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Financial Regulatory Developments Focus
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The following posts provide a snapshot of selected UK, EU and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.

  • European Supervisory Authorities update Q&As on EU Packaged Retail and Insurance-Based Investment Products Regulation Key Information Document
    June 28, 2024

    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.
  • European Banking Authority Amends Guidelines on Arrears and Foreclosure Following Changes to Mortgage Credit Directive
    June 28, 2024

    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.
  • UK Financial Conduct Authority Publishes Expectations for Principals of Overseas Appointed Representatives
    June 27, 2024

    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.

    Read more.
  • UK Financial Conduct Authority Research on Digital Engagement Practices in Trading Apps
    June 20, 2024

    The Financial Conduct Authority has published a research note setting out the outcomes of an experiment to investigate the effect of digital engagement practices (DEPs) 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.
  • Council of the European Union Agrees Negotiating Mandate on Retail Investment Package
    June 12, 2024

    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.

    Read more.
  • Financial Ombudsman Service Announces Continuation of Proactively Settled Complaints Scheme
    June 12, 2024

    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.
  • UK Financial Conduct Authority Publishes Mortgage Charter Uptake Data
    June 11, 2024

    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.
  • EU Statement on the Use of AI in the Provision of Retail Investment Services
    May 30, 2024

    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.

    Read more.
  • European Banking Authority Reports on Virtual IBANs
    May 24, 2024

    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.

    Read more.
  • HM Treasury Designates Banks Under Access to Cash Framework
    May 24, 2024

    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.
  • New UK Requirements for Payment Account Contract Terminations

    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.

    Read more.
  • Draft UK Legislation to Address Push Payment Fraud

    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.

    Read more
  • UK Approach to Critical Third-Party Supplier Designation Published

    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.

    Read more.
  • UK Public Offers and Admissions to Trading Regulations Published

    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.

    Read more
  • UK Finalizes Amendments to Financial Promotions Regime High-Net-Worth and Sophisticated Investors Exemptions

    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.

    Read more.
  • New UK Retail Disclosure Framework for Consumer Composite Investments

    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 poorly conceived, poorly drafted, ill-thought through 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 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.

    Read more.
  • UK Future of Payments Review Report Published

    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.

    Read more
  • HM Treasury Publishes Consultation Response on Financial Promotions Regime High Net Worth and Sophisticated Investors Exemptions

    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.

    Read more.
  • HM Treasury Publishes Response to Cryptoasset Regulatory Regime Consultation

    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.

    Read more.
  • HM Treasury Publishes Plan for Regulation of Fiat-backed Stablecoins

    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.

    Read more.
  • Draft UK Legislation on Revised Payment Service Contract Termination Rules Expected Before 2024

    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.

    Read more.
  • UK Financial Conduct Authority Publishes Policy Statement on Financial Promotions Gateway

    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.

    Read more.
  • FCA Reviews Treatment of Politically Exposed Persons

    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

    Read more.
  • Proposed Global Policy Recommendations for Decentralized Finance

    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.

    Read more.
  • UK Conduct Regulator Offers Small Reprieve for Cryptoasset Marketing

    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.

    Read more.
  • Exemptions from UK Financial Promotions Gateway Published

    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).

    Read more.
  • HM Treasury Publishes Response on UK Retail Disclosure Consultation

    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.

    Read more.
  • UK Regulators Publish Revised Complaints Scheme

    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.
    Read more
  • HM Treasury Consults on UK Future of Payments Review

    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.
  • UK Statutory Instrument Published to Bring Cryptoassets Within Financial Promotions Regime

    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.

    Read more.
  • UK Financial Conduct Authority Publishes Final Rules on Cryptoasset Financial Promotions

    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).

    Read more.
  • European Commission Publishes Retail Investment Strategy

    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.

    Read more.
  • UK Government Publishes its Proposals for Cryptoasset Regulation

    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".
  • FCA Publishes Consultation Paper on Sustainability Disclosure Requirements

    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).

    Read more.
  • UK Financial Conduct Authority Consults on Regulatory Perimeter Guidance for Trading Venues

    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.

    Read more.
  • UK Conduct Authority Warns Buy Now Pay Later Firms on Compliance with Financial Promotion Requirements

    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.
  • UK Regulator Proposes Extending Long-Term Asset Fund to Certain Retail Investors

    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.
  • Stricter UK Financial Promotion Rules Going Ahead

    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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  • UK Financial Conduct Authority Publishes Final Rules and Guidance for New Consumer Duty

    The U.K. Financial Conduct Authority has published its final rules and guidance for the new Consumer Duty, which is intended to establish clearer standards for consumer protection across the financial services industry. The FCA conducted two consultations, one in May 2021 and another in December 2021 (following its earlier Discussion paper and Feedback Statement in 2018/2019). The final rules and guidance take account of the feedback received to those consultations.

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  • Access to Cash Designation Measures Confirmed

    HM Treasury has published a summary of responses it received to its consultation on protecting access to cash across the U.K. In the response, HM Treasury confirms that it will be proceeding with the proposal to designate which firms will have obligations to ensure reasonable access to withdrawal and deposit facilities for individuals and reasonable access to deposit facilities for SMEs. The measures will be provided for in the Financial Services and Markets Bill, which was announced in the Queen's Speech.

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  • UK Payment Systems Regulator Panel Publishes Report on Digital Payments Initiative

    The U.K. Payment Systems Regulator Panel has published a report on its Digital Payments Initiative, which investigated potential barriers to the take-up of digital payments and possible solutions. The Panel advises the PSR on a continuous basis but undertook the Digital Payments Initiative as a special project to address the issue of consumers failing fully to embrace the benefits of digital payments.

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  • European Commission Consults on Revised EU Payment Services Directive and Open Finance

    The European Commission has published three consultations on the revised EU Payment Services Directive and on open finance. The results of the consultations will help inform the Commission's review of PSD2 and proposed legislation on a broader open finance framework, as part of plans developed under the 2020 EU Digital Finance Strategy and EU Retail Payments Strategy. The review of PSD2 will take stock of the impact that the Directive has had on the EU payments market and whether its objectives have been achieved. The open finance review will gather evidence on the current state of open finance, its further development and effective consumer protection. The EU is proposing to develop an open finance framework, as outlined under the EU's 2021 communication on the Capital Markets Union.

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  • European Banking Authority Publishes Report on Non-Bank Lending Sector 

    The European Banking Authority has published a report on the EU non-bank lending sector i.e., the growing number of financial intermediaries operating outside the EU financial services regulatory perimeter, including BigTech firms (e..g, Meta, Amazon and Google) and FinTech firms, which develop innovative technology for financial services.

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  • UK Conduct Regulator Publishes Results of Review of Investment Platforms Market

    The U.K. Financial Conduct Regulator has published a statement on the results of its review of the investment platforms market. The FCA launched its Investment Platforms Market Study in 2017 to investigate whether competition between investment platforms was working in the interests of consumers. Investment platforms enable consumers and financial advisers to review investment opportunities across a range of funds and execute and change their investments. In 2019, the FCA published a Final Report which concluded that consumers should be able to switch more easily between investment platforms, and proposed a series of measures to help achieve this. It also announced that it would review the industry's progress in adopting these measures in 2020/2021. The FCA's statement sets out the results of that review.

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  • UK Conduct Regulator Commits to Three-year Strategy of Improving Outcomes of Regulation

    The U.K. Financial Conduct Authority has published a three-year Strategy on improving outcomes of regulation and its 2022/23 Business Plan. In the 2022-2025 Strategy, the FCA outlines its expectations of financial services across all sectors, with a view to the overall outcomes that firms should achieve. There are three outcomes for both the wholesale and retail markets, which are fair value, access and confidence. An additional outcome of suitability and treatment applies for the retail markets, to ensure that consumers are treated well and are sold products and services that are suitable for them. The 2022/23 Business Plan sets out the detailed work that the FCA will undertake over the next year to meet the commitments made in its Strategy.

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  • European Commission Consults on Potential Digital Euro

    The European Commission has launched a targeted consultation on a possible digital euro. The EU is considering introducing a digital euro for retail payments, which would be available alongside cash. A decision has not yet been made. The European Central Bank, responsible for the design and implementation of the digital euro, launched a project in July 2021 to get ready for the potential issuance of a digital euro. The introduction of a digital euro would require an EU regulation based on a proposal by the European Commission and agreed through the co-legislative process. Legislative changes would also be needed for existing legislation (e.g., under the revised Payment Services Directive). Central banks from non-euro area Member States also envisage issuing digital currencies.

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  • UK To Bring Stablecoins Used for Payments Under Regulation

    Following the call for evidence issued in January 2021, the U.K. government has confirmed that it will bring the issuing or facilitating the use of stablecoins used as a means of payment into the U.K. regulatory perimeter, in an announcement by John Glen, MP, at U.K. Fintech Week. The details were published in a response to the consultation.

    Consistent with the proposals under the Future Regulatory Framework Review, the government will set the regulatory perimeter, objectives and principles and the regulators - the Financial Conduct Authority, the Bank of England and the Payment Systems Regulator - will set out the detailed requirements in rulebooks. The government also confirms that it intends to consult later in 2022 on regulating a wider set of crypto activities, including trading of cryptocurrencies such as Bitcoin and Ether.

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  • UK Regulator Finalizes Rules On Scope Of PRIPPs

    Following its consultation last year, the U.K. Financial Conduct Authority has published its final policy and rule amendments on the scope of the rules governing packaged retail and insurance-based investment products (or PRIIPs). The FCA had aimed to bring in the new rules by January 1, 2022. Instead, the final rules and Regulatory Technical Standards will apply from March 25, 2022. Firms will have until December 31, 2022 to apply the new requirements. These changes are designed to bring legal certainty to the scope of the PRIIPs regime, as it applies to corporate bonds, and mitigate risks relating to misleading performance scenarios and summary risk indicators and concerns about the transaction costs calculation methodology. It is hoped that the amendments will promote liquidity and improve choice in the retail corporate bond market, and also reduce the complexity of key information documents (or KIDs), the key information disclosure documents that must accompany PRIIPs when they are made available to retail investors.

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  • UK Prospectus Review: Government Confirms Policy for Reforms to Boost London's Capital Markets

    Following its consultation last year, HM Treasury has set out its policy approach to amending the U.K. Prospectus regime. The current U.K. Prospectus Regulation will be replaced by legislation when parliamentary time allows. The changes will, among other things, separate the regulation of public offers of securities from the regulation of admissions of securities to trading, as Lord Hill recommended. In addition, the Financial Conduct Authority will be granted greater responsibility for the detail of the new regime through rules. The complete set of reforms will only apply once those rules are implemented. The main changes are set out below.

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  • HM Treasury Confirms Policy Approach on Wholesale Markets Review

    HM Treasury has published its consultation response to the Wholesale Markets Review, setting out summaries of responses received to its proposals and how changes will be progressed. There are certain areas that HM Treasury will not progress at this stage, and which will be subject to further consideration.

    For the proposals that are being taken forward, implementation may be by legislation or pursuant to the Financial Conduct Authority's rules. HM Treasury states that legislation will be brought forward when Parliamentary time allows. In certain instances, where details are currently set out in legislation, but would sit better in regulatory rules, the government intends to legislate to delegate responsibility to the FCA for preparing detailed rules, which it states will be part of the implementation of the Future Regulatory Framework review. The FCA is expected to consult on its proposals for existing rule amendments in the first half of this year.

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