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Key Regulatory Topics: Weekly Update 6-12 Aug 2021

12 August 2021

This week, the Financial Conduct Authority (FCA) launched the third and final consultation on the UK Investment Firm Prudential Regime. The FCA intends to publish a policy statement and final rules for the whole regime in autumn. 


FCA portfolio letter to mortgage third party administrators 

On 10 August, the FCA published a portfolio letter it has sent to mortgage third party administrators (MTPAs) to set out its view of the key risks MTPAs pose to their customers or the markets in which they operate. As well as signposting relevant guidance, the FCA outlines its expectations on how MPTAs should be mitigating these key risks, which include: (i) to place sufficient emphasis on the fair treatment of consumers. This includes recognising and looking after vulnerable customers and mortgage prisoners; dealing with complaints fairly and providing extended forbearance where appropriate. The FCA states that it continues to see poor treatment of customers caused in large part by weak operational oversight, ineffective systems and controls and lack of meaningful management information; (ii) to embed the fair treatment of vulnerable consumers into their culture, policies and processes throughout the whole customer journey; (iii) to have appropriate systems and controls and policies and procedures, together with adequate governance and oversight and a close and effective relationship between MTPAs and the outsourcing entity they administer mortgages for. The FCA has also written to firms that outsource their mortgage administration to remind them of their responsibilities and what they are accountable for; and (iv) to treat consumers in default or arrears difficulties with forbearance and due consideration. This includes MPTAs agreeing sustainable repayment arrangements, so that customers can meet their essential expenses and priority debts. It also includes signposting customers to free debt advice. 

Letter to MTPAs

Outsourcing letter

FCA response to Treasury Select Committee on concerns regarding frozen bank accounts 

On 9 August, the HoC Treasury Select Committee published a response from the FCA regarding the Committee’s concerns relating to reports about banks freezing vulnerable customers’ bank accounts. Highlights include: (i) the FCA is not aware of a substantive cross-sector issue of banks freezing accounts for no reason. The FCA expect firms to ensure that they comply with its general requirements and handbook principles, and pay due regard to the interests of their customers and treat them fairly; (ii) banks are required by FCA rules and the MLRs, to have appropriate systems and controls that counter the risk that customer accounts are misused for the purposes of financial crime; and to have policies and procedures to identify and report suspicions of ML/TF. In coming across and reporting potential or actual suspicious activity during the opening or maintenance of accounts, firms will need to freeze specific funds pending any decisions from the National Crime Agency; (iii) if a firm considers that it is necessary to freeze an account, the FCA expects any investigation to be carried out in a reasonable time and for customers not to be denied access unnecessarily. Where possible, banks should also communicate with customers, recognising however that they may need to take care to avoid alerting individuals in a manner that could undermine further action taken in the future (under PoCA 2002). Where a bank has decided to withdraw banking services, the FCA encourages it to communicate any exit decision to the customer, where possible, setting out its reasoning clearly in accordance with the UK Finance principles published in June 2019; (vi) the FCA expects firms to act in a proportionate, risk based manner in line with its principles; and (vii) the FCA has led a number of activities focused on the use of AI, in relation to concerns of bias or blanket de-risking. These include the Alan Turing Institute June 2021 report and the joint FCA/BoE forum, which is ongoing. 


Financial Crime

Please see the Consumer/Retail section for a letter from the FCA to the HoC Treasury Select Committee in response to the Committee’s concerns relating to reports about banks freezing vulnerable customers’ bank accounts.

EC extends consultations on AML/CFT legislative proposals 

On 11 August, the EC extended its consultations on its legislative proposals to strengthen the EU AML/CFT rules: (i) a Regulation on the prevention of the use of the financial system for the purposes of ML/TF (AML Regulation); (ii) a Regulation establishing the AML/CFT Authority (AMLA); (iii) a Directive on the mechanisms to be put in place by the Member States for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and repealing MLD4 (MLD6); and (iv) a recast of the revised WTR, expanding traceability requirements to crypto-assets (recast WTR). The deadline for comments has been extended from 17 September to 7 October (midnight Brussels time). 

AML Regulation



Recast WTR

ESMA updates MAR Q&As

On 6 August, ESMA updated its Q&As on MAR, adding three new Q&As regarding the disclosure of inside information: (i) the interaction between MAR and the CRA Regulation (ii) disclosing credit ratings to the public and inside information; and (iii) the distribution of subscription ratings and disclosure of inside information. 



Please see the Sustainable Finance section for an update from the FCA on applications for the second cohort of its digital sandbox, which will focus on providing support to innovators looking to develop and validate solutions in the area of ESG data and disclosure. 

ESMA report on the use of FinTech by CSDs

On 6 August, ESMA published a report on the use of FinTech by CSDs. The EC requested ESMA prepare a report with the objective of informing the EC’s ongoing review of CSDR. ESMA concluded that as CSDR is intended to be technology-neutral it should be able to accommodate the use of new technologies. Some aspects would benefit from additional clarifications in order to provide legal certainty regarding the use of DLT by CSDs. ESMA consider that most of these aspects could first be clarified through Q&As and, following further experience gained through the EU pilot regime, it could then be assessed if amendments to CSDR may be needed. ESMA put forward recommendations to the EC mainly with regards to: (i) issues related to securities accounts, credits, debits, segregation requirements and reconciliation requirements – the contextualisation of a series of CSDR definitions in a DLT environment seems necessary to provide comfort to CSDs deploying this type of technology. ESMA recommends clarifying several aspects through Q&As; (ii) operational requirements – to amend Article 35 of CSDR to allow CSDs to deploy DLT solutions using other communication standards or protocols if international open communication procedures and standards are not available for this specific type of technology; (iii) settlement of securities and of cash in a DLT environment – issues have been raised with regards to the definition of settlement in CSDR, which could be initially clarified through a Q&A. Following the experience from the EU pilot regime, it can then be assessed if this should also be reflected as an amendment to CSDR; and (iv) settlement finality – several concerns have been raised with regards to the application of the Settlement Finality Directive (SFD) in a DLT environment, which should be assessed through the SFD review. 


Markets and markets infrastructure 

Please see the FinTech section for ESMA’s report on the use of FinTech by CSDs.

FCA quarterly bonds liquidity determination 

On 9 August, the FCA published the latest quarterly bonds liquidity determination. The results are available on the FCA Financial Instruments Transparency System (FITRS) and will apply from 16 August until 15 November. 



FCA, BoE and SEC MoU on supervision and oversight of certain cross-border OTC derivatives entities

On 6 August, the FCA published an MoU agreed between itself, the US SEC, and the BoE/PRA regarding consultation, cooperation and the exchange of information in the supervision and oversight of certain OTC derivatives entities that operate on a cross-border basis in the US and the UK. The Authorities intend to cooperate with each other to support the facilitation, where applicable, of the ability of certain entities to comply with particular US requirements through substituted compliance with certain provisions under the laws of the UK and supervision and enforcement by the SEC of its laws and regulations, including as contemplated under substituted compliance. Under Rule 3a71-6 of the US Securities Exchange Act of 1934, the SEC can issue an order relating to the UK financial regulatory system determining that an SEC-registered security-based swap dealer or major security-based swap participant may comply with specified UK requirements to satisfy US requirements. Accordingly, the purpose of this MoU is to: (i) address the requirements of Exchange Act Rule 3a71-6 for an MOU; and (ii) provide the SEC with the necessary tools to monitor and enforce on-going compliance by covered firms with any substituted compliance order and with applicable U.S. federal securities laws and regulations. The MoU came into force on 30 July. 


Payment systems and payment services 

UK Finance Payment Standards Strategy Group report 

On 11 August, UK Finance published a report by its Payment Standards Strategy Group (PSSG) outlining a number of recommendations for the industry to enable better co-ordination and collaboration between payment standard providers and their respective communities. The PSSG believes that the industry should act now and is proposing the creation of a UK Payment Standards Engagement Forum. This will act as the vehicle and catalyst for the positive changes in standards coordination that the PSSG believes are valuable and critical to support the next evolution of UK Payments. Imminent use cases where a coordinated approach to payment standards will be critical include open banking payments, the development of a Digital ID standard and standards to help reduce the impact of APP fraud on consumers and the industry. Without such a framework or approach being in place, the PSSG states that it will be far more difficult (and indeed, less likely), to achieve the desired outcome for the payments and financial services industry across these wide-reaching topics. This report highlights a series of tangible deliverables for the existing PSSG – and the proposed Forum. 


Prudential regulation

FCA launches third consultation on IFPR

On 6 August, the FCA began its third and final consultation on the UK Investment Firm Prudential Regime (IFPR). The FCA is asking views in this consultation on: (i) disclosure; (ii) own funds – excess drawings by partners and members; (iii) technical standards; (iv) depositaries; (v) changes to the FCA Handbook to reflect changes to the UK resolution regime; (vi) other consequential changes to the FCA Handbook; and (vii) the FCA’s use of new powers introduced under Part 9C of FSMA. The deadline for comments is 17 September. The FCA intends to publish a policy statement and final rules for the whole regime in autumn. 

Press release


EC consults on Implementing Decision on list of equivalent third countries under CRR

On 6 August, the EC began consulting on a draft Implementing Decision on the equivalence of the supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures in accordance with the CRR. The proposal: (i) adds Bosnia and North Macedonia to the list of ‘equivalent third countries’ as regards supervisory and regulatory arrangements for credit institutions in those countries; and (ii) establishes a new list of equivalent third countries for the large exposure framework. The deadline for comments is 3 September. 


EBA updates mapping between ITS on Pillar 3 disclosures and ITS on supervisory reporting

On 6 August, the EBA updated its tool, which specifies the mapping between quantitative disclosure data points and the relevant supervisory reporting data points. This tool aims at facilitating institutions’ compliance with disclosure requirements and improving the consistency and quality of the information disclosed. The updated mapping tool applies to the reporting framework 3.0 and the implementing technical standards (ITS) on institutions’ Pillar 3 public disclosures. The EBA explains that the updates included in this version are mainly driven by changes during the adoption process of the ITS on supervisory reporting and the ITS on public disclosures.

Press release

Sustainable finance

FCA digital sandbox sustainability cohort

On 10 August, the FCA provided an update on the digital sandbox to provide further information about the second cohort, which will focus on providing support to innovators looking to develop and validate solutions in the area of ESG data and disclosure. The FCA explains that the purpose of this sustainability cohort is to address specific market challenges: (i) how can technology enable transparency in disclosure and reporting on sustainability, especially on the characteristics of corporate assets and the profile of their supply chains? (eg open source and eco-friendly decentralised ledgers, centralised platforms); (ii) how can technology be used to automate the assurance of a listed issuer’s ESG data and validation of its ESG-labelled corporate bond issuance? (eg Internet of things, decentralised ledgers, centralised platforms, satellite imaging, AI); and (iii) how can technology help consumers understand the ESG characteristics of the products and providers they engage with, as well as provide visibility around alternatives aligned with their needs and preferences? The application window opens on 6 September with a view to opening the Sandbox to successful participants in November and access to the testing environment from January 2022.