FCA and PRA Finalise New Remuneration Code for “Dual-Regulated” Firms

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) published a joint policy statement (FCA PS15/16 and PRA PS12/15) on 23 June 2015, with final remuneration rules for firms that are "dual-regulated" by the FCA and PRA – i.e., banks, building societies and certain investment firms which deal as principal and have been formally designated by the PRA as dual-regulated.

The new rules came into effect on 1 July and are set out in a new remuneration code in (SYSC 19D) in the FCA and PRA handbooks and include certain changes to deferral and clawback of variable remuneration (i.e. bonuses). The joint policy statement also included consequential changes to the other remuneration codes – i.e. SYSC 19A for IFPRU investment firms, SYSC 19B for Full-scope UK AIFMs and SYSC 19C for BIPRU firms – new proportionality guidance for dual-regulated firms under SYSC 19D. Because the remuneration requirements for dual-regulated firms and for IFPRU investment firms arise under the new Capital Requirements Directive (CRD IV) which came into effect on 1 January 2014, the remuneration code for dual-regulated firms in SYSC 19D imposes similar requirements to the remuneration code for IFPRU investment firms in SYSC 19A.

Read the press release: "The Prudential Regulation Authority and The Financial Conduct Authority announce new rules on remuneration" (23 June 2015)

Read policy statement PS15/16: Strengthening the Alignment of Risk and Reward: New Remuneration Rules

FCA Proposes Scrapping Certain New RDR Rules for Nominees

The FCA published a consultation paper on 22 June 2015, proposing to revoke certain new rules and guidance in its Conduct of Business sourcebook (COBS 14.4) that are scheduled to come into force at the end of 2015. The new rules were adopted in August 2011 as part of the FCA’s Retail Distribution Review (RDR) and would require certain nominee companies (called “intermediate unitholders” in the rules) to notify the underlying beneficial owners of units in FCA authorised funds when the fund manager issues certain fund information and voting rights. The proposals were intended to give consumers who invest in funds on an intermediated basis the same rights as those who invest in funds directly.

The proposal to revoke these new rules before implementation has arisen because of concerns about their implementation and because the FCA is planning the following two separate pieces of work that are likely to affect their rationale:

• A discussion paper on improving firms' communications with consumers (which is due to be published shortly).
• A market study on asset management (which will start later in 2015).
   

The FCA intends to reconsider the substance of the rules and guidance in COBS 14.4 in 2016 in the light of feedback from the discussion paper, a consultation on removing specific disclosures, and any issues emerging from the market study.

Responses to the consultation are requested by 17 July 2015.

Read consultation paper: CP15/20: "Investing in Authorised Funds Through Nominees" 

FCA Responds to European Commission Capital Markets Union (CMU) Green Paper

On 27 May 2015, the FCA published its response to the European Commission's February 2015 green paper on building a capital markets union (CMU).

The FCA’s response set out a number of overarching perspectives that the FCA considers critical to enable the development of CMU to be as effective as possible. These are:

• Greater supply of investor finance will require appropriate investor protection. The FCA believes there is no trade-off between measures to promote market access and investor protection; rather, they go hand in hand.
• Focus on effective implementation of existing and already planned legislation. There is already a substantial body of legislation promoting a single capital market in Europe, and so the main building blocks are already in place.
• More consistent supervision within the current framework could bring significant benefits. The functioning of integrated capital markets requires consistent application and supervision of the single rulebook across member states.
• Legislate only where necessary and embed the better regulation agenda. The EU better regulation approach should underpin the completion of the existing legislative programme and new initiatives.
• Embrace the opportunities of new technology and potential gains from effective competition. Actions to facilitate digitalisation to respond to investor preferences and give investors greater control over their investments should be encouraged. However, digitalisation also provides challenges, particularly around security, data protection, investor protection and maintaining fair competition, which need to be addressed.
• European markets need to be embedded in a globally competitive landscape. The FCA believes that steps to attract capital should not be limited to the EU. Action should be taken to ensure that the EU is an internationally competitive and attractive place to invest. The Commission should therefore ensure that EU legislation as far as possible is aligned with wider global standards.
   

The FCA also set out priorities for action that it believes should be important elements of the CMU action plan. These relate to enhancing the supply of investor finance and demand for capital.

Read "The Financial Conduct Authority’s response to the European Commission Green Paper: Building a Capital Markets Union"

UK Wholesale Financial Markets - Final Report Published

The Fair and Effective Markets Review (FEMR) was established by the UK Chancellor of the Exchequer in June 2014 to conduct a comprehensive and forward-looking assessment of the way wholesale financial markets operate, help to restore trust in those markets in the wake of a number of recent high profile abuses, and influence the international debate on trading practices.

On 10 June 2015, the FEMR published its Final Report, setting out 21 recommendations to:

• Raise standards, professionalism and accountability of individuals.
• Improve the quality, clarity and market-wide understanding of Fixed Income, Currency and Commodities (FICC) trading practices.
• Strengthen regulation of FICC markets in the United Kingdom.
• Launch international action to raise standards in global FICC markets.
• Promote fairer FICC market structures while also enhancing effectiveness.
• Promote forward-looking conduct risk identification and mitigation.
   

The FEMR’s Chairs will provide a full implementation report to the Chancellor of the Exchequer and the Governor of the Bank of England by June 2016.

Access further information including a copy of the FEMR's final report