Recent regulatory developments of interest to all financial institutions.
Contents
- COVID-19: FCA guidance for insurance and premium finance firms on customers in temporary financial difficulty
- COVID-19: FCA Dear CEO letter on increased client money held by firms providing non-discretionary investment services
- FCA policy development update
- EU crowdfunding service provider proposals: HM Treasury letter
- UK court powers to depart from retained EU case law: FMLC consultation response
- COVID-19: EBA updates report on implementation of selected policies
- RegTech: EBA launches industry surveys
- AML: Wolfsberg Group FAQs on source of wealth and source of funds checks
- Developing effective AML and CTF programmes: Wolfsberg Group statement
COVID-19: FCA guidance for insurance and premium finance firms on customers in temporary financial difficulty
On 11 August 2020, the UK Financial Conduct Authority (FCA) published updated finalised guidance setting out its expectations for insurance and premium finance firms when considering the fair treatment of existing customers in financial difficulty, due to circumstances arising from COVID-19. The update replaces that published on 14 May 2020 and is effective immediately. Unless renewed or updated, most of the guidance (apart from paragraphs 1.24-1.25, 1.27, 1.34, 1.37-1.38, 1.40-1.47, 1.49-1.53, 1.55-1.56 and 1.60-1.62) expires on 31 October 2020.
The FCA has also published a feedback statement, FS20/13, which summarises the feedback it received on its July 2020 proposal, as well as its response. In response to feedback, the FCA has made a small number of changes, including amendments to clarify its expectations when firms are required to send information to customers under the Consumer Credit Act 1974.
The FCA has also published the COVID-19 Premium Finance (No 2) Instrument 2020 (FCA 2020/39), which amends rules in the Consumer Credit sourcebook (CONC). It disapplies some rules to give effect to the updated guidance. This instrument was made by the FCA board on 6 August 2020 and came into force on 11 August 2020.
The FCA is continuing to consider whether the parts of the guidance setting out expectations for how insurance distributors should consider supporting customers in financial difficulties should be made permanent. It plans to progress this over the coming weeks, and will consult if it decides these elements of the guidance should be put in place permanently.
COVID-19: FCA Dear CEO letter on increased client money held by firms providing non-discretionary investment services
On 12 August 2020, the FCA published a Dear CEO letter it has sent relating to the increase in levels of client money held by firms providing non-discretionary investment services. The letter is not applicable to client money balances held within a tax efficient wrapper or under a collateral arrangement for margined transactions.
For the reporting period January to June 2020, the FCA states that a number of firms that hold client money have reported an increase in client money balances, in some cases significantly. The increase has been caused by clients rebalancing their portfolios to mitigate volatility during the pandemic.
It says that a firm's relevant senior manager should consider whether the firm needs to hold client money balances that are unlikely to be reinvested, or whether it would be in its clients' better interests to place those balances directly with their own current or savings account providers. The FCA considers it good practice in this period for firms to communicate with clients about increased client money balances to ascertain whether these should be returned to them or continue to be held by the firm to facilitate further investment in the short term.
If it is in clients' better interests during this period, firms should return client money balances if they are unlikely to be reinvested in the short term. The FCA will continue to review client money balances and follow up with firms that report significantly increased balances.
FCA policy development update
The FCA has updated its policy development update webpage for August 2020, setting out information on recent and future FCA publications.
EU crowdfunding service provider proposals: HM Treasury letter
The Cabinet Office has published a letter from John Glen, Economic Secretary to the Treasury, to Sir William Cash, House of Commons European Scrutiny Committee Chair, providing an update on the European Commission's proposed Regulation on European Crowdfunding Service Providers for Business and the related Commission proposal for a Directive making consequential amendments to the Markets in Financial Instruments Directive relating to crowdfunding.
Among other things, Mr Glen explains that this EU legislation will not come into force during the Brexit transition period. As a result, the government will consider whether similar changes in UK law would enhance the competitiveness of the UK's crowdfunding and peer-to-peer (P2P) lending sectors, while also ensuring that consumer investors are adequately protected. Mr Glen notes that there is no equivalence regime included in the final text. However, there is a commitment to consider the appropriateness of expanding the scope of the Regulation to third countries under a report to be compiled by the European Commission 24 months after the Regulation comes into force. The government will review that report.
A near identical letter sent to Lord Kinnoull, House of Lords European Union Select Committee Chair, has also been published.
UK court powers to depart from retained EU case law: FMLC consultation response
The Financial Markets Law Committee (FMLC) has published its response to the Ministry of Justice (MoJ) consultation on proposals to extend the power in section 6 of the European Union (Withdrawal) Act 2018 (EUWA 2018) for courts and tribunals to depart from retained EU case law after the end of the Brexit transition period.
In brief, the FMLC urges the MoJ not to extend this power, in particular as it will create legal uncertainty and potentially impact future equivalence assessments. If it becomes necessary to deviate from retained EU law, the onus should be on Parliament to consider it carefully in terms of a policy change.
However, if the ability to depart from retained EU case law is extended to the lower courts, the FMLC suggests a stricter test should be imposed than that which is currently applied by the Supreme Court.
COVID-19: EBA updates report on implementation of selected policies
On 7 August 2020, the European Banking Authority (EBA) published an updated version of its report on the implementation of selected COVID-19 policies to include, at section 4, answers to technical and interpretive questions raised by supervisors and institutions since the publication of the original report.
RegTech: EBA launches industry surveys
The EBA has launched an industry survey seeking feedback from stakeholders, including financial institutions and ICT third-party providers, on RegTech. The EBA is seeking to better understand the extent and the impact of the use of technology-enabled innovation for regulatory, compliance and reporting requirements by regulated institutions, raise awareness of RegTech within the regulatory and supervisory community, and inform any relevant future policy discussion.
In its survey, the EBA focuses in particular on:
- mapping and understanding the existing RegTech solutions;
- identifying the main barriers and risks related to the use of RegTech solutions; and
- identifying potential ways to support the uptake of RegTech across the EU.
There are two separate RegTech questionnaires. One is to be completed by the financial institutions, and the other one by ICT third party providers:
Feedback is sought by 30 September 2020.
After reviewing responses, the EBA may further investigate specific RegTech areas by way of follow-up interviews with financial institutions and ICT third-party providers. It also expects to report on the use of RegTech solutions in the first half of 2021.
AML: Wolfsberg Group FAQs on source of wealth and source of funds checks
The Wolfsberg Group has published frequently asked questions (FAQs) on how financial institutions can identify, mitigate and manage money laundering risks by undertaking source of wealth and source of funds checks on relevant customers when appropriate or required by applicable regulation.
The FAQs are primarily aimed at financial institutions' private banking and wealth management customer segments and take into consideration controls and procedures recognised in the Wolfsberg anti-money laundering (AML) Principles for Private Banking.
Developing effective AML and CTF programmes: Wolfsberg Group statement
The Wolfsberg Group has published a statement on developing an effective AML and counter-terrorist financing (CTF) programme.
The key elements of an effective AML and CTF programme were set out by the group in a December 2019 statement on effectiveness. Since then, the group has been encouraged by the actions taken in several jurisdictions to move towards more effectiveness-focused AML and CTF regimes. As policy makers and supervisors continue to develop this approach, the group suggests that financial institutions take a number of steps to evolve their AML and CTF programmes. The steps are outlined in the latest statement, and cover the following areas:
- assessing risk in defined priority areas;
- implementing and enhancing controls;
- prioritising resources;
- engaging with law enforcement; and
- demonstrating AML and CTF programme effectiveness.
The group believes that the approach outlined will enable financial institutions to detect and deter criminal activity more effectively and efficiently, while at the same time reducing friction on innocent customers and helping governments achieve their financial inclusion objectives.
It intends to publish additional materials on each of the five areas listed above to help financial institutions to develop, and continuously enhance, their AML and CTF programmes.
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