Regulation round-up January 2022

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financial conduct authority

Regulation round-up 

David Raw

Strengthening our financial promotions rules for high-risk investments 

Creating an investments market where consumers can invest with confidence, understanding the level of risk, is a priority for us. Our Consumer Investments Strategy set out our plan to achieve this by drawing on all the tools at our disposal. A key part of this strategy is to reduce the number of consumers investing inappropriately in high-risk investments.

Given the ease and speed with which people can now access investments via online platforms, we are concerned about consumers investing in high-risk investments that do not match their risk tolerance and suffering unexpected, significant losses.   

So we are proposing a series of changes to strengthen our financial promotions regime for high-risk investments, including:  

  • improving risk warnings 
  • banning inducements to invest 
  • introducing a 24-hour cooling-off period for new investors  
  • improving the client categorisation process 
  • increasing the robustness of the appropriateness assessment  
  • strengthening the role of firms that approve and communicate financial promotions to ensure they have relevant expertise and understanding of the investments  

Following the Treasury’s announcement that it intends to extend the financial promotions regime to certain unregulated cryptoassets, we propose classifying these cryptoassets as a ‘Restricted Mass Market Investment’, in line with some other high risk investments. This would mean that direct offer financial promotions can only be made to retail consumers if certain requirements are met. Firms issuing such promotions would have to adhere to other financial promotion rules, such as the requirement to be clear, fair and not misleading. 

We welcome feedback on our proposals by 23 March 2022. 

Hot Topics

Coronavirus and borrowers in financial difficulty 

We published an update on our Borrowers in Financial Difficulty project. We launched this in March 2021, to look at how firms implemented the Tailored Support Guidance (TSG) to continue to support mortgage, consumer credit and overdraft customers affected by the pandemic. 

With the pandemic continuing, we want to reiterate our expectations for the treatment of customers.  

We have also detailed some of our interim findings to help firms ensure they deliver the best outcomes for customers needing support. These cover areas including: 

  • offering appropriate forbearance 
  • fair treatment of vulnerable customers 
  • fees and charges 
  • training and oversight 
  • debt advice 

We believe TSG continues to provide an appropriate framework for lenders to support customers affected by coronavirus (Covid-19).

We continue to engage with the firms, identified in our work, who risk not meeting our requirements. This includes asking for changes to be made to firms’ policies and processes. We may also use our formal powers where we consider it’s appropriate and proportionate.   

We are continuing in-depth work to assess whether consumers are getting fair and appropriate outcomes, including customers with characteristics of vulnerability.    

This will shape our next phase, including targeted action with firms not meeting expectations, and considering whether to make changes to our rules and guidance.   

SM&CR regulatory references

Regulatory references are central to the Senior Managers & Certification Regime (SM&CR). They help firms make informed decisions about the fitness and propriety of individuals to whom they intend to assign Senior Management or Certification Functions (or appoint as non-approved Non-Executive Directors).  

We received feedback on the challenges firms face when obtaining regulatory references and wanted to clarify some key points. 

  • You should request, and respond to requests for, regulatory references promptly. Although SYSC 22 includes guidance that they should be provided within 6 weeks, this is a limit, not a target. 
  • When providing regulatory references, use the template in SYSC 22 Annex 1. Ensure the template is complete and the information provided is accurate, before sending it. Failing to use the correct template or sending incomplete or inaccurate information can cause delays. 
  • Firms need only take reasonable steps to obtain regulatory references. If you experience difficulties obtaining regulatory references from a particular firm, tell us. If you are unable to obtain regulatory references as part of an application, set out the steps you took to obtain references - this will help avoid delays during the application assessment. 
  • You should assess regulatory references on a case-by-case basis and individuals shouldn’t be automatically rejected due to a qualification in their references. You also shouldn’t have a quota for the number of qualified references you will accept, as we understand is sometimes the case. 

Timely, good quality references are in the interests of everyone.  

See here for SM&CR guides for insurers and solo-regulated firms.

Changes to our application fees 

We recently implemented changes to simplify our authorisation application fees. In most cases, the application fees have increased. Our Policy Statement sets out the changes, which follow feedback on our consultation in April 2021.   

The changes introduce:  

  • A lower charge when firms that apply for the credit-related permissions of debt counselling and debt adjusting request restrictions on their permitted activity because it is ancillary to their main business.
  • A charge for lead generator Claims Management Companies applying for permission to seek out people who may have a claim. 

Further work is required before we introduce the new charge of £250 for stand-alone Long Form A applications both for Senior Manager Functions and for Controlled Functions for Appointed Representatives. This change was part of our consultation. We'll still be introducing that fee and will update you in due course.

All Sectors

Guidance Consultation – FCA's approach to compromises for regulated firms 

On 25 January, we published a guidance consultation on our approach to compromises (eg schemes of arrangement, restructuring plans and voluntary arrangements such as CVAs) for regulated firms (GC22/1). When considering compromises, firms should ensure they propose the best possible outcome for their customers.  

The proposed guidance aims to help regulated firms understand our expectations; it sets out the FCA’s role, the information we need firms to give to us, and the factors we consider when assessing compromises and deciding if and what actions to take. 

Read and respond to the consultation by 1 March 2022. 

HM Treasury consultation on Financial Promotion Order exemptions for high net worth and sophisticated investor 

On 15 December 2021 the Treasury published a consultation on the Financial Promotion Order exemptions for high net worth and sophisticated investors. As set out in our 2020/1 perimeter report, we are concerned that unauthorised firms are increasingly relying on these exemptions to target ordinary consumers with high-risk investments and scams. 

The consultation proposes reforms to these exemptions, responding to economic, social and technological changes that have occurred since the exemptions were introduced in 2001, and to instances of misuse of the exemptions identified by the FCA. 

The deadline for responses is 9 March 2022. 

General Insurance value measures – firm reporting

In PS20/9 we introduced rules requiring General Insurance (GI) firms to report value measures data to us, as well as value measures product governance rules. These help to address poor value of products and came into force on 1 January 2021, with reporting rules on 1 July 2021.   

Firms’ first reports will be for the 6-month period covering 1 July 2021 to 31 December, and are due by 28 February 2022 

Subsequent reporting will be submitted annually by 28 February for the previous calendar year. Firms must submit the reports via RegData. For more information visit our website. 

Attesting compliance with General Insurance Pricing Practices rules 

In PS21/5 we confirmed senior managers must attest annually that their firm has complied with our General Insurance (GI) Pricing Practices rules. This helps us to hold firms and individuals to account when ending ‘price walking’ for home and motor insurance.  

We sent out a survey in January to premium finance providers and firms with GI permissions to facilitate the first annual attestation. Firms that received the survey must respond in full or provide a nil return by 31 March 2022. All subsequent attestation will be done via RegData 

Visit our website for more detail – this includes copies of the forms for the first and subsequent attestations for information purposes. 

Operational resilience: preparing for the switch from analogue to digital phone lines 

The current analogue phone network (known as the Public Switched Telephone Network or PSTN) is starting to be switched off across the UK. It will be completely decommissioned by the end of 2025 as we transfer over to a digital phone network, delivered through Voice over IP (VoIP).

This is a major change to the UK’s telecoms networks and will affect anything that currently plugs into existing analogue telephone wall sockets. 

Firms should be making plans to ensure there is no disruption to the services they provide. Find out more about the switch.

Feedback statement: Accessing and using wholesale data 

In March 2020 we issued a Call for Input (CFI) to better understand how data and advanced analytics are being accessed and used in wholesale markets. Our Feedback Statement sets out our findings and analysis of responses received to the CFI and our proposed next steps.  

In the statement we announced a programme of work that includes information gathering on trading data in spring 2022, and 2 market studies on benchmarks and credit ratings agencies to be launched later in 2022.

Visit our website for more detail and to read the full Feedback Statement. 

FCA confirms approach to European firms temporarily operating in the UK 

European firms wishing to remain in the temporary permissions regime (TPR) need to meet the FCA’s standards to continue operating in the UK. 

Firms may be asked to stop undertaking new business or could be removed from the TPR if they miss their ‘landing slot’, fail to respond to mandatory information requests, have no intention in applying for full authorisation, or if their authorisation application is refused. 

We have already cancelled the temporary permissions of 4 firms, who, despite multiple opportunities, did not respond to mandatory information requests. 

Firms that have had their permissions cancelled can no longer conduct regulated business in the UK and will be committing a criminal offence if they do so. 

Competition and Markets Authority (CMA) – Private Motor Insurance (PMI) compliance report 

If you are a PMI insurer or broker you must submit a compliance report to the Competition and Markets Authority by 1 February 2022. This obligation arises from the CMA’s PMI Market Investigation Order 2015. The Annual PMI Compliance Statement should be submitted online and by uploading tables of Average No Claims Bonus Discounts. 

Email to obtain your personal link to the form and information about submitting your compliance report.

If you offer both insurance and brokerage services, please follow the instructions for the primary role of your business. 

Supervisory flexibility on the short selling indicator 

We recently announced that we will be taking a flexible approach to firms’ reporting of the short selling indicator field as a temporary measure.

Were in the early stages of considering policy options for the UK MiFIR transaction reporting regime, including, but not limited to the future of the short selling indicator. So we will not take action against firms who do not correct errors and omissions related to the short selling indicator. We will keep this position under review.

Publication of the Wider Implications Framework 

Along with other members of the regulatory framework, we’ve agreed the Wider Implications Framework. This sets out how we will work with each other on issues that could have a wider impact across the financial services industry.

See our joint formal agreement on the Financial Ombudsman Service website: Wider Implications Framework.

Transforming Data Collection: new webpage

Our new webpage on our Transforming Data Collection Programme presents all the latest information and updates from the project.

Check here regularly to understand our work on transforming the way data is collected from the UK financial sector. 

Event: RegTech Forum – Regulatory Approach to Innovation & SupTech 

On 10 February, we’re hosting a RegTech Forum webinar on the FCA’s approach to regulatory innovation and the growing importance of Supervisory Technologies (SupTech).  

During the event, we’ll explore how innovative technologies are being used by regulators and seek to understand the challenges and opportunities for further adoption in the future.

The event will include opening comments from our Chief Data, Information & Intelligence Officer, Jessica Rusu.

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Changes to LIBOR as of end-2021 

The publication of 24 LIBOR settings ended on 31 December 2021. Since 4 January 2022, the 6 most widely used sterling and Japanese yen LIBOR settings are being published under a synthetic methodology and are not available for use in new contracts. Synthetic Japanese yen LIBOR is expected to cease at end-2022.

In addition, synthetic sterling LIBOR’s availability is not guaranteed beyond end-2022, so firms should continue their transition efforts.  Five US dollar LIBOR settings will continue to be calculated using panel bank submissions until mid-2023. Firms should focus on converting their legacy US dollar LIBOR contracts by then.

Reminder on prohibition of new use for US dollar LIBOR 

We remind all regulated firms that, as of 1 January 2022, new use of US dollar LIBOR is expected to have stopped, with limited exceptions. This is in line with the expectations set out in our March 2021 Dear CEO letter and Notice under the Benchmarks Regulation.

These restrictions align with guidance from US regulatory agencies, supported by the Financial Stability Board and IOSCO. 

Banks & Building Societies

FCA review finds evidence of growing competition in retail banking 

We’ve published our 2022 report on competition in retail banking markets.

Our analysis explored industry trends in light of significant changes such as coronavirus, increased digitalisation and ring-fencing, and considered what this has meant for competition and overall profitability. We also provided a detailed analysis of different products offered by banks to both consumers and businesses.

Overall, we found that greater competition is driving choice and lower prices for consumers and small businesses, despite the financial impact of the pandemic. For more information read key findings or full analysis. 

Wealth Managers, Private Banks & Stockbrokers

MIFIDPRU Remuneration code

We have published a new MIFIDPRU Remuneration Code web page for MIFID Investment firmsThe MIFIDPRU Remuneration Code (SYSC 19G) applies to performance periods starting on or after 1 January 2022

Firms can find information on applicationproportionalityperformance adjustment, disclosure and reporting requirementsThere are also links to self-assessment templates and tables that firms may use to record how their remuneration policies and practices comply with the MIFIDPRU Remuneration Code.

Investment Managers

MIFIDPRU Remuneration code

We have published a new MIFIDPRU Remuneration Code web page for MIFID Investment firmsThe MIFIDPRU Remuneration Code (SYSC 19G) applies to performance periods starting on or after 1 January 2022

Firms can find information on applicationproportionalityperformance adjustment, disclosure and reporting requirementsThere are also links to self-assessment templates and tables that firms may use to record how their remuneration policies and practices comply with the MIFIDPRU Remuneration Code.

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