Conduct and Governance
FCA speech on how culture must change to meet expectations
On 26 June, the FCA published a speech by Emily Shepperd, FCA COO and Executive Director of Authorisations, on how culture must change to meet expectations. Highlights include: (i) Ms Shepperd considers that to create an environment where people feel comfortable to speak up, share their experiences and provide meaningful challenge, leaders must learn to listen; (ii) culture remains central to the FCA’s supervisory model. In accordance with the Consumer Duty, firms’ boards and senior management, if they have not yet done so, will have to embed a culture in which good outcomes for consumers is central; (iii) the FCA plans to set out further proposals for Diversity and Inclusion in the coming months; and (iv) the FCA is focusing its supervisory efforts on tackling misconduct in wholesale markets. It wants firms to take their regulatory referencing far more seriously. If necessary, they should extend probationary periods, add extra monitoring or restrict activity. The FCA has found that many wholesale broker firms were not properly considering adverse information in regulatory references when recruiting and onboarding certified staff, with firms willing to turn a blind eye to their new recruits being dismissed for market abuse, expense fraud and sexual harassment.
Speech
Consumer/Retail
Please see the Fund Regulation section for the FCA’s policy statement setting out final rules to give retail investors and more defined contribution pension schemes access to long-term asset funds (LTAFs).
FCA, CMA, Ofgem, Ofcom and Ofwat action plan to support consumers
On 28 June, the Chancellor of the Exchequer met with the CEOs of the CMA, the FCA, Ofgem, Ofcom and Ofwat and agreed an action plan to support consumers, particularly the most vulnerable, as part of the government's work to reduce inflation. Each regulator has made commitments, the FCA’s being: (i) to deliver better deals for savers by driving competition, including reporting by the end of July on how the savings market is supporting savers to benefit from higher interest rates; and (ii) to require the largest banks and building societies to explain the pace and extent of their pass through of interest rates, and how they are proactively supporting savers to switch to high interest rate products. The regulators agreed to provide regular updates to HMT on their progress and that a follow up meeting would be held later this Summer. The regulators also published a joint statement setting shared expectations on treatment of customers in financial difficulties, which include: (a) to consider the customer’s situation, recognising that they may have multiple debts and may be dealing with multiple creditors across sectors, and reflect this in the support offered; (b) proactively raise awareness of the support available to consumers, and, when customers reach out or indicate they are at risk of falling into financial difficulty provide support early; and (c) tailor support so it is appropriate to the customer’s circumstances (including their ability to pay and whether they are in vulnerable circumstances).
Press release
Joint statement
FOS speech on what the Consumer Duty means for resolving complaints
On 28 June, the FOS published a speech by Abby Thomas, FOS Chief Executive and Chief Ombudsman, on what the FCA's Consumer Duty means for resolving complaints. Highlights include: (i) as the Duty is underpinned by concepts of fairness and reasonableness, similar to the fair and reasonable standard that the FOS uses already, it does not expect the Duty to significantly change the way that the FOS looks at many of its complaints; (ii) ultimately, the FOS does not expect the Duty to have a significant impact on complaint volumes. While there may be new types of complaints, and some additional complaints during the initial embedding process, the FOS expects complaints to fall as outcomes and consumer experiences improve; (iii) after introduction, the FOS will continue to set out and share detail about its approach, working with the FCA to ensure consistency. The FOS is creating sector-specific ‘directorates’ that cover particular areas, like investments, insurance, or banking in order to be better aligned with industry. Each of these areas will be tasked with considering the approach to sharing information about relevant cases that works best for them and the customers they serve; and (iv) the FOS expects more complaints about the useof products and services – consumers might complain firms should have done more to check that they were using them as intended – and around price and value.
Speech
FOS warns of increase in ‘hybrid’ scams
On 28 June, the FOS warned firms and individuals about the increasing number of complaints it is receiving which contain the features of more than one scam, otherwise known as "hybrid" scams. These are now common in romance scams, buying goods that don’t exist scams and ‘safe account’ scams – where, for example, fraudsters impersonate reputable companies, such as the customer’s bank or the FCA, and tell their victims to move money to cryptocurrency accounts for safe keeping. For APP scams, the FOS is now receiving more complaints where the financial provider has not signed up to the Contingent Reimbursement Model (CRM). It considers this likely due to banks who have signed up to the CRM having better fraud prevention measures in place, as well as higher reimbursement rates for their customers.
Press release
FCA advice on how to prepare in final month before new Consumer Duty comes into force
On 28 June, the FCA highlighted ten questions to help firms reflect on their Consumer Duty implementation, and identify gaps or areas for improvement. The Duty comes into force on 31 July for new and existing products and services that are open for sale or renewal. The FCA notes that firms can expect to be asked such questions in their interactions with the regulator. The FCA has also published the results of an anonymous survey, which found that there were very high levels of engagement and understanding of the Duty, including in many of the sectors where historically regulatory change has had lower levels of engagement. 64% of firms surveyed said they would be fully compliant by the deadline, with a further 23% considering they would be mostly compliant. Firms must alert the FCA if they believe they will be in significant breach of the Duty when it comes into force and should be prepared for FCA to take robust action. The FCA will be using sectoral insights gathered from the survey to help target its future work. The FCA has also published a podcast interview with Ed Smith, FCA Head of Competition Policy, which discusses the FCA’s expectations for outcomes monitoring under the Consumer Duty.
Key questions
Survey results
Podcast
New mortgage charter for UK consumers struggling with mortgage repayments
On 27 June, HMT published a policy paper setting out a new mortgage charter, agreed with 32 lenders that cover 75% of the market. The aim is to provide support for residential mortgage holders concerned about higher interest rates. The measures include: (i) no forced repossession within 12 months of the first missed payment; (ii) customers can call their lender for information and support, without any impact on their credit score; (iii) customers approaching the end of a fixed rate deal will be offered the chance to lock in a deal up to six months ahead. They will also be able to apply for a better deal until their new term starts, if one is available; (iv) customers may switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to; and (v) support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check. The measures do not apply to buy-to-let mortgages. These commitments from charter signatories will require changes to the FCA rules, as well as to lenders' procedures. The FCA and lenders will provide the government with a progress update by 30 June.
Policy paper
Announcement (23 June)
Text of political agreement on proposed distance financial services contracts directive
On 23 June, the Council of the EU published a note on the proposed distance financial services contracts directive. The note includes the text that has reached provisional agreement with the EP. The proposal updates and modernises the general framework (acting as a safety net) for the financial services contracts concluded at a distance by repealing the Distance Marketing Directive and including relevant aspects of consumer rights within the scope of the horizontally applicable consumer rights directive. If the EP adopts at first reading the text of the proposed directive, the Council will also adopt that text.
Note
Fees/Levies
PRA fees and levies 2023/24
On 29 June, the PRA published a policy statement on its regulated fees and levies for 2023/24. The PRA’s Annual Funding Requirement (AFR) for 2023/24 is £309.3 million, which is £3.2 million lower than for 2022/23. The PRA has not made any changes to the rules as consulted on (in its consultation paper CP 7/23). The final rules to implement changes to the Fees Part of the PRA Rulebook are set out in the PRA Rulebook: PRA Fees Amendment (No 1) Instrument 2023 (2023/5). The PRA has also published the updated supervisory statement, Fees: PRA approach and application (SS3/16). The changes will come into effect on 3 July.
Policy Statement
Handbook Instrument
Supervisory Statement
Financial Crime and Sanctions
FATF calls on all countries to rapidly implement standards on VAs and VASPs
On 27 June, the FATF published an update on implementation of its standards on virtual assets (VAs) and virtual asset service providers (VASPs) and calls on all countries to rapidly implement those standards. The FATF has found that jurisdictions continue to struggle with fundamental requirements such as undertaking a risk assessment, enacting legislation to regulate VASPs, and conducting a supervisory inspection. 75% of jurisdictions are not completely compliant with the FATF’s VA/VASP requirements. In addition, jurisdictions have made insufficient progress on implementing the Travel Rule, which is a key AML/CFT measure. Of the 151 jurisdictions that responded to FATF’s 2023 Survey, more than half still have not taken any steps towards implementing the Travel Rule. The FATF’s report acknowledges that there has been collaboration within the private sector to improve industry compliance.
Report
HMT updates list of high-risk third countries
On 23 June, HMT updated its Money Laundering Advisory Notice on high-risk third countries. The Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2023 came into force on 27 June and updates the list of high-risk third countries specified in Schedule 3ZA of the MLRs. This list will continue to align with both the FATF ‘Jurisdictions under increased monitoring’ and ‘High-risk jurisdictions subject to a call for action’ documents. Specifically, this update removes Cambodia and Morocco from Schedule 3ZA to reflect changes in FATF lists. The government will introduce a separate SI shortly to introduce additions made to FATF’s list in February and June, accompanied by a full impact assessment.
Advisory Notice
HMT approves of revisions to JMLSG AML/CFT guidance
On 27 June, the JMLSG announced that it has received HMT Ministerial approval of revisions to Parts I and II of its AML/CTF guidance relating to: (i) sector 11 (motor finance) of Part II – published in August 2022; (ii) chapters 4 (risk-based approach), 5 (customer due diligence) and 7 (staff awareness, training and alertness) of Part I – published in November 2022; and (iii) chapter 6 (suspicious activities, reporting and data protection) of Part I and sectors 5 (wealth management), 6 (financial advisers), 8 (non-life providers of investment fund products), 9 (discretionary and advisory investment management), 11a (consumer credit providers), 13 (private equity) and 22 (cryptoasset exchange providers and custodian wallet providers) of Part II – published in March 2023.
Press release
Delegated Regulation updates list of high-risk third countries
On 26 June, Delegated Regulation (EU) 2023/1219, which amends Delegated Regulation (EU) 2016/1675 on the list of high-risk third countries with strategic AML/CTF deficiencies under MLD IV, was published in the OJ. The Delegated Regulation adds Nigeria and South Africa to the list, while also removing Cambodia and Morocco. It will enter into force on 16 July (20 days after its publication in the OJ).
Delegated Regulation (EU) 2023/1219
Outcomes of FATF Plenary June 2023
On 26 June, the FATF set out the outcomes from its plenary meeting, which took place between 21 and 23 June. In the meeting the FATF, among other things: (i) reiterated that all jurisdictions should be vigilant to current and emerging risks from the circumvention of measures taken against the Russian Federation in order to protect the international financial system; (ii) agreed to publish the fourth targeted update on the implementation of the FATF Recommendations on virtual assets and virtual asset service providers; (iii) advanced the work on preventing the misuse of non-profit organizations (NPOs) and agreed to release for public consultation potential revisions to Recommendation 8 and the updated FATF Best Practices paper on combating the abuse of NPOs; and (iv) published an updated list of the jurisdictions under increased monitoring, which now includes Cameroon, Croatia and Vietnam. It also published an up-to-date list of the high-risk jurisdictions subject to a call for action, though no new jurisdictions were added.
Outcomes
FATF consults on amendments to recommendation and best practices for NPOs
On 29 June, the FATF began consulting on proposals to amend recommendation 8 and its interpretive note, which aims to protect non-profit organizations (NPOs) from potential terrorist financing abuse. The revisions seek to address the problem of over-application of preventive measures to the NPO sector in some countries, recognising the negative impact this can have on legitimate NPO activities. The amendments require countries to have in place focused, proportionate and risk-based measures, without unduly disrupting or discouraging legitimate NPO activities. In parallel, the FATF began consulting on updating its best practice paper to combat the abuse of NPOs. The aim of this review is to better clarify how a risk-based approach can be implemented in this area. The deadline for comments on both papers is 18 August. The FATF expects to finalise this work at its October plenary meeting.
Recommendation consultation
Best practice consultation
Fintech
Please see the Financial Crime and Sanctions section for an update from the FATF on implementation of its standards on virtual assets and virtual asset service providers.
Law Commission final report on digital assets
On 28 June, the Law Commission finalised its recommendations for reform and development of the law relating to digital assets (in particular crypto-tokens and cryptoassets). In its report, the Commission shows that the common law of England and Wales is well placed to provide a coherent and globally relevant regime for existing and new types of digital asset. The Commission recommends that the government: (i) legislate to confirm the existence of a distinct third category of personal property under the law, “data objects”, and that such a thing will not be deprived of legal status as an object of personal property rights merely by reason of the fact that it is neither a thing in action or a thing in possession; (ii) create a panel of industry-specific technical experts, legal practitioners, academics and judges to provide non-binding advice to courts on complex legal issues relating to digital assets; (iii) create a bespoke legal framework that better facilitates the entering into, operation and enforcement of collateral arrangements relating to crypto-tokens and cryptoassets; and (iv) statutory amendment to the Financial Collateral Arrangements (No 2) Regulations 2003 to clarify whether certain digital assets fall within scope. It is now for the government to decide whether it intends to take the Commission’s recommendations forward.
Press release
FCA/PSR principles for commercial frameworks for premium APIs
On 26 June, the Joint Regulatory Oversight Committee (JROC) of the FCA and the PSR set out five high-level pricing principles for ASPSPs to follow when charging fees to provide premium application programming interfaces (APIs).? Fees for premium APIs should: (i) broadly reflect relevant long run costs of providing premium APIs; (ii) incentivise investment and innovation?in premium APIs; (iii) incentivise take-up of open banking by consumers and businesses and use of network effects; (iv) treat third party providers fairly; and (v) be transparent. The JROC notes that there will likely be trade-offs between the different principles. The JROC expects these principles to support the work currently being done by the non-sweeping variable recurring payments (VRP) working group, in developing a safe and sustainable commercial model for non-sweeping VRPs as a pilot and testing new premium APIs. Going forward, once progress has been made on premium APIs and other related areas, the JROC will consider options and next steps. If industry participants are unable to reach agreement, or if there are concerns that any agreed commercial model will not meet the objectives outlined in this paper, the JROC will consider whether further actions are needed, including regulatory actions.
PSR press release
Paper
Fund Regulation
FCA policy statement on broadening retail and pensions access to the LTAF
On 29 June 2023, the FCA published a policy statement setting out final rules to broaden access to long-term asset funds (LTAFs). The FCA is proceeding with final rules generally as consulted, which re-categorise an LTAF unit as a Restricted Mass Market Investment (RMMI). This means that mass market retail investors, as well as self-select DC pension schemes and Self-Invested Personal Pensions (SIPPs) will be able to invest into an LTAF. Firms marketing LTAFs to retail investors will need to provide risk warnings and summaries, and firms selling or arranging the sale of units in LTAFs will need to conduct an appropriateness assessment for all retail investors wishing to invest in the LTAF. Any unadvised retail investors will need to confirm that their exposure to investments subject to the RMMI rules (including LTAFs) is limited to 10% of their investable assets. The relevant rules will come into force on the 3 July, with a transitional period for existing LTAFs to make the necessary changes to the relevant instruments. The FCA is also consulting in the paper on whether excluding FSCS cover for the LTAF would be appropriate. The deadline for comments is 10 August.
Policy statement
Handbook instrument
Markets and Markets Infrastructure
Provisional agreement reached on CSDR Refit Regulation
On 27 June, the Council of the EU announced that it has reached provisional political agreement with the EP on the proposed CSDR Refit Regulation. The Council highlights that the new Regulation: (i) clarifies and simplifies the passporting rules, reducing the barriers to cross-border settlement and easing the administrative and financial burden; (ii) improves cooperation between supervisors by requiring a supervisory college to be set up in cases where a CSD’s activities in at least two other member states are considered to be of substantial importance to the functioning of the securities markets and investor protection. Supervisors will also have access to better information about the activities of non-EU CSDs operating in the EU; (iii) contains measures to improve efficiency by amending certain elements of the settlement discipline regime, including the preconditions for applying so-called mandatory buy-ins; and (iv) adjusts the conditions under which a CSD can access banking-type services, including through other CSDs. As a result, offering services for a broader range of currencies as well as across borders will be facilitated. The provisional agreement still needs to be formally adopted by the Council and the EP.
Press release
Provisional agreement on proposals to improve MiFID II market data access and transparency
On 29 June, the EP and the Council of the EU announced they have reached provisional political agreement on the proposed amendments to MiFIR and MiFID II which were introduced to improve access to market data and trade transparency. Negotiators came to an agreement in relation to three key issues: (i) an EU-wide consolidated tape (CT), which will continuously disseminate post-trade data with identification of the trading venue of the transaction. Regulated trading venues (except certain smaller markets and growth markets) will have to provide pre- and post-trade information to a consolidated tape provider (CTP) as close to real time as it is technically possible. CTPs should provide free access to this information to retail investors, academics and civil society organizations using the data for research purposes as well as public authorities; (ii) that the practice of receiving payments for forwarding client orders for execution (‘payment for order flows’ (PFOF)) will be banned across Europe immediately, with the exception of certain countries where PFOF is more common. which will have to implement the ban before 30 June 2026; and (iii) that the Commission’s review of position limits and position management controls would focus on facilitating energy transition, food security, markets’ resistance to external shocks and achieving competitive and liquid markets. In addition, the ancillary activity exemption would also be reviewed, as well as a goal to harmonise commodity and emission allowance derivatives transactions in terms of data collection, formats and dissemination to the public. The provisional political agreement will now have to be approved by the European Parliament's Economic and Monetary Affairs Committee (ECON) and the Council's Permanent Representatives Committee (COREPER II), followed by a plenary and the Council vote.
Council press release
EP press release
Payment Services and Payment Systems
Please see the FinTech section for the Joint Regulatory Oversight Committee (JROC) of the FCA and the PSR’s principles for commercial frameworks for premium APIs.
EC adopts financial data access and payments package – PSD3, PSR and FIDA
On 28 June, the EC published the texts of legislative proposals that it has adopted concerning reforms to EU payment services and to implement a framework for financial data access. The first is a proposal for a regulation on a framework for financial data access and amending the EBA Regulation, the EIOPA Regulation and the ESMA Regulation and DORA – “FIDA”. This proposal establishes a framework for responsible access to individual and business customer data across a range of financial services – “open finance”. This builds on PSD2’s “open banking” provisions that regulate access to customer data held by account-servicing payment service providers. The proposal aims to ensure that all consumers and firms have effective tools to control the use of their financial data. The second is a proposal for a directive on payment services and electronic money services in the internal market amending the SFD and repealing PSD2 and 2EMD – “PSD3”. There is also a proposal for a regulation on payment services in the internal market and amending the EBA Regulation – “PSR”, where the main changes include: (i) strengthening measures to combat payment fraud; (ii) allowing non-bank payment service providers access to all EU payment systems, with appropriate safeguards, and giving them a right to have a bank account; (iii) improving the functioning of open banking, especially as regards the performance of data interfaces, removing obstacles to open banking services and consumer control over their data access permissions; (iv) further improving consumer information and rights; and (v) merging the legal frameworks applicable to electronic money and to payment services.
Press release
FAQs
Factsheet
Legislative proposals and related documents
ECON adopts draft report on proposed instant payments regulation
On 28 June, ECON announced that it had adopted a draft report on the EC’s legislative proposal for a proposed regulation amending the SEPA Regulation and the Cross-Border Payments Regulation ((EU) 2021/1230) as regards instant credit transfers in euro. In the press release, ECON highlights changes it intends to make to the proposed regulation, including in relation to: (i) instant credit transfers – where a payment order for an instant credit transfer in euro is submitted from a payment account that is not denominated in euro, the payment service provider (PSP) should convert the amount of transaction from the currency in which the payment account is denominated into euro as soon as it receives that payment order; (ii) customer safety, penalties and sanctions – PSPs should allow their clients to set a maximum amount for instant credit transfers in euro as a safeguard against fraud; and (iii) charges – charges applied by a PSP on payers and payees in respect of instant credit transfer transactions in euro cannot be higher than the charges applied to credit transfer transactions in euro. PSPs should not be allowed to raise, directly or indirectly, the charges for regular tr