The Building Societies Act 1986 (Amendment of Small Business Turnover Limit) Order 2024 has been published, together with an explanatory memorandum. The Order amends section 7(10) and (11) of the Building Societies Act 1986 to increase the turnover limit in a relevant financial year for the definition of a small business in section 7(10) of the Act from £1 million to £6.5 million. It also makes a corresponding amendment to the reference to the equivalent limit in any other currency in subsection (11)(c). Under section 7(1) and (2) of the Building Societies Act, subject to some exclusions, building societies are required to raise at least 50 per cent of their funding from members' deposits; the rest can be raised from other sources, known as wholesale funding. Deposits by small businesses with a society, or any subsidiary undertaking of the society, are excluded from the wholesale funding limit by section 7(3)(aa). By amending the definition of a small business in section 7(10) of the Building Societies Act, the Order will exclude a larger range of deposits with building societies by small businesses from the funding limit, thereby providing building societies with greater flexibility in their funding sources. This amendment will also help building societies compete more effectively with ring-fenced retail banks for deposits from small businesses. The proposed new small business turnover limit of £6.5 million is already used to classify the smaller businesses whose deposits must be held within the ringfence. The Order comes into force on November 4, 2024.

The draft Consumer Composite Investments (Designated Activities) Regulations 2024 have been published, together with an explanatory memorandum. The Regulations establish a proposed new legislative framework for the regulation of Consumer Composite Investments, formerly Packaged Retail and Insurance-based Investment Products. They replace the following assimilated law relating to PRIIPs: (i) the PRIIPs Regulation; (ii) the PRIIPs Regulations 2017; (iii) Commission Delegated Regulation (EU) 2017/653; and (iv) Commission Delegated Regulation (EU) 2016/1904. The Regulations take into account feedback that HM Treasury received on the original version of the draft statutory instrument, which was published for technical comments in November 2023.

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The U.K. Financial Conduct Authority has published a Dear CEO Letter setting out its supervisory strategy for financial advisers and investment intermediaries. The FCA's priorities over the next two years are reducing and preventing serious harm to consumers who rely on financial advice, monitoring and testing higher industry standards under the Consumer Duty, and enabling more consumers to pursue their financial objectives through the Advice Guidance Boundary Review.

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The draft Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024 have been published, together with an explanatory memorandum. The Regulations make transitional amendments to the onshored Packaged Retail and Insurance-based Investment Products Regulation and Commission Delegated Regulation (EU) 2017/565 (the MiFID Org Regulation), relating to cost disclosure requirements for U.K.-listed closed-ended funds (or "investment trusts"). The single aggregate costs figure currently being supplied to clients is not deemed to give an accurate representation of the actual cost of investment in shares in an investment trust. The draft Regulations therefore exclude investment trusts from the scope of the PRIIPs Regulation, meaning investment trusts (and anyone advising on or selling shares in them) will not be obliged to produce a Key Information Document. The draft Regulations also exclude costs of manufacturing and managing shares in a U.K.-listed investment trust from the aggregated cost disclosure requirements in the MiFID Org Regulation. The Regulations will come into force the day after the day on which they are made.

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The Financial Conduct Authority has updated its statement on forbearance in relation to investment trust disclosure requirements under the U.K.'s current Packaged Retail and Insurance-Based Investment Products Regulation. The Government announced earlier in September its intention to exempt listed investment trusts from the PRIIPs Regulation along with a statement on reforms to the U.K. retail disclosure regime through the introduction of Consumer Composite Investments regime. At the same time, the FCA announced it would immediately apply forbearance until the legislation takes effect. We discussed the earlier announcements by HM Treasury and the FCA in "UK Announces Final Reforms to Financial Services Retail Disclosure Requirements".

The updated forbearance statement provides great clarity on the implication of the forbearance as regards compliance by firms with other rules and regulations, including the Consumer Duty and communicating to consumers. The FCA confirms that the forbearance applies along the distribution chain to any firm carrying on business relating to the relevant investment trusts, including manufacturing, distribution or marketing. The FCA states that firms across the distribution chain will need to consider what approach will deliver good outcomes for their retail clients, including the product information needed to support retail investors.

The FCA expects firms in the distribution chain for securities issued by investment trusts to work together to determine and share the required information to enable the continued distribution of these products, in compliance with their more general obligations towards retail investors, in particular under the Consumer Duty.

Post Brexit, the U.K. Government and Financial Conduct Authority are committed to the ongoing reform programme to reinvigorate the U.K.'s capital markets. As part of this, the Government and FCA are committed to replacing EU-inherited consumer cost disclosure regulation with a new framework tailored to U.K. markets and firms, and removing the legal uncertainties that arose from the EU Packaged Retail and Insurance-Based Investment Products Regulation, particularly as to the scope of instruments captured. HM Treasury and the FCA have announced final plans to reform U.K. retail disclosure rules. HM Treasury plans to replace the EU-inherited PRIIPs Regulation with a new framework for Consumer Composite Investments (CCIs). HM Treasury aims to lay legislation as soon as possible to provide the FCA with the appropriate powers to deliver this reform. The new CCI regime will deliver more tailored and flexible rules which will address concerns across industry with current disclosure requirements, including for costs.

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The Payment Systems Authority has published a consultation paper on a draft statement of policy on its cost benefit analysis (CBA) framework. The draft statement builds on and replaces the draft CBA framework published earlier this year, and explains the PSR's approach to CBAs and how the CBA framework in this document helps the PSR develop policies with a positive impact. The draft statement of policy also:

• Sets out the purposes of the PSR's CBAs and how it sees them being applied in the most useful way.
• Explains the typical circumstances in which the PSR develops and publishes CBAs.
• Presents the scope and high-level methodology of the PSR's CBAs, including the questions it tries to answer and how the PSR goes about answering them.
• Describes how the PSR develops CBAs.

The deadline for comments is November 3, 2024. The PSR aims to publish its final statement of policy at the end of the year.

The Financial Conduct Authority has published its findings from the first year of the implementation of the price and value outcome under the Consumer Duty. The specific focus of the price and value outcome rules is to ensure that the price a customer pays for a product or service is reasonable compared to the overall benefits they receive. Firms are expected to think about price when assessing fair value, but it should not be the sole consideration. The FCA rules do not set prices, require prices to be low or require firms to charge the same as competitors. However, the FCA requires firms to assess whether they are providing fair value and act if they are not.

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The Financial Conduct Authority has published an update on progress in the cash savings market. This update provides further detail on how the cash savings market has developed since the FCA's update in December 2023. Specifically, the update considers the progress that has been made in respect of the points identified by the FCA in its July 2023 Review. In this update, the FCA identifies eight FCA-specific actions that should be helpful for all firms which offer cash savings products and highlights areas where it expects to see further improvements.

Since publication of the review, the FCA has seen improvements in both the rates available to savers and the volume and timing of firms' communications to savings customers. However, despite these improvements, the review of fair value assessments has shown that many firms have found the assessment of value challenging and the largest firms generally continue to pay below the market average for standard easy access products. The FCA reminds firms that they should be carefully reviewing its good and poor practice examples. The FCA also expects firms to improve fair value assessments over time and the FCA will take appropriate action where it considers this is not the case.

The FCA will continue to closely monitor firms' future savings rate changes and will expect a clear explanation where it identifies that a firm has changed its savings rates significantly more quickly and fully in response to interest rate reductions, compared to previous interest rate increases. The FCA explains that while it will continue to monitor how well the savings market is operating, it does not anticipate providing further savings updates unless it identifies further market-wide concerns not addressed within this publication.

The U.K. Financial Conduct Authority has published a consultation paper on a new regulatory reporting return for consumer credit firms engaging in any one, or more, of the regulated activities of credit broking, providing credit information services, debt adjusting and debt counselling services. If introduced, the new return will replace some of the existing returns for these activities. The return will include the following five mandatory sections of questions for all firms in scope: (i) permissions – regarding the regulated activities firms have undertaken in the past 12 months; (ii) business model – regarding the financial products, goods, and/or services that firms are providing; (iii) marketing – regarding the channels firms are using to target consumers; (iv) revenue – total revenue from credit-related activities and non-credit related activities; and (v) employees – regarding the number of employees and incentive and remuneration arrangements. Firms will then be presented tailored questions specific to the relevant permissions they hold. The FCA hopes to receive more detailed, accurate, and consistent data from firms through the proposed return, as well as simplifying the experience for firms. This should enable the FCA to accurately identify how firms are using their permissions so that it can better understand which firms are engaging in activities with a higher risk of harm to consumers and how these risks are changing over time. The data will also help the FCA to identify earlier firms that aren't using their permissions and no longer require authorisation. The deadline for comments is October 31, 2024. The FCA intends to publish a final policy statement in Spring 2025. The FCA proposes that the first reporting period will cover January 1 to December 31, 2025. There will be no change to the reporting frequency for firms.

The U.K. Financial Conduct Authority has published a Call for Input on the potential for simplification of existing FCA retail conduct rules and guidance in light of the Consumer Duty. The Consumer Duty was required to be fully implemented by firms by July 31, 2024. The Call for Input responds to concerns voiced by industry about the length and complexity of the FCA's rules and guidance, which in some cases have been found to overlap with the Consumer Duty.

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The Financial Conduct Authority has published a policy statement on the final rules and guidance for a new regulatory regime to support access to cash for the consumers and businesses that rely on it, along with a research note setting out empirical analysis of characteristics associated with cash reliance in the U.K. The policy statement also summarizes the responses the FCA received to its December consultation paper (CP23/29). Overall, most respondents supported the need for a new regulatory regime to protect access to cash. However, on certain issues, there were diverging views between consumer groups and different industry respondents, and the FCA received some challenge on specific rules.

In response to the feedback, the FCA has made changes to the rules it consulted on, including extending the period for banks and building societies to carry out cash access assessments and giving local communities more time to make their case. Firms will also be able to review the provision of identified cash services after two years. In addition, the FCA is providing an eight-week implementation period between publishing the policy statement and the new regime coming into force on September 18, 2024. This is designed to give designated entities time to familiarize themselves with the rules and establish the necessary processes to comply with them.

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The European Supervisory Authorities (the European Securities and Markets Authority, European Banking Authority and European Insurance and Occupational Pension Schemes Authority) have updated their Q&As on the EU Packaged Retail and Insurance-based Investment Products Regulation Key Information Document. A new Q&A has been added, under the heading "General topics", on whether foreign exchange forwards fall within the scope of the PRIIPs Regulation.

The European Banking Authority has published amended guidelines on arrears and foreclosure following the changes introduced in the Mortgage Credit Directive. The amendments are as follows:

• deletion of guideline 4 on the resolution process between creditor and borrower. This reflects the amendment made to Article 28 by the Credit Servicers Directive, which inserted wording into new Article 28(1) that was practically identical to guideline 4. The EBA has also made consequential changes to guideline 5;
• deletion of the material in the guidelines concerning the regime for national competent authorities designated as competent under the MCD that are not also national competent authorities under the EBA Regulation. This regime is no longer needed following amendments to the definition of "competent authorities" in the EBA Regulation made by Regulation (EU) 2019/2175; and
• a new guideline 6 on outsourcing that cross-refers to the EBA guidelines on outsourcing arrangements.

The amendments to the guidelines will apply from two months after publication of the translations into the EU official languages.

The Financial Conduct Authority has published guidance on the challenges and expectations for principal firms with overseas appointed representatives. The AR regime allows authorized firms to appoint representatives to conduct certain regulated activities on their behalf. The FCA updated its AR rules and expectations at the end of 2022, which included introducing a requirement for principal firms to report additional information about the business conducted by their ARs and amending its rules and guidance on its expectations of principals and their responsibilities, such as the expectation that principals manage their arrangements with ARs so that there are no conflicts of interest and enhance their monitoring of a delegated task or function, and to specify that the principals' activities should not result in undue risk of harm to consumers or market integrity. The new rules also require principals annually to assess the fitness and propriety and competency and capability of individuals at ARs.

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The Financial Conduct Authority has published a research note setting out the outcomes of an experiment to investigate the effect of digital engagement practices on trading behavior. The FCA tested an experimental trading app platform with over 9,000 consumers and found that DEPs, such as push notifications and prize draws, can increase trading frequency and risk taking. These features are able to attract consumer attention while conveying no additional information which could improve trading. The FCA has previously warned stock trading apps to review game-like design features in 2022 ahead of the Consumer Duty's implementation. In its press release, the FCA has confirmed that with the usage and popularity of trading apps growing, it will be keeping them under review to ensure customers can make investment decisions that suit their needs.

The Council of the European Union has announced that it has agreed its negotiating position on the retail investment package and published the relevant texts. The package consists of an amending Directive, known as the Omnibus Directive, which revises existing rules set out in the Markets in Financial Instruments II package, the Insurance Distribution Directive, the Undertakings for the Collective Investment in Transferable Securities Directive, the Alternative Investment Fund Managers Directive, and Solvency II, as well as an amending Regulation, which revises the Packaged Retail and Insurance-based Investment Products Regulation.

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The Financial Ombudsman Service has announced that its proactive settlement scheme will continue. The FOS explains that over the last couple of years, it has trialed a new way to help financial businesses and their customers to resolve complaints more quickly. By using "proactive settlement," financial businesses can make an offer to resolve a complaint before the FOS carries out a full investigation. Following the trial and reviewing feedback from participants, the FOS identified a few ways to improve the process.

From June 24, 2024, the FOS will introduce the following changes:

• For the proactive settlement process to apply, firms must make an offer within 14 days from when the case moves to investigation.
• When the FOS receives an offer, it will assess whether it meets the scheme criteria. If not, the FOS will let the business know why and that it will be investigating the case in the normal way.
• When the FOS communicates the offer to the customer, it will offer them guidance to help them decide whether to accept it.

The FOS has also changed how it works internally to embed the process permanently and ensure it can continue to send offers on to customers promptly. The FOS also updated its webpage on how it handles complaints and its guide on the proactive settlement scheme criteria.

The Financial Conduct Authority has published a new webpage on Mortgage Charter Uptake data. The webpage sets out the latest uptake data from firms who have signed the Government's Mortgage Charter. The Charter was introduced in June 2023 and contains commitments, over and above FCA requirements, made by mortgage lenders. There are 49 signatories, representing around 90% of the mortgage market. Key findings from the data include: (i) data suggesting that a minimum of around 1.1 million mortgages benefited from one or more of the options set out in the Charter, whether explicitly or through a business-as-usual channel; (ii) around 113,000 mortgages have temporarily reduced monthly payments via the new FCA rules; (iii) between July 2023 and April 2024, the monthly payments on around 159,000 mortgages were reduced as people switched to temporarily paying interest-only or extended their mortgage term; and (iv) 91 properties were repossessed within 12 months of missing the first payment; however, firms reported that these were for customer-driven reasons, for example, voluntary possessions or abandoned/vacant properties.

While it continues to ask firms to report on Charter uptake, the FCA plans to continue publishing the data quarterly. The FCA will continue to closely monitor the mortgage market, including through market and consumer level data and firm engagement, using the data on the uptake of the Charter to understand how it has been used and inform its policy and supervisory approach.

The European Securities and Markets Authority has published a public statement on the use of AI in the provision of retail investment services. When using AI, ESMA expects firms to comply with relevant Markets in Financial Instruments package requirements, particularly when it comes to organizational aspects, conduct of business, and their regulatory obligation to act in the best interest of the client.

ESMA reminds firms that although AI technologies offer potential benefits to firms and clients, they also pose inherent risks, such as: (i) algorithmic biases and data quality issues; (ii) opaque decision-making by a firm's staff members; (iii) overreliance on AI by both firms and clients for decision-making; and (iv) privacy and security concerns linked to the collection, storage, and processing of the large amount of data needed by AI systems.

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The European Banking Authority has published a report on the issuance of virtual IBANs (vIBANs). The report summarizes the EBA's observations from its fact-finding exercise on the issuance and use by payment service providers of vIBANs. It highlights risks and challenges that vIBANs may present to consumers, financial institutions, national competent authorities and to the integrity of the overall EU financial system, based on the six most common vIBAN use cases in the EU. Uses of vIBANs include the automation of payment reconciliation and overcoming IBAN discrimination by associating the vIBAN with a particular Member State's IBAN country code.

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HM Treasury has designated a number of firms for the provision of cash access services, including setting the geographic baselines. The Financial Services and Markets Act 2023 introduced various measures to protect access to cash (e.g., via ATMs) for those reliant on it, in particular the elderly and vulnerable. In addition, HMT published the decision notices for those designated as operators of cash access coordination arrangements (i.e., firms which coordinate the provision of cash access services by multiple providers). Designated firms must ensure reasonable access to withdrawal and deposit facilities for individuals and reasonable access to deposit facilities for SMEs. The FCA is responsible for supervising the designated firms and can impose requirements to ensure that designated firms preserve reasonable cash access services. All the designations came into force on May 24, 2024.

The Bank of England oversees the wholesale cash industry to ensure it continues to operate effectively and remains sustainable and resilient. The wholesale cash system consists of a select group of key market participants which facilitate the production and distribution of banknotes and coins.

HM Treasury has published a policy note and a draft statutory instrument—The Payment Services and Payment Accounts (Contract Terminations) (Amendment) Regulations 2024—on strengthening requirements in the Payment Services Regulations 2017 on contract terminations. These policy changes follow the furore over the de-banking by NatWest Bank of the prominent U.K. politician Nigel Farage, which led to the resignation of its CEO.

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HM Treasury has published a policy note and a draft statutory instrument—The Payment Services (Amendment) Regulations 2024—on a risk-based approach to payments to mitigate against authorized push payment fraud. HM Treasury confirms its policy for allowing payment service providers to delay payments processing when there are reasonable grounds to suspect fraud or dishonesty. The draft statutory instrument amends the Payment Services Regulations 2017 to allow PSPs to delay executing an outbound payment transaction by up to four business days from receipt of the order where there are reasonable grounds to suspect fraud or dishonesty by someone other than the payer and the payer's PSP requires the time to contact the payer (its customer) or a third party (e.g., law enforcement) to determine whether to execute the payment.

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The Financial Services and Markets Act 2023 established a framework for the regulation of third parties who provide significant services to financial institutions, giving HM Treasury power to designate an entity as a "critical third party" if its failure would pose financial stability or confidence risk to the U.K. We discussed this in our client note, "The U.K.'s New Regime for Critical Third Party Supervision". HM Treasury published on March 21, 2024, its policy approach to designation of critical third parties.

When designating CTPs, HM Treasury is required by the FSM Act 2023 to consider the materiality of the third party's services to the delivery of essential activities, services or operations in the financial sector as well as the number and type of licensed firms to which the services are provided. This is a process where HM Treasury carries out the designation; a "critical third party" is not a status that firms would apply for. The policy paper sets out the process for designation, including receipt of a recommendation from one of the financial regulators and assessment of the basis for making a designation decision. HM Treasury discusses how it will engage with the relevant third-party service provider and the regulators, including communicating its decision. The process for de-designating a critical third party is also described.

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On January 29, 2024, the Public Offers and Admissions to Trading Regulations 2024 (SI 2024/105) were published. The Regulations implement the new Public Offers and Admission to Trading Regime, part of the new designated activities regime, and revise the existing prospectus regime inherited from the EU that currently sits in the U.K. Prospectus Regulation. The designated activities regime (DAR) is a new U.K. concept to give the Financial Conduct Authority rulemaking powers over financial sector activities, such as public offers and listing, which are not necessarily carried out by regulated firms such as banks (we discussed the DAR in our client note, "A Boost For UK Financial Services"). The new Regulations introduce a general prohibition on public offers of securities, coupled with a collection of exceptions from this prohibition. Many of the existing exemptions in the U.K. Prospectus Regulation, such as offers solely to qualified investors and offers made to fewer than 150 persons, are retained. Certain provisions, such as those establishing the new designated activities and provisions enabling the FCA to make rules, came into force on January 30, 2024. Most of the other provisions will enter into force once the U.K. Prospectus Regulation is revoked using powers under the Financial Services and Markets Act 2023. The FCA has engaged with stakeholders regarding many of the changes that will be housed in its rulebook in the future. It is expected to publish a consultation paper in Summer 2024 on its detailed proposals.

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The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023 implements the governments' policy to reform the high-net-worth and sophisticated investor exemptions under the financial promotions regime. The changes are brought in to mitigate the misuse of the exemptions by some firms marketing inappropriate products to ordinary retail customers and to update certain aspects that were introduced about 20 years ago. The Treasury Select Committee's report on the failure of London Capital & Finance recommended that the exemptions be rethought to ensure greater consumer protection.

The Financial Services and Markets Act 2000 restricts the communication of an "invitation or inducement to engage in investment activity" either in the U.K. or in a way that could have an effect in the U.K., such that these can be made only by regulated firms, subject to certain exemptions. The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 provides for exemptions from the restriction, including exemptions for financial promotions of unlisted companies to be made to high-net-worth individuals and self-certified sophisticated investors. The Order makes several changes to the FPO exemptions, including increasing the financial thresholds for high-net-worth individuals, amending the eligibility criteria for the self-certified sophisticated investor exemption and requiring businesses to provide details of themselves in communications made in reliance on the exemptions.

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Following its July response to its consultation, HM Treasury has published a draft of the statutory instrument that will implement the U.K.'s revised retail disclosure framework. The draft Consumer Composite Investments (Designated Activities) Regulations 2024 will replace the existing onshored Packaged Retail and Insurance-Based Investment Products Regulation which contains rules on disclosures for complex retail investment and insurance products. The PRIIPs Regulation is often cited as an example sine qua non of EU legislation with unintended consequences. In particular, it is aimed at packaged retail products, such as FTSE-trackers and insurance-wrapped investments, but was drafted so as to impose unintended onerous and unnecessary disclosure rules on bonds and other standardized securities, effectively foreclosing retail activity in a broad range of "vanilla" investments in the EU (and, when it was in the EU, the U.K.), as well as largely frustrating the EU's "capital markets union" project. These issues are discussed in our client note, "PRIIPS and Capital Markets Transactions: A Better Way Forward?". Replacing the PRIIPs Regulation was therefore identified as a post-Brexit U.K. priority under HM Treasury's Smarter Regulatory Framework. The new rules will allow for a revised U.K. retail disclosure regime that is applicable only to more complex products, suitable to the U.K.'s capital markets and encourages informed retail investor participation in those markets.

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HM Treasury has published the Future of Payments Review report, setting out the Review's recommendations for HM Treasury, the regulators and industry that aim to improve the U.K.'s existing payments landscape for consumers. The report follows the July 2023 call for evidence. The main recommendation is for the government to develop a National Payments Vision and Strategy, which will provide high-level guidance on priorities and define guiding principles on safety, simplification, coordination, responsiveness, inclusivity and accountability.

The Review makes several other recommendations.

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HM Treasury has published a consultation response and draft statutory instrument on reforms to the high net worth and sophisticated investor exemptions under the financial promotions regime. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for UK Financial Services") made amendments to the Financial Promotion Restriction, banning authorized firms from approving the financial promotions of unauthorized firms unless they have received approval from the FCA to have the prohibition removed in whole or in part. The gateway will apply from February 7, 2024. However, the restriction does not apply where exemptions exist, such as those for high net worth or sophisticated investors.

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HM Treasury has published a response to its consultation on cryptoasset regulation, setting out its final proposals for the U.K.'s cryptoasset regulatory regime. The U.K. plans to make cryptoassets a new category of "specified investment" under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and regulate certain activities conducted in relation to them. Under the new regime:

• Firms conducting relevant activities and offering their services in or to the U.K. by way of business would need to apply for authorization by the U.K. Financial Conduct Authority. The relevant activities are: issuing or admitting cryptoassets to trading; operating cryptoasset trading venues; dealing as principal or arranging deals in cryptoassets; operating a cryptoasset lending platform; and safeguarding or safeguarding and administering cryptoassets (or arranging the same). Overseas firms offering their services into the U.K. may need to obtain FCA permission (although HM Treasury envisages equivalence/deference-type arrangements in the future and is considering alternative approaches to full authorization in the interim).
• Firms that are already authorized to conduct other activities will need to apply for a Variation of Permission if they wish to conduct regulated cryptoasset activities.
• Authorization under the new regime will not be automatically granted to cryptoasset firms registered with the U.K. Financial Conduct Authority for money laundering purposes, although the FCA will consider applicants' regulatory history when determining authorization applications.

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HM Treasury has published a Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins, setting out the next steps for the implementation of stablecoin regulation in the U.K. Fiat-backed stablecoins are (under HM Treasury's proposed definition) those which seek or purport to maintain a stable value by reference to a fiat currency, and hold that currency, in whole or in part, as backing.

The Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services) empowers HM Treasury to bring certain activities related to the use of "digital settlement assets" (which may include fiat-backed stablecoins), within the regulatory perimeter and to establish a regime for the supervision of stablecoin issuers. DSAs are defined broadly under the FSM Act as digital assets that can be used for payment, can be transferred, stored or traded electronically and use technology (e.g., distributed ledger technology) to record or store data. HM Treasury plans to bring certain activities related to fiat-backed stablecoins within the scope of regulation ahead of other types of cryptoasset, due to their potential to become a widespread means of retail payment.

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HM Treasury has published a further policy statement on payment service contract termination rule changes, setting out its approach to implementation, timing and next steps. This latest policy statement follows the government's July policy statement in which it confirmed that it would bring forward legislation to enhance the requirements governing payment account terminations. This issue has become topical in light of the "de-banking" of higher risk or less profitable clients by several institutions and recent scandals in the U.K. involving account terminations of some politicians. The main changes being brought forward are:

• A requirement for payment account providers to provide clear and tailored explanatory reasons to an account user for the termination. The requirement would not apply where it would be unlawful to provide such information, for example, under U.K. financial crime and anti-money laundering legislation.
• A 90-day notice period before a payment account is terminated by a provider, subject to situations where there is a serious and uncorrected breach by the payment user of the terms applying to the account. It would also be clarified that reasons such as brand protection would not be sufficient justification for a shorter notice period.

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The U.K. Financial Conduct Authority published a Policy Statement on 12 September 2023 setting out how it intends to implement the new regulatory gateway for financial promotions. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services") amends the Financial Promotion Restriction, banning authorized firms from approving financial promotions of unauthorized firms unless they have received approval from the FCA to have the prohibition removed in whole or part. The gateway will apply from February 7, 2024, with authorized firms able to apply to the FCA for permission from November 6, 2023 until February 6, 2024. There are exemptions from the gateway, entering into force on September 27, 2023, which permit the approval of financial promotions by authorized firms, for communication by unauthorized firms, in certain circumstances.

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The U.K. Financial Conduct Authority has launched a review of the treatment by regulated financial services firms of Politically Exposed Persons based in the U.K. Firms are currently obliged, under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations, to conduct enhanced due diligence when dealing with PEPs. The FCA has existing Guidance on the treatment of PEPs for these purposes, which makes clear (amongst other things) that firms should adopt a proportionate and risk-based approach to the application of the MLRs. The FCA has been mandated to review this guidance under the Financial Services and Markets Act 2023, including an investigation into how firms are applying the guidance and consideration as to whether any amendments are needed. We discuss this mandate and the FSMA 2023 more generally in our client note, A Boost for UK Financial Services: The UK Financial Services and Markets Act 2023. 

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On September 7, 2023, the International Organisation of Securities Commissions launched a consultation on proposed policy recommendations on market integrity and investor protection issues in decentralized finance (DeFi). IOSCO is proposing that the final recommendations, which it aims to finalize before the end of 2023, will help IOSCO members to establish compliant markets. Responses to the consultation may be submitted until October 19, 2023.

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The U.K. Financial Conduct Authority announced on September 7, 2023, that firms may avail themselves of a delay to the application of some rules applying to cryptoasset financial promotions. The FCA published rules for cryptoasset financial promotions in June this year, which will apply from October 8, 2023 (the same date that the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 brings the promotion of cryptoassets within scope of the U.K. regulatory regime). The reprieve is available, on application, to:

• firms registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 that intend to communicate cryptoasset financial promotions; and
• authorized firms that intend to communicate or approve cryptoasset financial promotions.

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The Financial Services and Markets Act 2000 (Exemptions from Financial Promotion General Requirement) Regulations 2023, which come into force on September 27, 2023, set out the exemptions to the new U.K. regulatory gateway for the approval by authorized firms of financial promotions of unauthorized firms. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023") amends the Financial Promotion Restriction, banning authorized firms from approving financial promotions of unauthorized firms unless they have received approval from the Financial Conduct Authority to have the prohibition removed in whole or part. The prohibition will apply from February 7, 2024, according to the Financial Services and Markets Act 2023 (Commencement No. 2 and Transitional Provisions) Regulations 2023, which also set out the following timeline for the new regime to come into effect:

• September 6, 2023: provisions will apply that enable the FCA to give directions and guidance and to make rules.
• November 6, 2023: provisions will apply that allow the FCA to receive (but not determine) applications to approve financial promotions that are made during the application period (November 6, 2023 to February 6, 2024).

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HM Treasury has published a response to its consultation on the future of U.K. retail disclosures. HM Treasury's consultation (which we discussed in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services") identified various problems with the Packaged Retail and Insurance-Based Investment Products Regulation which currently governs disclosures for complex retail investment products. These included that the PRIIPs regime could be overly prescriptive and potentially misleading in its attempts to make PRIIPs products comparable and that the rules were spread across a mixture of legislation and regulatory rules which led to a complex environment for firms.

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The U.K. Financial Conduct Authority, Prudential Regulation Authority and Bank of England have jointly published their revised Complaints Scheme, which governs how complaints against the U.K. regulators should be made and handled. The changes include:

• The introduction of specific discretionary compensation bands for non-financial loss arising from the regulators' actions or inactions. The bands range from £100 for a relatively low level of stress or inconvenience, up to over £2,500 in exceptional circumstances, for example, where the consequences of the regulators' failings are particularly severe.

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HM Treasury has published a Call for Input on the U.K. Future of Payments Review, an investigation into how future payments are likely to be made and how the U.K. can offer world-leading retail payments. The review is focused on consumer needs — specifically, those of individuals and businesses processing retail payments. Input is sought on the following issues:

1. What are the most important consumer retail payment journeys, both today and in the next five years?
2. How does the experience of these journeys by U.K. consumers (individuals and businesses) compare with those of other leading countries?
3. How likely are the existing plans and initiatives across the payments landscape to deliver world-leading payment journeys for U.K. consumers?

The Call for Input is open until September 1, 2023.

On June 7, 2023, the U.K. government published a statutory instrument (the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (FP (Amendment) Order) and related explanatory memorandum) amending the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO). The amendments broadly reflect HM Treasury's final proposals on cryptoasset financial promotions, published in January 2022. The expanded financial promotions regime will apply from October 8, 2023, an implementation period of four months as opposed to the originally proposed six, given recent market volatility. The new regime will capture promotions for "qualifying cryptoassets" with respect to the following (existing) controlled activities:

• dealing in securities and contractually based investments;
• arranging deals in investments;
• managing investments;
• advising on investments; and
• agreeing to carry on any of the above activities.

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On June 8, 2023, the U.K. Financial Conduct Authority published its final Policy Statement setting out detailed rules for the U.K.'s cryptoasset financial promotions regime. The Policy Statement follows the publication on June 7, 2023 of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (FP (Amendment) Order), which will bring the promotion of certain cryptoasset activities within the U.K.'s financial promotions regime. The FCA's rules will apply from October 8, 2023 (the same date that cryptoassets are brought within the financial promotions regime under the FP (Amendment) Order).

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On May 24, 2023, the European Commission published a Retail Investment Strategy package aimed at enhancing retail investor protections across the EU and encouraging participation in the EU capital markets. The package comprises an amending Directive, which makes changes across a range of EU legislation, and an amending Regulation, which revises the EU's Packaged Retail and Insurance-based Investment Products Regulation.

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The U.K. government has published its much-anticipated proposals for regulating the cryptoasset industry. These proposals, currently in the form of a consultation, will see many (but not all) cryptoasset-related activities being brought within the regulatory perimeter for financial services in the U.K. The consultation is extensive, covering the main elements of a new regime for cryptoasset issuance and disclosure, trading, custody and lending, as well as a proposed market abuse framework for cryptoassets.

The consultation closes on 30 April 2023. The government will publish its response once it has analysed the feedback, which will be followed by legislation being put before Parliament. The Financial Conduct Authority will consult on its proposed detailed rules once the legislation has been published.

The government has also announced a significant change to its earlier communicated approach to the regulation of cryptoasset financial promotions. Previously, such promotions could be issued only by regulated financial institutions. The changes will mean that those cryptoasset businesses that are registered with the FCA for the purposes of anti-money laundering compliance will be able to communicate their own financial promotions in relation to qualifying cryptoassets.

We discuss these proposals in detail in our client note, "UK Proposals for Cryptoasset Regulation".

Following its 2021 Discussion Paper, the FCA has published a consultation paper setting out proposals to enhance sustainability disclosure and labeling requirements for sustainability-linked investment products. The majority of the rules will apply only to fund and asset managers, although the FCA is considering expanding this to FCA-regulated asset owners in relation to their investment products and for certain rules to apply to distributors of investment products to U.K. retail investors. The proposals are directed at fund and asset managers and portfolio managers based in the U.K. The FCA will consult separately on how these proposals apply to overseas fund and asset managers. The FCA already has climate-related disclosure rules for premium listed issuers, as well as rules for standard listed issuers and certain FCA-regulated firms (asset managers, life insurers, pure reinsurers and FCA-regulated pension providers).

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The U.K. Financial Conduct Authority has published a consultation paper on proposed guidance on the regulatory perimeter for multilateral trading facilities and on possible future changes to smaller trading venues' regulatory obligations. The FCA's consultation follows proposals made in HM Treasury's July 2021 U.K. Wholesale Markets Review, the response to which was published in March 2022. Responses to the FCA's consultation should be submitted by November 11, 2022. The FCA plans to finalize the draft guidance and publish a policy statement in Q2 2023.

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The U.K. Financial Conduct Authority has issued a warning to Buy Now Pay Later firms about financial promotions that potentially breach the FCA's rules. The Financial Services and Markets Act 2000 prohibits the communication of an "invitation or inducement to engage in investment activity" either in the U.K. or in a way that could have an effect in the U.K. Firms authorized in the U.K. are exempt from this Financial Promotion Restriction; however, they must still comply with the rules governing financial promotions when making any promotion or when approving a financial promotion of an unauthorized firm. All financial promotions must be fair, clear and not misleading.

The FCA is concerned about the promotion of unregulated BNPL agreements where the advert does not include a warning about the risks involved in BNPL products, and that only refer to the benefits. These financial promotions do not satisfy the FCA's rule that a balanced view must be included in all financial promotions (i.e., it must cover the benefits and the risks). The FCA is also concerned that the promotion of certain unregulated BNPL products is being carried out by unauthorized firms that have not sought or obtained the approval of their financial promotion by an authorized firm.

The FCA has written to the CEOs of several BNPL firms raising these concerns and warning the firms that it will act if corrective steps are not taken.

Earlier this year, the FCA secured changes to the contracts of four Buy Now, Pay Later firms —Clearypay, Klarna, Laybuy and Openpay. Certain terms, including contract cancellations, continuous payment authorities and right of set-off terms, were fairer and easier to understand.

Following the introduction of a regulatory framework for a new type of authorized open-ended fund called the long-term asset fund, the U.K. Financial Conduct Authority has opened a consultation on extending the LTAF to more retail investors. The LTAF enables investors to invest in long term illiquid assets through an authorized fund vehicle. The LTAF may currently only be marketed to professional investors, certified and self-certified sophisticated investors, and certified high net worth individuals. The FCA is proposing to categorize the LTAF as a Restricted Mass Market Investment as per its recent Policy Statement on revising the financial promotion rules for high-risk investments. Opening the LTAF to more retail investors would be accompanied by additional investor protections rules, such as those that apply to other retail authorized funds. Responses to the consultation may be submitted by October 10, 2022. The FCA intends to publish a policy statement and final rules early in 2023.

The U.K. Financial Conduct Authority has published its final Policy Statement and Rules on financial promotions of high-risk investments and firms approving financial promotions. Many of these changes address or build upon recommendations of the Gloster Report or are otherwise related to the fallout from the London Capital & Finance plc scandal. The rules on risk warnings for financial promotions of high-risk investments will apply from December 1, 2022, and all other rules will apply from February 1, 2023. The FCA's related guidance (which is included in Annex 2 of the Policy Statement) will also apply from February 2023.

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