UK Financial Regulatory Developments - June 2016 #2


FCA appoints Megan Butler as Supervision Director

FCA announced that Megan Butler has been appointed as its permanent Director of Supervision – Investment, Wholesale and Specialists. Ms Butler has previously been in the role on secondment from PRA where she was Executive Director of International Banks Directorate. (Source: FCA appoints Butler for Supervision)


FCA makes new rules

FCA has made various changes to its Handbook following its Board meeting on 21 April and 26 May. It made:

  • the Consumer Credit (High-Cost Short-Term Credit Price Comparison Website) Instrument 2016, making price comparison websites act in a fair and transparent way (above), effective 1 December;
  • Handbook Administration (No 41) Instrument 2016, taking effect on various dates to make minor administrative changes to various modules of FCA’s Handbook;
  • Controllers Instrument 2016, which came into force on 27 May to maintain consistency between FSMA’s definition of “controllers” and FCA’s Handbook; and
  • Consumer Credit (Amendment No 3) Instrument 2016 which was partially in force from 31 May and will be fully in force from 1 July to correct or clarify anomalies or gaps in existing provisions and make deregulatory changes to some financial promotion rules.

(Source: FCA Handbook Notice 32)


FCA creates website page on closed periods

FCA has created a new page on its website setting out its approach to closed periods and preliminary results under EU MAR. Unless the Commission or ESMA advise otherwise, it will continue to take the view that where an issuer announces preliminary results, the closed period, where dealing is prohibited, is immediately before the preliminary results are announced. The length of the EU MAR closed period will be 30 days. FCA says this applies only where the preliminary announcement contains all inside information expected to be included in the year-end report. (Source: FCA creates website on close periods approach)


FCA welcomes global FX code

FCA has welcomed the publication of the first part of BIS’ global FX code. It is particularly pleased at the recognition that, even where a dealer sets out that it is acting as principal, it still has important responsibilities to its clients when using its discretion on their behalf. It notes firms in the UK are already under specific regulatory duties when conducting FX activities, and that it has worked to address several conduct risks that can arise. It says it expects firms and responsible senior managers to ensure their staff satisfy appropriate standards of market practice, and that the code will make an important contribution to such standards. The full code will be published in May 2017. BoE also welcomed the code, and notes that the final version of the code will replace the current Non-Investment Products Code (NIPs Code) in relation to the foreign exchange markets. For non-foreign exchange market products in the UK market, there will be a new voluntary code, incorporating revised relevant sections of the NIPs Code, and also a revision and update of the Gilt Repo Code and Securities Borrowing and Lending Code.  Publication of the new UK Securities Lending, Repo and Money Markets Code is expected in mid-2017. The Bullion element of the NIPs Code is being replaced by a new code which will be established by the London Bullion Markets Association (LBMA).  (Source: FCA welcomes global FX code, BIS publishes first phase of global FX code and BoE confirms future of NIPs Code)


FCA evaluates market-based finance

FCA has published an occasional paper, providing an overview of the evolution of and recent innovations in market-based finance. It has been published alongside an insight article which discusses the rise of market- based finance as an alternative to traditional banking. The paper notes the positives as being a diversified type of funding and contributing to the development of new products and services for risk distribution and management. However, the paper also identified risks such as the complexity of the system and its potential instability. (Source: FCA evaluates market-based finance)


FCA emails currency transfer service providers on potentially misleading marketing

FCA has sent an email regarding potentially misleading marketing to all firms carrying out currency transfer services. It explains that there are specific concerns relating to the misleading presentation of the interbank rate, savings claims and use of FCA authorisation status to promote firms’ services. The communication has also been sent to trade bodies representing this market. It also notes firms’ legal and regulatory obligations in this area. It expects firms to review their marketing material to ensure they are not misleading in any way. FCA reminds firms that if it considers that firms are not acting in accordance with its expectations, FCA may take action, including supervisory or enforcement action. (Source: FCA emails currency transfer service providers on potentially misleading marketing)


FCA makes HCSTC rules

FCA has published its policy statement and final rules in relation to proposals it made in response to CMA’s previous recommendations on high-cost-short-term-credit (HCSTC). The rules, which apply to price comparison websites comparing HCSTC products, come into force on 1 December. The rules set out, among other things, the prominence with which products are displayed, the search functionality required, and rules for rankings and lender comparisons. (Source: FCA makes HCSTC rules)


FCA consults on capping early exit pension charges

FCA is consulting on its proposals to cap early exit pension charges in line with its new duty, which takes effect on 31 March 2017. FCA’s proposed cap is set at 1% for existing personal pension and stakeholder pension contracts. Where existing contracts have early exit penalties set at less than 1% of the member’s policy value, the proposed cap will prevent these being raised. For new personal and stakeholder pension contracts, FCA proposes a cap of 0% of the policy value. Consultation closes 18 August. (Source: FCA consults on capping early exit pension charges)


Bank paying broker fee deprived borrower of disinterested advice

The appellant, Mr Nelmes, had entered into loan and security arrangements with NRAM Plc, then Northern Rock Plc, which the bank later sought to enforce. On appeal, the court found that the relationship between the bank and borrower under the loan agreement was unfair under s.140A of the Consumer Credit Act 1974 (CCA). This was the result of a related undisclosed agreement under which the bank was to pay the borrower’s broker a procuration fee. The court determined that this deprived the borrower of the disinterested advice of his broker and so gave judgment, in favour of the appellant, for the amount of the procuration fee plus interest. (Source: Nelmes v. NRAM Plc – borrower deprived of disinterested advice)


Bank not held liable after reference

A gaming club, though an alleged “front” company, asked a bank for a reference as to the creditworthiness of a customer. On receipt by the company of confirmation from the bank that the customer was financially healthy and capable of meeting his business commitments, the gaming club approved a cheque cashing facility for him.  In fact, the customer was in the process of opening an account with the bank in which subsequently there were never any funds. The gaming club claimed the bank owed it a duty of care. On appeal, the judge held the bank could not be liable as it gave the reference to the front company and did not know of its purpose nor of the existence of the gaming club. (Source: Playboy Club London Ltd and Others v. Banco Nazionale del Lavoro SpA)


Lords appoints financial exclusion committee

A new House of Lords committee will address the problems of financial exclusion. (Source: Lords appoints financial exclusion committee)


Treasury publishes AML supervision report

Treasury has published its anti-money laundering (AML) and counter terrorist finance (CTF) supervision report for 2014-2015. The report stresses the importance of preparing properly for the UK’s FATF assessment in 2017-18 as well as for implementation of the fourth Money Laundering Directive (MLD4). The government says it is clear that money laundering obligations should be carried out in an intelligent way that ensures that businesses can grow and are not weighed down by red tape. It reiterates its commitment to the risk-based approach, and says this means not targeting an entire class of customer in a blanket manner and that this includes proportionately applying anti-money laundering measures when dealing with domestic politically exposed persons. The report concludes:

  • there are differences between supervisors in levels of sophistication and understanding of the risk-based approach and therefore to how they apply it in their supervision;
  • there was an increase in both monitoring and enforcement activity across supervisors;
  • supervisors reported proactively reaching out to their communities to improve understanding on practical application of AML and CTF requirements; and
  • there has been a greater level of information sharing, which is good as this had been identified as a deficiency.

(Source: Treasury publishes AML supervision report)

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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