Includes developments in relation to: PRA Business Plan 2022/23; Russian invasion of Ukraine; TARGET2; MiFID II and IDD; pre-paid funeral plans; and AML/CFT standards

Click on the headings below to access each section:

GENERAL

Issue 1156 / 21 April 2022

HEADLINES

  1. UK Government
    1. Court and tribunal decisions - made available on the National Archives website-19 April 2022
  2. Bank of England
    1. Outsourcing and third party risk management - Bank of England publishes three consultation papers-14 April 2022
  3. Prudential Regulation Authority
    1. PRA Business Plan 2022/23-20 April 2022
    2. Regulated fees and levies 2022/23 - PRA publishes Consultation Paper (CP4/22)-20 April 2022
  4. Financial Conduct Authority
    1. Diversity on listed company boards and committees - FCA publishes Policy Statement (PS22/3) on amendments to LRs and DTRs-20 April 2022

UK Government

Court and tribunal decisions - made available on the National Archives website - 19 April 2022

The Ministry of Justice and HM Courts & Tribunals Service have announced that new court and tribunal decisions from the UK Supreme Court, Court of Appeal, High Court and Upper Tribunals are now available on the National Archives’ website. The online service will be free and records will be easily searchable, including on mobile phones.

Over the coming months and years, the National Archives will work with the Ministry of Justice and the judiciary to expand coverage of published material, including judgments from the lower courts and tribunals.

Press release

Bank of England

Outsourcing and third party risk management - Bank of England publishes three consultation papers - 14 April 2022

The Bank of England (the Bank) has published three consultation papers on outsourcing and third party risk management in financial market infrastructures (FMIs). The consultations aim to:

  • facilitate greater resilience and the adoption of the cloud and other new technologies, as set out in the Bank’s response to the ‘Future of Finance’ report;
  • set out the Bank’s requirements and expectations in relation to outsourcing and third party risk management in FMIs; and
  • complement the Bank’s March 2021 supervisory statements on FMI operational resilience.

More specifically, the Bank’s three consultation papers cover: (i) central counterparties (CCPs); (ii) central securities depositories (CSDs); and (iii) recognised payment system operators (RPSOs) and specified service providers (SSPs).

On CCPs and CSDs, the Bank is consulting on draft supervisory statements that introduce a set of non-binding supervisory expectations, which will provide FMIs with guidance on how the Bank intends to assess compliance with the regulatory framework on outsourcing and third party risk management.

For RPSOs and SSPs, the Bank is proposing to develop an outsourcing and third party risk management part to add to the Code of Practice (Code) published under section 189 of the Banking Act 2009. The Bank is also consulting on a draft supervisory statement that introduces a set of supervisory expectations to complement the Code. These expectations are non-binding but will provide relevant RPSOs and SSPs with guidance on how the Bank intends to assess compliance with the outsourcing and third party risk management part of the Code.

The deadline for responses is 14 July 2022. The Bank intends to publish its final policy in H2 2022.

Consultation Paper: Outsourcing and third party risk management: Central Counterparties

Consultation Paper: Outsourcing and third party risk management: Central Securities Depositories

Consultation Paper: Outsourcing and third party risk management: Recognised Payment System Operators and Specified Service Providers

Webpage

Prudential Regulation Authority

PRA Business Plan 2022/23 - 20 April 2022

The PRA has published its business plan for 2022/23, which sets out its strategy, work plan and budget for the coming year. The PRA has replaced its eight strategic goals with four strategic priorities:

  • retain and build on the strength of the banking and insurance sectors delivered by the financial crisis reforms: the PRA is preparing to take on new rule-making responsibilities following the expected introduction of the Future Regulatory Framework (FRF). This will help keep the framework fit-for-purpose and will allow for more effective tailoring of rules to UK markets and firms;
  • be at the forefront of identifying new and emerging risks, and developing international policy: the PRA discusses the war in Ukraine, climate change, the transition from the London Interbank Offered Rate (LIBOR), digitalisation, AI and machine learning, and notes that its horizon-scanning programme is at the heart of the delivery of this programme. The PRA intends to seek out and tackle regulatory arbitrage, dangerous practices and features of the regulatory regime that are not yet delivering the desired results;
  • support competitive and dynamic markets in the sectors that the PRA regulates: the PRA will appropriately balance its primary and secondary objectives and, in particular, proportionality issues for small banks, such as variations in the use of risk-weights and internal models in light of changes following the EU withdrawal. The PRA will also aim to reduce barriers to growth and exit, and will develop its domestic and international policies on competition to advance safety, soundness, competition and competitiveness; and
  • run an inclusive, efficient and modern regulator within the Bank of England: the PRA intends to continue building a place where ‘staff feel safe and empowered’, where decisions are taken at the right level and where inclusivity is championed. It notes that any changes will take into account developments in regulatory technology, address inefficiencies and leverage the benefits of being a regulator within the Bank of England.

The PRA highlights that its strategic priorities recognise that the resilience of the banking and insurance sectors are materially improved after over a decade of financial crisis reforms. Its focus has now shifted to maintaining this improved level of resilience while tailoring rules more effectively to UK markets and firms.

The PRA has also included details of its budget for 2022/23. This is set at £320.9 million, which includes implementation and transaction fees of £8.4 million, and is an increase of £24.3 million (8.2%) on the 2021/22 budget.

The PRA will publish its Annual Report for 2021/22 in June 2022, which will include the progress made on the activities set out in its business plan for 2021/22.

PRA Business Plan 2022/23

  •  

Regulated fees and levies 2022/23 - PRA publishes Consultation Paper (CP4/22) - 20 April 2022

The PRA has published a Consultation Paper (CP4/22) on its regulated fees and levies for 2022/23. The proposals relate to:

  • the annual funding requirement (AFR), which consists of the budgeted costs of ongoing regulatory activities (ORA). The proposed ORA for 2022/23 has increased by £9.8 million to £297.5 million;
  • fees for firms in the temporary permissions regime;
  • changes to the internal model application fees and the model maintenance fee;
  • changes to the special project fees for restructuring fees; and
  • how the PRA intends to distribute a surplus from the 2021/22 AFR, and the distribution of retained penalties for 2021/22.

The proposed amendments to the Fees Part of the PRA Rulebook are set out in Appendix 1 to the Consultation Paper.

The deadline for responses is 20 May 2022. The PRA intends to publish a policy statement with final rules on 4 July 2022. The rules are expected to enter into force on 6 July 2022.

PRA Consultation Paper: Regulated fees and levies: Rates proposals 2022/23 (CP4/22)

Webpage

Financial Conduct Authority

Diversity on listed company boards and committees - FCA publishes Policy Statement (PS22/3) on amendments to LRs and DTRs - 20 April 2022

The FCA has published a Policy Statement (PS22/3) on proposals to include provisions in the Listing Rules (LRs) and the Disclosure Guidance and Transparency Rules (DTRs) that address the diversity of boards and executive committees. Appendix 1 to the Policy Statement sets out the draft handbook instrument that will make the proposed changes. The Policy Statement follows the FCA’s Consultation Paper (CP21/24) on the proposals, published in July 2021.

The FCA indicates that it is proceeding with the rules on a broadly similar basis to that proposed in the consultation. It provides more flexibility for companies on:

  • how they collect and report data relating to the representation of women; and
  • the data reporting requirements for companies with board members or executive management situated overseas. Feedback to the consultation noted that local privacy and data protection laws may prevent companies from asking for the relevant data that they are required to report.

In light of this, the FCA explains that it has also added requirements for additional transparency from issuers on their approach to collecting the data used for the purposes of the FCA’s reporting requirements. The FCA believes this will ensure that investors can meaningfully compare the data provided by issuers. It has also made small changes to the text of its proposed target in relation to individuals from minority ethnic backgrounds, against which companies will also need to report.

The FCA intends to review this policy in three years to assess its impact. It will then consider whether to revise the targets within the rules and whether to consider targets on other aspects of diversity.

The FCA’s final rules will apply to accounting periods starting on or after 1 April 2022. The new disclosures will start to appear in annual financial reports published from around Q2 2023 onwards. However, the FCA encourages companies whose financial years began from 1 January 2022 to consider reporting on the targets, and making numerical disclosures, in relation to their current accounting period on a voluntary basis.

FCA Policy Statement: Diversity and inclusion on company boards and executive management (PS22/3)

Listing Rules and Disclosure Guidance and Transparency Rules (Diversity and Inclusion) Instrument 2022 (FCA 2022/6)

Webpage

Press release

BANKING AND FINANCE

Issue 1156 / 21 April 2022

HEADLINES

  1. Financial Stability Board
    1. Russian invasion of Ukraine - FSB publishes letter from Chair to G20 finance ministers and central bank governors-20 April 2022
  2. European Commission
    1. CRR - Implementing Regulation amending ITS regarding institutions’ disclosures on interest rate risk exposures published in OJ-19 April 2022
  3. Council of the European Union
    1. Covered bonds - Council of the EU publishes Corrigendum to Delegated Regulation amending Commission Delegated Regulation on LCR-14 April 2022
  4. European Central Bank
    1. TARGET2 - ECB adopts repealing Guideline and Decision-20 April 2022

Financial Stability Board

Russian invasion of Ukraine - FSB publishes letter from Chair to G20 finance ministers and central bank governors - 20 April 2022

The Financial Stability Board (FSB) has published a letter from its Chair, Klass Knot, to G20 finance ministers and central bank governors ahead of their meeting in Washington on 20 April 2022. The letter discusses the current outlook for financial stability in light of Russia’s invasion of Ukraine and sets out the FSB’s plans over the coming months to assess and address emerging vulnerabilities.

The FSB notes that, so far, the direct global financial stability impact of the war in Ukraine appears limited compared to that at the start of COVID-19 in March 2020. However, it cautions that uncertainty about the potential future economic and financial market impacts of the war in Ukraine remains high, and that associated highly volatile commodity prices and upward pressure on inflation and interest rates are creating headwinds for global economic recover. The FSB highlights the following key areas of concern:

  • linkages between commodity markets and the rest of the financial system;
  • commodities derivatives markets;
  • developing a comprehensive picture of leverage in the financial system;
  • cyber response and recovery capabilities; and
  • vulnerabilities in emerging markets related to external financing.

In light of these concerns, the FSB highlights that it is responding to the current financial stability challenges in two main ways, through: (i) intensified monitoring of current market developments and emerging vulnerabilities, with a focus on the resilience of critical ‘nodes’ in the global financial system; and (ii) in-depth analysis and assessment of specific potential vulnerabilities, with a particular focus on commodity markets, margining and leverage.

The FSB also notes the ‘intense debate about current and future energy policies in many jurisdictions, which demonstrate that financial risks related to climate change are not just a long-term issue or tail event. The FSB highlights its ‘Roadmap for Addressing Climate-related Financial Risks’ and indicates that an interim report on supervisory and regulatory approaches to addressing climate-related financial risks will be published for consultation later in April 2022. It welcomes the International Sustainability Standards Board’s exposure draft for consultation on climate-related reporting standards as a major step towards establishing a global baseline standard for corporate climate disclosures.

Finally, the letter notes that current financial stability challenges reinforce the importance and increase the urgency of the FSB’s ongoing policy work in a number of areas, including strengthening the resilience of non-bank financial intermediation, cryptoassets and cyber risks. On the role of non-bank participants in commodity markets, the FSB plans to deliver a comprehensive progress report on the initiatives under the non-bank financial intermediation (NBFI) work programme to the G20 Summit in October 2022. This will include a report on the main findings of relevant FSB and standard-setting body initiatives and on policy proposals to address systemic risk in NBFI. On cryptoassets, the FSB is taking forward, in collaboration with standard-setting bodies including the Financial Action Task Force, work on the regulation and supervision of unbacked cryptoassets and stablecoins. It is also analysing the financial stability impacts of rapidly evolving decentralised finance to promote safe innovation.

FSB letter from Chair, Klaas Knot: To G20 Finance Ministers and Central Bank Governors

Webpage

Press release

European Commission

CRR - Implementing Regulation amending ITS regarding institutions’ disclosures on interest rate risk exposures published in OJ - 19 April 2022

Commission Implementing Regulation (EU) 2022/631 has been published in the Official Journal of the European Union. This amends the implementing technical standards laid down in Commission Implementing Regulation (EU) 2021/637 in relation to Pillar 3 disclosures regarding exposures to interest rate risk on positions not held in the trading book (IRRBB).

The Implementing Regulation amends the Commission Implementing Regulation 2021/637 by adding a new Article 16a and Annexes, which seek to ensure that institutions disclose comprehensive and comparable information on IRRBB through the provision of a table and a template containing quantitative information on interest rate risks of non-trading book activities.

The Commission Implementing Regulation enters into force on 9 May 2022.

Commission Implementing Regulation of 13 April 2022 amending the implementing technical standards laid down in Implementing Regulation (EU) 2021/637 as regards the exposures to interest rate risk on positions not held in the trading book

Council of the European Union

Covered bonds - Council of the EU publishes Corrigendum to Delegated Regulation amending Commission Delegated Regulation on LCR - 14 April 2022

The Council of the EU (the Council) has published a Corrigendum to a draft Commission Delegated Regulation (Amending Regulation) that amends Commission Delegated Regulation ((EU) 2015/61) on the liquidity coverage ratio (LCR). The Amending Regulation was adopted by the European Commission in February 2022, and seeks to incorporate requirements introduced by the Covered Bond Directive ((EU) 2019/2162).

An accompanying explanatory memorandum states that Corrigendum corrects an error in the text of the Amending Regulation, which was identified during the Council and the European Parliament’s three-month scrutiny period. It aims to delete the word “covered” from the last sentence of recital 5 to make it clear that all types of bonds issued by official export credit agencies should be treated as high quality liquid assets (HQLA).

Since the Amending Regulation has not yet been published in the Official Journal of the European Union (OJ), providing the Corrigendum is adopted within the scrutiny period, the correction could be incorporated directly in the final act that will be published in the OJ.

If the Council and the European Parliament have no objections, the Amending Regulation will apply from 8 July 2022.

Corrigendum to Commission Delegated Regulation of 10 February 2022 amending Commission Delegated Regulation (EU) 2015/61 to supplement Regulation (EU) No 575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for credit institutions (C(2022)722)

European Central Bank

TARGET2 - ECB adopts repealing Guideline and Decision - 20 April 2022

The European Central Bank (ECB) has adopted a repealing Guideline (ECB/2022/8), dated 24 February 2022, on a new generation Trans-European Automated Real-time Gross Settlement Express Transfer system (TARGET) and which repeals Guideline ECB/2012/27. The ECB has also adopted a Decision (ECB/2022/22), dated 19 April 2022, concerning the terms and conditions of TARGET-ECB which repeals Decision ECB/2007/7.

The ECB’s implementation of its project to consolidate various technical and functional elements of TARGET2 and TARGET2-Securities is scheduled for 21 November 2022. Guideline ECB/2012/27 governs TARGET2 and has therefore been repealed and replaced by Guideline ECB/2022/8. The national central banks of the EU member states whose currency is the euro must take the necessary measures to comply with ECB/2022/8 and apply it from 21 November 2022. They must also notify the ECB of texts and means relating to those measures by 19 April 2022. The Eurosystem central banks must comply with ECB/2022/8 from 21 November 2022.

In Decision ECB/2022/22, the ECB explains that, for reasons of legal certainty, it is appropriate to adopt a new Decision to implement the changes to the terms and conditions of TARGET2-ECB brought about by repealing Guideline ECB/2012/27. The Decision will enter into force on the fifth day following its publication in the Official Journal of the EU. It will apply from 21 November 2022.

Guideline (EU) [YYYY/[XX*]] of the European Central Bank of 24 February 2022 on a new-generation Trans-European Automated Real-time Gross Settlement Express Transfer system (TARGET) and repealing Guideline ECB/2012/27 (ECB/2022/8)

Decision (EU) [YYYY/[XX]] of the European Central Bank of 19 April 2022 concerning the terms and conditions of TARGET-ECB and repealing Decision ECB/2007/7 (ECB/2022/22)

SECURITIES AND MARKETS

Issue 1156 / 21 April 2022

HEADLINES

  1. European Commission
    1. Liquidity thresholds and trade percentiles determining SSTI under MiFIR - Commission Delegated Regulation (EU) 2022/629 amending RTS published in OJ-13 April 2022
  2. European Securities and Markets Authority
    1. MiFID II and IDD - ESMA responds to European Commission’s consultation on retail investor suitability and appropriateness assessments-19 April 2022
  3. Financial Conduct Authority
    1. Credit rating agencies - FCA updates webpage and releases Central Repository Statistics platform-19 April 2022

European Commission

Liquidity thresholds and trade percentiles determining SSTI under MiFIR - Commission Delegated Regulation (EU) 2022/629 amending RTS published in OJ - 13 April 2022

Commission Delegated Regulation (EU) 2022/629 has been published in the Official Journal of the European Union. The Delegated Regulation amends the regulatory technical standards (RTS) laid down in Delegated Regulation (EU) 2017/583 on the adjustment of liquidity thresholds and trade percentiles used to determine the ‘size specific to the instrument’ (SSTI) that applies to certain non-equity instruments (RTS 2). This is relevant to the application of transparency waivers and deferrals under the Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR).

RTS 2 allows for the annual phase-in of application of certain transparency thresholds to bonds, structured finance products, emission allowances and derivatives over the course of 4 years, starting from 2019. The phase-in allows gradual broadening of the application of corresponding transparency obligations, and the appropriateness of moving to the next stage is assessed annually. Following an assessment from ESMA, the Commission considers that it is appropriate to move to stage S3 from the current stage S2, and RTS 2 is amended accordingly.

The European Commission adopted the Commission Delegated Regulation in January 2022. It will enter into force on 3 May 2022.

Commission Delegated Regulation (EU) 2022/629 of 12 January 2022 amending the regulatory technical standards laid down in Delegated Regulation (EU) 2017/583 as regards adjustment the liquidity thresholds and trade percentile used to determine the size specific to the instrument applicable to certain non-equity instruments

European Securities and Markets Authority

MiFID II and IDD - ESMA responds to European Commission’s consultation on retail investor suitability and appropriateness assessments - 19 April 2022

The European Securities and Markets Authority (ESMA) has published a letter responding to the European Commission’s (the Commission’s) consultation on options to enhance the suitability and appropriateness assessments for retail investors under the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) and the Insurance Distribution Directive ((EU) 2016/97) (IDD), published in February 2022.

In the letter, ESMA observes that the Commission’s proposal to apply a unique and standardised retail investor regime that no longer differentiates among the various investment services “might raise questions of whether a ‘one size fits all’ approach can effectively serve different types of retail investors and situations”. ESMA notes that the design of a new standardised regime “needs to fully take into account the needs of the different kinds of investors and safeguard the principle of proportionality”.

ESMA also indicates that the Commission’s proposals would have significant impacts on the current model for the provision of services. If the new framework were to be adopted, ESMA sets out that “sufficient guidance and information” would need to be provided to clients to help them understand and adapt to this change as well as sufficient time to allow firms to implement the new rules (which appear to require significant IT changes).

ESMA notes that the Commission’s proposals imply willingness of retail clients to share their personal investor data in full. In light of this, ESMA cautions that clients have shown recent resistance to sharing personal information due to factors including “cultural ones, lack of trust and fear of cyber risks”. ESMA believes that the Commission should take these concerns into account and, if it decides to proceed with its proposal, further consider General Data Protection Regulation ((EU) 2016/679) (GDPR) implications.

ESMA also cautions that if MiFID II and IDD instruments are to be assessed jointly for the suitability assessment, it would be “essential” to ensure alignment of other relevant requirements. For example, disclosure of information on costs and charges and reporting requirements on the depreciation of a client’s portfolio.

ESMA letter to European Commission: Consultation on options to enhance the suitability and appropriateness assessments (ESMA35-43-3112)

Financial Conduct Authority

Credit rating agencies - FCA updates webpage and releases Central Repository Statistics platform - 19 April 2022

The FCA has updated its webpage on credit rating agencies (CRAs) to explain how to access CRA information, as well as individual credit ratings data, on its Public Ratings Database.

The FCA has also released a Central Repository Statistic platform (CERES). Users are able to view and download ratings statistics based on defined search criteria, using ratings data provided to the FCA by regulated CRAs. The CERES’ associated “General Principles” document highlights that the CERES was established under Article 11 of the retained EU law version of the CRA Regulation (1060/1009/EC) to:

  • provide transparency and contribute to investor protection by providing information on historical performance of credit ratings, including rating transitions and default statistics for a CRA;
  • make the data available in a standardised and consistent format to enable users to compare performance across CRAs; and
  • enable public access to the data so that users can leverage this reduced cost of information for conducting detailed analyses of a CRA’s performance.

Credit Ratings Statistics - Central Repository Statistics (CERES Statistics)

Central Repository Statistic (CERES): General Principles

Webpage

INSURANCE

Issue 1156 / 21 April 2022

HEADLINES

  1. European Insurance and Occupational Pensions Authority
    1. Insurance Distribution Directive - EIOPA publishes consultation paper on draft guidelines on integration of sustainability preferences-14 April 2022
    2. Contract boundaries and technical provisions valuations - EIOPA publishes reports on the revision of guidelines-21 April 2022
  2. HM Treasury
    1. Pre-paid funeral plans - HM Treasury publishes consultation response-21 April 2022
  3. Recent cases
    1. Adams v Options UK Personal Pensions LLP[2021] EWCA Civ 474-11 April 2022

European Insurance and Occupational Pensions Authority

Insurance Distribution Directive - EIOPA publishes consultation paper on draft guidelines on integration of sustainability preferences - 14 April 2022

The European Insurance and Occupational Pensions Authority (EIOPA) has published a consultation paper on draft guidelines on integrating the customer’s sustainability preferences in the suitability assessment under the Insurance Distribution Directive ((EU) 2016/97) (IDD).

EIOPA notes that, on 2 August 2022, Commission Delegated Regulation (EU) 2021/1257 will amend the IDD so as to introduce changes in the way customers’ sustainability preferences are taken into account in the suitability assessment by insurance undertakings and intermediaries providing advice on insurance-based investment products.

The changes aim to ensure that retail investors can invest and save sustainably, and facilitate their participation in the transition to a low-carbon, more sustainable, resource-efficient and circular economy, as insurance undertakings and intermediaries have to recommend insurance-based investment products that meet the sustainability preferences of their customers or potential customers, if they have such preferences.

Seeking to reduce the risk of diverging interpretations among member states, EIOPA’s draft guidelines include guidance on:

  • how to help customers better understand the concept of “sustainability preferences” and their investment choices;
  • the collection of information on sustainability preferences from customers; and
  • when to assess sustainability preferences.

The deadline for responses is 13 May 2022. EIOPA expects to publish the final guidelines in July 2022.

EIOPA Consultation Paper: draft guidelines on the integration of the customer’s sustainability preferences in the suitability assessment under the Insurance Distribution Directive (BoS-22-246)

Webpage

Contract boundaries and technical provisions valuations - EIOPA publishes reports on the revision of guidelines - 21 April 2022

The European Insurance and Occupational Pensions Authority (EIOPA) has published final reports on the revision of its guidelines on contract boundaries and on the valuation of technical provisions. The reports follow consultations published in July 2021, which, in turn, followed EIOPA’s 2020 review of Solvency II (2009/138/EC). That review identified divergent practices and the need for additional guidance in both these areas.

The first report on contract boundaries calls for the consistent application of an insurance or reinsurance contract boundary. The new and amended guidelines promote the unbundling of an insurance or reinsurance contract and the assessment of whether a financial guarantee has a discernible effect on the economics of the contract.

The second report on valuation of technical provisions promotes consistency of professional practice for insurers across the EU. The new and amended guidelines are on topics relevant for the valuation of the best estimate. This includes the use of future management actions and expert judgment, expenses modelling and the valuation of options and guarantees by economic scenario generators. The report also clarifies the requirement in relation to the calculation of expected profits from future premiums.

EIOPA requires national competent authorities (NCAs) to confirm whether they comply or intend to comply with the revised guidelines, with reasons for non-compliance, within two months of EIOPA issuing the translated versions. EIOPA will publish the fact that an NCA has not, or does not intend to, comply with the revised guidelines. It will also disclose in its annual report each NCA that has not complied and outline how it intends to ensure that these NCAs follow the guidelines in the future.

Final report: revision of guidelines on contract boundaries

Final report: revision of guidelines on the valuation of technical provisions

EIOPA webpage: final reports on the revision of guidelines on contract boundaries and the valuation of technical provisions

HM Treasury

Pre-paid funeral plans - HM Treasury publishes consultation response - 21 April 2022

HM Treasury has published the response to its July 2021 consultation on its proposed approach to protecting consumers if a regulated funeral plan provider fails. The consultation followed the FCA’s response (PS21/8) to its March 2021 consultation paper (CP21/4), in which the FCA stressed the importance of protecting consumers from potential firm failures, including by introducing Financial Services Compensation Scheme (FSCS) protection for certain funeral plan activities from July 2022. In light of this, the government acknowledges that further legislative changes are required to ensure that the FSCS can operate effectively for consumers of pre-paid funeral plan contracts if a regulated provider fails.

In its consultation, the government proposed to make a statutory instrument enabling the FCA to make rules that will:

  • allow the FSCS to secure continuity of cover for funeral plan holders in appropriate circumstances; and
  • give the FSCS further rights in relation to the trust assets and insurance policies backing funeral plans.

The response notes that all respondents supported, and some strongly supported, the government’s proposed approach and, therefore, it will proceed with that approach as consulted on.

The response also sets out two additional provisions that the government will introduce in forthcoming legislation, to:

  • place an additional statutory duty of cooperation on insolvency practitioners. This will require them to cooperate with the FSCS if a regulated funeral plan provider fails; and
  • make it easier for funeral plan providers that seek to exit the market to transfer their existing funeral plan contracts to another funeral plan provider for regulatory purposes.

The government will lay the relevant secondary legislation to amend the regulatory framework when parliamentary time allows. This legislation will enter into force on 29 July 2022, alongside The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2021 (which brings providers of pre-paid financial plan contracts within the FCA’s regulatory remit). This will ensure that consumers are protected by the FSCS against future failure as soon as funeral plan providers become authorised.

HM Treasury: Regulation of pre-paid funeral plans - the role of the Financial Services Compensation Scheme where a regulated funeral plan provider fails: Response to the consultation and additional provisions

Webpage

Please see the Securities and Markets section for an item on ESMA’s response to the European Commission’s consultation on retail investors’ suitability and appropriateness assessments under MiFiD II and IDD.

Recent cases

Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 474 - 11 April 2022

Liability of an execution-only SIPP provider to an investor - FCA Conduct of Business sourcebook (COBS) Rule 2.1.1 - FSMA 2000 (Regulated Activities) Order 2001 (SI 2001/554) – FSMA 2000

The UK Supreme Court has denied the STM Group Plc’s (STM’s) application for leave to appeal the Court of Appeal’s judgment in Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 474. STM argued that the Court of Appeal “erred in law” in its application of section 27 of FSMA after overturning the High Court’s previous ruling.

The original case was heard in March 2018 and relates to an investment made in 2012, prior to STM’s acquisition of Options UK Personal Pensions LLP (formerly Carey UK Pensions LLP) (Carey) in February 2019. Mr Adams had been advised by an unregulated introducer based in Spain, CLP Brokers Sociedad Limitada (CLP), to invest in storage pods through a self-invested personal pension (SIPP) provided by Carey. Carey and CLP had entered into a ‘Non-regulated Introducer Agreement’. After the storage pods proved to be an unsuccessful investment, Mr Adams sought relief from Carey, which was granted by the Court of Appeal pursuant to section 27 of FSMA, following dismissal from the High Court.

A condition of the acquisition was the indemnity on any claims in the Adams v Carey case, with the benefit of significant existing PI cover held by the vendors. In a press release, STM highlights that this means that the decision does not directly impact STM’s exposure in the case, but will have implications for the financial services industry more broadly.

STM Group Plc press release

FINANCIAL CRIME

Issue 1156 / 21 April 2022

HEADLINES

  1. Financial Action Task Force
    1. AML/CFT standards - FATF publishes report on compliance-19 April 2022

Financial Action Task Force

AML/CFT standards - FATF publishes report on compliance - 19 April 2022

The Financial Action Task Force (FATF) has published a report on the state of effectiveness of its anti-money laundering (AML) and countering the financing of terrorism (CFT) standards. The report is based on data from the FATF and FATF-Style Regional Body (FRSB) mutual evaluation reports since 2013, which have assessed the strengths and weaknesses of national frameworks in tackling AML/CFT crimes.

Overall, the report finds that countries have made “huge progress” in improving technical compliance through a broad range of laws and regulations to better tackle money laundering, and terrorist and proliferation financing. FATF notes that this has created a firm legislative basis for national competent authorities to “follow the money” that fuels crime and terrorism.

FATF highlights that 76% of countries have now satisfactorily implemented its ‘40 Recommendations’, up from 36% in 2012. However, the report also highlights that many countries still face substantial challenges in taking effective action in line with the risks they face. This includes difficulties in investigating and prosecuting high-profile cross-border cases and preventing anonymous shell companies and trusts being used for illicit purposes.

The report informed FATF’s Strategic Review, which aims to make the next cycle of FATF assessments more timely, risk-based and effective. In light of the results from the current (4th) round, FATF has made changes to its assessment of countries’ actions in the 5th round. These changes include:

  • a significantly shorter mutual evaluation cycle of six years rather than 10 years, so that countries will be assessed more frequently;
  • a results-orientated follow-up assessment process, which will focus on specific actions to tackle money laundering, terrorist financing and the financing of weapons of mass destruction; and
  • after their mutual evaluation, countries will have three years to take action and address any deficiencies. If they fail to do so, they will automatically face a range of “enhanced measures”.

In anticipation of the 5th round of assessments, FATF has published its ‘Methodology’ and ‘Procedures’ documents. These are not yet in effect and may change before the start of the 5th round.

FATF Report on the State of Effectiveness and Compliance with the FATF Standards

FATF Methodology

Information note: 5th Round FATF Methodology

FATF Procedures

Information note: 5th Round FATF Procedures

Press release