Financial institutions general regulatory news, April 2021 # 2

Hogan Lovells

Hogan Lovells

Recent regulatory developments of interest to most financial institutions, including from the UK PRA and FCA, G20 and FSB. See also our sector specific updates in the Related Materials links.


  • Financial Guidance and Claims Act 2018 (Commencement No 7) Regulations 2021
  • Holding company approvals: PRA webpage
  • 2021/22 regulated fees and levies: PRA CP8/21
  • ESMA - UK FCA cooperation
  • COVID-19: FCA extends guidance on cancellations and refunds
  • Regulating the UK as global financial centre: FCA speech
  • Purposeful AML controls: FCA speech
  • Non-compliant financial promotions: FCA quarterly data
  • FCA Financial Services Register Extract Service
  • FCA policy development update
  • G20 communique: financial services aspects
  • COVID-19: FSB update on support measures and roadmap addressing climate-related financial risks
  • UK implementation of remuneration standards: FSB peer review report
  • Sustainable finance market dynamics: NGFS report

Financial Guidance and Claims Act 2018 (Commencement No 7) Regulations 2021

The Financial Guidance and Claims Act 2018 (Commencement No. 7) (Dissolution of the Consumer Financial Education Body) Regulations 2021 (SI 2021/433) have been published. The Regulations bring into force, on 6 April 2021, various paragraphs of Schedule 3 to the Financial Guidance and Claims Act 2018 (FGCA), which make minor and consequential amendments to the Financial Services and Markets Act 2000 (FSMA), the Financial Services Act 2010 and the Financial Services Act 2012.

The effect of amendments is the dissolution of the consumer financial education body, the functions of which have been transferred to the single financial guidance body (the Money and Pensions Service) established under section 1(1) of the FGCA.

Holding company approvals: PRA webpage

The Prudential Regulation Authority (PRA) has published a new webpage on holding company approvals.

The PRA explains that Part 12B of FSMA requires certain parent financial holding companies (FHCs) and parent mixed financial holding companies established in the UK to apply to the PRA for approval or exemption from the new requirement to be approved. The new webpage is aimed at these holding companies. It includes limited information on submitting an approval or exemption application. The webpage links to a draft version of the application form, together with a draft version of the related notes. Companies applying will have to pay a £2,500 fee. The PRA also explains that it will carry out an assessment of each application consistent with Part 12B, and in making its decision, it will consult with the Financial Conduct Authority (FCA).

HM Treasury introduced Part 12B into FSMA as part of the UK implementation of the Capital Requirements Directive V. It fully entered into force on 29 December 2020.

2021/22 regulated fees and levies: PRA CP8/21

The PRA has published a consultation paper, CP8/21, on its regulated fees and levies for 2021/22. In its consultation, the PRA sets out proposals relating to:

  • the annual funding requirement;
  • fees for firms in the Temporary Permissions Regime and the Financial Services Contract Regime;
  • changes to new firm authorisation fees and variation of permission regulatory transaction fees; and
  • the distribution of retained penalties for 2020/21.

The deadline for responses to CP8/21 is 20 May 2021. The PRA indicates that it will publish a policy statement with final rules on 6 July 2021, with the rules themselves entering into force on 8 July 2021.

ESMA - UK FCA cooperation

The European Securities and Markets Authority (ESMA) has published a summary of conclusions of the meeting of its Board of Supervisors on 23 February 2021, which includes a brief note of a meeting with Nikhil Rathi, FCA CEO, in the context of cooperation between the FCA and ESMA. Items discussed included:

  • the importance of international standards and their consistent application;
  • the EU and the UK's commitment to promoting sustainable finance, in particular the concept of materiality;
  • the status of the amendments to the EU Packaged Retail and Insurance-based Investment Products Regulation and its implementing acts; and
  • the Swiss franc London Inter-Bank Offered Rate (LIBOR).

It was agreed that a similar dialogue would take place twice a year.

COVID-19: FCA extends guidance on cancellations and refunds

On 1 April 2021, the FCA published finalised guidance on cancellations and refunds aimed at credit and debit card firms and insurance providers in the context of COVID-19. It extended the guidance that was published in October 2020, due to expire on 2 April 2021. The new guidance came into effect from 2 April 2021 and will remain in force until varied or revoked.

The FCA will keep the guidance under review as the wider situation relating to COVID-19 develops and will consider whether it should make the guidance permanent, either in its current form or with some changes to it. Any permanent guidance will be subject to a full consultation.

Regulating the UK as global financial centre: FCA speech

The FCA has published a speech by Nausicaa Delfas, FCA Executive Director of International, on the FCA's approach to regulating the UK as a global financial centre. Points of interest in Ms Delfas' speech include:

  • post-Brexit, in the wholesale market the FCA is already acting to better tailor its rules and practices. The intention is to take measures that are proportionate, to meet real needs and concerns, and to give extra flexibility to market participants, without compromising the protections the FCA considers necessary for both markets and consumers;
  • over the longer term, several important areas must be addressed, including sustainable finance. For the first time, alongside other regulators, the FCA has been asked by HM Treasury to formally integrate into the way it regulates the goal of moving to a net zero economy in the UK by 2050. The FCA intends to consult by mid-2021 on proposals for disclosures aligned with the recommendations of the Financial Stability Board's (FSB) Task Force on Climate-related Financial Disclosures (TCFD) by asset managers, life insurers and FCA-regulated pension providers. It also acts as co-chair of an issuer disclosures workstream of the International Organization of Securities Commissions' (IOSCO) Sustainable Finance Taskforce;
  • a central element of adapting the UK’s regulatory and legislative framework post-Brexit is the proposed transfer of responsibility to the regulators for maintaining the firm-facing requirements that currently lie on the statute book. This transfer is an essential piece of work;
  • the standards the FCA applies to international firms seeking authorisation will be the same as those it applies in its ongoing supervision of firms. In this context, the FCA continues to monitor very closely the implementation of firms' restructuring plans, assessing their implications for the integrity of UK markets, the outcomes for clients and the ongoing "supervisability" of firms' UK activities. In practical terms, the specific approach the FCA takes to international firms will depend both on how strong the level of cooperation is with individual jurisdictions, as well as consistency of regulatory outcomes; and
  • the FCA is closely involved in the negotiations for a mutual recognition agreement with Switzerland, and other bilateral work. It has also been working closely with US counterparts to ensure UK firms' access to US markets continues and is strengthened, where possible. The FCA will support the government in its ongoing Free Trade Agreement negotiations with the US.

Purposeful AML controls: FCA speech

The FCA has published a speech by Mark Steward, FCA Executive Director of Enforcement and Market Oversight, on the importance of purposeful anti-money laundering (AML) controls. Points of interest in Mr Steward's speech include:

  • systems and controls that are purposeful, efficient and courageous in identifying suspicious activity are vitally important. Systems and control failures provide an invisible, illicit cover for criminals and criminal activity that affects the whole community, not only in the UK, and can erode confidence in the financial system;
  • two of the FCA's biggest sanctions in the last 12 months relate to failures to address financial crime and AML risks. Both cases highlight inadequate systems and controls and illustrate how failures in London can have consequences outside the UK;
  • there is an inherent risk that complex systems lose a sense of their purpose, where the management challenge to maintain the system becomes an end in itself, rather than the system or control acting to identify and manage the actual risks facing firms. AML systems and controls must therefore be focused explicitly on their activating purpose and function, to ensure they are neither simply a bureaucratic process nor easily manipulated;
  • the FCA currently has 42 investigations ongoing into firms and individuals, involving, for example, systems and controls over politically exposed persons, customers with significant cash intensive operations, correspondent banking and trade finance, and transaction monitoring. AML investigations are often complex because they are rarely transactional and require a systemic understanding of how a firm operates, its governance controls, its cultural habits, and the inner workings of sometimes opaque systems;
  • the FCA has increased its surveillance of online investment promotions targeting offers from unauthorised firms, potential investment scams and other "too good to be true" promotions, including lead generation sites. A number of these sites are under investigation or have become the subject of proceedings. The FCA has also issued alerts on its Warning List; and
  • the FCA became the AML supervisor of cryptocurrency firms in January 2021. It has developed the Unregistered Cryptocurrency Businesses List. Cryptocurrency firms appearing on the list should serve as a warning for FCA authorised firms (including banks that may be providing banking services), as well as consumers.

Non-compliant financial promotions: FCA quarterly data

The FCA has published a new webpage showing the number of financial promotions that have been amended or withdrawn by firms due to non-compliance with its rules. The FCA explains that, when it identifies an advert that breaches its rules, the FCA asks the firm that has communicated or approved it to withdraw the advert or change it so that it is compliant. Firms may also be asked to consider whether any customers may have acted on a non-compliant promotion and to take appropriate action to remedy any harm consumers may have suffered as a result. To improve transparency, the FCA is now publishing quarterly data on the outcomes of non-compliant financial promotions from 2021.

FCA Financial Services Register Extract Service

The FCA has updated its website to announce the launch of a new version of its Financial Services Register Extract Service (RES). It has also published a revised version of the Subscribers' Handbook for the RES.

The RES forms part of the FCA's publication scheme, which has been compiled in line with its obligations under the Freedom of Information Act 2000. It provides files containing a subset of FS Register data records (as opposed to the Financial Services Register which displays a single record at a time). The RES enables firms and consumers to subscribe to either firms' data or firms' and individuals' data on a regular or one-off basis. Records not included in the RES relate to money laundering regulations, exempt professional firms, directory for certified persons information and information regarding waivers and discretion or disciplinary procedures.

The Subscribers' Handbook provides an overview of the RES, including the information that is available, format and frequency, and explains how to become a subscriber. It also explains the structure and content of the files that comprise the RES, associated charges and provides answers to FAQs. The Handbook replaces the previous version that was published in July 2016.

The new version of the RES has been introduced as part of the FCA's Transformation Programme and Data Strategy.

FCA policy development update

The FCA has updated its policy development update webpage for April 2021, setting out information on recent and future FCA publications.

G20 communique: financial services aspects

The G20 has published a communique following a virtual meeting of finance ministers and central bank governors on 7 April 2021. On financial sector-related reforms, the communique states that the G20, among other things:

  • asks the FSB to work on evaluating the availability of data and data gaps on climate-related financial stability risks, and on ways to improve climate-related financial disclosures, and to report on these subjects in July 2021;
  • reiterates its commitment to the FSB’s principles agreed in April 2020 underpinning the national and international responses to COVID-19;
  • calls on the FSB to continue to support international coordination on COVID-19 response measures in relation to financial stability, including through information sharing and through monitoring consistency with the agreed international standards;
  • commits to a timely and effective implementation of the G20 roadmap to enhance cross-border payments; and
  • commits to further strengthening the Financial Action Task Force (FATF) global network of regional bodies in order to reinforce the effective implementation of the FATF standards.

COVID-19: FSB update on support measures and roadmap addressing climate-related financial risks

The FSB has published a letter sent to G20 leaders ahead of their April 2021 summit. The letter covers, among other things, a new roadmap for understanding and addressing climate-related financial risks. It has also published a report on policy considerations relating to the unwinding of its COVID-19 support measures.

UK implementation of remuneration standards: FSB peer review report

The FSB has published a report setting out the findings of a peer review of how the UK has implemented its Principles and Implementation Standards of Sound Compensation Practices. As well as assessing how the UK authorities have implemented the Principles and Implementation Standards, the FSB assessed the effectiveness of financial sector compensation reforms in the UK. It also briefly considered compensation-related developments relating to the COVID-19 pandemic and Brexit.

Although the FSB considers that some of the UK authorities' approaches can serve as examples of good practice for other jurisdictions, it believes the UK can take additional steps to further strengthen the financial sector compensation framework in a few areas. Recommendations are set out in the report. They include reviewing the interaction between the UK's remuneration regimes and the senior managers and certification regime (SM&CR) and providing additional guidance to the insurance sector on the UK Solvency II remuneration requirements.

The PRA and FCA have responded to the FSB, noting the FSB's recommendations to further strengthen the UK's remuneration framework. The authorities advise that they will work together to take these forward. In all cases, the timings for taking the recommendations forward will be balanced against other regulatory priorities. They also advise that the FCA plans to consult on a new remuneration regime for investment firms shortly, as part of the new Investment Firms Prudential Regime.

Sustainable finance market dynamics: NGFS report

The Network for Greening the Financial System (NGFS) has published a report on sustainable finance market dynamics. This report presents an overview of the market dynamics for mobilising green and sustainable finance. It identifies three main channels through which financial markets can help steer the necessary transformation of the real economy towards higher levels of sustainability: disclosure; risk management; and mobilisation of capital. These three channels are considered in separate sections in the report. The report also provides examples of policies, regulations and guidance addressed to market participants on these three topics.

In addition, the NGFS sets out in the report a series of key takeaways for further consideration by policymakers and market participants, including:

  • financial authorities must support global disclosure frameworks and efforts to establish a comprehensive corporate disclosure standard aligned with the FSB's TCFD recommendations, and the development of a global set of sustainability reporting standards;
  • multinational financial institutions need to adopt and promote global voluntary sustainability standards and disclosure frameworks in the different jurisdictions in which they operate;
  • credit, as well as environmental, social and governance, rating providers must enhance transparency surrounding their methodologies, disclosing the criteria they use to assess the materiality of climate and sustainability factors, the manner in which these are measured and incorporated into ratings, and the weights they assign to them; and
  • regulators should require financial institutions to consider material climate and sustainability factors as financial factors. Financially material climate and sustainability factors should be part of the fiduciary duty of asset managers.

In the report's concluding remarks, the NGFS states that, ultimately, the goal of society, regulators, and international organisations should be for financial markets to foster the transformation of the global economy towards net zero emissions.

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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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