Upper Tribunal pursuant to section 133A(5) of the Financial Services and Markets Act 2000

  1.  

CryptoSprint - FCA publishes webpage - 12 May 2022

The FCA has published a webpage on the two-day CryptoSprint event it held on 10 and 11 May 2022. Forming part of the FCA’s three-year strategy to prepare financial services for the future, the CryptoSprint provided an opportunity to explore UK policy solutions for the crypto sector. It builds on the FCA’s established TechSprint approach and the Regulatory Sandbox.

The FCA notes that around 100 participants from the crypto industry, financial services firms, academia, consumer groups and subject matter experts collaborated to inform the development of future regulations on cryptoassets. This is the first time the FCA has gathered views from industry and other stakeholders to help shape future policy in this way.

The FCA will share the outputs of its CryptoSprint in summer 2022.

Webpage

FICC Markets Standards Board

Name change - announced by FMSB - 9 May 2022

The FICC Markets Standards Board (FMSB) has announced that it is changing its name to the Financial Markets Standards Board. The FMSB will continue to use the same acronym.

The FMSB explains that the change will help support engagement with a wider range of users of wholesale markets who may be less familiar with the FICC acronym, and reflects the broader relevance of the FMSB’s work across wholesale financial markets.

Press release

BEYOND BREXIT

Issue 1159 / 12 May 2022

HEADLINES

  1. UK Government
    1. Queen’s Speech - Brexit Freedoms Bill-10 May 2022

UK Government

Queen’s Speech - Brexit Freedoms Bill - 10 May 2022

The Queen’s Speech has been delivered by Prince Charles at the Opening of Parliament, setting out the government’s legislative agenda for the next parliamentary session.

The speech touched on three bills that will be of interest to financial market participants: the Retained EU Law Bill, also known as the Brexit Freedoms Bill; the Financial Services and Markets Bill; and the Economic Crime and Corporate Transparency Bill. The Financial Services and Markets Bill the Economic Crime and Corporate Transparency Bill are covered in the General and Financial Crime sections of this Bulletin respectively.

The Retained EU Law Bill (the Bill) will “enable law inherited from the European Union to be more easily amended”. The main elements of the Bill are:

  • creating new powers to strengthen the ability to amend, repeal or replace retained EU law by reducing “the need to always use primary legislation to do so” and modernising the UK’s approach to making regulation;
  • removing the supremacy of retained EU law over UK law and ensuring that EU-derived law no longer takes priority over Acts of Parliament; and
  • clarifying the status of retained EU law in UK law to “reflect the fact that much of it become law without going through full democratic scrutiny in the UK Parliament”.

The government comments that the Bill, which will extend and apply across the UK, will significantly reduce the amount of time needed to make retained EU legislation fit for the UK, meaning that the government can more quickly implement the benefits of Brexit.

Queen’s Speech 2022

Briefing pack

BANKING AND FINANCE

Issue 1159 / 12 May 2022

HEADLINES

  1. Committee on Payments and Market Infrastructures
    1. Real-time gross settlement systems - CPMI publishes final report-12 May 2022
  2. European Commission
    1. PSD2 and open finance framework - European Commission publishes two targeted consultations and public consultation-10 May 2022
  3. HM Treasury
    1. APP scam reimbursement - HM Treasury publishes policy paper-10 May 2022
  4. Prudential Regulation Authority
    1. Non-performing and forborne exposures - PRA publishes statement on the EBA’s Guidelines-6 May 2022
    2. Trading activity wind-down - PRA publishes Policy Statement (PS4/22)-6 May 2022
  5. Financial Conduct Authority
    1. Financial promotions - FCA publishes Dear CEO letter to consumer credit firms-6 May 2022
  6. Payment Systems Regulator
    1. Digital Payments Initiative - PSR Panel publishes report-10 May 2022
  7. Financial Services Consumer Panel
    1. Equity release products - FSCP publishes final research and position paper-11 May 2022

Committee on Payments and Market Infrastructures

Real-time gross settlement systems - CPMI publishes final report - 12 May 2022

The Committee on Payments and Market Infrastructures (CPMI) has published its final report (the Report) on extending and aligning payment system operating hours for cross-border payments. The Report follows the CPMI’s November 2021 consultative report on the matter, as previously reported on in this Bulletin.

The Report focuses on the operating hours of real-time gross settlement (RTGS) systems, which are considered key to enhancing cross-border payments. The CPMI explains that an extension of RTGS operating hours across jurisdictions could help increase the speed of cross-border payments and reduce liquidity costs and settlement risks.

The Report sets out three potential improvements (end states), based on an analysis of 62 RTGS systems worldwide, and discusses operational, risk and policy considerations related to those end states. It also introduces the concept of a ‘global settlement’ window as the period when the largest number of RTGS systems simultaneously operate.  

The CPMI will now work to develop technical and operational approaches to address the central challenges associated with the extension of operating hours of key payment systems. Central banks (as RTGS system operators) and other relevant payment system operators are encouraged to work with their participants and other stakeholders to consider the potential end states and their benefits, risks and challenges, to determine the best path forward for RTGS operating hours.

CPMI Final Report: Extending and aligning payment system operating hours for cross-border payments

Webpage

European Commission

PSD2 and open finance framework - European Commission publishes two targeted consultations and public consultation - 10 May 2022

The European Commission (the Commission) has published two targeted consultation papers on: (i) its review of the revised Payment Services Directive ((EU) 2015/2366) (PSD2); and (ii) the open finance framework, alongside a public consultation on the review of PSD2 and open finance.

The Commission seeks feedback on the application and impact of PSD2 in light of new payment services and risks. This will enable the Commission to determine whether EU coordinated action and/or policy measures are needed to ensure that its rules remain relevant.

The Commission also seeks views on the broader concept of ‘open finance’, which could cover a range of financial services, such as investment in securities, pensions and insurance. The Commission aims to enable data sharing and third party access for a wide range of financial sectors and products, in line with data protection and consumer protection rules.

The deadline for responses to both targeted consultations is 5 July 2022. The deadline for responses to the public consultation is 2 August 2022.

Targeted consultation on the review of the revised Payment Services Directive (PSD2)

Webpage

Targeted consultation on open finance framework and data sharing in the financial sector

Webpage

Public consultation on the review of the revised Payment Services Directive (PSD2) and on open finance

Press release

HM Treasury

APP scam reimbursement - HM Treasury publishes policy paper - 10 May 2022

HM Treasury has published a policy paper on the government’s approach to authorised push payment (APP) scam reimbursement. The policy paper follows the Payment Systems Regulators’ (PSR’s) February 2021 call for views on APPs scams and subsequent consultation paper on the matter (CP21/10), published in November 2021.

The government intends to legislate in the Financial Services and Markets Bill, announced in the Queen’s speech on 10 May and covered in the General section of this Bulletin, to enable regulatory action by the PSR to require banks and other payment service providers to reimburse APP scam losses.

This legislative amendment will clarify that the PSR may use its existing regulatory powers, as set out in the Financial Services (Banking Reform) Act, to establish a liability framework and require reimbursement in cases of APP scams in designated payment systems, including ‘Faster Payments’.

Currently, under regulation 90 of the Payment Services Regulations 2017, where a payment is executed in accordance with the unique identifier provided by the customer, a payment service provider has correctly executed the payment. The government’s legislative amendment will clarify that this does not affect the PSR’s ability to use its existing regulatory powers regarding APP scams.

The PSR intends to publish a consultation paper on its preferred approach to APP scam reimbursement in autumn 2022.

Policy Paper: Government approach to authorised push payment scam reimbursement

Webpage

Prudential Regulation Authority

Non-performing and forborne exposures - PRA publishes statement on the EBA’s Guidelines - 6 May 2022

The PRA has published a statement on the European Banking Authority’s (the EBA’s) Guidelines on the management of non-performing exposures (NPEs) and forborne exposures (FBEs) (the Guidelines). The EBA published its Guidelines in October 2018. The PRA’s statement follows feedback from firms that the status of the Guidelines in the UK is currently uncertain.

The PRA acknowledges that the Guidelines’ prudential aspects broadly represent good credit risk management standards and that the Guidelines may be a helpful reference material for firms’ management of NPEs and FBEs. However, the PRA notes that the Guidelines do not apply to or in the UK. In particular, the Guidelines:

  • apply detailed requirements for firms with a gross NPE ratio of at least 5%. The PRA has not adopted the 5% threshold and the associated additional obligations when a firm exceeds this threshold; and
  • require national competent authorities to define a common threshold for the individual valuation and revaluation of the collaterals used for NPEs. The PRA has not set a common threshold and the approach to valuation and revaluation is at the discretion of individual firms.

PRA Statement on EBA Guidelines relating to the management of non-performing and forborne exposures

  1.  

Trading activity wind-down - PRA publishes Policy Statement (PS4/22) - 6 May 2022

The PRA has published a Policy Statement (PS4/22) on its expectations relating to the wind-down of trading activities that may affect UK financial stability, following its consultation paper (CP20/21) on the proposals published in October 2021.The policy statement is relevant, although may not apply directly, to all PRA-authorised UK banks, their qualifying parent undertakings, PRA-designated investment firms that are engaged in trading activities, and relevant third country branches.

The PRA sets out its final policy in the form of:

  • Statement Of Policy: Trading activity wind-down (SoP);
  • Supervisory Statement: Trading activity wind-down (SS1/22); and
  • Updated Supervisory Statement: Recovery planning (SS9/17).

The PRA notes that it received four responses to its consultation paper. Of these, respondents generally supported the trading activity wind-down policy. However, they made a number of observations and requests for clarification, following which the PRA has made minor changes to its final policy. For example, in SS1/22 chapter 4, the PRA provides further clarification on the projection of risk-based losses.

Relevant firms are expected to meet the expectations in SS1/22 by 3 March 2025. Supervisors will want to understand that firms are making adequate preparations significantly in advance of the implementation date and have oversight of progress to implementation. Firms should expect this dialogue to commence in the second half of 2022, with the exact timing to be confirmed by PRA supervisors.

PRA Policy Statement: Trading activity wind-down (PS4/22)

Webpage

Statement of Policy: Trading activity wind-down

Supervisory Statement: Trading activity wind-down (SS1/22)

Updated Supervisory Statement: Recovery Planning (SS9/17)

Financial Conduct Authority

Financial promotions - FCA publishes Dear CEO letter to consumer credit firms - 6 May 2022

The FCA has published a Dear CEO letter sent to approximately 28,000 credit brokers and firms providing high-cost lending products about ensuring financial promotions are clear, fair and not misleading.

The FCA notes that, as a result of the cost of living crisis, it expects to see greater demand for credit. This includes short-term credit, which will particularly impact consumers in vulnerable circumstances. The FCA will therefore be keeping the sector under close review to ensure that demand does not result in unsustainable and unaffordable lending.

The FCA identifies a number of practices that are of concern, including:

  • a number of financial promotions where firms include phrases such as ‘no credit check loans’, ‘loan guaranteed’, ‘pre-approved’ or ‘no credit checks’. The FCA is concerned that consumers could be led to believe that the lender will make no checks on credit status;
  • promotions offering brokerage/direct lending services for high-cost short-term credit, which fail to specify the required risk warning in breach of CONC 3.4.1R;
  • that some promotions fail to include the representative APR when required under CONC 3.5.7R and 3.5.8G; and
  • promotions by credit brokers, which fail to state that they are brokers and not lenders as required by CONC 3.7.7R.

In response to these concerns, the FCA outlines a number of actions for firms, including encouraging firms to review their processes, systems and controls for financial promotions to determine whether they are sufficiently robust.

The FCA intends to monitor the market proactively to assess compliance. Later in 2022, the FCA will confirm its final rules on the new ‘consumer duty’.

FCA Dear CEO letter: Action needed to ensure your financial promotions are clear, fair and not misleading

Press release

Payment Systems Regulator

Digital Payments Initiative - PSR Panel publishes report - 10 May 2022

The Payment Systems Regulator (PSR) Panel, which provides independent advice and input to the PSR, has published a report on the PSR’s Digital Payments Initiative (the Initiative). The Initiative was launched last year by the PSR to understand potential barriers to the take-up of digital payments, and to identify potential solutions and appropriate regulatory actions.

The Initiative concluded that there are four high-level areas that need to be worked on to address the drivers of cash reliance and enable greater take-up of digital payments. These are:

  • improving consumers’, small businesses’ and other small organisations’ awareness and understanding of, and trust in, digital payment options;
  • tackling barriers to new digital payment services and service features, including enabling new functionalities and improving trust by addressing fraud risks;
  • reducing digital exclusion; and
  • putting better data in place to monitor the transition to digital payments.

The report made 12 detailed recommendations across these four areas, and considered emerging developments across the payments sector. In particular, the Initiative identified that open banking could be key to developing digital payment services that better meet the needs of users, including those who currently prefer to use cash.

Webpage

Report

Financial Services Consumer Panel

Equity release products - FSCP publishes final research and position paper - 11 May 2022

The Financial Services Consumer Panel (FSCP) has published a research paper and a position paper relating to how consumers choose and buy equity release products to meet their later life needs.

The research paper reveals that the current sales and advice process does not always prevent consumers from experiencing poor outcomes, including regrets and misunderstandings about their purchase, and that vulnerable consumers may fail to consider the long-term implications.

The FSCP has identified four sets of risks from its investigation, covering the consumer journey from pre- to post-contract, including marketing, and makes a number of recommendations to the FCA regarding these risks. The FSCP also calls for further investigations into:

  • how equity release products are marketed and sold to later life consumers, including the role of financial promotions, direct marketing and commission-based sales;
  • whether regulation and industry standards can do more to protect consumers from financial and psychological harm;
  • the impact on consumers of the different regulatory regimes for equity release and alternative products; and
  • the risks to the FCA and industry posed by increasing demand from customers who purchase from a position of vulnerability.

Equity release and alternative products: A consumer perspective on experiences and outcomes

FSCP Position Paper: How vulnerable consumers choose and buy equity release products

Press release

SECURITIES AND MARKETS

Issue 1159 / 12 May 2022

HEADLINES

  1. European Supervisory Authorities
    1. PRIIPs KID - ESAs publish joint supervisory statement-9 May 2022
  2. Recent cases
    1. Allianz Global Investors GmbH and others v G4S Ltd[2022] EWHC 1081 (Ch)-10 May 2022

European Supervisory Authorities

PRIIPs KID - ESAs publish joint supervisory statement - 9 May 2022

The European Supervisory Authorities (ESAs), comprising the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, have published a joint supervisory statement on expectations regarding the ‘What is this product?’ section of the key information document (KID) for packaged retail and insurance-based investment products (PRIIPs).

Having identified a range of poor practices in how PRIIP manufacturers describe products under this section (primarily relating to a general lack of clarity in the text) the supervisory statement aims to improve the quality of descriptions provided by PRIIPs manufacturers and ensure that information is presented to retail investors in an adequate, clear and accessible manner.

Joint ESA Supervisory Statement on expectations regarding the ‘What is this product?’ section of the key information document for packaged retail and insurance-based investment products (JC 2022 10)

Press release

Recent cases

Allianz Global Investors GmbH and others v G4S Ltd [2022] EWHC 1081 (Ch) - 10 May 2022

‘Person discharging managerial responsibility’ - section 90A FSMA - Schedule 10A FSMA

The High Court has handed down a judgment that considers the meaning of the expression, “person discharging managerial responsibility” (PDMR) under section 90A and Schedule 10A of the Financial Services and Markets Act 2000 (FSMA). These provisions contain a regime for the civil liability of issuers of publicly traded securities for publication of false or misleading or incomplete information and for dishonest delay in publication of information to the capital markets. Liability arises where a PDMR within the issuer knew or was reckless about the offending statement or dishonestly concealed material facts, or a PDMR acted dishonestly in delaying the publication.

Mr Justice Miles held that there is nothing in the Transparency Obligations Directive (2004/109/EC) (the European instrument implemented by section 90A of FSMA) to lead a reader to think that the term PDMR should be given a meaning different to that in section 90A(9), nor is there anything to inspire a broader reading of the definition.

PDMR is restricted to directors, including de facto and arguably shadow directors, and does not include senior executives responsible for managerial decisions. The judge also confirms that paragraph 8(5) of Schedule 10A of FSMA should be given its natural reading. It clearly stipulates that, where an issuer has directors, the PDMRs are the directors (including persons occupying the position of director, by whatever name called). In the “probably unusual” case of classes of issuers with no directors, the judge comments that both section 90A(9) and paragraph 8(5) of Schedule 10A allow for PDMRs who are not directors.

Allianz Global Investors GmbH and others v G4S Ltd [2022] EWHC 1081 (Ch)

 

INSURANCE

Issue 1159 / 12 May 2022

HEADLINES

  1. European Insurance and Occupational Pensions Authority
    1. Blockchain and smart contracts in insurance - EIOPA publishes feedback statement-6 May 2022
  2. UK Parliament
    1. The Financial Guidance and Claims Act 2018 (Commencement No. 9) Regulations 2022 - Statutory instrument published-6 May 2022
  3. Financial Conduct Authority
    1. Multi-occupancy buildings insurance - FCA publishes letter-10 May 2022

European Insurance and Occupational Pensions Authority

Blockchain and smart contracts in insurance - EIOPA publishes feedback statement - 6 May 2022

The European Insurance and Occupational Pensions Authority (EIOPA) has published a feedback statement on its April 2021 discussion paper on blockchain and smart contracts in insurance. In the feedback statement, EIOPA sets out a high-level summary of comments received on the discussion paper, together with its response to them.

EIOPA notes that blockchain’s deployment in the European insurance sector is still at an early stage. Most use cases cited by stakeholders are still small-scale, while other projects are in a proof-of-concept stage. Respondents largely see the potential benefits of blockchain in speeding up transactions and claims handling, lowering operational costs and improving traceability, as set out in EIOPA’s discussion paper. However, they also acknowledge risks in cyber and operational IT, including the inadequate training of staff, encryption security issues and risks arising from incorrect coding. Respondents also expressed concerns about sustainability, given the high energy consumption of some blockchain solutions.

Respondents agreed with EIOPA’s proposal that there is potential for blockchain to be used in supervisory and regulatory processes. They highlighted that efforts should focus on lowering costs and reducing procedural burdens for both industry and supervisors.

EIOPA will continue to assess the use of blockchain in supervisory and regulatory processes as necessary, and will keep an open dialogue with all stakeholders.

EIOPA Feedback Statement: Discussion paper on blockchain and smart contracts in insurance (EIOPA-BoS-22/178)

Webpage

Press release

UK Parliament

The Financial Guidance and Claims Act 2018 (Commencement No. 9) Regulations 2022 - Statutory instrument published - 6 May 2022

The Financial Guidance and Claims Act 2018 (Commencement No. 9) Regulations 2022 (SI 2022/509) (the Regulations) has been published under section 37(5), (8)b and (9)(a)(i) of the Financial Guidance and Claims Act 2018 (the Act). The Regulations were made on 4 May 2022.

The Regulations bring into force on 1 June 2022 a number of provisions in sections 18 and 19 of the Act. This includes section 18(2) of the Act, which amends section 137FB of FSMA to confer powers on the FCA to make rules requiring the trustees or managers of personal or stakeholder pension schemes to refer members and survivors to appropriate pension guidance in certain circumstances.

The Financial Guidance and Claims Act 2018 (Commencement No. 9) Regulations 2022 (SI 2022/509)

Financial Conduct Authority

Multi-occupancy buildings insurance - FCA publishes letter - 10 May 2022

The FCA has published a letter sent to the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, providing an update on the FCA’s review of the way the market for multi-occupancy building insurance operates. The letter follows Mr Gove’s January 2022 letter on reports of rising costs faced by residential leaseholders and other affected property owners across the UK in the wake of the Grenfell tragedy.

The letter summarises the FCA’s progress across three different areas:

  • gathering data and engaging with industry to better understand their approach to pricing;
  • understanding the drivers of harm that could be affecting leaseholders. The FCA observes that price increases could be a result of insurers shying away from bidding for new business of multi-occupancy buildings, or charging particularly high premiums to insure them, but could also be due to factors such as a lack of competitive pressure on prices; and
  • ways to address identified harms. Among other things, the FCA is considering whether it could use its powers to improve the information given to leaseholders about their insurance, or potentially limit the commissions that are paid to brokers.

The FCA explains that it is too early for it to confirm the harms present in the market or to make any recommendations about how they can be addressed. It will use the information it gathers from industry to develop options for potential intervention, including where the FCA concludes that market or government-led interventions may be beneficial.

The FCA is working to produce its final report within Mr Gove’s six-month deadline.

FCA letter to Secretary of State for Levelling Up, Housing and Communities, Rt Hon Michael Gove MP: Multi-occupancy buildings insurance

FINANCIAL CRIME

Issue 1159 / 12 May 2022

HEADLINES

  1. UK Parliament
    1. The Economic Crime (Transparency and Enforcement) Act 2022 (Commencement No. 1) Regulations 2022 - Statutory instrument published-9 May 2022
  2. UK Government
    1. Queen’s Speech - Economic Crime and Corporate Transparency Bill-10 May 2022
  3. The Wolfsberg Group
    1. Negative News screening - Wolfsberg Group publishes FAQs-11 May 2022

UK Parliament

The Economic Crime (Transparency and Enforcement) Act 2022 (Commencement No. 1) Regulations 2022 - Statutory instrument published - 9 May 2022

The Economic Crime (Transparency and Enforcement) Act 2022 (Commencement No. 1) Regulations 2022 (SI 2022/519) (the Regulations) has been published under section 69 of the Economic Crime (Transparency and Enforcement) Act 2022 (the Act). The Regulations were made on 9 May 2022.

The Regulations bring into force on 15 May 2022 amendments to the Proceeds of Crime Act 2002 made by Part 2 of the Act, in relation to unexplained wealth orders (UWO). Among other things, these amendments:

  • enable UWOs to be imposed on respondents other than individuals by permitting an application to specify a person who is a responsible officer of the respondent (where a responsible officer can be, among other things, a director, manager or secretary of the respondent); and
  • enable the High Court to extend the period for making a determination where an interim freezing order has been made.

The Economic Crime (Transparency and Enforcement) Act 2022 (Commencement No. 1) Regulations 2022 (SI 2022/519)

UK Government

Queen’s Speech - Economic Crime and Corporate Transparency Bill - 10 May 2022

The Queen’s Speech has been delivered by Prince Charles at the Opening of Parliament, setting out the government’s legislative agenda for the next parliamentary session.

The speech touched on three bills that will be of interest to financial market participants: the Retained EU Law Bill, also known as the Brexit Freedoms Bill; the Financial Services and Markets Bill; and the Economic Crime and Corporate Transparency Bill. The Retained EU Law Bill and the Financial Services and Markets Bill are covered in the Brexit and General sections of this Bulletin, respectively.   

The Economic Crime and Corporate Transparency Bill (the Bill) aims to “further strengthen powers to tackle illicit finance, reduce economic crime and help businesses grow” by cracking down on kleptocrats, criminals and terrorists to drive out dirty money from the UK. The main elements of the Bill are:

  • broadening the Registrar of Companies’ powers so that they become a more active gatekeeper over company creation and custodian of more reliable data. This will include new powers to check, remove or decline information submitted to, or already on, the Companies Register;
  • introducing identity verification for people who manage, own and control companies and other UK registered entities. This will improve the accuracy of Companies House data to support business decisions and law enforcement investigations;
  • providing Companies House with more effective investigatory and enforcement powers, and introducing better data cross-checking with other public and private sector bodies;
  • tackling the abuse of limited partnerships (including Scottish limited partnerships) by strengthening transparency requirements and enabling them to be properly wound up;
  • creating powers to more quickly and easily seize and recover cryptoassets, which are the principal medium used for ransomware; and
  • enabling businesses in the financial sector to share information more effectively to prevent and detect economic crime.

The government comments that the Bill, which will extend and apply across the UK, will tackle economic crime, including fraud and money laundering, by delivering greater protections for consumers and businesses, boosting the UK’s defences and allowing legitimate businesses to thrive.

Queen’s Speech 2022

Briefing pack

The Wolfsberg Group

Negative News screening - Wolfsberg Group publishes FAQs - 11 May 2022

The Wolfsberg Group (the Group) has published FAQs clarifying how undertaking screening for ‘negative news’ and other forms of adverse information can enhance a financial institution’s awareness of the potential financial crime risk posed by existing and prospective customers.

The Wolfsberg Group, an association of leading international financial institutions that aims to develop frameworks and guidance for the management of financial crime risks, defines negative news as information available in the public domain which financial institutions would consider relevant to the management of financial crime risk.

The Group explains that, as there is no single universally agreed approach to negative news screening (NNS), the FAQs detail relevant considerations that financial institutions may find useful in setting out NNS standards.

The Group highlights that NNS should not be confused with other forms of searches, such as ‘sanctions’ or ‘politically exposed persons’ screening, which are traditionally list-based, and draws attention to separate guidance papers published by the Group on both topics.

The Wolfsberg Group Frequently Asked Questions (FAQs) on Negative News Screening

Press release

ENFORCEMENT

Issue 1159 / 12 May 2022

HEADLINES

  1. Financial Conduct Authority
    1. Lossestopension customers - FCA bans and fines individuals following Upper Tribunal decision -9 May 2022
  2. Payment Systems Regulator
    1. Interchange Fee Regulation - PSR publishes Decision Notice-12 May 2022

Financial Conduct Authority

Losses to pension customers - FCA bans and fines individuals following Upper Tribunal decision - 9 May 2022

The FCA has prohibited five directors of financial advisory firms from working in financial services and fined them over £1 million, after they caused significant losses to pension customers. The decisions follow an extensive 300-page judgement issued by the Upper Tribunal (Tax and Chancery Chamber) (the Tribunal) in which the five directors unsuccessfully challenged the FCA’s decisions.

On 6 May 2022, the Tribunal published a decision which found that Andrew Page, Thomas Ward, Aiden Henderson, Robert Ward and Tristan Freer had failed to act with integrity, having either acted dishonestly or recklessly. Each had been directors at failed financial advice firms who provided unsuitable advice to over 2,000 customers causing them to place their pensions in high-risk financial products in self-invested personal pensions in which Hennessy Jones, an unauthorised firm, had a significant financial interest. These customers had been referred to them by Hennessy Jones which was also involved in designing the pension advice process used by these firms.

This scheme caused significant losses of over £50 million to over 2,000 consumers who have been compensated now by the Financial Services Compensation Scheme (FSCS). As well as the negative impact on consumers, this also affected other financial services firms which have to contribute to the costs of the FSCS.

The Tribunal found that all the five individuals allowed their 'instincts and values to be overridden' and their judgement to be compromised for personal financial gain. They failed to scrutinise where their customers’ pension funds were being invested and the scale of these shortcomings has led to large penalties being imposed for directors of small IFA firms.

In the FCA’s press release, Mark Steward, Executive Director of Enforcement and Market Oversight noted that this case places firms’ relationships with unauthorised introducers in the spotlight. He cautions that, “all firms should pay heed and scrutinise these relationships to ensure standards of integrity, due diligence and fair treatment of customers are uppermost”.

Thomas Page & Others v The Financial Conduct Authority [2022] UKUT 00124 (TCC)

Webpage

Press release

Payment Systems Regulator

Interchange Fee Regulation - PSR publishes Decision Notice - 12 May 2022

The Payment Systems Regulator (PSR) has published a Decision Notice (the Notice) sent to National Westminster Bank Plc, Royal Bank of Scotland Plc, Ulster Bank Ltd and Coutts & Company (the Banks). The Notice imposes a financial penalty of £1.82 million on the Banks for failing to comply with articles 4 and 10(5) of Regulation (EU) 2015/751 on 29 April 2015 on interchange fees for card-based payment transactions (the Interchange Fee Regulation) by overcharging interchange fees on credit cards.

The PSR explains that the Banks were all members of NatWest Group during the ‘Relevant Period’ from 24 March 2016 and 14 March 2018. During this time, the Banks incorrectly treated a number of credit cards as being ‘commercial’ when they should have been treated as ‘consumer’ cards. The fees charged by the Banks on these cards were therefore not capped and were set at too high a level, and as result both acquirers and ultimately merchants were overcharged. The PSR found that the Banks wrongly profited from almost £1.2 million in excess interchange fees during the Relevant Period.

The PSR notes that the Banks agreed to settle at the earliest possible stage and therefore qualified for a 30% early settlement discount. Were it not for this discount, the PSR would have imposed a financial penalty of £2.6 million on the Banks.

The financial penalty must be paid by the Banks to the PSR by 26 May 2022.

PSR Decision Notice: National Westminster Bank Plc, Royal Bank of Scotland Plc, Ulster Bank Ltd and Coutts & Company

Webpage

Updated webpage: Enforcement cases

Press release