Regulation round-up July 2021

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financial conduct authority

Regulation round-up 

Clare Cole, Director, Market Oversight

Primary Markets Effectiveness Review

Effective public markets are critical in enabling companies to finance their businesses, which in turn creates growth and jobs.  But according to the UK Listing Review, chaired by Lord Hill, the number of listed companies in the UK has fallen by 40% since 2008.

That’s why, in response to the Listing Review recommendations and those of the Kalifa Review of UK FinTech, we are consulting on a package of reforms to improve the effectiveness of UK primary markets. The changes aim to reduce barriers to listing for companies, so the UK remains an attractive place to list and grow successful companies.

More companies raising capital on public markets at an earlier stage in their life cycle also means more opportunities for investors to share in the returns of those companies. As always, we continue to prioritise high standards of corporate governance and shareholder protections. This is essential if we want the UK to continue to be a modern and dynamic market.

We acknowledge the proposals only go so far, and that now is a timely opportunity to review our framework for primary markets more holistically. So, alongside the consultation, we are seeking views on the overall structure of our listing regime and whether wider-reaching reforms could improve its longer-term effectiveness.

The closing date for consultation responses is 14 September 2021. Please do engage with us and provide feedback on how our rules could be enhanced to support the sustainable growth of listed companies.

Hot Topics

General Insurance Pricing Practices

We have confirmed measures to protect customers from the loyalty penalty in home and motor insurance markets.  You can read our press notice here and our policy statement here

These measures follow our consultation and address the issues identified in our September 2020 market study, which found that millions of home and motor insurance customers lose out if they renew repeatedly with their current providers.

Under the new rules, prices for customers renewing home and motor insurance will not be more expensive than they would pay as new customers.  Consumers should still be able to benefit from shopping around or negotiating with their current provider, as insurers compete for their business and there should be a range of offers in the market – but they won’t be charged more just for being an existing customer.

We are also bringing in new rules for all insurance firms to give most consumers easier ways to stop their policy from automatically renewing. We will require firms to do more to consider how they offer fair value to their customers. We also have new requirements for home and motor insurance firms and intermediaries to report certain data to us so we can supervise the market more effectively.

The pricing, auto-renewal and data reporting remedies come into effect on 1 January 2022. The rules on systems and controls, product governance and premium finance take effect from the end of September 2021.

The Temporary Transitional Period is ending

To prepare for the end of the Brexit Transition Period, we onshored, and where necessary, adapted EU legislation to ensure it was workable in a UK-only context. As a result, some requirements on firms and other regulated persons have changed. We used our Temporary Transitional Power (TTP) to give firms time to adapt to the new regime to avoid disruption around Brexit the end of the Transition Period. We expect firms to fully comply with onshored regulatory obligations at the latest by 31 March 2022. We have consistently said that firms should use the duration of the TTP to prepare for full compliance with changes to UK regulatory obligations. See our website for more information about the way we used the TTP.

Diversity & Inclusion in Financial Services DP

We have published a discussion paper seeking views on ideas to improve diversity and inclusion in financial services, alongside the Bank of England and Prudential Regulation Authority.

We’re seeking feedback on policy options, including, among others, using targets for representation, measures to make senior leaders directly accountable for diversity and inclusion in their firms, and linking remuneration to diversity and inclusion metrics. The DP also sets out the regulators’ approach to considering diversity and inclusion in non-financial misconduct.

We believe increased diversity and inclusion will advance our objectives through improved governance, decision making and risk management within firms, a more innovative industry, and products and services better suited to the diverse needs of consumers.

Firms have made some progress on diversity and inclusion, but much more needs to be done to create truly diverse and inclusive organisations that meet the diverse needs of those we serve.

We will be issuing a pilot survey later this year which will help to develop the proposals set out in the discussion paper and test how firms can provide data with a view to considering regular reporting in the future.

We’re seeking views by 30 September. This is the beginning of a really important conversation on the role of regulators in delivering a more diverse, more inclusive industry; please have your say.

We’ll use the feedback and data received to develop detailed proposals, with a joint consultation planned for Q1 2022.

All Sectors

FCA Business Plan, Annual Report and Annual Public Meeting

We published our Business Plan for 2021/22 and our Annual Report for 2020/21 on 15 July.  Our chief executive, Nikhil Rathi, also gave a speech setting out our role and future plans as we move on from the coronavirus pandemic and Brexit, the kind of organisation we need to be to deliver for consumers and markets in this new environment, and our plans for fundamental transformation of the FCA to meet our ambitions. 

Our Annual Public Meeting will take place virtually on 28 September 2021.  For further information and to register please visit our webinar portal.

FCA Regulated Fees and Levies 2021/22

We published our final 2021/22 regulated fees and levies - PS21/7 on 1 July. This included feedback on the responses to the consultation (CP21/8) on the draft fees and levies rules. Firms can use our online fees calculator to calculate their individual fees based on the final rates in the PS. This includes FCA periodic fees and the Financial Ombudsman Service, MaPS, Devolved Authorities and illegal money lending levy final rates in Appendix 1 (where applicable) of the PS. The calculator also covers PRA (where applicable) fees and Financial Services Compensation Scheme levies. We will invoice fee-payers from July 2021 onwards for their 2021/22 periodic fees and levies.

Joint Regulators Complaints Scheme Consultation

On 29 June 2021, we published a short update on the timing of the Complaints Scheme Consultation (CP20/11) on our website, details of which can be found here. The Regulators’ policy statement on the consultation and any changes to the Scheme will not be published until towards the end of 2021. This will allow time for the publication of the independent review of the FSA/FCA’s supervisory intervention on Interest Rate Hedging Products and for any associated complaints to be lodged for consideration under the present Scheme.

Investment Firm Prudential Regime Policy Statement 1

We published our policy statement detailing the first phase of rules to introduce the UK Investment Firm Prudential Regime (IFPR) on 29 June 2021. This is in response to our consultation of these rules in December 2020.

The IFPR is a new prudential regime for UK firms authorised under the Markets in Financial Instruments Directive (MiFID). Introducing the IFPR will mean that there will be a single prudential regime for all FCA investment firms. We issued a second consultation in April 2021 and we will be consulting on further IFPR proposals early in Q3 2021.

Find out more about our IFPR here.

Funeral plan firms: get ready for regulation

All firms involved in providing or selling pre-paid funeral plans need to prepare for FCA regulation which starts on 29 July 2022. Don’t delay – get ready now.

We have published our Policy Statement which sets out our final rules, guidance and standards for when the pre-paid funeral plans sector enters our regulation. We’re also consulting on further proposals on the resolution of funeral plan firms, FSCS protection and structural provisions.

Visit our dedicated webpages for more information. Funeral plan intermediaries can sign up for our webinar, ‘Preparing funeral plan intermediaries for FCA regulation’.

Webinars available to view on demand

Our recent Consumer Vulnerability and Consumer Duty Webinars are available to view on demand.

Watch Consumer Vulnerability to learn about our Vulnerability Guidance and the role you and your firm play in ensuring customers are treated fairly.

Watch Consumer Duty to learn about what the Duty would require of firms and what outcomes consumers should be able to expect from financial products and services. 

Draft Connect Applications

From 6 August 2021 we’ll start to delete draft Connect applications that have not been modified in the last 120 days.

If you have a draft application that was started before 8 April 2021 and you wish to still submit, please log in to Connect and progress this before 6 August 2021 to prevent it from being deleted.

If you no longer want to proceed with the application, then you don’t need to do anything.

Listen to the latest Inside FCA Podcast – Our research revealed younger investors are taking on big financial risks

On the latest episode of the Inside FCA Podcast we discussed the research we recently published to better understand investors who engage in high-risk investments, like cryptocurrencies and foreign exchange.

The discussion included the emergence of a new, younger, more diverse group of investors who are potentially prompted in part by the accessibility of new investment apps.

We also discussed how consumers can help themselves and how the research will underpin not only the development of our new campaign to prevent consumer harm from high risk investments, but the wider work of the FCA in the consumer investments market. Listen here.

Joint FCA & Practitioner Panel Survey

The joint FCA/Practitioner Panel firm survey will shortly be closing. If your firm was selected to take part, please do so as soon as possible – your input is valuable and the more firms who respond the more representative the findings will be.

Financial promotions case studies

We recognise the need to provide information for firms to understand the financial promotions rules that apply to particular products and services. We have produced two short videos of the various products we regulate, and the common mistakes firms make while promoting their products. The videos illustrate the FCA’s expectation and highlight the need for promotions to be clear, fair and not misleading regardless of the media used. These videos, as well as other information about financial promotions, can be found on our web pages here.

Pricing Practices Survey

We will shortly be asking a sample of Insurers, Price Comparison Websites and Insurance Intermediaries to complete a short survey to assess their preparedness for the introduction of the new rules on general insurance pricing practices as outlined in our recent Policy Statement.

The survey will be sent to firms on 16 July 2021 from the following mailbox: GIPricingPractices@fca.org.uk

Firms will have 15 working days to respond. Please respond by no later than 9 August 2021. While we are not seeking this information under our formal information-gathering powers, we expect firms to complete it.

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LIBOR

LIBOR – 6 months to go

Edwin Schooling Latter, Director of Markets and Wholesale Policy, delivered a keynote speech at UK Finance’s Commercial Finance Week on 5 July. Edwin highlighted the need for progress against the RFR Working Group’s end-Q3 milestone for active conversion and stopping new use of USD LIBOR across all asset classes by the end of 2021. He also spoke at length on the risks of transitioning to credit sensitive rates. We ask that any regulated UK market participants looking to use these products considers the risks carefully and raises this with their FCA supervisors before doing so.

FSB Global Transition Roadmap for LIBOR 

The Financial Stability Board (FSB) has recently updated its global transition roadmap for LIBOR in light of announcements made by the Financial Conduct Authority confirming the dates that panel bank submissions for all LIBOR settings will cease, after which representative LIBOR rates will no longer be available. The FSB’s roadmap is intended to inform those with exposure to LIBOR of the steps they should be taking now and over the remaining period towards the LIBOR cessation dates.

The Board of International Organization of Securities Commissions (IOSCO) and Financial Stability Board Statements supporting US authorities’ approach of stopping new use of dollar LIBOR 

IOSCO and the FSB released statements supporting the guidance issued by US banking supervisors to stop new use of USD LIBOR after end-2021. Together, these statements emphasise the need for market participants to discontinue new use of USD LIBOR-linked contracts as soon as practicable and, no later than end-2021. The FCA and PRA support the guidance issued by US authorities, as we communicated in our Dear CEO letter earlier this year. We are consulting on our proposed approach to using our powers to prohibit new use of ceasing critical benchmarks, such as USD LIBOR, which could further support this position.

Commodity Futures Trading Commission (CFTC) recommends July 26 for SOFR First Initiative 

The CFTC’s Market Risk and Advisory Committee’s Interest Rate Benchmark Reform Subcommittee has recommended interdealer trading conventions be switched from USD LIBOR to the Secured Overnight Financing Rate (SOFR) for USD linear interest rate swaps from 26 July 2021. The FCA and the Bank of England support and encourage all participants in the USD interest rate swaps market to take the steps necessary to prepare for and implement these changes to market conventions on 26 July 2021.  

Mortgage interest rates and LIBOR: information for borrowers

We have recently published information for borrowers with mortgage interest rates linked to GBP LIBOR. These messages explain what the transition away from GBP LIBOR means for them.

Banks & Building Societies

Digital Sandbox – second phase launch

Building on the success of the first pilot, the FCA and The City of London Corporation are running a second phase of the Digital Sandbox to support the testing and development of new products and services that will aid the transition to a net zero economy. We will be holding a launch event on 20 July to outline the use cases, next steps and how interested firms can get involved.

General Insurance Intermediaries & Insurers

Dear CEO letter for general insurance intermediaries on maintaining adequate client money arrangements   

We have written to general insurance intermediaries who hold or control client money to remind them of their obligation to protect their clients’ funds. The letter reminds firms that maintaining adequate client money arrangements is vital to reduce consumer harms. In light of the issues highlighted in the letter, firms must make sure they comply with all regulations on the handling of client money, taking robust action where needed to ensure client money is appropriately safeguarded. Failure to comply could lead to enforcement action including restrictions on the activity a firm is authorised to carry out.

Pricing Practices Survey

We will shortly be asking a sample of Insurers, Price Comparison Websites and Insurance Intermediaries to complete a short survey to assess their preparedness for the introduction of the new rules on general insurance pricing practices as outlined in our recent Policy Statement.

The survey will be sent to firms on 16 July 2021 from the following mailbox: GIPricingPractices@fca.org.uk

Firms will have 15 working days to respond. Please respond by no later than 9 August 2021. While we are not seeking this information under our formal information-gathering powers, we expect firms to complete it.

Life Insurance & Pension Providers

Qualification requirements for Pension Transfer Specialists

PS18/20 introduced rules to raise qualification levels for pension transfer specialists (PTSs) to require them to obtain the same qualification as an investment adviser, alongside the existing PTS qualification. The implementation of these rules was delayed by a year due to coronavirus, but will come into force from 1 October 2021. Any PTSs who are yet to complete their qualifications will need to ensure that they are appropriately qualified by that date to continue advising on, or checking advice on, pension transfers.

Digital Sandbox – second phase launch

Building on the success of the first pilot, the FCA and The City of London Corporation are running a second phase of the Digital Sandbox to support the testing and development of new products and services that will aid the transition to a net zero economy. We will be holding a launch event on 20 July to outline the use cases, next steps and how interested firms can get involved.

Consultation on climate-related disclosure rules

We are consulting on proposals to introduce climate-related disclosure requirements for asset managers, life insurers and FCA-regulated pension providers. The proposed new rules will help markets, investors and consumers better understand the impact of climate change and make more informed decisions.

The proposals follow the introduction of climate-related disclosure rules for the most prominent listed commercial companies in December 2020, which are aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

We are inviting feedback to the consultation by 10 September 2021 and intend to confirm our final policy before the end of 2021.

Investment Managers

FCA review finds weaknesses in some ‘host’ Authorised Fund Management firms’ governance and operations.

We recently published the results of a multi firm review into the ‘host’ authorised fund manager (AFM) business model where we examined its viability and assessed whether conflicts of interests were being effectively managed. 

In our publication, we called for ‘host’ AFMs to improve their standards, as while some firms were operating well, others did not meet FCA standards.  We found weaknesses in governance structures, conflicts of interest management and onboarding and oversight of delegate third-party investment managers.

Review finds firms falling short on assessing values of their funds

We have published a review into how Authorised Fund Managers (AFMs) carry out annual Assessments of Value (AoVs).

While some firms were conducting AoVs well and had cut fees for their funds, others did not meet our standards.

We expect all AFMs to consider these findings, to use them to assess their AoV processes and to make changes to address any shortcomings.

Digital Sandbox – second phase launch

Building on the success of the first pilot, the FCA and The City of London Corporation are running a second phase of the Digital Sandbox to support the testing and development of new products and services that will aid the transition to a net zero economy. We will be holding a launch event on 20 July to outline the use cases, next steps and how interested firms can get involved.

Consultation on climate-related disclosure rules

We are consulting on proposals to introduce climate-related disclosure requirements for asset managers, life insurers and FCA-regulated pension providers. The proposed new rules will help markets, investors and consumers better understand the impact of climate change and make more informed decisions.

The proposals follow the introduction of climate-related disclosure rules for the most prominent listed commercial companies in December 2020, which are aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

We are inviting feedback to the consultation by 10 September 2021 and intend to confirm our final policy before the end of 2021.

Consumer Credit

Credit Broking Survey 

We are asking all regulated firms that hold the credit broking permission to complete a short survey to update the information we hold on how they are using this permission. This follows a pilot survey sent to 300 firms in May.

It has been designed to be quick and simple to complete. 95% of firms in the pilot firms completed it within 30 minutes.

We will use the data provided, alongside existing data, to support our ongoing work to mitigate risks of harm to consumers. 

The survey will be sent by email. If your firm has this permission and does not receive the survey, please check your spam/junk folders. For more details, please refer to our website.

Credit Unions

Digital Sandbox – second phase launch

Building on the success of the first pilot, the FCA and The City of London Corporation are running a second phase of the Digital Sandbox to support the testing and development of new products and services that will aid the transition to a net zero economy. We will be holding a launch event on 20 July to outline the use cases, next steps and how interested firms can get involved.

FinTech & Innovative Business

Digital Sandbox – second phase launch

Building on the success of the first pilot, the FCA and The City of London Corporation are running a second phase of the Digital Sandbox to support the testing and development of new products and services that will aid the transition to a net zero economy. We will be holding a launch event on 20 July to outline the use cases, next steps and how interested firms can get involved.

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