Recent regulatory developments of interest to all financial institutions. Updates include the latest publications relating to Brexit, COVID-19 and more.
Contents
- Brexit: FCA reopens temporary permissions regime notification window
- Brexit: Equivalence Determinations for Financial Services (Amendment etc) (EU Exit) Regulations 2020
- Brexit: BoE and PRA webpage and guidance on temporary transitional powers
- Brexit: FCA updates, guidance on TTP and post-transition period Handbook
- Brexit: FCA update on considerations for UK firms re client money and assets
- FCA Handbook Notice 80
- COVID-19: FCA extends flexibility over 10% depreciation notifications
- COVID-19: Dear CEO letter on adequate client assets arrangements
- FCA perimeter report 2019/20
- EU Digital Finance Strategy and Retail Payments Strategy
- Platform on Sustainable Finance: European Commission FAQs
- Second European Commission CMU action plan
Brexit: FCA reopens temporary permissions regime notification window
The UK Financial Conduct Authority (FCA) has updated its webpage on the temporary permissions regime (TPR) explaining that EEA firms and fund managers can now notify it if they wish to use the TPR. Notifications should be submitted using the FCA’s Connect system before the end of 30 December 2020. Firms that have already submitted a notification need take no further action.
Fund managers that want to update a previously submitted notification should email the FCA, including their FRN, by the end of 9 December 2020 confirming this. They should be able to submit updated notifications from 14 December 2020, however, the FCA advises fund managers that they should only submit updated notifications when they are certain that all the correct funds are included. Updated notifications must be received by the FCA by the end of 30 December 2020.
Fund managers should continue to follow current processes via their home state regulator for marketing new funds in the UK and should allow sufficient time for notifications to be received and processed by the FCA to ensure that any new funds are eligible for the TPR.
The FCA emphasises that if new funds have been added to a fund manager's population since an earlier notification was submitted, the new funds will not be included in the temporary marketing permission regime unless the fund manager requests to update their notification and include the new funds in that updated notification.
Published alongside the webpage are the relevant revised directions:
- revised direction for EEA or Treaty firms;
- revised direction for EEA operators of collective investment schemes;
- revised direction for EEA alternative investment fund managers, managers of European Venture Capital Funds and managers of European Social Entrepreneurship Funds;
- revised direction for authorised payment institutions and registered account information service providers; and
- revised direction for e-money institutions.
Brexit: Equivalence Determinations for Financial Services (Amendment etc) (EU Exit) Regulations 2020
The Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020 (SI 2020/1055) have been published, together with an explanatory memorandum. The Regulations concern the UK future regime for equivalence and add to the measures made in the draft Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2020, which were published in May 2020.
Among other things, the Regulations:
- contain minor amendments and deficiency fixes to existing financial services EU Exit instruments. These include the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018 (SI 2018/1320), the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018 (SI 2018/1403), the Credit Rating Agencies (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/266), and the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/541) (Equivalence Determinations Regulations 2019);
- provide for the FCA and the Bank of England (BoE) to establish, before IP completion day, cooperation arrangements with EEA regulators where HM Treasury makes an equivalence direction in relation to an EEA state under regulation 2 of the Equivalence Determinations Regulations 2019; and
- allow the UK regulators to accept applications from EEA financial services providers for regulatory decisions set out in Schedule 3 (for the purposes set out in that Schedule) before IP completion day.
The Regulations came into force on 30 September 2020.
Brexit: BoE and PRA webpage and guidance on temporary transitional powers
The Prudential Regulation Authority (PRA) and the BoE have published a webpage providing firms and financial market infrastructures with information on the BoE's and PRA’s approach to the temporary transitional power (TTP). The TTP allows the UK's financial services regulators to delay or modify firms’ regulatory obligations where they have changed as a result of onshoring changes arising at the end of the transition period.
The BoE and PRA intend to use the TTP to provide broad transitional relief, with some key exceptions, for 15 months after the end of the transition period, until 31 March 2022 (the TTP period). The FCA intend to adopt the same approach in relation to the TTP, as confirmed in its 1 October 2020 public statement.
The webpage covers a number of areas, including:
- application of the TTP and exceptions;
- interaction between the use of the transitional power and equivalence decisions and equivalence directions; and
- the duration of transitional relief.
The BoE and PRA have also published General guidance on the BoE's transitional direction and General guidance on the PRA's transitional direction. The guidance documents support the draft transitional directions published as part of their consultation on changes to their rules, binding technical standards, and the use of temporary transitional powers required before the end of the Brexit transition period (CP13/20). The guidance is subject to further update. The final versions will be published close to the end of the transition period.
Brexit: FCA updates, guidance on TTP and post-transition period Handbook
The FCA has updated its Handbook to reflect the amendments relating to Brexit that will come into effect at the end of the Brexit transition period. It has also published a webpage setting out how it intends to use the TTP and, in Handbook Notice 80, published the final versions of certain instruments amending its Handbook and BTS for which it is responsible.
FCA Handbook and guidance
The FCA Handbook has been updated to:
- incorporate the instruments relating to Brexit that will come into effect on IP completion day;
- set out the consolidated texts of the onshored BTS for which the FCA is responsible and links to relevant EU non-legislative material, such as guidelines produced by ESMA, EIOPA and the EBA; and
- incorporate banners to indicate the application of directions made by the FCA using TTP.
In conjunction with using the Handbook’s "time travel" functionality, these amendments will allow users to view a post-IP completion day version of the FCA's Handbook rules and guidance.
The FCA has newly published a Guide to the FCA Handbook for Post-Brexit Transition to help firms navigate the Handbook in light of the changes following IP completion day, and it has updated the following documents:
TTP
The FCA has published revised draft versions of the main FCA transitional direction (together with revised versions of Annex A and Annex B) and the FCA prudential transitional direction.
The FCA intends to apply the TTP on a broad basis from the end of the transition period until 31 March 2022. This means firms and other regulated persons do not generally need to prepare now to meet the changes to their UK regulatory obligations brought about by onshoring.
However, there are areas where the FCA considers that it would not be appropriate for it to grant relief at the end of the transition period, including where doing so would not be consistent with its statutory objectives. The FCA confirms the following areas that it expects regulated persons to comply with changed obligations by 31 December 2020:
- MIFID II transaction reporting;
- EMIR reporting obligations;
- SFTR reporting obligations;
- certain requirements under the Market Abuse Regulation;
- issuer rules;
- contractual recognition of bail-in;
- Client Assets sourcebook (CASS) requirements;
- market-making exemption under the Short Selling Regulation;
- use of credit ratings for regulatory purposes;
- securitisation;
- electronic commerce EEA firms;
- mortgage lending after the transition period against land in the EEA; and
- for payment services, strong customer authentication and secure communication.
The FCA has published a webpage explaining the key requirements where the TTP will not apply and updated its webpage on eCommerce Directive – changes at the end of the transition period.
The FCA explains that by reviewing the new Handbook site, alongside the updated TTP information, firms will be able to see which changes will apply to them. It has also published webpages on:
Amendments to FCA rules and BTS
The FCA states that it has proceeded with the majority of the amendments to the Handbook and to BTS as set out in CP19/27 and CP19/33, except for minor consequential and drafting amends. Details of specific amendments made to instruments consulted on are set out in Handbook Notice 80.
The FCA has published the final versions of these instruments:
The FCA has made the following instruments, which it has not previously consulted on:
The FCA has also published the final versions of the following instruments amending BTS:
Brexit: FCA update on considerations for UK firms re client money and assets
The FCA has updated its webpage on considerations for UK firms preparing for the end of the transition period, adding a section relating to client money and custody assets.
The FCA emphasises that firms are required to carry out periodic due diligence reviews on third parties holding client money and/or custody assets. If a firm deposits client money or custody assets with any institution in the EEA, it should review its due diligence to ensure that client assets will not be subject to increased risk due to any changes arising from the end of the transition period and manage the risks accordingly.
Firms should make sure that existing safeguards and protections for client assets, especially in the event of insolvency, remain effective from the end of the transition period.
FCA Handbook Notice 80
The FCA has published Handbook Notice 80, which sets out changes to the FCA Handbook made by the FCA board on 17 and 30 September 2020. The Handbook Notice reflects changes made to the Handbook by the following instruments:
Handbook Notice 80 also includes changes made to the Handbook relating to Brexit, reported above.
COVID-19: FCA extends flexibility over 10% depreciation notifications
On 30 September 2020, the FCA published a statement announcing a further six-month extension and amendments to a temporary COVID-19 measure applying supervisory flexibility over 10% depreciation notifications. The statement is addressed to firms that provide portfolio management services or hold retail client accounts that include positions in leveraged financial instruments or contingent liability transactions.
The FCA informed firms in March 2020 that it would apply supervisory flexibility over 10% depreciation notifications until the end of September 2020. It is extending this previous flexibility with some amendments.
The FCA will not take action for breach of COBS 16A.4.3 EU for services offered to retail investors from 1 October 2020 provided that the firm has:
- issued at least one notification in the current reporting period, indicating to retail clients that their portfolio or position has decreased in value by at least 10%;
- informed these clients that they may not receive similar notifications if their portfolio or position values further decrease by 10% in the current reporting period;
- referred these clients to non-personalised communications that outline general updates on market conditions; and
- reminded clients how to check their portfolio value, and how to get in touch with the firm.
The FCA reminds firms of Principles 6 and 7 of its Principles for Businesses. If it suspects that potential serious misconduct may cause significant harm to consumers, it will consider the appropriate response, which may include opening an investigation.
The FCA is also extending its flexibility regarding professional investors. For services offered to professional investors, from 1 October 2020 the FCA will not take action for breach of COBS 16A.4.3 EU provided that firms have allowed professional clients to opt in to receiving notifications.
The FCA will adopt this approach for six months (to 30 March 2021).
COVID-19: Dear CEO letter on adequate client assets arrangements
On 30 September 2020, the FCA published a Dear CEO letter stressing the importance of firms continuing to maintain adequate arrangements to safeguard the client money and custody assets ("client assets") they hold for customers.
In its letter, the FCA highlights areas that are particularly important to maintaining adequate client assets arrangements in the current pandemic environment. It also reminds firms of their obligations to oversee those arrangements and to notify the FCA if they identify any material concerns.
FCA perimeter report 2019/20
The FCA has published its perimeter report 2019/20, which provides an update on the issues raised in its 2018/19 perimeter report. The report also sets out other areas where the FCA has made progress, or continues to see harm to consumers and market users around its regulatory perimeter
EU Digital Finance Strategy and Retail Payments Strategy
The European Commission has published a communication on a Digital Finance Strategy for the EU. The Commission launched a consultation on the Digital Finance Strategy in April 2020. It has published a summary of responses to the consultation, which have informed the communication. The Commission has also published Q&As on the Digital Finance Strategy.
The Digital Finance Strategy forms part of a digital finance package introduced by the Commission to further enable and support the potential of digital finance in terms of innovation and competition, while mitigating the risks arising from it. In addition to the communication, the package includes:
In the communication, the Commission notes that payment services play a key role among digital financial services and require specific policy measures. The Commission has set these out in a separate communication entitled "A Retail Payments Strategy for the EU", which it has published alongside the communication.
The Digital Finance Strategy comprises a package of measures relating to the following four priorities:
- tackle fragmentation in the digital single market for financial services;
- ensure the EU regulatory framework facilitates digital innovation in the interests of consumers and market efficiency;
- create a European financial data space to promote data-driven innovation; and
- address the new challenges and risks associated with digital transformation.
In the communication, the Commission sets out a number of key actions under each of the four priorities. It also highlights the related legislative proposals it has published alongside the communication.
For further information on the proposed regulation on cryptoassets, read our separate briefing: The EU proposed cryptoassets regulation: a pathway for clarity?
Platform on Sustainable Finance: European Commission FAQs
The European Commission has published frequently asked questions (FAQs) on the setting-up and work of the "Platform on Sustainable Finance" (the Platform). The Platform is an expert EU group required under the Taxonomy Regulation to advise the Commission on issues such as the development of robust and science-based technical screening criteria for the EU taxonomy, and policy development.
The FAQs include:
- What are the Platform's tasks relating to sustainable finance?
- What are the rules for selecting or directly appointing members of the Platform?
- How and who was selected as a member?
- Why does the Platform include representatives from non-EU countries (such as the UK and Switzerland), and from industries with high environmental impact?
- How will the Platform function, what are its concrete deliverables and where can its work be followed?
- How to engage with the Platform?
The Commission has also updated its webpage on the Platform to include a list of Platform members.
Second European Commission CMU action plan
The European Commission has published its second action plan on the Capital Markets Union (CMU). In the action plan, the Commission sets out details of 16 initiatives intended to achieve three key objectives:
- making financing more accessible to European companies;
- making the EU a safer place for individuals to save and invest long-term; and
- integrating national capital markets into a genuine single market.
The initiatives announced by the Commission are intended to complement previously announced actions and to address new challenges that have subsequently emerged. The initiatives reflect the final report of the High-level Forum on the CMU, which was published in June 2020. The Commission has also published a feedback statement on the feedback that it received on the Forum's final report.
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