Recent regulatory developments of interest to all financial institutions. Updates include publications relating to COVID-19, LIBOR transition and other EU and international publications.
- COVID-19: FCA proposes additional guidance for insurance and premium finance firms on customers in financial difficulty
- COVID-19: FCA updates statement on firms' complaint handling
- Financial Services Bill 2019-21
- UK financial services regulatory framework: HM Treasury consultation
- Whistleblowing: FCA updates
- Diversity objectively: FCA Insight article
- LIBOR transition: FMLC paper
- Digital operational resilience: proposed EU Regulation
- European Commission 2021 work programme
- Identifying legal entities: ESRB recommendation
- LIBOR global transition: FSB roadmap
- Cyber incident response and recovery: FSB final report on effective practices
COVID-19: FCA proposes additional guidance for insurance and premium finance firms on customers in financial difficulty
The FCA has published draft additional guidance for insurance and premium finance firms, setting out its expectations on how firms should provide support to their insurance and regulated credit premium finance customers from 1 November 2020. The aim of the guidance is to prompt firms to help customers, where possible, to reduce the impact of financial distress and ensure that customers continue to have insurance that meets their needs.
If confirmed, the additional guidance will come into force by 1 November 2020. The FCA proposes that it should remain in force during the circumstances created by COVID-19 until varied or revoked.
The FCA's existing guidance, published in August 2020, expires on 31 October 2020. However, the FCA notes, for the avoidance of doubt, that certain provisions of the August guidance remain in force beyond 31 October 2020. This is in respect of customers granted payment deferrals under that guidance which come to an end after 31 October 2020.
COVID-19: FCA updates statement on firms' complaint handling
The FCA has updated its statement on firms' handling of complaints during the COVID-19 pandemic.
The FCA reinforces the message that although firms' operations continue to be affected by COVID-19, it considers that they have had enough time to embed new ways of working. Accordingly, a failure to comply with any of the FCA complaint handling requirements should only arise in exceptional circumstances connected to the impact of COVID-19. Any firm facing difficulties complying should inform their usual supervisory contact and advise the FCA of the steps it is taking to manage and address its non-compliance.
The FCA also advises that most of the payment protection insurance complaints that were submitted by the 29 August 2019 deadline have now received final responses from firms.
The FCA intends to review the statement again by the end of April 2021 at the latest.
Financial Services Bill 2019-21
The Financial Services Bill 2019-21 was given its first reading in the Houses of Commons on 21 October 2020. An explanatory memorandum has also been published. The Bill's second reading is scheduled for 9 November 2020.
The government intends to use the Financial Services Bill to make extensive amendments to the legislative and regulatory framework for financial services following the UK's departure from the EU.
Read more in our briefing on Hogan Lovells Engage: Financial Services Bill introduced in UK Parliament.
UK financial services regulatory framework: HM Treasury consultation
HM Treasury has published a consultation paper on Phase II of its Future Regulatory Framework Review, which considers how the regulatory framework for financial services needs to adapt to be fit for the future, particularly in light of the UK's departure from the EU.
The government is conducting this phase of the Review in two stages. This first consultation sets out an overall blueprint for financial services regulation, focusing on the split of responsibilities between Parliament, the government and the financial services regulators. It highlights the importance of ensuring appropriate and effective arrangements for accountability, scrutiny and public engagement with the policy-making process, particularly in relation to the UK's financial services regulators.
The deadline for responses to the consultation is 19 January 2021. The government will use the responses to this consultation to inform a second consultation in the first half of 2021, which will set out a final package of proposals and how they will be delivered.
Whistleblowing: FCA updates
The FCA has published the following new and updated webpages relating to whistleblowing:
- Whistleblowing: speaking to the FCA - sets out information on the decision to speak to the FCA, how the FCA protects whistleblowers' identities, when an individual should speak to the FCA, and what the FCA will do with whistleblowers' information;
- Legal advice and whistleblowing - an updated webpage considering the legal protection available for whistleblowers, and suggesting where they can get advice;
- Whistleblowing: how to make a report - explains how to report concerns to the FCA's Whistleblowing team and what happens to the information that has been provided once a report has been made; and
- Whistleblowing in practice: case studies - advises that whistleblowing information gives the FCA an insight into what is happening in the markets it regulates. Any information provided allows the FCA to consider potential risks. On the webpage, the FCA sets out some typical case studies based on real incidents handled by its Whistleblowing team, including in relation to misselling, anti-money laundering (AML) checks and reporting the conduct of a senior manager. All details in the case studies have been anonymised.
Diversity objectively: FCA Insight article
The FCA has published an Insight article on improving diversity objectively. The article sets out ideas that can help organisations to identify unwanted imbalances, that enable changes in diversity to be tracked over time, and for corrective action to be taken when needed.
LIBOR transition: FMLC paper
The Financial Markets Law Committee (FMLC) has published a paper discussing issues of legal uncertainty arising from LIBOR transition. Although it is a departure from its usual approach, the FMLC states that the paper is intended to survey the uncertainties in the context of LIBOR transition and the steps being taken by authorities around the world, so as to draw attention to any residual issues.
The paper gives a brief overview of the FMLC's views as to the risks arising in respect of benchmark reform and, specifically, from the transition from LIBOR. It also sets out an analysis of uncertainties arising from the end of the EU-UK transition period and the complexities it adds to the adoption of a successor rate. Finally, the paper offers a survey of the specific ways in which it may be possible to mitigate the legal uncertainties in this context, including by legislative, regulatory or market action.
Digital operational resilience: proposed EU Regulation
As previously reported in this bulletin, the European Commission has published a proposed Regulation on digital operational resilience within the financial services sector in the EU. This will replace and harmonise existing guidance in relation to ICT and security risk management and will bring major ICT service providers directly within the scope of supervision by the European Supervisory Authorities. In our follow up briefing, The EU proposed digital operational resilience regulation, we review the key takeaways from the proposal.
European Commission 2021 work programme
The European Commission has published a communication outlining its work programme for 2021. Alongside the communication, the Commission published the annexes to the 2021 work programme and two factsheets. Annex I sets out new policy and legislative initiatives, Annex II sets out REFIT initiatives (under which the Commission intends to simplify existing legislation), and Annex III sets out priority pending proposals which include initiatives that from part of the Commission's recent digital finance package.
Other financial services initiatives mentioned in the communication include:
- deepening the capital markets union (CMU), including revising the Solvency II Directive with a proposal expected in Q2 2021;
- completing the banking union;
- a proposed legislative package in the area of anti-money laundering expected in Q1 2021;
- Revision of the EU Emissions Trading System (ETS), with a legislative proposal expected in Q2 2021; and
- revising the Markets in Financial Instruments Directive (MiFID) and the Markets in Financial Instruments Regulation (MiFIR). A legislative proposal is expected in Q4 2021.
The Commission will now start discussions with the Parliament and Council to establish a list of joint priorities on which co-legislators agree to take swift action.
Identifying legal entities: ESRB recommendation
The European Systemic Risk Board (ESRB) has published a recommendation on identifying legal entities. The ESRB considers that the availability and wide adoption of a worldwide unique identifier to unequivocally identify entities engaged in financial transactions is very important. The current low rate of adoption of the legal entity identifier (LEI) constitutes a factor that may hamper the reliability of financial stability analysis, making it difficult to accurately assess and compare risks across national markets. Therefore, it wants existing gaps in the adoption of the LEI to be addressed.
Against this background, Recommendation A calls on the European Commission to propose that:
- EU legislation incorporates a common EU legal framework governing the identification of legal entities established in the EU that are involved in financial transactions by way of a LEI;
- EU legislation that imposes an obligation on legal entities to report financial information includes the obligation to identify by way of a LEI the legal entity subject to the reporting obligation and any other legal entity about which information must be reported; and
- EU legislation incorporates an obligation on authorities to identify by way of its LEI any legal entity about which they publicly disclose information.
Pending any action the Commission takes to comply with Recommendation A, Recommendation B calls on relevant authorities (which include national competent authorities, ESMA, EIOPA and the EBA) to require all legal entities involved in financial transactions under their supervisory remit to have an LEI. It also calls on such authorities to include in any financial reporting obligations they impose an obligation to identify, by way of an LEI, the legal entity subject to the reporting obligation and any other legal entity about which information must be reported and to identify, by way of its LEI, any legal entity about which they publicly disclose information.
The ESRB asks the Commission to deliver a report on the implementation of Recommendation A by 30 June 2023 and it asks the addressees of Recommendation B to deliver a report on the implementation of Recommendation B by 31 December 2021.
LIBOR global transition: FSB roadmap
The Financial Stability Board (FSB) has published a global transition roadmap providing a timetable of actions to be taken by financial and non-financial sector firms with exposure to LIBOR benchmarks to ensure a smooth transition away from LIBOR by the end of 2021. The steps outlined in the roadmap are intended to supplement existing timelines from industry working groups and regulators.
Firms should already have identified and assessed all existing LIBOR exposures and agreed on a project plan to transition before the end of 2021. Other key dates highlighted by the FSB include:
- by the effective date of the ISDA Fallbacks Protocol, the FSB strongly encourages firms to have adhered to the protocol;
- by the end of 2020, firms should be able to offer non-LIBOR linked loans to their customers;
- by mid-2021, firms should have established formalised plans to amend legacy contracts, where this can be done, and have implemented the necessary system and process changes to enable transition to robust alternative rates; and
- by the end of 2021, firms should be prepared for LIBOR to cease.
The FSB highlights the importance of all regulated financial institutions having an open and constructive LIBOR transition dialogue with their home state and host state regulators throughout the transition period. It also states that financial institutions, non-financial firms and others with exposure to LIBOR benchmarks should monitor developments regarding other interbank offered rates relevant to their business. This is because benchmark transitions vary across currency regions and legislation and other actions to promote transition are taking different paths in different jurisdictions.
Cyber incident response and recovery: FSB final report on effective practices
The Financial Stability Board (FSB) has published a final report on effective practices for cyber incident response and recovery (CIRR). The FSB has developed a toolkit to assist organisations and authorities in their CIRR activities.
The toolkit comprises 49 effective practices that institutions have adopted and is structured across seven components: governance, planning and preparation, analysis, mitigation, restoration and recovery, co-ordination and communication, and improvement.