Financial institutions general regulatory news, November 2020 # 2

Hogan Lovells

Hogan Lovells

Recent regulatory developments of interest to all financial institutions, including updates relating to Brexit, COVID-19 and more. See also sector specific updates in the Related materials links.


  • Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2020
  • Financial Services and Economic and Monetary Policy (Consequential Amendments) (EU Exit) Regulations 2020
  • Future of UK financial services: Treasury Committee inquiry
  • Client data: FCA warns firms to be responsible when leaving the market or merging
  • UK IFPR and CRR II: Joint HM Treasury, FCA and PRA statement on implementation
  • Price comparison websites: FCA Dear CEO letter on supervisory strategy
  • Regulated fees and levies: FCA CP20/22 on 2021/22 proposals
  • FCA Regulation round-up
  • FOS Ombudsman News issue 155
  • Sanctions (EU Exit) (Consequential Provisions) (Amendment) Regulations 2020
  • FSCS and SFO memorandum of understanding
  • NCA Suspicious Activity Reports Annual Report 2020
  • Benchmark reform: FSB 2020 progress report
  • COVID-19: FSB report on financial stability impact and policy responses and letter to G20
  • COVID-19: FSB holistic review of March 2020 market turmoil
  • FSB 2020 Resolution Report
  • G20 financial regulatory reforms: FSB 2020 Annual Report on implementation and effects

Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2020

The Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2020 (SI 2020/1274) have been published, together with an explanatory memorandum. The Regulations extend by 12 months (to 31 December 2021) the transitional arrangements under Parts 2 and 3 of the Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019 (SI 2019/589), which enable specified categories of Gibraltar-based firms to provide financial services in the UK and facilitate the access by similar types of UK-based firms to Gibraltar's financial services market.

The Regulations come into force on 14 December 2020.

HM Treasury intends for the transitional arrangements to be replaced by the Gibraltar Authorisation Regime, which will be established by the Financial Services Bill 2019-21.

Financial Services and Economic and Monetary Policy (Consequential Amendments) (EU Exit) Regulations 2020

The Financial Services and Economic and Monetary Policy (Consequential Amendments) (EU Exit) Regulations 2020 (SI 2020/1301) have been published, together with an explanatory memorandum. These Regulations update references to "exit day" in financial services-related statutory instruments made under the European Union (Withdrawal) Act 2018 so that they refer instead to "IP completion day".

The Regulations come into force on 30 December 2020.

Future of UK financial services: Treasury Committee inquiry

The Treasury Committee has launched an enquiry and call for evidence on the future of financial services in the UK. Evidence may be submitted until 8 January 2021.

The questions asked in the call for evidence are:

  • How can the UK financial services sector take advantage of the UK's new trading environment with the rest of the world?
  • What changes should be made to the UK's financial services regulations and regulatory framework once the UK is independent of the European Union?
  • What should the Government's financial services priorities be when it negotiates trade agreements with third countries?
  • Should the UK open its financial services markets to external competition from countries outside of Europe, or should the UK maintain the current regulatory barriers that apply to third countries?
  • What skills and immigration policy will the UK financial services sector need once the UK has left the European Union?
  • How can Government policy and the UK regulators facilitate the emergence of FinTech and new competition; develop new areas of growth for the financial services sector; and promote the UK as the best place to incubate new financial technologies and firms?
  • Through what legislative mechanism should new financial regulations be made?
  • What role does Parliament have to play in influencing new financial services regulations?
  • How should new UK financial regulations be scrutinised?
  • What progress has the Government and regulators made in facilitating key financial services equivalence agreements with third countries; and would an alternative mechanism serve the interests of the UK market better?
  • How should financial services regulators be funded?
  • Should the mandate and statutory objectives of the financial services regulators change to include wider public policy issues?
  • How important is the independence of regulators and how might this best be protected?
  • How can the balance between lighter touch regulation and prudential safeguards be best secured?
  • How should consumer interests be taken into account when considering potential regulatory changes?
  • What are the strengths and weaknesses of the EU model of scrutinising financial services legislation?
  • Should the UK seek to replicate the EU's model for drafting and scrutinising financial services regulation?

A previous inquiry on the future of financial services was closed before it could report due to the dissolution of Parliament ahead of the general election on 12 December 2019.

Client data: FCA warns firms to be responsible when leaving the market or merging

The UK Financial Conduct Authority (FCA) has published a statement reminding firms of their responsibilities when handling client data. The FCA notes that the current economic climate may cause some firms to leave the market or merge with other firms. In these circumstances, it reminds firms that they must lawfully process and transfer data.

The FCA reminds firms of the need to consider:

  • the FCA's Principles for Businesses, in particular Principles 3 (Management and control), 6 (Customers' interests) and 7 (Communications with clients); and
  • data protection legislation, including the Data Protection Act 2018, the General Data Protection Regulation, the Privacy and Electronic Communications Regulations (SI 2003/2426) and guidance published by the Information Commissioner's Office.

The FCA explains that it will act where it identifies breaches of the FCA Handbook requirements. It expects firms that intend to transfer or receive personal client data to be able to demonstrate how they have considered the fair treatment of consumers and how their actions comply with data protection and privacy laws.

UK IFPR and CRR II: Joint HM Treasury, FCA and PRA statement on implementation

HM Treasury, the FCA and the PRA have jointly announced a target date of 1 January 2022 for the implementation of the Investment Firms Prudential Regime (IFPR) and on reforms to the prudential requirements for UK banks reflecting the EU Capital Requirements Regulation II (CRR II). They indicate that the target implementation date for the final Basel III reforms will remain 1 January 2023, in line with their April 2020 statement.

The authorities had previously indicated that the IFPR and CRR II reforms would be implemented in summer 2021, in line with their EU equivalents. They state that they decided to set the revised implementation date in response to feedback from industry relating to these specific proposals and in response to the September 2020 Regulatory Initiatives Grid, where industry raised concerns about the general volume of regulatory reform in 2021.

HM Treasury states that it will ensure the relevant secondary legislation is in place in good time, and the regulators will endeavour to provide industry with as much sight of the final rules as possible ahead of 1 January 2022.

Price comparison websites: FCA Dear CEO letter on supervisory strategy

The FCA has published a Dear CEO letter to firms in price comparison websites (PCW) portfolio, on the FCA's supervision strategy for such firms. Firms in the PCW portfolio include:

  • PCWs that conduct comparisons for regulated products on their own site; and
  • PCWs that outsource their comparison services to other firms.

The letter sets out the FCA's view of the key risks these firms pose to their consumers or the markets in which they operate, and outlines its expectations of such firms, including how firms should be mitigating the key risks. It also describes the FCA's supervisory strategy and programme of work to ensure that firms are meeting its expectations, and harms are being remedied.

Regulated fees and levies: FCA CP20/22 on 2021/22 proposals

The FCA has published a consultation paper, CP20/22, on changes in the way it will raise regulated fees and levies rates from 2021/22. The FCA proposals:

  • revalorise and simplify all FCA authorisation application fees and introduce some new transaction fees;
  • proposes the structure of periodic fees for cryptoasset businesses; and
  • sets out proposals for the third stage of the FCA's consultation to introduce income to calculate periodic fees for firms that operate multilateral trading facilities and organised trading facilities.

The consultation ends on 22 January 2021. The FCA plans to publish its feedback and final rules in its March 2021 Handbook Notice.

FCA Regulation round-up

The FCA has published its Regulation round-up for November 2020. Among other things, it includes items on:

  • the treatment of maturing dormant child trust fund (CTF) accounts - the FCA has published a webpage setting out information for CTF providers on the treatment of dormant accounts at maturity, including legislative changes under the Child Trust Funds (Amendment) Regulations 2020 (SI 2020/29), which came into force on 6 April 2020. Providers are required to move dormant CTFs to a "protected account" (an ISA or a matured CTF) on the account holder's 18th birthday. The FCA explains that its PERG 13.5A guidance on CTFs is relevant to protected accounts. Generally, it would not expect a firm administering assets held in a protected account pending instructions from a non-contactable client to be carrying on investment services or activities for the purposes of MiFID requirements. The FCA also highlights the availability of a modification by consent in relation to COBS client agreement requirements where firms are unable to contact clients;
  • risk transfer agreements (RTAs) - the FCA reminds insurers of their responsibilities regarding the provision of RTAs. It has seen instances where terms of business agreements (TOBAs) do not reflect the intent of the arrangements, or accurately reflect the intermediaries' operations. The FCA expects insurers to regularly review their agreements for inappropriate wording and maintain adequate oversight to ensure terms of business agreements are complied with. Insurers and intermediaries have a duty to their clients to ensure RTAs are properly in place; and
  • the FCA reminds firms that the definition of "pension transfer" in the FCA Handbook changed on 1 October 2020. It now refers to the transfer of safeguarded benefits to flexible benefits in a different scheme and to some transfers involving guaranteed annuity rates. As a result, the regulated activity of advising on pension transfers and opt-outs now covers only transfers of this type. Accordingly, the non-standard limitation for firms not wishing to advise on defined benefit pension transfers has been revised. Firms should use this revised wording. The FCA has updated its webpage on defined pension transfers to reflect this.

FOS Ombudsman News issue 155

The Financial Ombudsman Service (FOS) has published issue 155 of its Ombudsman News, which includes:

  • quarterly complaints data for Q3 2020;
  • an overview (set out on a webpage) of the FOS' general approach to complaints about consumer credit, including information and case studies on how the FOS approaches specific types of consumer credit complaints;
  • the FOS' annual report and accounts 2019/20;
  • operational information about the FOS and its approach to complaints caused or affected by COVID-19; and
  • a blog on helping small businesses with life-changing financial disputes.

Sanctions (EU Exit) (Consequential Provisions) (Amendment) Regulations 2020

The Sanctions (EU Exit) (Consequential Provisions) (Amendment) Regulations 2020 (SI 2020/1289) have been published. These Regulations amend the ISIL (Da'esh) and Al-Qaida (United Nations Sanctions) (EU Exit) Regulations 2019 (SI 2019/466), the Counter-Terrorism (International Sanctions) (EU Exit) Regulations 2019 (SI 2019/573) and the Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019 (SI 2019/577) (together, the 2019 Regulations). The amendments provide that the 2019 Regulations will themselves make amendments to:

  • the Charities Act 2011;
  • the Sanctions and Anti-Money Laundering Act 2018;
  • the Electronic Money Regulations 2011 (SI 2011/99);
  • the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692); and
  • the Payment Services Regulations 2017 (SI 2017/752).

These come into effect at the end of the transition period of the counter-terrorism sanctions framework established by the 2019 Regulations. This counter-terrorism sanctions framework is intended to replace the counter-terrorism sanctions regimes currently implemented through EU Council Decisions and Regulations (and associated UK legislation) and the Terrorist Asset-Freezing etc Act 2010.

The Regulations will come into force in accordance with regulations made by the Secretary of State under section 56 of the Sanctions and Anti-Money Laundering Act 2018.

FSCS and SFO memorandum of understanding

The Financial Services Compensation Scheme (FSCS) and the Serious Fraud Office (SFO) have entered into a memorandum of understanding (MoU) which explains that the two organisations are committed to working together in the public interest to achieve the appropriate outcomes in the investigation and prosecution of serious or complex fraud and bribery and corruption offences. In support of this aim, the MoU sets out the framework for effective liaison and communications between the SFO and the FSCS.

NCA Suspicious Activity Reports Annual Report 2020

The National Crime Agency (NCA) has published its Suspicious Activity Reports Annual Report 2020. Among other key statistics, the report shows that a record number of 573,085 SARs were received and processed by the UK Financial Intelligence Unit (UKFIU) of the NCA in 2020. This was a 20% increase on the previous period of 478,437. In addition, there were 62,408 requests for a defence against money laundering or terrorist financing, an 81% increase on 2018/19.

Benchmark reform: FSB 2020 progress report

The Financial Stability Board (FSB) has published a progress report for 2020 on reforming major interest rate benchmarks. Among other things, the FSB reports that:

  • the transition away from LIBOR remains a significant priority, and although important progress has been made over the course of 2020, this work must accelerate further in early 2021;
  • the disruption to global financial markets associated with the COVID-19 pandemic has further highlighted the fundamental weaknesses in LIBOR and has reinforced the critical importance of the FSB's efforts to reform the production and use of global interest rate benchmarks. The FSB's view remains that financial and non-financial sector firms across all jurisdictions should continue their efforts in making wider use of more robust risk-free rates in order to reduce reliance on interbank offered rates where appropriate.

COVID-19: FSB report on financial stability impact and policy responses and letter to G20

The FSB has published a letter sent to G20 leaders ahead of their next summit on the findings of its reports on issues relating to the COVID-19 pandemic and on initiatives that should be prioritised to ensure financial stability beyond COVID-19. It has also published a report referred to in the letter and submitted to the G20, "COVID-19 Pandemic: Financial Stability Impact and Policy Responses".

The FSB will provide a further update to the G20 by April 2021 on the COVID-19 responses of member authorities and standard-setting bodies, its financial stability risk assessment and its work on the effectiveness of policy responses.

COVID-19: FSB holistic review of March 2020 market turmoil

The FSB has published a report setting out the findings of its holistic review of the March 2020 market turmoil, brought about by the COVID-19 shock. In the report, the FSB examines the drivers, effects and implications of the financial market turmoil in March 2020.

The FSB notes that the policy response was speedy, sizeable and sweeping. It found that, without the intervention of central banks, it is highly likely that the stress in the financial system would have worsened significantly. This would have had a major impact on the ability of financial and non-financial firms to raise funds. It concludes that the March turmoil reinforced the need to better understand interconnections and amplification channels in the financial system and to consider the nature of vulnerabilities in non-bank financial intermediation relating to the liquidity stress and the implications of central bank liquidity support, and draw lessons about overall resilience of the NBFI sector.

The FSB proposes a non-bank financial intermediation work programme.

FSB 2020 Resolution Report

The FSB has published its 2020 Resolution Report on the implementation of its resolution reforms. The report includes a section on lessons learnt for resolution planning from the COVID-19 pandemic, and a summary of actions and timelines for future work.

G20 financial regulatory reforms: FSB 2020 Annual Report on implementation and effects

The FSB has published its annual report on the implementation and effects of the G20 financial regulatory reforms. Given the pandemic, there has been limited additional progress implementing the G20 reforms during the last year.

However, the FSB finds that the G20 reforms after the 2008 financial crisis have served the financial system well during the COVID-19 pandemic. Greater resilience of major banks at the core of the financial system has allowed the system largely to absorb, rather than amplify, the macroeconomic shock. Bold and decisive actions by authorities sustained the supply of credit to the real economy and helped maintain global financial stability.

The pandemic represents the first major global test of the post-crisis financial system, and an opportunity to examine whether reforms have worked as intended. The FSB and SSBs will carry out further work to identify potential lessons learned for international standards. In addition, the FSB and standard setting bodies will continue to promote approaches to deepen international cooperation, coordination and information sharing, with the support of the G20.

[View source.]

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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