Consumer/Retail
FOS response to HoC Treasury committee on FOS action plan
On 12 January, the HoC Treasury Committee published a letter sent to it by Nausicaa Delfas, FOS interim Chief Executive and Chief Ombudsman, responding to a number of questions on the FOS’ action plan, including: (i) on the backlog of cases – the FOS is on track to end the financial year with no cases over 18 months except those impacted by issues outside of its control. It is confident the interventions that are underway to help clear the backlog do not impact on the quality of its casework, but will increase productivity and make the build-up of backlogs less likely in the future; (ii) on the action plan/change programme – the FOS notes that some impact on operations will be inevitable, however it has taken steps to mitigate the effects with careful planning and an extensive process of staff engagement. The FOS is confident it can achieve its April 2022 commitments on schedule; (iii) FOS funding – in order to reduce the backlog of unexpected cases on account of the Covid-19 pandemic, fundamental change to the funding model is required. The FOS hopes the new model will encourage constructive behaviour in the industry and it is looking at changes to both case fees and the levy. The FOS will consult in Q1 2022/23, however it also refers to its ongoing consultation on an increase to the levy and reduction in free cases published earlier this month; and (iv) on developing further intelligent automation (IA) solutions – the FOS highlights possible future examples of the use of IA including the automatic classification of a case, identification of more urgent cases and ensuring cases are complete before progressing to the next stage to avoid re-work.
Letter
Fees/Levies
FCA and PRA consult on 2022/23 management expenses levy limit for FSCS
On 12 January, the FCA and PRA began a joint consultation on the management expenses levy limit (MELL) that the FSCS can levy on FS firms. The MELL covers the costs of operating the FSCS, bar compensation costs, which are levied separately by the FSCS. The proposed MELL for the 2022/23 financial year is £110.5 million. This includes the FSCS’s management expenses budget of £95.5m and an unlevied reserve of £15m, which is only invoiced to firms and used if necessary. The deadline for comments is 14 February. In the consultation paper, the regulators highlight the ongoing FCA discussion paper on opportunities to improve the aspects of the compensation framework for which the FCA is responsible for – responses are open until 4 March.
Consultation webpage
Consultation paper
FSCS announcement
FCA policy statement on new structure of authorisation application fees
On 10 January, the FCA published a policy statement and final rules setting out the new structure for authorisation application fees and introduction of new charges for notifications of changes in control and notifications of functions under the senior managers regime (SMR) and controlled functions for appointed representatives (CF(AR)). Key changes highlighted by the FCA include: (i) condensed the existing application charges to ten pricing categories; (ii) simplified FEES 3, the chapter of the FEES manual focusing on application fees; (iii) replaced the fee-bands based on income for consumer credit applications with new flat-rate fees; (iv) introduced a new category three fee for firms that apply for debt adjusting or debt counselling permissions, but with their activity limited to settlement sale of goods or settlement vehicle finance or the exclusion of debt management plans; and (v) removed the income-based fee for claims management companies and replaced it with a new category three charge for lead generators who apply only for the permission of seeking out people who may have a claim. The new structure comes into effect from 24 January, except for the new charge for notifications under SMR and CF(AR), which will come into force at a later date to be announced through a handbook notice. Draft applications submitted after 24 January will incur the new fees.
Policy statement
Webpage
Financial crime
Draft Money Laundering and Terrorist Financing (Amendment) Regulations 2022
On 7 January, draft versions of the Money Laundering and Terrorist Financing (Amendment) Regulations 2022 and a draft explanatory memorandum were published. The draft Regulations amend the MLRs to make minor amendments concerning the UK’s register of express trusts: (i) the government wishes to provide trustees with a period of at least 12 months to register on the trust registration service (TRS) in advance of the statutory deadline. As the IT development work necessary to allow TRS to accept registrations from additional types of trusts was not completed until 1 September 2021, the draft Regulations extend the registration deadline from March 2022 to 1 September 2022; (ii) they extend the requirement to update the TRS with changes from within 30 days of becoming aware of any change, to within 90 days; (iii) they provide for further exclusions from the requirement to register; and (iv) they clarify, through the addition of a new category, that trusts created in the course of opening a bank account for a minor or a vulnerable person are not within scope of registration.
Draft Regulations
Draft explanatory memorandum
EC adopts Delegated Regulation amending list of high-risk third countries
On 7 January, the EC adopted a Delegated Regulation that amends the list of high-risk third countries with strategic AML and CTF deficiencies produced under Article 9(2) of MLD4. The Delegated Regulation: (i) adds Burkina Faso, Cayman Islands, Morocco, Senegal, Haiti, the Philippines, South Sudan, Jordan and Mali; and (ii) removes Ghana, Botswana, Mauritius, the Bahamas and Iraq. The Delegated Regulation also outlines the steps being taken by Turkey to address the strategic deficiencies in its AML/CTF regime. In the light of the progress it has made, the EC has decided that there is no need to adopt further measures against Turkey under Article 9 at this stage. The Delegated Regulation will be submitted to the EP and the Council to consider for approval.
Delegated Regulation
Fintech
HoL Economic Affairs Committee report on central bank digital currencies
On 13 January, the HoL Economic Affairs Committee published its report on central bank digital currencies (CBDCs). The report concludes that there is no convincing case for why the UK needs a CBDC. The Committee found that while a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy. Key findings highlighted include: (i) the two main security risks posed by a CBDC are: (a) individual accounts could be compromised through weaknesses in cyber security; and (b) the centralised CBDC ledger, which would be a critical piece of national infrastructure, could be a target for attack from hostile state and non-state actors. While no design can guarantee absolute security, any CBDC system will need to be adaptable to emerging security threats and technological change, including fast-developing quantum computing; (ii) there may be some benefits from the introduction of a ‘wholesale’ CBDC for use between financial institutions. While the wholesale operations of the monetary system are already efficient, a CBDC may help to further enhance efficiency in securities trading and settlement, but further exploration and experimentation are necessary. The Committee recommends the Joint Taskforce on CBDCs consults on the use case for a wholesale CBDC alongside its 2022 retail CBDC consultation; and (iii) the case for a digital pound may change in the future and therefore the Government and BoE could derive most benefit now by taking action to shape global standards which suit the UK’s values and interests, for example with regard to privacy, security and operational standards.
Press release
Report
Markets and markets infrastructure
FCA temporary measures on supervisory flexibility on the short selling indicator
On 13 January, the FCA announced that it is putting in place temporary measures for reporting the short selling indicator in transaction reports while it considers changes to the UK transaction reporting regime. The FCA explains that transaction reports submitted to the FCA under UK MiFIR must contain a designation to identify a short sale. The FCA is in the early stages of considering policy options for the UK MiFIR transaction reporting regime, including, but not limited to, the future of the short selling indicator. It has received questions from firms regarding the requirement in Article 26(7) of UK MiFIR to correct errors and omissions in the short selling indicator field and resubmit affected transaction reports. Until the future of the short selling indicator field (for the purposes of the UK MiFIR transaction reporting regime) has been determined, the FCA will not take action against firms who do not meet these requirements. The FCA does not expect firms to notify it about issues affecting the short selling indicator field through an errors and omissions notification form. The FCA will keep this position under review.
Statement
IOSCO consults on operational resilience of trading venues and market intermediaries during the Covid-19 pandemic
On 13 January, IOSCO began consulting on lessons learned from the operational resilience of trading venues and market intermediaries during the Covid-19 pandemic. IOSCO describes the impact of the pandemic on trading venues and market intermediaries. It concludes that these regulated entities largely proved to be operationally resilient and continued to serve their clients and the broader economy, despite unprecedented challenges, such as the restrictions on mobility and business operations and periods of extreme market volatility and record trading volumes. The pandemic also increased cyber security risks, accelerated the use of existing, new and emerging technologies and disrupted outsourcing arrangements. IOSCO has found that the resilience of trading venues and intermediaries during the pandemic can in large part be attributed to work conducted in this area. The existing IOSCO operational resilience principles, recommendations and guidance provide the core structure for regulated entities and regulators when considering operational resilience, and the findings in this report suggest this framework has worked well. However, the pandemic has highlighted opportunities to learn lessons on how to further improve regulated entities’ operational resilience, on which IOSCO seeks feedback: (i) operational resilience means more than just technological solutions; it also depends on the regulated entity’s processes, premises and personnel; (ii) consider dependencies and interconnectivity before and after a disruption to adequately assess potential risks and changes to controls, especially for service providers and off-shore services; (iii) review, update and test business continuity plans to ensure they reflect lessons learned from the pandemic; (iv) an effective governance framework facilitates and supports operational resilience during novel or unexpected situations; (v) compliance and supervisory processes with greater automation and less dependence on physical documents and manual processes may better accommodate a remote workforce. A review of monitoring and supervision arrangements by regulated entities for remote workforces may be appropriate to help ensure continued effectiveness in a remote or hybrid environment; and (vi) information security risk – decentralised and remote work may increase the importance of monitoring processes to help ensure information security and prevent cyber-attacks. The report also acknowledges that as the next phase of the pandemic evolves, new events may further inform operational resilience considerations. IOSCO requests feedback on these observations and possible lessons learned regarding operational resilience during the pandemic. The deadline for comments is 14 March.
Press release
Consultation report
EC adopts Delegated Regulation on stricter methodology to calculate bond liquidity and SSTI of non-equity instruments
On 13 January, the EC published a draft Delegated Regulation amending the regulatory technical standards (RTS) laid down in Delegated Regulation (EU) 2017/583 as regards adjustment to the liquidity thresholds and trade percentile used to determine the size specific to the instrument applicable to certain non-equity instruments under MiFIR. These RTS introduced a phased approach with regard to the methodology to calculate the liquidity of bonds and, with regard to pre-trade transparency, the size specific to the instrument (SSTI) of non-equity instruments, including bonds. Both liquidity and SSTI are relevant for the application of transparency waivers and deferrals. Illiquid instruments are eligible for pre-trade transparency waivers based on Art 9(1)(c) of MiFIR and for post-trade transparency deferrals based on Art 11(1)(b) of MiFIR. When the size of an order is above the SSTI then, based on Article 9(1)(b) of MiFIR a pre-trade waiver is available in case the order is placed through a so called ‘request-for-quote’ or ‘voice trading’ system, and, based on Article 11(1)(c), a post-trade deferral, regardless of the trading systems that is being used. The draft Delegated Regulation aims to realise a move to a stricter phase 3: (i) for the liquidity assessment of bonds the average daily notional amount traded will be decreased from 10 to 7; and (ii) for SSTI the threshold above which a pre-trade transparency waiver is available will be increased from EUR 400,000 to 600,000 for corporate bonds and EUR 900,000 to 1.5 million for sovereign bonds. The draft Delegated Regulation will be submitted to the EP and the Council for their approval.
Draft Delegated Regulation
FCA feedback on access and use of wholesale market data and launch of programme of work
On 11 January, the FCA published a feedback statement to its call for input on accessing and using financial markets wholesale data. Responses largely reflected respondents' position in the market and confirmed the FCA's concerns, including that: (i) the market power conferred by trading venues’, multilateral trading facilities and organised trading facilities ownership of data could be increasing data charges and costs for end investors and affecting asset managers’ investment decisions; (ii) unnecessarily complex contracts in markets for benchmark and indices provisions may be weakening users’ ability to compare alternative services hampered further by barriers to switching; (iii) the bundling of data services by market data vendors and the inclusion of restrictive terms around usage may be preventing switching and increasing costs. In response, the FCA has announced a programme of work to understand and, where appropriate, address the potential harms identified: (a) on trading data – to better understand the extent to which there are high data costs and complex licensing terms and T&Cs that are creating harm to users, the FCA will conduct an information gathering and analysis exercise in Spring, focused on the pricing of trading data, underlying costs, and the terms and conditions of the sale of trading data; (b) on benchmarks – the FCA will undertake a market study in Summer looking at how competition is working between benchmarks. The study will look at issues such as pricing, contractual terms and barriers to switching; (c) on credit rating agencies – the FCA will undertake a market study by the end of 2022 looking at competition in the sale of credit rating data. The study will look at issues such as pricing and contractual relationships, barriers to entry and the scope for and level of innovation; and (d) on alternative data and advanced analytic – the FCA has commissioned research to provide it with additional information on the nature and scale of alternative data usage.
Feedback statement
Press release
Delegated Regulation lowering notification of significant net short positions published in OJ
On 11 January, Commission Delegated Regulation (EU) 2022/27 amending the Short Selling Regulation as regards the adjustment of the relevant threshold for the notification of significant net short positions in shares under Article 5(2) was published in the OJ. The notification threshold for net short positions was temporarily lowered to 0.1% (and each 0.1% above that) of issued share capital by means of an emergency intervention by ESMA following the March 2020 market turmoil. Due to (among other factors) ongoing instability and the increased transparency and monitoring made possible by the lower threshold, ESMA and the EC agreed that the temporary measure should be made permanent. It will enter into force on 31 January (20 days after its publication).
Delegated Regulation
Payment services and payment systems
PSR five-year strategy
On 13 January, the PSR published its first five-year strategy. The strategy identifies four strategic priorities: (i) ensure users have continued access to the payment services they rely on, and support a choice of payment options; (ii) ensure users are sufficiently protected when using the UK's payment systems; (iii) promot
