Financial Services News

Financial institutions general regulatory news, May 2021 | Hogan Lovells



  • Queen’s Speech 2021 and Dormant Assets Bill
  • Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill 2021-22
  • Supporting the wind-down of critical benchmarks: HM Treasury response to consultation
  • Life after LIBOR: BoE speech
  • UK Economic Crime Plan: Statement of Progress
  • Treasury Committee Greensill Capital inquiry: FCA response highlights appointed representative work
  • Productive Finance Working Group: BoE statement on progress
  • Operational resilience: BoE speech
  • Financial Services Regulatory Initiatives Grid updated
  • COVID-19: FCA statement on firms’ complaint handling no longer in force
  • COVID-19: FCA update on changes to regulatory reporting
  • Guidance for insolvency practitioners on how to approach regulated firms: FCA FG21/4
  • UK regulatory landscape post-Brexit and beyond: FCA speech
  • FCA Handbook Notice 87
  • FCA policy development update
  • Outcomes-focused regulation: FCA speech
  • Nudging consumers to pensions guidance: FCA CP21/11
  • FCA Gabriel replaced by RegData
  • Keydata complaints: Complaints Commissioner recommends FCA action
  • FOS Ombudsman News issue 160
  • FSCS Outlook newsletter
  • Pensions Dashboards Programme: Progress Update Report
  • Digital assets: Law Commission call for evidence
  • EU reviews of Settlement Finality Directive and Financial Collateral Directive: FMLC responses
  • EU Taxonomy Regulation: European Commission consults on draft Delegated Regulation containing disclosure obligations
  • EU strategy for retail investors: European Commission consultation
  • EU AML and CFT central database: EBA consultation
  • EBA 2020 report on convergence of supervisory practices and 2021 convergence plan

Queen’s Speech 2021 and Dormant Assets Bill

On 11 May 2021, the Queen’s Speech set out the government’s legislative priorities for the next parliamentary session. The government has also published a background briefing relating to the Queen’s Speech, providing a summary of the content and legislation to be brought forward by the government. The measures announced included the Dormant Assets Bill which was introduced to, and had its first reading in, the House of Lords on 12 May 2020. Explanatory notes have been published and HM Treasury has published two factsheets on the Bill: Bill overview and Policy context and background. The UK Parliament has published the text of the Bill.

The UK Dormant Assets Scheme was established by the Dormant Bank and Building Society Accounts Act 2008 and is administered by Reclaim Fund Ltd (RFL) (recently established as an HM Treasury non-departmental public body). The scheme enables unclaimed funds to be reinvested for the benefit of social or environmental purposes while protecting the rights of the individual customer.

In summary, the Bill:

  • makes the necessary amendments to the 2008 Act to expand the existing scheme so that a wider range of dormant assets, including assets in the insurance and pensions, investment, wealth management and securities sectors, can be transferred into the scheme;
  • enables the RFL to accept transfers of certain unwanted assets and improves the operation of the scheme;
  • confers power on the Secretary of State or HM Treasury to make regulations further expanding the scope of the scheme in the future to broaden the pool of eligible dormant assets. It also introduces a new power for HMT to establish other reclaim funds in the future as appropriate, either in addition to RFL or as a replacement; and
  • amends the approach for distributing dormant assets funding in England, aligning it with the model used for Scotland, Wales and Northern Ireland, enabling the social and environmental focus of the English portion of funds to be set through secondary legislation.

Second reading of the Bill is yet to be scheduled.

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill 2021-22

The Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill 2021-22 has been introduced to Parliament. The text of the Bill has been published, together with Explanatory notes, and the Bill has had its first reading in the House of Commons.

The purpose of the Bill is to:

  • enable the establishment of the compensation scheme for London Capital & Finance (LC&F) bondholders. HM Treasury intends to require the Financial Services Compensation Scheme (FSCS) to administer the compensation scheme on its behalf. The Bill will permit HM Treasury to incur expenditure in relation to compensation to LC&F customers of LC&F and ensure that the FSCS’ current rules can be applied to the scheme without the need for the UK Financial Conduct Authority (FCA) to undertake a full public consultation and impact assessment; and
  • amend the Pensions Act 2004 to allow the Secretary of State to make a loan to the Board of the Pension Protection Fund and for that loan to form a part of the funds of the Fraud Compensation Fund (FCF). This follows the decision in Board of the Pension Protection Fund v Dalriada Trustees Ltd [2020] EWHC 2960 (Ch), in which the High Court confirmed that members of certain types of scam pension schemes relating to pensions liberation are eligible for compensation from the FCF.

The date for second reading in the House of Commons has not yet been announced.

Supporting the wind-down of critical benchmarks: HM Treasury response to consultation

HM Treasury has published details of the outcome of its February 2021 consultation on supporting the wind-down of critical benchmarks.

The Financial Services Act 2021 will amend the UK Benchmarks Regulation (UK BMR), to provide the FCA with new and enhanced powers to oversee the orderly wind-down of critical benchmarks, such as LIBOR. These powers will enable the FCA to manage a situation in which a critical benchmark has become, or is at risk of becoming, unrepresentative and it may be impractical or undesirable to restore its representativeness. In February 2021, HM Treasury consulted on whether there was a case for introducing legislation to incorporate a supplementary legal “safe harbour” for relevant legacy contracts.

Following consultation, HM Treasury indicates that it intends to bring forward further legislation, when the Parliamentary time allows, to address issues identified in the consultation. However, HM Treasury remains of the view that, wherever possible, parties should seek to transition contracts away from LIBOR before the end of 2021. It has also published a letter sent to the Working Group on Sterling Risk-Free Reference Rates (RFRWG) confirming this approach.

Life after LIBOR: BoE speech

The Bank of England (BoE) has published a speech by Andrew Bailey, BoE Governor, on life after LIBOR, in which he focuses on the important role benchmarks play in the financial system and why financial firms and borrowers would do well to choose the most robust alternative reference rates that meet their use case.

UK Economic Crime Plan: Statement of Progress

HM Government has published Economic Crime Plan: Statement of Progress, which covers the period from July 2019 to February 2021. This follows the 2019 launch of the Economic Crime Plan, a program of work that aims to tackle fraud and money laundering and sets out how the UK’s public and private sectors would work together to improve the response to economic crime.

Treasury Committee Greensill Capital inquiry: FCA response highlights appointed representative work

The House of Commons Treasury Committee has published responses, including ones from the FCA and Bank of England (BoE), relating to its inquiry into Greensill Capital.

Among other things, in the FCA’s response, the FCA explains that there are several areas that have been under consideration for regulatory or perimeter change and the collapse of Greensill has drawn further attention to these issues. These include the appointed representatives regime, investigation and penalty powers in the event of firm failure or deregistration, the criteria for fitness and propriety under the Money Laundering Regulations, access to UK investors through listing securities on overseas markets that are not recognised overseas investment exchanges or regulated markets (for example, in the EU) and employer salary advance schemes. In addition, the FCA notes that commercial lending is largely unregulated in the UK and any changes to this would be a matter for HM Government and Parliament.

The FCA outlines its work programme relating to appointed representatives. This includes:

  • greater engagement with, and scrutiny of, firms as they appoint appointed representatives;
  • using a data-led approach, undertaking proactive supervision of principal firms that may pose a higher risk of harm;
  • carrying out a range of targeted supervision activity in sectors, or portfolios, where the FCA considers that the appointed representative regime is a particular driver of harm; and
  • undertaking analysis to determine whether policy interventions are required, including recommendations to HM Treasury for changes in the legislative regime.

Notes of meetings that the FCA had relating to Greensill Capital are included as an annex to its response.

Productive Finance Working Group: BoE statement on progress

The BoE has published a statement on the progress made by the Productive Finance Working Group (PFWG), which was created in November 2020 and is co-chaired by the BoE with HM Treasury and the FCA. The statement explains that the PFWG met recently to discuss progress on:

  • the work done to develop a commercially, operationally and legally viable authorised open-ended fund structure for long-term investments (the LTAF);
  • the analysis undertaken to understand and begin to address operational barriers to investing in long-term assets, for example, barriers associated with investing in non-daily dealing funds;
  • possible initiatives to support pension schemes in keeping costs low while at the same time securing overall long-term value for their members.

The PFWG also considered how public authorities and the private sector can take concrete steps to support its objectives.

The statement highlights the FCA’s publication of its consultation paper on the LTAF (CP21/12) as the first concrete step. It explains that the next phase of the PFWG will be focussed on developing the other concrete steps that market participants and the public sector can take to remove barriers to finance supporting investment in less liquid assets. It will set out its proposed solutions and timelines later in 2021.

Operational resilience: BoE speech

The BoE has published a speech given by Lyndon Nelson, PRA Deputy CEO and BoE Executive Director, Regulatory Operations and Supervisory Risk Specialists, on operational resilience and outcomes in practice. In the speech, Mr Nelson considers the publication in March 2021 of the UK regulators’ final rules on the new operational resilience framework. Issues addressed in the speech include:

  • despite differences in languages and definitions in the PRA and FCA rules on operational resilience, the regulators intend to operate the same regime, with no differences in implementation. Consequently, work done for one regulator can and should be leveraged to meet the requirements of the other;
  • the PRA’s approach to operational resilience is intended to implement the principles on operational resilience finalised by the Basel Committee on Banking Supervision in April 2021;
  • the regulators have not yet determined their final approaches to impact tolerances. Mr Nelson sets out details of the approach the PRA is likely to take depending on where the Financial Policy Committee and the FCA decide to set their tolerances;
  • while firms’ boards and senior management cannot outsource their ultimate accountability and responsibility, firms can sometimes find it challenging to oversee effectively cloud service providers. Mr Nelson suggests that firms’ operational resilience policies will help with this issue. Firms’ work to identify important business services, to determine the maximum tolerance for disruption to those services and to implement measures to remain within those tolerances under plausible scenarios should provide the right level of focus on cloud services and where substitutability is important.

Financial Services Regulatory Initiatives Grid updated

The Financial Services Regulatory Initiatives Forum has updated the Regulatory Initiatives Grid which sets out details of regulatory initiatives relevant to the financial services sector which are currently in the pipeline. The Forum aims to publish the Grid at least twice a year to help firms manage the operational impact of implementing initiatives. For each of the initiatives, the Forum provides details of the lead authority, key milestones, the indicative impact and the likely timetable for key developments. Where appropriate, the Grid also specifies where the timings of the initiative have changed since the previous edition and where a new initiative has been added.

The Forum has also for the first time published the Grid in the form of an interactive dashboard and an Excel spreadsheet.

COVID-19: FCA statement on firms’ complaint handling no longer in force

On 12 May 2021, the FCA announced that, with effect from 1 May 2021, its statement on firms’ handling of complaints during the COVID-19 pandemic was no longer in force. When it last updated the statement in October 2020, the FCA committed to reviewing the statement again by the end of April 2021.

COVID-19: FCA update on changes to regulatory reporting

On 11 May 2021, the FCA updated its webpage on changes to regulatory reporting during the COVID-19 pandemic. Due to the challenges faced by firms and their auditors preparing audited financial statements during coronavirus, the FCA states that it will allow flexibility in the submission deadline for FIN-A (annual report and accounts). For this return only, firms will have an automatic 2-month extension to the deadline for submissions up to and including 31 July 2021.

The FCA advises that this flexibility is intended to cover the situation where the impacts of COVID-19 have made it impractical to finalise audited financial statements. If firms are able to submit FIN-A on time, then they should do so. In any event, firms should submit FIN-A as soon as they are reasonably able to, and no later than 30 September 2021.

Guidance for insolvency practitioners on how to approach regulated firms: FCA FG21/4

The FCA has published finalised guidance, FG21/4, for insolvency practitioners on how to approach regulated firms. FG21/4 sets out the FCA’s view on how an insolvency practitioner should ensure regulated firms meet their ongoing financial services regulatory obligations following appointment. The guidance is aimed at insolvency practitioners appointed over firms solely authorised or registered by the FCA but may also be relevant to firms that are dual regulated by the FCA and PRA.

The FCA consulted on its proposals in a guidance consultation, GC20/5, published in December 2020. Alongside FG21/4, the FCA has published a Feedback Statement in which it states that, overall, respondents supported the proposed guidance and it is implementing it as consulted on in GC20/5, subject to minor changes.

UK regulatory landscape post-Brexit and beyond: FCA speech

The FCA has published a speech given by Nikhil Rather, FCA Chief Executive, on the UK regulatory landscape post-Brexit and beyond. Among other things, Mr Rathi discusses regulation and competition in UK markets. He states that the FCA’s regulation of overseas firms is aimed at achieving the same outcomes as its regulation of domestic firms, as well as at ensuring a level playing field. Therefore, the rules and threshold conditions will remain the same for everyone, and the FCA will apply the same standards to international firms seeking authorisation while taking into account the different risks that international firms can pose in assessing what it asks of them. International firms that pose more risk to consumers, clients and markets can expect proportionately closer scrutiny and higher expectations from the FCA, and they will need to have structural arrangements that enable the FCA to supervise them effectively. In particular, the FCA expects firms seeking authorisation to have an active place of business in the UK. For EU firms currently accessing UK markets via the Temporary Permissions Regime (TPR), there will be a rigorous review of all firms seeking UK authorisation.

Mr Rathi also recognises that international cooperation with other supervisors and global standard-setting bodies is vital and notes the significant progress the FCA is making in this area.

The FCA recognises the increased flexibility that is available to the UK following exit from the EU. It intends to use its autonomy to regulate for the benefit of UK financial markets and consumers: “while the likely effect of any changes to the UK’s regulatory regime on equivalence with the EU should and will be considered, it’s not consistent with the FCA’s objectives to target equivalence at any cost, including the opportunity cost of failing to make our markets work better“.

FCA Handbook Notice 87

The FCA has published Handbook Notice 87, which sets out changes to the FCA Handbook made by the FCA board on 25 March and 29 April 2021. The Handbook Notice reflects changes made to the Handbook by the following instruments (all of which are now in force):

FCA policy development update

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

Outcomes-focused regulation: FCA speech

The FCA has published a speech given by Charles Randell, FCA Chair, on outcomes-focused regulation. Among other things, Mr Randell discusses how focusing on the best consumer outcomes is the right thing to do, although this focus is not yet fully embedded in everything that the FCA and financial services firms do.

Nudging consumers to pensions guidance: FCA CP21/11

The FCA has published a consultation paper, CP21/11, on new rules requiring pension providers to “nudge” consumers to Pension Wise, in order to benefit from guidance before accessing their defined contribution pension savings. This includes booking an appointment with Pension Wise if the consumer wishes. The new rules would implement provisions of the Financial Guidance and Claims Act 2018 (FGCA).

Under section 18 of the FGCA, the FCA is required to make rules for pension providers to ensure consumers have either received or opted out of receiving Pension Wise guidance when they apply to access or transfer their pension savings.

Comments can be made on CP21/11 until 29 June 2021. The FCA intends to publish a policy statement and final rules in Q4 2021.

Although Parliament has chosen not to make Pension Wise appointments mandatory, there is a desire to increase take-up. The FCA is therefore also interested in hearing other ideas about how to increase the take-up of Pension Wise beyond the proposed rules in CP21/11.

FCA Gabriel replaced by RegData

The FCA has confirmed that RegData, its new data collection platform for gathering regulatory data from firms, has now fully replaced the previous system, Gabriel.

Keydata complaints: Complaints Commissioner recommends FCA action

The Office of the Complaints Commissioner has published final reports FCA00814, FCA00816, FCA00818 and FCA00844, which concern complaints relating to the Financial Services Authority (FSA) and the FCA’s oversight, supervision and regulation of Keydata Investment Services Ltd and related matters. The Complaints Commissioner has upheld some elements of the complaints and, in the light of this, made recommendations including the following:

  • the chair of the FCA board should offer an apology for the elements of the complaints upheld. That is, the acknowledged inadequacy in the FSA’s supervision of Keydata and the consequent delay in commencing effective supervisory and enforcement action, as well as the failings identified in the FCA’s complaints handling function;
  • the FCA should develop a system to ensure that it records whether or not it has received a response to a letter setting out its understanding of a complaint and states in its decision letter whether or not a response has been received and, where it has, states what account has been taken of it and any subsequent changes made to the complaint.
  • the FCA should provide the Commissioner’s final reports on the complaint and the other Keydata complaints to the FCA board and to the chairs of its audit and risk committees.
  • the FCA should ensure that there is robust monitoring of and timely implementation of its transformation programme, which should include and reflect the conclusions reached about Keydata in the final reports. The FCA provided an update on its transformation programme on 20 April 2021; and
  • the FCA should review the function, purpose and adequacy of its deferrals policy to ensure that the complaints team maintains adequate records of complaints made and keeps itself and complainants properly informed about the progress of any regulatory action. It should also ensure that the complaints team is made aware of any immediate or subsequent lessons learned or other reviews and how their conclusions are being implemented during the period that complaints remain deferred.

The FCA has published responses to FCA00814, FCA00816, FCA00818 and FCA00844. In the responses, among other things, the FCA fully accepts the general criticisms of its complaints handling and investigation and its suggested process improvements, as well as agreeing to the above recommendations.

FOS Ombudsman News issue 160

The Financial Ombudsman Service (FOS) has published issue 160 of ombudsman news. In issue 160, among other things, the FOS highlights a new webpage on complaints involving economic and domestic abuse.

FSCS Outlook newsletter

The FSCS has published the latest edition of its Outlook newsletter, which confirms its updated levy forecast for 2021/22. Based on the latest data available, the FSCS has revised its levy forecast from £1.04 billion to £833 million.

Pensions Dashboards Programme: Progress Update Report

The Pensions Dashboards Programme (PDP) has released its third Progress Update Report, including further detail on its timeline for the next six months and the expected timing of key milestones within later programme phases. It intends for this progress report to help data providers to prepare for the staged compulsory connection to the dashboard ecosystem. The latest progress report confirms:

  • the procurement contract process for the principal digital architecture of the dashboard system is underway and is likely to be awarded in the next six months. A separate exercise for identity verification procurement will be undertaken shortly;
  • at the end of May 2021, a staging “Call for Input” will be issued setting out proposals for the staged compulsory connection of pension providers to the dashboard ecosystem. The proposals have been developed with the Department for Work and Pensions (DWP), the FCA and the Pensions Regulator; and
  • the PDP will continue to work with the DWP, the FCA and the Regulator to “support progress on secondary legislation, following the passing of the Pension Schemes Act 2021”.

Digital assets: Law Commission call for evidence

The Law Commission has published a call for evidence on digital assets. The call for evidence seeks views about, and evidence of, the ways in which digital assets are being used, treated and dealt with by market participants. It also seeks views on the potential consequences of digital assets being “possessable”.

The call for evidence closes on 30 July 2021. The Commission will use responses to inform its proposals for law reform which it will put forward in its consultation paper on digital assets.

EU reviews of Settlement Finality Directive and Financial Collateral Directive: FMLC responses

The Financial Markets Law Committee (FMLC) has published its responses to the European Commission’s consultations on reviews of the Settlement Finality Directive and the Financial Collateral Directive, highlighting legal uncertainties.

The Commission’s findings from the reviews will feed into reports to the European Parliament and the Council of the EU.

EU Taxonomy Regulation: European Commission consults on draft Delegated Regulation containing disclosure obligations

Following its July 2020 consultation, the European Commission has published for consultation a draft Delegated Regulation supplementing Article 8 of the Taxonomy Regulation specifying the content and presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of the Non-Financial Reporting Directive (NFRD), concerning environmentally sustainable economic activities and the methodology to comply with that disclosure obligation.

Article 8 of the Taxonomy Regulation requires large corporates to include in their non-financial statement’s information on how and to what extent their activities are associated with environmentally sustainable economic activities. The draft Delegated Regulation:

  • specifies the content and presentation of information to be disclosed by non-financial undertakings, asset managers, credit institutions, investment firms, and insurance and reinsurance undertakings; and
  • sets out common rules relating to key performance indicators.

A set of FAQs explain that Commission adoption is planned by the end of June 2021 and the Delegated Regulation should apply from 1 January 2022.

Details of responses to the Commission’s July 2020 consultation on the legislation are set out in the Commission’s draft document. The Commission also highlights its plans to expand the scope of NFRD requirements through the proposed Corporate Sustainability Reporting Directive.

EU strategy for retail investors: European Commission consultation

The European Commission has published a consultation paper on a retail investment strategy for the EU. The aim of the consultation is to gather views and evidence to help the Commission develop its policies to improve the EU’s existing retail investor protection framework. In particular, the Commission is seeking views on:

  • the limited comparability of similar investment products that are regulated by different legislation and are therefore subject to different disclosure requirements, which prevents individual investors from making informed investment choices. For example, currently, requirements are set out in legislation including the Markets in Financial Instruments Directive, the Insurance Distribution Directive, the PRIIPs Regulation and the UCITS Directive;
  • how to ensure access to fair advice in the light of current inducement practices;
  • how to address the fact that many citizens lack sufficient financial literacy to make good decisions about personal finances;
  • the impact of the increased digitalisation of financial services; and
  • sustainable investing.

Other issues covered by the consultation include reviewing the framework for investor categorisation, suitability and appropriateness assessments, consumer redress and views on the PRIIPs Regulation.

Comments can be made on the consultation paper until 3 August 2021.

EU AML and CFT central database: EBA consultation

The European Banking Authority (EBA) has published a consultation paper on draft regulatory technical standards (RTS) to establish an anti-money laundering (AML) and countering financing of terrorism (CFT) central database. It has also published a summary of the draft data protection impact assessment on the database.

The draft RTS specify the materiality of weaknesses, the type of information collected, the practical implementation of the information collection and the analysis and dissemination of that information. They also set out rules to ensure the effectiveness of the database, the confidentiality of the data contained in the database, as well as how the database will interact with other notifications that competent authorities are required to provide to the EBA and provisions to ensure the protection of personal data.

The EBA is required under Article 9a(1) and (3) of the EBA Regulation to develop two RTS, for establishing and maintaining the database, however due to the complementary nature of those RTS, it has drafted them as a single instrument.

In parallel to this consultation, the EBA is seeking the view of the European Data Protection Supervisor on the draft RTS, in accordance with Article 42(1) of the EU Institutions’ Data Protection Regulation.

The consultation closes on 17 June 2021.

EBA 2020 report on convergence of supervisory practices and 2021 convergence plan

The EBA has published a report on the convergence of supervisory practices across the EU in 2020. In the report, the EBA summarises its observations on the convergence of supervisory practices in 2020 and the main activities undertaken by the EBA to enhance convergence in 2020 and beyond. The EBA’s 2020 convergence plan was set out alongside its 2019 report.

Overall, the report finds that supervisors converged in using the key topics of the EBA 2020 convergence plan in their supervisory work in 2020. However, implementation of the plan was impacted by COVID-19 related reprioritisation of supervisory activities resulting in the key topics receiving different degrees of supervisory attention. Chapter 8 of the report sets out the four key topics identified for the 2021 convergence plan, which were primarily driven by the implications of the COVID-19 pandemic. Specifically, the EBA will review the approach followed by authorities relating to:

  • asset quality and credit risk management;
  • ICT and security risk, and operational resilience;
  • profitability and business model; and
  • capital and liability management.

Chapter 9 of the report sets out the key tasks for supervisory colleges for 2021.


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