Key Regulatory Topics: Weekly Update 10-16 Sept 2021
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Consumer/Retail
FCA consumer investments strategy and feedback statement
On 15 September, the FCA provided more detail on its consumer investments strategy, which it aims to publish in early 2022. The FCA also published its second consumer investments data review. The measures the FCA propose to achieve its strategy include: (i) implementing the consumer duty; (ii) exploring regulatory changes to enable firms to provide more sales and support to consumers investing in straightforward products; (iii) taking further steps to detect, disrupt and act against fraudsters; (iv) maintaining focus on online service providers; (v) reforms to the Appointed Representatives regime; (vi) strengthening the financial promotions regime in 3 areas; (a) the classification of high-risk investments; (b) further segmenting the high-risk market; and (c) strengthening the requirements on firms approving financial promotions; (vii) reviewing the capital requirements for non-MiFID adviser firms; and (viii) reviewing the compensation framework to ensure it remains proportionate and appropriate.
Consumer Investments: Strategy and Feedback Statement
Consumer investments data review 2021
Financial crime
EC Delegated Regulation and RTS on third-countries co-operation arrangements under MAR
On 14 September, the EC adopted a Delegated Regulation and Annex containing regulatory technical standards (RTS) on co-operation arrangements with third-countries under Article 26(3) of the Market Abuse Regulation (596/2014) (MAR). The Annex contains a template for co-operation arrangements regarding the exchange of information between EU Member States national competent authorities with authorities in third-countries, and the enforcement of obligations arising under MAR in third-countries. The template contains different sections that describe the scope of the co-operation, the content of the assistance to be provided, a description of the procedure as well as a description of the rules on confidentiality and the uses of information. The Council of the EU and the European Parliament will now scrutinise the Delegated Regulation.
FinTech
HoL Economic Affairs Committee call for evidence on CBDCs
On 16 September, the House of Lords Economic Affairs Committee launched a call for evidence on Central Bank Digital Currencies (CBDCs). HM Treasury and the BoE are exploring the potential of a CBDC for the UK. The Committee will take evidence on the main issues confronting HM Treasury and the Bank as they conduct this work, and will also examine how a CBDC might affect the BoE’s role and responsibilities, monetary policy and the financial sector. The deadline for submissions is 15 October 2021.
Markets and markets infrastructure
BoE approach to monitoring third-country systems designated under UK Settlement Finality Regulations
On 14 September, the BoE published its approach to monitoring of third-country systems designated under the UK’s Settlement Finality Regulations 1999 (UK SFR). Once a system, not subject to UK law, has been designated under the UK SFR, the BoE will monitor that the system continues to meet the requirements for designation. The requirements include: (i) at least three institutions participating in the system, unless otherwise determined by the BoE, and that it is a system through which transfer orders are effected; (ii) adequate arrangements for the effective monitoring and enforcement of compliance with its rules; (iii) a system operator with sufficient financial resources for the proper performance of its functions; (iv) a system operator able and willing to co-operate with the relevant UK supervisory and administrative authorities; (v) rules which fulfil certain criteria; and (vi) default arrangements which are appropriate for that system in all circumstances. The BoE has also set out its requirement relating to the notification of certain changes and information gathering.
Payment services and payment systems
EPC consults on change requests for 2023 SEPA payment scheme rulebooks
On 13 September, the European Payments Council (EPC) began consulting on the change requests for the 2023 SEPA Credit Transfer and SEPA Direct Debit scheme rulebooks. The 25 change requests relate to the SEPA Credit Transfer, the SEPA Instant Credit Transfer, the SEPA Direct Debit Core and/or the SEPA Direct Debit Business-to-Business schemes. Among these, one common change request for all four SEPA payment scheme rulebooks is to migrate in two steps from unstructured to structured addresses of payers and payees by November 2025. Another suggestion for both SCT schemes is the inclusion of two optional attributes to transmit alias or proxy details about the payer and the payee through the inter-PSP space. The deadline for comments is 11 December.
SEPA Direct Debit Business-to-Business Rulebook
SEPA Direct Debit Core Rulebook
SEPA Instant Credit Transfer Rulebook
Prudential regulation
EBA final report on guidelines to assess exceptional cases when institutions exceed large exposure limits
On 15 September, the EBA published a final report on its guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits of Article 395(1) of the CRR and the time and measures to return to compliance. The guidelines contain four sections: i) criteria to determine the exceptional cases referred to in Article 396(1) of the CRR; ii) information to be provided to the competent authority in case of a breach of the Large Exposure limits; iii) criteria to determine the appropriate time to return to compliance with the limits of Article 395(1) of the CRR; and iv) measures to be taken to ensure the timely return to compliance of the institution with the limits of Article 395(1) of the CRR. The guidelines will be translated into the official EU languages and published on the EBA website. The deadline for competent authorities to report whether they comply with the guidelines will be two months after publication of the translations. They will apply from 1 January 2022.
PRA policy statement on regulatory framework for financial holding companies
On 15 September, the PRA published PS20/21 providing the final rules relating to the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies that have been approved or designated in accordance with FSMA. Appendices to PS20/21 contain final versions of: (i) PRA Rulebook: CRR firms: PRA (Rules Applying to Holding Companies) Instrument 2021 (PRA 2021/11); (ii) SoP: Supervisory measures and penalties in relation to financial holding companies; and (iii) Updated SoP: The PRA's approach to enforcement: statutory statements of policy and procedure. PS20/21 and the SoPs took effect on 15 September. PRA 2021/11 comes into force on 17 September except rule 4.1 in Annex F (Groups), which comes into force on 1 January 2022.
Financial Services and Markets Act 2000 (Prudential Regulation of FCA Investment Firms) (Definitions for the purposes of Part 9C) Regulations 2021 published
On 15 September, the Financial Services and Markets Act 2000 (Prudential Regulation of FCA Investment Firms) (Definitions for the purposes of Part 9C) Regulations 2021 (SI 2021/1046) were published, together with an explanatory memorandum. The regulations provide definitions of the terms "parent undertaking" and "group" for the purposes of Part 9C of FSMA. The explanatory memorandum provides that these definitions will support the effective management of the risks faced by UK investment firm groups regulated by the FCA. In turn, this will help the operation of the Investment Firm Prudential Regime, as introduced by the Financial Services Act 2021. HMT wanted to more closely align the definitions in Part 9C FSMA with the approach taken in the CRR. Therefore, the instrument amends the scope of the two IFPR prudential consolidation definitions to reflect the scope of the relationships currently covered under Article 18 CRR. The regulations enter into force on 6 October.
PRA Dear CEO letter on the reliability of regulatory reporting
On 10 September, the PRA published a Dear CEO letter on its thematic findings on the reliability of regulatory reporting. The PRA refers to a previous letter sent to firms in October 2019, which reiterated its expectation that ‘all banks and building societies submit complete, timely, and accurate regulatory returns.’ Since then, the PRA has found significant deficiencies in a number of firms’ processes used to deliver reliable regulatory returns. The PRA sets out its most material findings covering governance and ownership, controls, and data and investment together with its expectations. In particular: (i) a firm’s relevant senior manager should be empowered to have overall oversight of the effectiveness of front-to-back processes and cross-functional processes to ensure the delivery of accurate and reliable regulatory returns. The PRA expect responsibilities to be clear for those involved in all stages of the end to end regulatory returns process. This should be supported by robust processes, independent testing and validation, with the use of Internal Audit where appropriate; (ii) firms’ governance arrangements for regulatory returns must be supported by an effective and robust control framework. Operating models should be clearly documented with effective controls at each stage of the process; and (iii) many firms have not prioritised investment in regulatory reporting, leading to reduced capacity and capability compared with financial reporting. A lack of strategic investment at some firms has led to outdated reporting system infrastructure and the need for significant manual intervention to fill data and system gaps. This in turn leads to a higher risk of data errors and misstatement of returns. The PRA will follow up with relevant firms on specific findings from their skilled person reviews, and expects firms to implement strategic, appropriately resourced and relevant plans. Further, it expects all firms to consider its findings, and implement any step necessary. Lastly, the PRA will continue to monitor regulatory reporting, using various tools including further skilled person reviews, and supervisory responses and enforcement powers where a firm has failed to meet its expectations.
Recovery and resolution
SRB updates its approach to prior permissions regime
On 16 September, the SRB published a communication on the application of RTS provisions on prior permission for reducing eligible liabilities instruments as of 1 January 2022. This update complements the 28 July guidance and aims to raise awareness of the requirements and how to report on them. This guidance is provided to assist institutions when applying to the SRB for permission in line with the requirements specified in the draft RTS (in recognition of the fact that they are unlikely to be finalised before 1 January 2022). It summarises and explains in a consistent and comprehensive way the procedures that institutions should follow when seeking the SRB’s permission to call, redeem, repay or repurchase eligible liabilities instruments before their contractual maturity As of 1 January 2022, the SRB will follow the draft RTS for granting permission. All applications seeking SRB authorisation as of the date of this Communication should be aligned with the requirements in the draft RTS. However, for applications due by 31 August 2021 seeking authorisations as of 1 January 2022, as an exceptional measure, the SRB will accept applications from institutions until 30 September 2021. Aligning the permission regime with the draft RTS now and in their final draft form would allow banks to continue with their redemptions transactions following the adoption of the Delegated Regulation without any disruption or the need to submit new applications, under the condition that the Delegated Regulation will not substantively deviate from the draft RTS. It will also provide certainty and transparency on what the SRB is expecting from banks that wish to apply for prior permission to redeem their eligible liabilities instruments early. The SRB will update this Communication if any parts of the draft RTS are changed when the Delegated Regulation is endorsed.
Other developments
EBA final report on revised guidelines on stress tests of deposit guarantee schemes
On 15 September, the EBA published a final report containing revised guidelines on stress tests conducted by national deposit guarantee schemes (DGSs) under the Deposit Guarantee Schemes Directive. The revised guidelines: (i) strengthen the current DGS stress-testing framework by requiring DGSs to stress test their ability to perform all of the interventions they are legally mandated to perform; (ii) require DGSs to stress test their ability to have access in due time to all of their funding sources; (iii) strengthen co-operation between DGSs and different authorities by requiring the stress testing of interventions where cooperation with other authorities is necessary; and (iv) encourage the DGSs to choose stress-testing scenarios with additional business continuity challenges or external circumstances that create extra stress for the DGSs to perform their functions, such as a pandemic, ICT failures or other such events. The guidelines will apply from 15 September and will repeal and replace Guidelines EBA/GL/2016/04 at the same time. The deadline for DGSs to submit their next reporting template is set for 16 June 2024.
FCA Regulation Round-up
On 16 September, the FCA published their regulation round-up for September 2021. Amongst the items covered in the round-up are: (i) tackling harm in the consumer investment market, drawing on their Consumer Investments Strategy; (ii) an update on SMR and CF (AR) applications(iii) changes to the Appointed Representative Notification process; (iv) a reminder to firms to prepare for the switch from analogue to digital phone lines ; (v) an renewed invitation to innovative firms developing solutions that will aid the transition to a net zero economy to apply to the Green FinTech Challenge 2021; and (vi) an update on the FCA’s approach on the EBA’s view of inherence for the purpose of Strong Customer Authentication – the FCA has chosen not to reflect the EBA’s view in its Approach Document. It will publish its rationale and full policy statement later this year.