UK Financial Services Regulatory Initiatives Forum publishes seventh edition of Grid

Melanie Johnson
Hogan Lovells
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The eagerly awaited seventh edition of the Financial Services Regulatory Initiatives Grid was published on 30 November 2023 by the Financial Services Regulatory Initiatives Forum. The Regulatory Initiatives Grid sets out the regulatory pipeline for the next 24 months.

Background

The Financial Services Regulatory Initiatives Forum (Forum) members are the Bank of England (BoE) (including the PRA), the FCA, the Payment Systems Regulator (PSR), the Competition and Markets Authority (CMA), the Financial Reporting Council (FRC), The Pensions Regulator (TPR) and the Information Commissioner’s Office (ICO). HM Treasury (HMT) attends as an observer member. The Forum was launched to strengthen coordination between members, and the Grid (first published in April 2020) sets out the regulatory pipeline so that the financial services industry and other stakeholders can understand – and plan for – the timing of the initiatives that may have a significant operational impact on them.

The Forum usually publishes the Grid twice a year, providing detail on the timing of initiatives over a 24-month horizon. The Grid also highlights key examples of closely interconnected initiatives to help stakeholders easily identify these.

In July 2023, following the Royal Assent of the Financial Services and Markets Act 2023 (FSMA 2023), a short update to the Grid was published setting out the most significant updates and developments since the February 2023 Grid.   For further information on the sixth edition of the Grid see UK Financial Services Regulatory Initiatives Forum published sixth edition of Grid.

Latest edition of the Regulatory Initiatives Grid – November 2023

As noted in the minutes accompanying the Grid, the total number of initiatives since the February 2023 Grid were broadly stable but there are a number of significant measures that have been added following the Royal Assent of the Financial Services and Markets Act 2023 (FSMA 2023) in June 2023.  A positive step taken in the latest Grid is to include more information about initiatives to repeal and replace retained EU Law (REUL) relating to financial services.  A new Smarter Regulatory Framework (SRF) section of the Grid is designed to make it easier to track progress with replacing REUL across a variety of core financial services files.

Significant developments since February 2023

The Grid highlights FSMA 2023 as a landmark piece of legislation which represents an opportunity for regulators in the financial services sector to delivery better outcomes through regulation that better reflects UK markets and wider international standards.  Key developments include:

  • Access to cash – the FCA is consulting on proposed rules to ensure cash services are provided on a fair basis.  CP23/29 on access to cash was published by the FCA on 7 December 2023 and remains open for comments until 8 February 2024.

  • Financial Promotions Gateway – the FCA has now launched the gateway for authorised firms to apply for approval for financial promotions activities. For further details see Engage article ‘A short guide to the financial promotions gateway’. 

  • Strong and Simple prudential framework for non-systemic banks and building societies – the PRA continues to deliver an ambitious programme of reforms including finalising the first phase of Strong and Simple and will be publishing the next Strong and Simple consultation in Q4 2024.  The implementation timetable for Basel 3.1 has been delayed by 6 months to 1 July 2025.

Recognising change – new SRF section

The Grid describes how FSMA 2023 provides a framework to repeal REUL relating to financial services. Through the SRF, REUL will be generally replaced by regulators’ rules or new legislation tailored to the UK.  As mentioned above, the Grid now has a new SRF section (see page 54-60) in response to feedback which brings together all the SRF initiatives across the various financial services sectors into one place.

In relation to the SRF, the Grid sets out that the government and regulators are working together to aim towards a proportionate approach to the repeal and replacement of REUL.  HMT has prioritised REUL into various ‘tranches’ in order to stagger the pace of change and manage the potential impact on industry.  Although the increase in SRF initiatives might represent a short term increase in implementing new rules, the initiatives also aim to provide opportunities to reduce the regulatory burden and tailor rules to the UK to benefit consumers and industry.  For example, the changes being progressed in relation to the Securitisation Regulation will simplify due diligence and transparency obligations along with risk retention requirements to provide a clearer, proportionate framework within which the market can operate.

Key themes that the Regulatory Initiatives Forum will continue to monitor

The Forum will continue to monitor several areas including the following:

  • The cost of living remains high and themes in the Grid reflect this.

  • Improving consumer protections - The Grid highlights:

  • The Consumer Duty has been implemented and a multi-firm review will shortly be published looking at the implementation of the Consumer Duty in retail banking.

  • BNPL – work continues on the regulation of Buy Now, Pay Later (BNPL) products.

  • Open Banking – the Joint Regulatory Oversight Committee are working towards taking forward their recommendations for Open Banking, including the PSR’s work on Account to Account payments.

Key initiatives in the regulatory landscape

Looking forward, the Grid highlights the following as the key initiatives due to be implemented within the next 2 years:

  • The FCA’s final sustainability disclosure requirements and investment product labels (SDR), for further information see here.

  • PSR Policy Statement finalising the outstanding Authorised Push Payment (APP) scam prevention policy issues and publishing the first set of performance data.

  • Access to cash – as highlighted above the FCA is currently consulting on this in CP23/29 with responses due by 8 February 2024.

  • Strong and Simple – The PRA Policy Statement on the capital regime for simpler regime firms is due to be published in Q2 2024.

  • Reforms to Solvency II: Policy statement on rule changes needed to implement the matching adjustment following September 2023 consultation is due to be published in Q2 2024.

  • The Consumer Duty comes into force for closed products on 31 July 2024.

  • The implementation date of the remaining Basel 3.1 standards has been delayed for 6 months until 1 July 2025.

  • The connection deadline for pension providers to implement pension dashboard obligations is now 31 October 2025.

Snapshot of some initiatives added to the November 2023 Grid

The following table outlines the next steps for some key initiatives that are new to this latest edition of the Grid:

Multi-sector

Initiative

Next steps

Ban on cold calling for consumer financial services and products.

As announced in the Fraud Strategy in May 2023, the government will extend the pensions cold calling ban to cover cold calling for all consumer financial services and products.  HMT will publish the outcome of the consultation that was open from 2 August to 27 September 2023 in due course.

Post-implementation review of the Guidance for firms on the fair treatment of vulnerable customers.

The FCA are looking to conduct the review in 2024 with the aim of publishing the final report by end of 2024.

Complaints reporting review – the FCA is developing proposals to improve complaints reporting.

A consultation on any proposed changes is due in 2024 and the FCA is considering options for engaging with stakeholders on improving complaints reporting under consideration including prototyping and workshops.

Taskforce on Climate-related Financial Disclosures (TCFD) reporting requirements. The FCA carried out a review of the first TCFD aligned disclosures by premium-listed commercial companies in July 2022. The FCA will continue to monitor TCFD aligned disclosures, including those of asset managers

2024: FCA to monitor TCFD-aligned disclosures and publish findings.

Stewardship review and Code consultation -  The FRC will review the UK policy and regulatory framework for effective stewardship, supported by DWP, FCA and TPR.

A Discussion Paper is expected to be published in H2 2024.

System-Wide Exploratory Scenario Exercise (SWES) will investigate the behaviours of banks and non-bank financial institutions in stress, and how these can amplify shocks in markets and potentially bring about risks to UK financial stability. The Bank is working closely with the FCA and TPR on this.

Firms will run round 1 of the scenario phase between November 2023 and January 2024.  Round 2 of the scenario phase will be run in mid-2024 with the final results publication in H2 2024.

Guidance on biometric data and biometric technologies for organisations that use or are considering using biometric recognition systems or for the vendors of these systems.

The first phase of this ICO guidance on biometric data was consulted on from 18 August to 20 October 2023, with final guidance due to be published in Spring 2024. The second phase of this guidance on biometric classification and data protection will include a call for evidence, also published in Spring 2024.

Banking, credit and lending

Initiative

Next steps

Cash Savings Market Review -  Programme of work using a range of regulatory tools, in particular the Consumer Duty, to help achieve a competitive cash savings market and better outcomes for savers.

A report was published in July 2023 on competition and consumer outcomes in the cash savings market. This includes a 14-point action plan with a range of actions for the FCA and firms, as well as voluntary industry commitments. A further market update will be published in Q4 2023. Supervisory work on consumer engagement plans and fair value assessments for some of the lowest paying easy access accounts is underway. During H1 2024, the FCA will complete its analysis on the contribution of cash savings to profitability following engagement with firms during H2 2023.

Review of Debt Advice Rules (CONC 8).  The FCA will review its debt advice rules to ensure they set the right framework for good quality debt advice.

The milestones for this will be updated in due course.

Evaluation of the persistent debt intervention-  an ex post impact evaluation of the effect of the persistent debt intervention tat came into effect in September 2018 that followed the Credit Card Market Study.

Publication planned for Q4 2024.

Amending the Threshold Conditions - HMT will amend the Threshold Conditions, which set the standards that firms must meet, to ensure that banks are upholding their current legal duties, including ensuring that lawful freedom of speech is protected. The Government will consult on how best to deliver this.

HMT will consult on how to amend the threshold conditions in due course.

Payments and cryptoassets

Initiative

Next steps

Ensuring continuity of critical clearing services - the Bank of England’s approach to discretionary payments by central counterparties This consultation sets out the Bank’s approach to giving directions to temporarily restrict or prohibit discretionary payments to specified shareholders or employees of recognised UK CCPs in severe circumstances. This power is conferred on the Bank by the Financial Services and Markets Act 2023 Schedule 11.

The consultation period closed on 17 November 2023 and the Bank intends to publish the final statement of policy in 2024 Q1 with entry into effect upon publication.

Allowing a risk based approach to payments - Reforms to the Payment Services Regulations to allow payment service providers to delay the processing of a payment when there is a reasonable suspicion that the payment is fraudulent.

EOY-23: Expected date for HMT publication of draft legislation to enact reforms.

Payment services contract termination rule changes - Reforms to the Payment Services Regulations to strengthen rules on provider-initiated terminations of payment service contracts.

EOY-23: Publication of draft legislation to enact reforms.

Insurance and reinsurance

Initiative

Next steps

Authorisation and supervision of insurance branches

Consultation Paper published on 4 October 2023.  Final rules and policy expected in Q2 2024.

Insurance Special Purpose Vehicles regime (ISPV regime).

The PRA will continue to interact with stakeholders to assess what further changes might be required to the ISPV regime.

Ease of exit: insurance- increasing confidence in and capabilities to support solvent exit in the insurance sector.

BoE/PRA consultation planned for H1 2024.

Investment management

 

Initiative

Next steps

Fund tokenisation

The Technology Working Group set up by FCA and HMT has recently completed phase 1 of its work and published ‘A blueprint for tokenisation’ on 24 November 2023.

Retail investments

 

Advice Guidance Boundary Review

A joint FCA/HMT discussion paper was published on 8 December 2023 and responses which are due by 28 February 2024 will inform necessary changes going forward.

Wholesale financial markets

 

Initiative

Next steps

Considering the recommendations of the Investment Research Review chaired by Hogan Lovells partner Rachel Kent

An FCA consultation is due in Q1 2024 with relevant rules around optionality of payment for investment research to be made by H1 2024.

Intermittent Trading Venue (ITV) Sandbox 

The ITV is due to be up and running by the end of 2024.

Smarter Regulatory Framework

 

Data Reporting Services Regulations (DRSRs) – repeal and replacement of the DRSRs with one aim to encourage the emergence of a consolidated tape in the UK as consulted on in the Wholesale Markets Review.

The Draft SI was published in July 2023 as part of the Edinburgh Reforms and the final SI was laid in November 2023.

UK CRR TLAC transfer – transfer of TLAC provisions from UK CRR using FSMA 2023 powers and revision of BoE’s MREL Statement of Policy.

BoE/HMT consultation in Q3 2024.

Repeal and replacement of CRR and definition of capital.

HMT/PRA consultation planned for H1 2024.  Final rules expected for H1 2025 with an implementation date of H1 2026.

Repeal and replace parts of the CRR capital buffer requirements to enable Strong and Simple Reforms.

HMT/PRA consultation paper Q1 2024.  Policy Statement, SI and implementation Q4 2024.

Payment Services Directive and E-Money Directive – repeal and replace the RUL of payment services and e-money where necessary.

Further information will be communicated in due course.

Insurance Distribution Directive (IDD) – repeal and replace the IDD provisions not already in the FCA Handbook

Final rules to be published imminently and expected to come into force at the time the legislation is repealed at the end of March 2024.

Solvency II remainder – transferring the remaining firm-facing Solvency II requirements from REUL into the PRA Rulebook and other policy materials.

HMT/PRA consultation paper due Q2 2024.  Policy Statement Q3 2024.  Implementation date December 2024.

Next steps

The Forum remains committed to publishing two Grids per year where possible. This edition is the last Grid of 2023 and the next will likely be published in Q2 2024 with the Forum recognising the need to keep stakeholders updated on key developments between editions where possible.

The Forum continues to welcome feedback on the Grid and has launched a dedicated feedback tool on this FCA webpage.  We will be closely monitoring all developments contained within the Grid and please do get in touch if you would like to discuss any of the measures.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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