June 2023
Our new issue of UK Regulatory Radar brings you the latest industry and regulatory updates impacting financial service providers in the UK.
Click on the images below for our latest insights and see the 'Further updates' section for other sector-specific developments.
Highlights of the month
In this issue:
Prudential
BoE launches system-wide exploratory scenario (SWES): As set out in the December 2022 Financial Stability Report, the Bank of England (BoE) has launched its first system-wide exploratory exercise to improve understanding of the behaviours of banks and non-banks during stressed market conditions. Participating firms (to include large banks, insurers, CCPs and a variety of funds) will be announced later in the year and will contribute to the design of the scenario. The final report, including system-wide and sector-specific results is expected in 2024.
Dual-regulated firms: enhancing proportionality: The FCA is consulting on changing the remuneration rules for smaller, less complex dual-regulated firms to make them proportionate to the risks posed by small firms to consumers and markets in the UK.
MIFIDPRU amendments (FCA Quarterly Consultation): In its latest quarterly consultation paper, the FCA proposed amendments to MIFIDPRU (the Handbook rules under the FCA's Investment Firms Prudential Regime) to further clarify its requirements, and to amend SUP 16 to rectify some errors that have been identified. The clarifications would impact on various topics such as a firm's own funds threshold requirement, the group ICARA process, and the MIF007 ICARA assessment questionnaire.
Capital Markets and Asset Management
Non-Bank Financial Intermediation: In a speech, Ashley Alder (FCA Chair) set out views on the regulation of Non-Bank Financial Intermediation (NBFI), i.e. the non-bank sector. He noted the growing role of NBFI in the real economy, recapped the NBFI policy agenda and recent events, and set out areas for further action (particularly regarding private markets). He suggested that policy actions could include enhanced reporting from NBFIs to regulators and the public, greater disclosure of NBFIs' exposures, and further engagement with international regulators.
CCP Supervisory Stress Test: The BoE has launched its second public central counterparties (CCP) supervisory stress test (SST) which will explore the individual and system-wide credit and liquidity resilience of UK CCPs, and their interconnectedness with the rest of the financial system. The exercise aims to identify any potential vulnerabilities and gaps in CCPs' resilience, and will support and inform the BoE's supervisory and regulatory activities
Admission to trading on a regulated market: The Government is in the process of creating a new legislative framework that will give powers to the FCA to set rules for what disclosures companies need to provide when seeking to admit securities to a regulated market — the new Public Offers and Admissions to Trading regime — which will adapt the on-shored EU Prospectus Regulation. In advance of this, through a series of engagement papers, the FCA is seeking views on how it might make these rules. Feedback on the papers is intended to create a dialogue which will inform further development of proposed rules which the FCA will consult on formally during 2024.
ETFs priced at NAV (FCA Quarterly Consultation Paper): The FCA proposed to introduce a deferral regime for transactions in Exchange-Traded Funds (ETFs) priced at net value asset (NAV). This would allow firms and trading venues to defer publication of trade reports to after the publication of the ETF's NAV. This change would apply to all ETF transactions (where they are priced at NAV) regardless of size of the transaction, and not solely those considered large in scale. The amendments would come into force on 29 April 2024 (in line with broader transparency amendments).
Run off regime for overseas CCPs: Following EU exit, HM Treasury (HMT) established a Temporary Recognition Regime (TRR) to enable eligible non-UK CCPs to continue to provide clearing services to UK firms whilst equivalence and recognition assessments were ongoing. A "run-off" regime was also established to enable non-UK CCPs that exited the TRR without recognition to wind down relevant contracts and business with UK counterparties in an orderly manner for a maximum period of one year. The Financial Services and Markets Bill extends this run-off period to three years and six months. However, as timing is unsure around the Bill receiving Royal Assent. HMT has now introduced further technical amendments, that in the event of a gap between a CCP's exit from the run-off regime and Royal Assent, allow the BoE to determine that a CCP's run-off period is to be treated as not having expired, from the making of the determination onwards.
Pensions
FCA portfolio letter: Self-Invested Personal Pension (SIPP) operators: The FCA has written to its SIPP Operators highlighting how its previous concerns have been heightened by recent firm failures (often following FOS decisions) and the more complex administration typically associated with SIPPs. Key longstanding harms identified include (i) the impact of firm failure, (ii) consumers not receiving fair redress when it is due (or not receiving it in a timely manner) and, (iii) pension scams and fraud. There is a strong Consumer Duty thread running through the letter articulating the FCA's expectations. Impacted firms should closely review the detail and examples and factor and check and challenge its approach in the areas identified to ensure it meets FCA expectations — both now and post Consumer Duty.
Retail Conduct
Debt packager referral fee ban: The FCA has announced a ban on debt packager firms receiving referral fees. The rules will prevent business models that incentivise debt packagers to recommend options that make them more money rather than what is in the customer's best interest. The ban is immediate for new entrants to the market, existing debt packager firms have until 2 October 2023 to implement the rules.
Dear CEO letter British Steel pension Scheme redress: The FCA has raised concerns about the use of third-party services by firms to calculate redress for former members of the British Steel Pension scheme (BSPS). The regulator believes this may have been a contributory factor to the issue of misleading redress offers. This letter comes as the FCA takes action against a further four firms (taking the total to six) it suspects has attempted to avoid its liabilities to former scheme members. The FCA expects firms, where third parties have been used, to review redress offers, even where they have been accepted on a full and final basis, and that outcomes should be notified to the regulator. Where any of these are present firms should also undertake a review. Where settlements are found to be lower than the FCA calculator the difference should be offered to the customer. The FCA also cites a number of calculation deficiencies firms should avoid, which if found to be present would necessitate a redress review.
High street bank savings rates: The Treasury Committee (TC) has widened its enquiries on increases in high street banks' net interest margins writing to the four 'scale challengers' (the banks and building societies that together account for a quarter of all personal current accounts). The TC has previously questioned the top four retail banks determine what proportion of interest rate rises to pass on to their savings customers and called on the FCA to explain what analysis it has undertaken in this area.
Customers in financial difficulties: The FCA has published a consultation setting out proposals to incorporate aspects of the Tailored Support Guidance (TSG) into the Consumer Credit (CONC) and Mortgages and Home Finance: Conduct of Business (MCOB) sourcebooks and withdraw the TSG. The proposals aim to regularise good practice across the industry. The consultation also proposes additional changes separate to the TSG including guidance for consumer credit firms' fees on setting fees and charges and updates to guidance for mortgage firms increasing the scope for payment shortfalls to be capitalised.
FOS's handling of discrimination complaints: In a recent blog Lauren Long, Ombudsman Leader highlights the FOS's approach to discrimination cases. The associated guidance note provides details of the types of discrimination complaints it sees, considerations for firms, its approach, and case studies. There are no regulatory implications as a result of the guidance, however firms may find some helpful read across from this to the FCA's expectations for the provision of good customer outcomes under the Consumer Duty.
Debt packager referral fee ban: The FCA has announced a ban on debt packager firms receiving referral fees. The rules will prevent business models that incentivise debt packagers to recommend options that make them more money rather than what is in the customer's best interest. The ban is immediate for new entrants to the market, existing debt packager firms have until 2 October 2023 to implement the rules.
Dormant assets consultation: The Dormant Assets Scheme (DAS) was originally set up to allow banks and building societies to pay funds from dormant accounts to an authorised reclaim fund (ARF) which then puts this money towards funding good causes. A previous consultation from the FCA expanded the scheme to insurance, pensions and securities. This consultation suggests some technical changes to expand the DAS to dormant investment assets and client money. The FCA's intention is to ensure the Handbook allows firms to participate in the DAS and consumers are able to access reclaims.
Incentives to invest in high-risk investments (FCA Quarterly Consultation Paper): In its latest quarterly consultation, the FCA has proposed clarifications to its ban on offering incentives to invest in high-risk investments. The changes have been put forward to prevent potential misunderstanding of the FCA's policy intention and to better communicate what types of benefit the ban would apply to. The changes would take effect on publication of the FCA's final rules. Financial promotions of cryptoassets will now also be impacted by the potential changes (based on the FCA's final policy position — see article).
Payments
Open Banking work plan: The Joint Regulatory Oversight Committee (JROC) has set out its work programme to take forward recommendations for the next phase of UK Open Banking. JROC has:
- Set up dedicated workstreams to action the key themes and priorities outlined in the recommendations
- Established working groups for two of the workstreams (1) variable recurring payments (VRP) and (2) future entity (FE)
- Tasked Open Banking Limited (OBL), formerly the Open Banking Implementation Entity (OBIE), to lead and coordinate the workstreams for the other key themes
The working groups are expected to report back to JROC by the end of September 2023 with JROC publishing its views towards the end of this year. JROC has also set out key milestones for those workstreams led by OBL.
Authorised Push payment (APP) fraud mandatory reimbursement: The PSR has published its policy statement on reimbursement requirements for Authorised Push Payment (APP) fraud. The requirements introduce consistent minimum standards to reimburse victims of APP fraud requiring all Payment Service Providers (PSPs) to make reimbursements available to all in-scope customers who become victims of APP scams. The PSR has made a number of amendments to its proposals including how the requirements will be implemented (using Directions rather than through Pay.UK) addressing concerns raised by the TC. The requirements are expected to come into force in 2024. The PSR will consult on a specific implementation date and the draft legal instruments in early Q3 2023. The TC has welcomed the updated proposals. The PSR will consult on a specific implementation date and the draft legal instruments in early Q3 2023 with the requirements expected to come into force in 2024.
Useful information:
The KPMG Regulatory Barometer helps firms identify key areas of pressure across the evolving UK and EU regulatory landscape and measure the impact of the likely change.
The KPMG Financial Services Regulatory Insight Centre monitors and tracks the evolving regulatory landscape. If you would like to discuss any of the topics covered in more detail, please contact a member of the team below:
