Recent regulatory developments of interest to all financial institutions. Includes updates relating to COVID-19, Brexit, the UK PRA and EBA consultations on CRD V implementation, and more.

Contents

• COVID-19: FCA guidance consultation on cancellations and refunds
• COVID-19: FCA updated statement on handling complaints
• COVID-19: Treasury Committee relaunches inquiry into decarbonisation of UK economy and green finance
• PRIIPs Regulation: HM Treasury amendments to retained EU law
• FCA communications with firms
• CRD V: PRA CP12/20 on implementation
• FCA Handbook Notice 79
• FCA enhanced Financial Services Register launched
• Employer Salary Advance Schemes: FCA statement
• Fair treatment of vulnerable consumers: FCA GC20/3
• JMLSG guidance on cryptoasset businesses and pooled client accounts
• COVID-19: European Commission proposed amendments to CRR, MiFID, Securitisation Regulation and Prospectus Regulation
• Brexit: EBA communication on firms' preparations for end of transition period
• CRD and MiFID: ESMA and EBA consult on assessment of suitability of management body members
• CRD: EBA consultation on updating internal governance guidelines
• Taxonomy regulation: European Commission roadmap on Delegated Regulation on taxonomy-related disclosures by undertakings reporting non-financial information

COVID-19: FCA guidance consultation on cancellations and refunds

On 31 July 2020, the UK Financial Conduct Authority (FCA) published a guidance consultation on cancellation (for example, of holidays and events) and refunds in light of COVID-19. The guidance builds on statements made by the FCA in June 2020 about handling refund requests. The proposed guidance is aimed at both credit and debit card firms as well as insurance providers. It is designed to ensure that these firms handle enquiries and claims from consumers in a reasonable timescale, fairly and in a way that minimises inconvenience to the consumer.

The guidance consultation closes on 13 August 2020. The FCA plans to publish final guidance by the end of September 2020.

COVID-19: FCA updated statement on handling complaints

On 31 July 2020, the FCA updated its statement on how firms should handle complaints during the COVID-19 pandemic. The statement clarifies that:

• the FCA considers that firms have now had enough time to embed new ways of working. Therefore, a failure to comply with requirements in chapter 1.6 of the Dispute Resolution: Complaints sourcebook (DISP), or other complaint handling requirements, should only arise in exceptional circumstances connected to the impact of COVID-19. Any firm that is facing difficulties in complying with DISP 1.6 should contact the FCA;
• senior managers continue to be accountable for effectively overseeing how their firms handle complaints. Where firms are experiencing reduced complaint handling capacity, they are expected to prioritise paying complainants promptly if they have been offered redress and accepted that offer (including compensation awarded by the Financial Ombudsman Service (FOS));
• firms should be mindful that the FCA expects them to cooperate with the FOS on any complaints that it is considering, and respond to requests for information in a timely fashion, as required by DISP 1.4.4R; and
• claims management companies (CMCs) are expected to allow firms the time requested in their holding responses, to give a final response before referring complaints to the FOS, if the CMC consider this amount of time reasonable.

The FCA intends to review and update the statement by the end of October 2020.

COVID-19: Treasury Committee relaunches inquiry into decarbonisation of UK economy and green finance

On 24 July 2020, the Treasury Committee relaunched its inquiry on decarbonisation and green finance to seek additional written evidence on how and whether the UK's response to COVID-19 should take the government's target for net zero carbon emissions by 2050 into account.

Written submissions are requested by 28 August 2020.

PRIIPs Regulation: HM Treasury amendments to retained EU law

HM Treasury has published a policy statement on amendments to the retained EU law version of the PRIIPs Regulation (UK PRIIPs Regulation). The PRIIPs Regulation is onshored by the Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019 (SI 2019/403). HM Treasury intends to make the following changes to the UK PRIIPs Regulation to avoid consumer harm and to provide more certainty to industry once the UK ceases to be bound by the EU regime:

• an amendment to enable the FCA to clarify the scope of the PRIIPs Regulation through their rules. This will enable the FCA to address existing, and potentially future, ambiguities in relation to certain types of investment product. The definition of a PRIIP will remain unchanged. The amendment is needed because of significant industry uncertainty about the precise scope of PRIIPs (for example, in relation to corporate bonds);
• an amendment to replace the term "performance scenario" with "appropriate information on performance". This will allow the FCA to clarify what information on performance should be provided in a key information document (KID). The methodology for calculating performance scenarios has been criticised for producing misleading results; and
• an amendment that delegates power to HM Treasury to further extend the exemption for UCITS (for up to five years). The government currently considers that the existing rules for UCITS disclosure are satisfactory. This will enable HM Treasury to consider the appropriate timing for the transition of UCITS funds into any domestic successor that may result from the planned review of the UK framework for investment product disclosure, and bring forward a statutory instrument to amend the exemption date.

HM Treasury intends to legislate for these amendments when parliamentary time allows. HM Treasury intends to conduct a more wholesale review of the disclosure regime for UK retail investors in the longer term. This review will explore how to harmonise the PRIIPs regime with requirements contained in the Markets in Financial Instruments Directive (MiFID).

FCA communications with firms

The FCA has published a new webpage explaining how it communicates with the firms it regulates and highlighting the portfolio supervision letters it has published to date. The webpage gives links to all the portfolio letters the FCA has published to date. Going forward, whenever the FCA sends a portfolio letter, it will add it to this webpage.

CRD V: PRA CP12/20 on implementation

The PRA has published a consultation paper, CP12/20 together with its appendices, on the implementation of the CRD V Directive ((EU) 2019/878). In CP12/20, the PRA sets out proposals for implementing reforms introduced by the CRD V Directive relating to:

• pillar 2;
• remuneration and governance;
• intermediate parent undertakings; and
• third-country branch reporting.

These reforms will apply to banks, building societies, and PRA-designated investment firms.

Appendix 1 sets out the draft text of the PRA Rulebook instruments, Appendix 2 sets out the draft text of PRA EU exit instruments which are intended to come into force on IP completion day, and Appendix 3 to CP12/20 sets out the proposed amendments to Statements of Policy and Supervisory Statements.

The deadline for responses is 30 September 2020. The PRA intends to publish a second consultation in autumn 2020 on the remaining elements of CRD V not covered in CP12/20.

In line with the deadlines specified in the CRD V Directive, the PRA intends to finalise these proposals by 28 December 2020 and to apply them from 29 December 2020. It will, however, revise certain measures with effect from the end of the Brexit transition period.

FCA Handbook Notice 79

The FCA has published Handbook Notice 79, which sets out changes to the FCA Handbook by the following instruments made by the FCA board on 30 June, 13 July and 23 July 2020:

• COVID-19 Credit Cards and Personal Loans (No 2) Instrument 2020 (FCA 2020/30);
• COVID-19 Motor Finance and High Cost Credit (No 2) Instrument 2020 (FCA 2020/31);
• Glossary Amendment (Multilateral Development Banks) Instrument 2020 (FCA 2020/32);
• Financial Services Compensation Scheme (Determination of Default) Instrument 2020 (FCA 2020/35);
• Enforcement (Fifth Money Laundering Directive) Instrument 2020 (FCA 2020/37); and
• Consumer Credit (Bounce Back Loans) Instrument 2020 (FCA 2020/38).

FCA enhanced Financial Services Register launched

The FCA has announced the launch of its enhanced Financial Services Register. The redesign of the register aims to make it easier for users to navigate and understand the information it contains. Key enhancements include:

• clearer navigation and design;
• more information on the register's purpose, how to use it, and how to avoid scams; and
• information being made more prominent, including past actions against individuals and firms, and consumer protections.

The FCA intends to publish its directory of certified and assessed persons on the register later in 2020.

The FCA will review and improve the register on an ongoing basis to ensure it meets the needs of users.

Employer Salary Advance Schemes: FCA statement

The FCA has published a statement explaining its view of the risks and benefits of Employer Salary Advance Schemes (ESAS), and setting out issues that both employers and employees should consider when offering or using these schemes. The FCA explains that ESAS are often promoted as an alternative to high cost credit and have a broadly similar economic effect. They allow employees to access, usually for a fee, some of their salary before their regular payday. Most of these schemes do not fall under the FCA's regulation, as they do not meet the definition of credit under consumer credit legislation, but they can raise similar issues.

The FCA identifies the following four risks for employees and employers:

• lack of credit regulation: the rights and protections under consumer credit law do not apply, as ESAS usually operate outside of credit regulation;
• lack of transparency about cost: although the amount of the transaction fee might be a modest sum, there is a risk that employees might not appreciate the true cost and how this compares with credit products such as loans;
• dependency and repeat use: if an employee takes their salary early, it is more likely they will run short towards the end of the next payday, potentially leading to a cycle of repeat advances and escalating fees; and
• lack of visibility for credit reference agencies: credit reference agencies (CRAs) will not record use of the product, so creditors who subsequently carry out credit searches won't necessarily be aware that the customer is using ESAS.

The FCA also makes some suggestions as to how these risks could be mitigated. It says that it intends to continue to monitor the ESAS market for developments, including the emergence of new business models. It has increased contact with firms who are proposing ways of increasing the availability of alternatives to high cost credit, and welcomes these developments. It encourages innovators and other businesses with innovative ideas on this issue who wish to benefit from the FCA's Innovate services to contact it at innovationhub@fca.org.uk.

Fair treatment of vulnerable consumers: FCA GC20/3

The FCA has published a guidance consultation, GC20/3, on the fair treatment of vulnerable consumers. The consultation forms the second stage of a two-stage consultation process. In July 2019, in stage one, the FCA published a consultation, GC19/2, on the aims and content of the draft guidance. In GC20/3, the FCA sets out its policy decisions taken in the light of feedback to GC19/2 and seeks views on an updated version of the draft guidance, set out in Annex 4.

The aim of the guidance is to ensure that vulnerable consumers experience outcomes as good as those for other consumers and receive consistently fair treatment across the sectors regulated by the FCA. For these purposes, a vulnerable consumer is defined as someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.

The guidance is relevant to all firms involved in the supply of products and services to retail customers who are natural persons, even if they do not have a direct client relationship with the customers.

The FCA has also published a report on the outcome of research on the experiences of vulnerable customers and case studies on the experiences of vulnerable consumers (dated January 2020).

The deadline for responses is 30 September 2020. The FCA intends to finalise the guidance later in 2020 or early in 2021.

JMLSG guidance on cryptoasset businesses and pooled client accounts

The Joint Money Laundering Steering Group (JMLSG) has published the following final versions of new anti-money laundering (AML) and counter-terrorist financing (CTF) guidance on cryptoasset businesses and pooled client accounts:

• Part I of its AML and CTF guidance, which includes new guidance on pooled client accounts (see the new Annex 5-V), as well as a minor amendment to guidance in paragraph 5.3.53 on the criteria for using providers of electronic verification of identity, digital identity or trust services; and
• Part II of its AML and CTF guidance, which includes new sectoral guidance for cryptoasset exchange providers and custodian wallet providers (see the new chapter 22).

The new guidance has been approved by the JMLSG board and has been submitted to HM Treasury for approval.

COVID-19: European Commission proposed amendments to CRR, MiFID, Securitisation Regulation and Prospectus Regulation

On 24 July 2020, as part of a capital markets recovery package designed to help financial markets support the EU's recovery from the coronavirus crisis, the European Commission published targeted adjustments to the Prospectus Regulation, MiFID, the Capital Requirements Regulation (CRR) and the Securitisation Regulation.

The next step is for the European Parliament and the Council of the EU to agree the legislative texts.

Brexit: EBA communication on firms' preparations for end of transition period

The European Banking Authority (EBA) has published a press release on financial institutions' preparations for the end of the Brexit transition period. The EBA calls on EU and UK firms to finalise their preparations and to provide adequate information to their EU customers regarding the availability of services after the end of the transition period.

Among other things, the EBA highlights the following issues:

• UK firms that intend to continue to provide services in the EU must fully establish their EU-based operations. In particular, they should ensure that associated management capacity, including appropriate technical risk management capabilities, is in place ahead of time, and is commensurate to the magnitude, scope and complexity of their activities, to allow for effective and efficient management of risks they generate;
• UK-authorised payment and electronic money institutions wishing to continue to offer services to EU-based customers after 31 December 2020 must ensure that they are appropriately authorised by an EU competent authority. The EBA warns that firms making late applications may not obtain authorisation in time, as the timeline for the completion for a new authorisation may vary significantly based on the nature, scale and complexity of the service to be provided and the quality of the application submitted. It states that UK-based account information service providers (AISPs) and payment initiation service providers (PISPs) will no longer be entitled to access customers' payment accounts held at EU payment service providers and their eIDAS certificates under Article 34 of the Commission Delegated Regulation (EU) 2018/389 will be revoked; and
• EU-based customers with concerns about Brexit that have not yet been contacted by firms have the right to contact firms and their competent authorities directly. Firms should ensure adequate support and communication channels for these customers.

CRD and MiFID: ESMA and EBA consult on assessment of suitability of management body members

The European Securities and Markets Authority (ESMA) and the EBA have published a consultation paper on revising their joint guidelines on the assessment of the suitability of members of the management body and key function holders in accordance with the CRD IV Directive and MiFID. The proposed changes reflect the amendments introduced by the CRD V Directive ((EU) 2019/878) (CRD V) and the Investment Firms Directive (IFD) relating to the assessment of the suitability of members of the management body. The regulators have also published a track changes version showing their proposed revisions to the guidelines.

The consultation closes on 31 October 2020, after which the EBA and ESMA will finalise their updated joint guidelines. The amended guidelines are expected to enter into force six months after publication.

CRD: EBA consultation on updating internal governance guidelines

The EBA has published a consultation paper proposing changes to its guidelines on internal governance made under Article 74 of the Capital Requirements Directive. The proposed changes reflect the amendments introduced by CRD V and the IFD relating to credit institutions' and investment firms' sound and effective governance arrangements. The EBA has also published a track changes version showing its proposed revisions to the guidelines.

The consultation closes on 31 October 2020, after which the EBA will finalise its updated guidelines. It is expected that the amended guidelines will enter into force on 26 June 2021.

Taxonomy regulation: European Commission roadmap on Delegated Regulation on taxonomy-related disclosures by undertakings reporting non-financial information

The European Commission has published, for consultation, a roadmap on a delegated regulation on taxonomy-related disclosures by undertakings reporting non-financial information supplementing the Taxonomy Regulation ((EU) 2020/852).

The Taxonomy Regulation requires undertakings subject to an obligation to publish non-financial information under the Non-Financial Reporting Directive (2014/95/EU) (NFRD), including large banks and insurance companies, and large listed companies, with more than 500 employees, to include in non-financial statements (or consolidated non-financial statements) information on how and to what extent their activities are associated with environmentally sustainable economic activities. Article 8(4) of the Taxonomy Regulation mandates the Commission to adopt by 1 June 2021 a delegated act specifying the content and presentation of the information that needs to be disclosed, including the methodology to be used to comply with them.

The deadline for responses is 8 September 2020. The Commission intends to adopt the delegated regulation in the second quarter of 2021.

[View source.]