Financial services regulation round-up - February 2019
Quick links for this month:
FCA publishes development update
The Financial Conduct Authority (FCA) published its policy development update, outlining recent and forthcoming publications. The FCA plans to publish several new policy statements, including in relation to its High Cost Credit Review, from March to June 2019, and to begin a consultation on investment platforms.
Read the FCA's update
BSB consults on guidance for regulatory references under SMCR
The Banking Standards Board launched a consultation on proposed guidance regarding regulatory references under the senior managers and certification regime (SMCR). The guidance covers high-level principles and good practice. The deadline for responses is 20 March 2019.
Read the BSB's material
FCA posts video of banking leaders sharing insights on SMCR
The FCA posted a video in which senior staff from four firms discuss implementing SMCR. SMCR will be extended to FCA-only regulated firms in December 2019.
Watch video
FSB publishes work programme for 2019
The Financial Stability Board (FSB) has issued its work programme for 2019, giving details of planned work and an indicative timetable of publications. Its focus will be on a shift from crafting post-crisis policy to implemention, evaluating the effects of reforms and monitoring emerging risks to stability.
Read the work programme
FCA adds next steps on potential duty of care
The FCA updated the web page on its discussion paper relating to a duty of care for financial services firms and potential alternatives (DP18/5), adding that it would announce next steps in spring 2019.
Visit the updated web page
FCA and ICO enter into MoU
The FCA signed a memorandum of understanding (MoU) with the Information Commissioner's Office (ICO) on cooperation, coordination and information sharing. It sets out principles for collaboration and a legal framework for sharing information and intelligence, with the aim of facilitating closer work between the two regulators and assisting them in their functions.
In its monthly round-up, the FCA said: "While the ICO regulates firms’ compliance with the General Data Protection Regulation (GDPR), firms are reminded that complying with the GDPR requirements is also something the FCA will consider under our rules. As part of their obligations under the Senior Management Arrangements, Systems and Controls (SYSC) module, firms should establish, maintain and improve appropriate technology and cyber resilience systems and controls."
Read the MoU
Treasury Committee launches inquiry into the future of financial services
The Treasury Select Committee launched an inquiry to consider what the government’s priorities should be when negotiating the UK’s future trading relationship with the EU and others in terms of financial services, how the sector might take advantage of a new trading environment and whether the UK should maintain current regulatory barriers to third countries.
Chair Nicky Morgan MP said: "The UK may converge, seek equivalence, or diverge from the EU. As part of our new inquiry, the Treasury Committee will examine the risks and rewards of each of these choices … [We will] seek to conclude whether it would be in the long-term interests of the UK to align closely with EU financial rules, or to forgo financial services trade with the EU and pursue trade with other third countries."
Read about the inquiry on Parliament's website
UK and Switzerland sign agreement on insurance
The UK and the Swiss Confederation signed an agreement on direct insurance other than life assurance. Like the EU-Swiss direct insurance agreement, this will ensure continuity for UK and Swiss insurers accessing each other's markets. It will come into force once the UK is no longer subject to the existing arrangements. The agreement was signed in Davos on 25 January 2019 and is before Parliament.
Read the joint statement
Read the agreement
FCA agrees no-deal Brexit MoUs with ESMA and national regulators
The FCA agreed MoUs with ESMA and securities regulators in the EU on cooperation and exchange of information in the event of no-deal Brexit. The MoUs will facilitate cross-border supervision and enable the FCA to share information with fellow regulators, as those in place between EU regulators and third country authorities do. Andrew Bailey, Chief Executive of the FCA, said the MoUs should minimise potential disruption.
Read the FCA's press release
FCA sets out how it will use temporary transitional powers in a no-deal Brexit
The government plans to give the FCA a temporary transitional power to minimise disruption for firms in a no-deal Brexit, with the ability to delay or phase in changes to regulatory requirements for a maximum of 2 years from departure.
The FCA has said it would use this to ensure firms do not generally need to prepare immediately to meet Brexit-related changes to their regulatory obligations. However, the FCA also specified areas in which it would not make transitional provision and expects firms to start preparing to comply.
Read the FCA's statement
No deal guidance on sanctions
The government has published guidance on financial sanctions to be applied after Brexit, in particular if the UK leaves the EU without a deal. Secondary legislation under the Sanctions and Anti-Money Laundering Act 2018 will transfer existing EU sanctions into domestic law, but will not come into force immediately if the UK leaves with a deal.
Read guidance
Parliament seeks views on Financial Services (Implementation of Legislation) Bill
Parliament is seeking views on the Financial Services (Implementation of Legislation) Bill (the Bill), asking members of the public with relevant experience, expertise or a special interest to write to the House of Commons Public Bill Committee. The Bill enables the Treasury to make provisions in UK law corresponding to future EU financial services legislation if the UK leaves the EU with no agreement.
Read Parliament's request
FCA to host Brexit briefings for firms
The FCA is hosting two briefings for authorised firms preparing for Brexit, on 11 March in Londo and 14 March in Edinburgh. At both Nausicaa Delfas, Executive Director of International, will explain how the FCA is preparing for Brexit and what it expects of firms.
EDPB approves arrangement for data transfers between EEA and non-EEA regulators
The European Data Protection Board (EDPB) has published an opinion approving a draft arrangement between ESMA and the International Organisation of Securities Commissions (IOSCO) for the transfer of personal data between European Economic Area (EEA) and non-EEA financial supervisory authorities. The aim is to enable consistent exchange of supervision and enforcement information between regulators.
Read the opinion
FCA publishes data on mortgage market
The FCA has published data on the mortgage market, suggesting the proportion of borrowers who will be over 66 when their mortgages mature is rising (from 26% of all mortgages in 2015 to 30% in 2018), while the average age of first-time buyers has recently changed little. Re-mortgaging and loans to the self-employed are rising but remain below pre-crisis levels.
Read FCA's analysis
FCA, CMA and Open Banking publish data on quality of service in banking
The FCA has published comparative data about the services principal account providers offer to consumers and small businesses in the UK. In parallel, the CMA has issued data on customer satisfaction, following a survey conducted after a market investigation in 2016.
Open Banking also published its latest service quality indicators.
Read FCA's data
Read CMA's data
Read Open Banking's data
FCA publishes final rules on standards and communication for payment services and e-money
Following consultation in CP18/21, the FCA has issued a policy statement (PS19/3) on general standards and communication rules for payment services and e-money firms, setting out a number of changes to the Handbook applicable from 1 August 2019.
In particular, the Principles for Businesses and communication rules in BCOBS 2 will be extended to payment institutions, e-money institutions and registered account information service providers.
Read the policy statement
Open Banking publishes operational guidelines
The Open Banking Implementation Entity (Open Banking) has published operational guidelines together with a checklist for financial institutions providing online payment accounts to payers. The objective is to ensure that the Open Banking standard fosters a 'successful ecosystem' with no barriers to third party provision of products and services.
Read Open Banking's guidelines
EBA launches PSD2 API working group
The European Banking Authority (EBA) has published information on a working group on application programming interfaces (APIs) under the Payment Services Directive (EU) 2015/2366 (PSD2). It is to be chaired by the EBA and will consist of nine representatives from third party providers, API initiatives and online payment account providers respectively, as well as representatives from payment service users, standardisation bodies and technical service providers.
Read EBA's web page
PSR consults on market review of card-acquiring services
The Payment Systems Regulator (PSR) has started a consultation (MR 18/1.3) on its proposed approach to analysing how the fees merchants pay for card-acquiring services respond to changes in those acquirers pay to card system operators (scheme fees) and card issuers (interchange fees). The deadline for comments is 1 March 2019.
Read MR18/1.3
Consumer group calls for protection for cash users
Consumer body Which? has called for the government to appoint a regulator to protect the interests of those reliant on cash, saying that bank branch and ATM closures could leave customers unable to pay for goods and services. According to Which? 488 cashpoints disappeared each month between June and December 2018.
See the Which? campaign page
FCA posts video on PSD2
The FCA has updated its webpage on PSD2 with a video in which senior staff at its payments department give an overview of their work and main focuses, namely: culture and governance; resilience, cyber security and systems; payment fraud; and innovation. The FCA has also added two further videos explaining what firms should expect when dealing with the FCA.
See the FCA's PSD2 web page
FCA issues reminders about PSD2
In its monthly round-up, the FCA has reminded online account providers that under PSD2, by 14 September 2019, they must provide access to third party providers (TPPs) in line with regulatory technical standards (RTS). The FCA added that:
- they must make technical specifications and testing facilities for their access interfaces available to TPPs by 14 March 2019;
- if they plan to seek exemption from contingency mechanism requirements, they must do so soon and first email PSD2-CER@fca.org.uk; and
- they should submit any completed exemption requests by 14 June 2019.
Read the RTS
The FCA also reminded providers of account information and payment initiation services to prepare by:
- using testing facilities and technical specifications that account providers make available;
- engaging with providers through APIs; and
- obtaining certificates required under the eIDAS Regulation (EU 910/2014) to identify themselves when accessing customer account data or payment functionalities after 14 September 2019.
Read the eIDAS Regulation
The FCA also refers firms to the Payment Services and E-money Approach Document, Chapter 17.
Read the Approach Document
PRA provides feedback on cyber risk underwriting survey
The PRA has published a letter to CEOs of specialist general insurance firms, providing feedback on the results of the survey it carried out in 2018 following the publication of Supervisory Statement 4/17 'Cyber insurance underwriting risk' (SS4/17). This set out the PRA's expectations for insurers on the management of cyber underwriting risk for policies that do not explicitly include or exclude coverage for cyber risk. The PRA concludes that more needs to be done by firms, notably on risk appetite and strategy.
Read the letter
PRA consults on longevity risk transfers under Solvency II
The PRA has published a consultation paper (CP3/19) on longevity risk transfers and simplifying pre-notification expectations under Directive 2009/138/EC (Solvency II). The paper explains the PRA's intention to update Supervisory Statement 18/16 (SS18/16) to amend expectations for how firms pre-notify new longevity risk transfer arrangements, and proposes an update to the key risks the PRA believes arise from such transfers. The consultation will close on Monday 6 May 2019.
Read the consultation paper
EIOPA publishes updated work programme
The European Insurance and Occupational Pensions Authority (EIOPA) issued an updated Single Programming Document (SPD) for 2019-21. This sets out EIOPA’s tasks for 2019 within a broader programme for 2019–2021, which identifies objectives and 'cross-cutting themes'. These themes include 'InsurTech', particularly for 2019, and how considerations of sustainability can be factored into regulation.
Read the updated SPD
EIOPA issues new Q&As
EIOPA has issued new Q&As covering:
- explanatory notes on variation analysis templates;
- guidelines on reporting for financial stability purposes; and
- qualitative criteria for the transfer of risk to third country insurance or reinsurance undertakings, in relation to risk-mitigation techniques.
Read the Q&As
Implementing regulation for Solvency II published
Commission Implementing Regulation (EU) 2019/228 of 7 February 2019 was published in the Official Journal. It specifies technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 31 December 2018 until 30 March 2019 in accordance with Solvency II.
Read the regulation
EIOPA gives no-deal Brexit recommendations
EIOPA has published recommendations on the treatment of UK insurers and distributors for cross-border services in the EU in the event of a Brexit with no deal. EIOPA's concern is to mitigate detriment to cross-border policyholders by facilitating convergence and consistent practices in supervision.
Read the recommendations
PRA publishes statement on adjusting for the reduction of loss absorbency under Solvency II
The PRA has issued Policy Statement PS 4/19 following responses to its Consultation Paper CP 27/18 on adjusting for the reduction of loss absorbency where own fund instruments are taxed on write down, under Solvency II. The new statement explains how Supervisory Statement SS 3/15 – 'Solvency II: The quality of capital instruments' will be updated and clarifies how such adjustments are to be reflected in reporting templates. The changes will come into effect for instruments issued on or after 21 February 2019.
Read PS 4/19
FCA publishes final report on wholesale insurance brokers market study
The FCA has issued a final report on its wholesale insurance brokers market study (MS17/2.2), launched in late 2017 to assess competition. As the FCA did not find significant levels of harm, it says it does not intend to introduce intrusive remedies. It found areas for improvement but intends to work with firms to address these, and use existing supervision and enforcement processes. The FCA will continue to monitor developments.
Read MS 17/2.2
Commission adopts supplementary regulation on money laundering
The European Commission adopted a delegated regulation to supplement the Money Laundering Directive (EU) 2015/849 (MLD4) on measures firms must take to mitigate the risks of money laundering and terrorist financing in third countries where group-wide policies and procedures do not apply under law (e.g. if they breach data protection or banking secrecy requirements). Subject to any objections by the Council or Parliament, the regulation will enter into force 20 days after it is published in the Official Journal of the EU and will apply three months later.
Read the regulation
Commission adopts new list of high-risk third countries
The Commission has adopted a new list of 23 third countries with inadequate anti-money laundering and anti-terrorist financing frameworks. This will have a bearing on the due diligence firms must apply to transactions involving parties from these countries.
Read the press release and list
FCA warns of investment scams as nature of threat changes
The FCA published a press release warning investors of the threat posed by investment scams, after data revealed over £197m in reported losses during 2018. The most commonly reported involved shares, bonds, forex and cryptocurrencies offered by firms without authorisation. The FCA said that targeting is increasingly online, via emails, sophisticated websites and social media.
Read the press release
Joint Money Laundering Steering Group sets out plans for 2019
The Joint Money Laundering Steering Group (JMLSG) announced that it has embarked on a comprehensive workplan for 2019, covering matters including the Fifth Money Laundering Directive, expected to be implemented by January 2020, and reviews of sectoral guidance for credit unions, brokerage services and funds. New guidance will address virtual currency exchanges, payment initiation services and digital identities.
Read announcement
FOS comments on debt collection and its approach to claims management companies
The Financial Ombudsman Service (FOS) published a new issue of Ombudsman News. The publication includes a summary of complaints in the third quarter of 2018/19, debt collection case studies, and a piece on complaints about claims management companies. FOS says that in 2018 it handled c. 3,300 enquiries about debt collection. Recurring issues it identified were: customers not being asked for the right sums; administrative errors; excessive contact; contact about debt customers believed they had already repaid; and customers being contacted about the debts of others.
Read newsletter
FCA starts proceedings against Samuel Golding, Shantelle Golding, Digital Wealth Limited and Outsourcing Express Limited
The FCA announced the start of High Court proceedings against Samuel Golding, Shantelle Golding and two of their companies, Digital Wealth Limited and Outsourcing Express Limited. It is seeking a declaration that they contravened or were knowingly concerned in contraventions of the general prohibition and financial promotion restriction under the Financial Services and Markets Act 2000 (FSMA), as well a restitution order enabling the return of consumer funds and holding the defendants liable to pay any shortfall.
Man sentenced to two years for fraud and illegal operation of investment scheme
Following prosecution by the FCA, Manraj Virdee was given a two-year custodial sentence suspended for two years, and ordered to carry out 300 hours of community service. Mr Virdee had pleaded guilty to charges of misleading consumers, fraud and illegally operating an investment scheme worth over £500,000.
Permission to appeal in Berkeley Burke SIPP Administration v FOS
Permission to appeal has been granted in the case of Berkeley Burke SIPP Administration Ltd v Financial Ombudsman Service Limited and Ors [2018] EWHC 2878 (Admin). In October 2018, an application by Berkeley Burke, a self-invested personal pension (SIPP) provider and administrator, for judicial review of a decision by FOS relating to Berkeley Burke's investment in a scam investment scheme, had been dismissed by the Administrative Court on the basis that FOS had acted in accordance with its statutory jurisdiction. The appeal is to be heard by 3 March 2020.
See case tracker
See transcript of original case
FCA publishes figures on PPI compensation
The FCA has published information on payment protection insurance (PPI) compensation and refunds on a new webpage. This sets out in graph and table form monthly amounts paid to customers who have complained since 2011.
See web page
FCA publishes speech on market abuse
The FCA posted a speech given in London by Julia Hoggett, director of market oversight at the FCA, on the Market Abuse Regulation (596/2014) in the UK. The speech highlighted specific issues the FCA is concerned with, and suggested how market participants should think about the risk of abuse taking place. During her speech, Ms Hoggett also mentioned the 'five conduct questions' approach increasingly used in relation to conduct risk mitigation.
Read Ms Hoggett's speech
ESMA chair gives speech on Brexit
On 13 February 2019, the chair of ESMA, Steven Maijoor, gave a speech on in Dublin om ‘Brexit—the regulatory challenges’, focusing on preparations for a no-deal outcome. Mr. Maijoor said that following Brexit, Europe’s biggest capital market would be outside of the EU and that given how connected markets were, all participants needed to prepare.
Read Mr Maijoor's speech
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