Key Regulatory Topics: Weekly Update 25 August – 31 August 2023
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In the UK, the key date this week was 29 August, the day on which various changes made by FSMA 2023 came into force. These changes resulted in a number of updates, including new and updated FCA webpages such as those reflecting the transitional changes to UK MiFIR. Also on this topic, HMT published its FSMA 2023 Explanatory Notes, which give background and additional information on the act and its impact. Separately, the FCA published its update on the Wholesale Market Data Study, inviting comments by 29 September. On the EU side it has been a quieter week, with the most notable development being the publication in the OJ of the Delegated Regulation under IFD on Pillar 2 add-ons.
Financial Crime and Sanctions
OFSI updates guidance on enforcement and monetary penalties for breaches of financial sanctions
On 31 August, the Office of Financial Sanctions Implementation (OFSI) published an updated version of its guidance on enforcement and monetary penalties for breaches of financial sanctions. The OFSI has updated Section 10, ‘Publication of breaches where no monetary penalty is imposed’, of its guidance to provide further details on how it assesses the severity of breaches.
JMLSG publishes revised guidance on cryptoasset transfers
On 31 August, JMLSG published the final revisions to Sector 22 (Cryptoasset providers and custodian wallet providers) in Part II of its Guidance. This includes a new Annex I to Sector 22 relating to cryptoasset transfers and the ‘Travel Rule’. The new guidance relates to the provisions of the MLRs that implement the Travel Rule for cryptoasset transfers in the UK. The new obligations came into effect on 1 September 2023. The revised guidance is intended to assist firms to design and implement the systems and controls necessary to mitigate the risks of the transfer of cryptoassets being used in connection with money laundering, terrorist financing and proliferation financing.
Please see the Financial Crime and Sanctions section for the JMLSG’s revised guidance on cryptoasset transfers.
Markets and Markets Infrastructure
FCA publishes update report on its wholesale data market study
On 31 August, the FCA published an update report on its wholesale data market study. The FCA launched its study in March, to investigate potential competition problems in three markets: benchmarks; credit ratings data; and market data vendor services. In the report, the FCA has proposed at this stage not to refer any of the three markets to the CMA. The FCA continues to identify any harm in these markets and, where appropriate, potential ways to address it. At this stage the FCA believes that it is best placed to address any harm and has invited views on this proposed stance. The report also provides an update on the progress of the study, including emerging themes and issues. The report highlights commercial practices that could increase complexity and reduce transparency in pricing and contractual terms. The FCA states that it is still on track to publish its wholesale data market study report by 1 March 2024. The deadline for comments on the FCA’s report and proposal is 29 September.
FCA varies transitional direction for the derivatives trading obligation
On 29 August, the FCA published a direction on the variation of its transitional direction for the derivatives trading obligation (DTO), along with an explanatory note. Paragraph 16 of Part 1 of Schedule 2 of FSMA 2023 amends Article 28 UK MiFIR which sets out the UK DTO, to bring it in line with the clearing obligation in EMIR. The purpose of the direction is to vary paragraph 4.1 of the guidance in Part 4 of the transitional direction, in line with the amendment in FSMA 2023. The variation came into effect on 29 August.
FCA revokes the share trading obligation
On 29 August, the FCA published a direction on the revocation of its transitional direction for the share trading obligation (STO) along with an explanatory note. Paragraph 13 of Part 1 of Schedule 2 of FSMA 2023 amends UK MiFIR by deleting Article 23, which previously set out the UK STO requirement. The direction therefore wholly revokes the FCA transitional direction for the STO. The revocation came into effect on 29 August.
FCA statements of policy on the operation of the MiFID Transparency Regime updated
On 29 August, the FCA published an updated version of its statements of policy on the operation of the MiFID Transparency Regime. Paragraph 5 of Part 1 of Schedule 2 of FSMA 2023 amends UK MiFIR by deleting Article 5, which previously set out the UK double volume cap (DVC) requirement. The FCA has removed the section of the statements of policy on the DVC in line with the amendment in FSMA 2023.
Payment Systems and Payment Services
Please see the Regulatory Reform Post Brexit section for the PSR thought piece on FSMA 2023.
Delegated Regulation on RTS on the measurement of risks for investment firms under IFD published in OJ
On 31 August, the Delegated Regulation supplementing the Investment Firms Directive (IFD) with regard to RTS specifying the measurement of risks or elements of risks not covered or not sufficiently covered by the own funds requirements set out in Parts Three and Four of the Investment Firms Regulation (IFR) and the indicative qualitative metrics for the amounts of additional own funds was published in the OJ. The RTS clarify how NCAs should measure risks as mandated by Article 40(6) of the IFD. The provisions cover: (i) risk of disorderly wind-down; (ii) risks not covered or not fully covered by the K-factor requirement set out in Part Three, Title II, of the IFR; (iii) risks not covered by the own funds requirements set out in Parts Three and Four of the IFR; and (iv) risk not covered or not fully covered by the own funds requirements set out in Parts Three and Four of the IFR. The Regulation will enter into force on 20 September, 20 days after its publication in the OJ.
Regulatory Reform Post Brexit
PSR thought piece on FSMA 2023
On 29 August, the PSR published a thought piece by Chris Hemsley, Managing Director, reflecting on the impact of FSMA 2023. Mr Hemsley explains his view that the focus on payments regulation will increase flexibility and better reflect the future of payments, as well as provide a mechanism to simplify the regulatory requirements. He discusses what changes may look like in practice, such as the changes made to APP fraud claims, which he believes will incentivise firms to actively prevent fraud. More broadly, the FSMA 2023 will enable the PSR and the other regulators to simplify their regulatory remit, to help businesses understand the rules more clearly and give regulators a greater ability to be agile. Overall, Mr Hemsley believes that the new provisions of FSMA 2023 form an enhanced regulatory framework that all financial regulators will work within, with real-life impacts and the ability to improve payment services for consumers and businesses, promote competition and encourage innovation.
FSMA 2023 Explanatory Notes published
On 29 August, the Explanatory Notes to the Financial Services and Markets Act 2023 (FSMA 2023) were published to legislation.gov.uk. HMT prepared the Explanatory Notes to assist the reader of FSMA 2023 and to help inform debate on FSMA 2023, but do not form part of the act and have not been endorsed by Parliament. The Explanatory Notes: (i) explain what each part of FSMA 2023 will mean in practice; (ii) provide background information on the development of policy; and (iii) provide additional information on how FSMA 2023 will affect existing legislation in this area. FSMA 2023 received Royal Assent on 29 June.
Financial Services and Markets Act 2023 (Commencement No 3) (Amendment) Regulations published
On 25 August, the Financial Services and Markets Act 2023 (Commencement No 3) (Amendment) Regulations were published to legislation.gov.uk. The regulations amend the Financial Services and Markets Act 2023 (Commencement No 1) Regulations, removing the Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013 (SI 2013/1388) from the list of statutory instruments to be revoked on 29 August 2023. The regulations came into force on 26 August.
FCA updates terms of reference for Wider Implications Framework
On 29 August, the FCA published an updated terms of reference for the Wider Implications Framework. The framework provides a structure for its members to work together to find the best way to deal with issues that could have wider implications across the financial services industry. The group is made up of five members: the FCA; the FOS; the FSCS; the Pensions Regulator; and the Money and Pensions Service (MaPS). It aims to improve outcomes for consumers and other financial services market participants when an issue arises. The updated terms of reference set out how the FCA, FOS and FSCS will comply with their new cooperation duty under section 415C of FSMA 2000.
FCA updates statutory panels to include LAAP
On 29 August, the FCA updated its webpages on statutory panels and the Listing Authority Advisory Panel (LAAP), to reflect that as of 29 August the LAAP became a statutory panel governed by the provisions of FSMA 2000. The FCA works with statutory panels when developing its policies and other regulatory decisions. Statutory panels represent the interests of consumers and practitioners, including smaller regulated firms and financial market participants. The panels play an important role in advising and challenging the FCA, bringing experience, support and expertise in identifying risks to the market and to consumers. The LAAP advises the FCA on policy issues that affect issuers of securities, and on policy and regulation proposals from the FCA listings function.
FCA updates webpage on keeping your firm's details up to date
On 29 August, the FCA updated its webpage on keeping your firm's details up to date, adding information about actions that need to be taken by 1 December. From 1 December, the FCA will require all authorised firms, dual regulated by the FCA and the PRA, to check, amend (if required), and confirm their firm details at least annually using the Connect system. In addition, from 1 December, firms that have appointed representatives (ARs) and introducer appointed representatives (IARs) will also be required to confirm the details of any ARs/IARs within 60 business days of their accounting reference date. The FCA reminds firms that have any ARs/IARs of their obligation to keep their details up to date and notify the FCA of changes.