Regulatory Update: UK Edition – December 2020

The Financial Conduct Authority (“FCA”) published a press release reminding firms to be ready for the end of the transition period at 11pm on 31 December 2020.  When the transition period ended, a number of changes occurred for the regulatory environment in which firms operate. EU laws no longer apply and passporting ended.

The regulator has published information setting out key issues for firms to consider and focus on. Firms should be aware that:

• the FCA is making use of the Temporary Transitional Power to provide them with more time to comply with a large number of the changes
• there are additional key requirements with which firms need to comply by 1 January 2021
• passporting will end on 31 December 2020: firms that intend to carry on providing services currently covered by a passport will need to ensure they will be able to do so after the end of the transition period

Where a firm currently relies on a passport to provide services to or from the UK and proposes to cease those services at the end of the transition period, they are expected to ensure that the right outcomes are achieved for their customers in a timely manner in order to enable them to make appropriate decisions.

The FCA will continue to provide updates on Brexit via its webpages.

For guidance and support in relation to post-Brexit regulatory changes, please contact us.

The FCA has published its quarterly consultation paper CP20/23 on proposed amendments to the FCA handbook. The changes consulted on include:

• clarifying the FCA’s expectations for temporary, long-term absences
• removing references to collective investment schemes being able to issue bearer certificates
• amending the rules in COBS 4.5.12R to COBS 4.5.15R to narrow the scope of their application to communications which could influence a retail investor’s investment decision
• making changes to the minimum levels of professional indemnity insurance (PII) cover to align current rules with the revised limits
• making changes to the cancellation form in SUP 6 Annex 6 to improve the cancellation application process
• transposing Article 1(16) of the Bank Recovery and Resolution Directive II ((EU) 2019/879) into FCA rules

Comments are invited and should be sent by the 4 February 2021.

The FCA has published a new webpage on complaints data allowing firms to compare with peers on their performance, and for consumers to have additional information on firms regulated by the FCA.

The FCA publishes two different types of data every six months: firm specific data for individual firms and aggregate figures for the industry.

The data includes dashboards containing tables and visualisations providing:

• the number of opened, closed and upheld complaints, in relation to the size of the market or firm
• the amount of redress paid
• the type of firm the complaint was about
• the type of product the complaint was about
• the reason for the complaint

The FCA has published a press release establishing a temporary registration regime to allow existing cryptoasset firms to continue trading.

New businesses (operating after 10 January 2020) are required to obtain full registration with the FCA before conducting business.

The regime is for existing businesses which applied for registration before 16 December 2020 and whose applications are still being assessed. The FCA was not able to assess and register all firms on time due to the complexity and standard of the applications received, as well as restrictions on the FCA’s ability to visit firms as planned, owing to the pandemic.

The FCA advises customers of cryptoasset firms which should have applied to the FCA, but have not done so, to withdraw their crypotassets or money before 10 January 2021

The FCA advises consumers who deal with cryptoasset firms to check if the firm they use is on the FCA’s Register or the Temporary Registration. If they are not, customers should check whether the firms are entitled to carry on business without being registered with the FCA and if the firm is not entitled to carry on business, then consumers were advised to withdraw their cryptoassets and/or money before 10 January 2021. This is because the firm will be operating illegally if it did not cease trading from 10 January 2021.

For advice in relation to registration, please contact us.

The Prudential Regulation Authority (“PRA”) has published a report setting out the findings of its review from the implementation of the Senior Managers & Certification Regime (“SM&CR”). The evaluation aims to assess how the implementation delivers against the regime’s original objectives.

Some observations of the report include:

• Around 5% of senior manager candidates were interviewed by the PRA.
• The PRA has not formally rejected any candidates but in the year to September 2020, firms withdrew 98 applications (during the same period the PRA received 1,360 applications).
• In the 4.5 years to October 2020, the PRA received 16 conduct notifications regarding senior managers, and 104 in respect of certified staff.
• The survey reported generally positive views about the PRA’s policy of asking for specific responsibility for new risks (such as climate change or cryptoassets) to be assigned to individual senior managers. However, the assessment states that ‘in the light of the number of expectations that have been set recently, the PRA should seek to work with the existing set of senior manager expectations wherever possible, to limit growth.’

If you would like a demo of CCL’s SM&CR software solution, please contact us.

The European Securities and Markets Authority (“ESMA”) has published a final report on guidelines on outsourcing to cloud service providers. The purpose of the guideline is to help firms identify, address and monitor the risks that may arise from their arrangements with cloud service providers.

The guideline provides guidance on:

• the risk assessment and due diligence that they should undertake on the cloud service providers
• the governance, organisational and control frameworks that they should put in place to monitor the performance of the providers and how to exit their cloud outsourcing arrangements without undue disruption to their business
• the contractual elements that their cloud outsourcing agreement should include
• the information to be notified to competent authorities

ESMA has updated its Q&As on Over-the-counter (“OTC”) requirements and reporting issues under the European Markets infrastructure Regulation (“EMIR”).

The Q&A clarifies the status after the post Brexit implementation of legacy derivative transactions executed on UK markets. This is relevant for EU counterparties to determine EMIR requirements and for position calculations against clearing thresholds.

The Financial Action Task Force (“FATF”) has published an update on how criminals continue to exploit the pandemic crisis. A selection of cases has been highlighted to demonstrate how the risks have evolved and how authorities have dealt with them. Cases include counterfeiting medical goods, cybercrime, investment fraud, charity fraud and abuse of economic stimulus measures.

The paper confirms the concerns the FATF had during May 2020, including changing financial behaviours and increased financial volatility and economic inflation.

To address these risks, authorities and the private sector need to take on a risk-based approach as required by FATF standards. This will mitigate money laundering and terrorist financing risks without disrupting essential financial services.

For guidance and advice on assessing financial crime risks that your business may be facing, please contact us for a no obligation conversation.

The FCA has fined LJ Financial Planning Ltd £107,200 for providing its customers with unsuitable pension switching and transfer advice and failing to manage its conflicts of interest.

The FCA found the firm had breached Principle 9 of the FCA’s Principle of Businesses as they failed to take reasonable care to ensure the suitability of its advice for their customers who were considering a transfer of their pensions into a SIPP. The customers ought to have been able to rely upon the firm’s judgment in relation to the suitability of this transfer.

The firm has currently paid a redress of £2,668,819.97 to 41 customers impacted by this failing. The total amount invested in this way by the firm was over £6,000,000.

The FCA has fined Barclays Bank UK PLC, Barclays Bank PLC and Clydesdale Financial Services (Barclays) £26 million for failures in relation to the treatment of customers who fell into arrears or experienced financial difficulties.

The firm has pro-actively redressed the affected customers paying over £273 million to 1,500,000 customer accounts since 2017. The FCA had found the firm to have failed to treat customers fairly or to act with due skill, care and diligence. More specifically the firm:

• failed to follow its customers’ contact policies for customers who fell into arrears
• failed to have appropriate conversations with customers to help understand the reasons for the arrears
• failed to properly understand customers’ circumstances, leading it to offer unaffordable, or unsustainable, forbearance solutions

The FCA requires consumer credit firms to take adequate measures to understand customers’ financial difficulties.

Barclays did not dispute the FCA’s findings and agreed to settle the case qualifying for a 30% discount.