Financial services regulation: updates for FCA and PRA regulated firms

Important updates on financial services regulation including the latest PRA and FCA rules and guidance, changes to the Handbook and Rulebook and upcoming developments in UK and European regulation

11 July 2019

Welcome to our financial services regulation blog, a practical guide to legal and regulatory developments in the UK. The framework governing UK authorised firms is constantly evolving and we keep track of developments to help keep you informed as to what is happening and what is coming down the line. Below you will find our regular round up covering PRA, FCA and European level developments in respect of financial services regulation (including insurance, pensions, investments and payments). For further information or if we can assist, please contact Tom Dunn or Anna Davis.

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Financial services regulation

Update posted: 27 June 2019

By Paschalis Lois

FCA publishes an undertaking from ETA Services Ltd provided under the Consumer Rights Act 2015

On 26 June, the FCA published a notice of undertaking regarding a bicycle insurance firm, ETA Services Ltd (ETA). The undertaking concerned terms in ETA’s policy that excluded claims for bicycle theft, and was given pursuant to the Consumer Rights Act 2015 (the CRA). ETA gave this undertaking on the backdrop of FCA concerns that the terms in its policy were contradictory, and not transparent.

The two terms in question related to circumstances where ETA could exclude claims for theft. The first term was a general exclusion and stipulated that ETA could reject claims when the bicycle had not been secured through its frame using an approved lock. The second, related to circumstances where the bicycle was left unattended in a communal building. ETA could reject a claim when the bicycle was not secured through its frame to an immovable object. The latter made no reference to the need of an approved lock.

The FCA, in applying the CRA, held that the terms were not transparent as they were not expressed in plain and intelligible language. In fact, the FCA found the terms contradictory as the former seemed to require the use of approved locks at all times, whereas the latter suggested that the use of an approved lock was not necessary in communal buildings. Indeed, in practice ETA had rejected claims in situations where consumers did not use approved locks when storing bicycles in a communal building although such a requirement was not strictly stated in the exclusion. In addition the FCA also underscored that where a consumer contract term could have different meanings then it must be applied in the most favourable way to the consumer.

In response to these concerns, the ETA confirmed that it would not be using the second term to exclude claims for existing policies when a consumer did not use an approved lock. At the same time, ETA amended the policy terms for new and renewed contracts entered into as of 1 April 2019, with provisions that made clear the need for an approved lock when securing the bicycle in a communal building.

In concluding its notice, the FCA brings attention to the importance of such undertakings. In particular the FCA notes that firms should remain alert to undertakings or court decisions as part of their risk management. Ensuring the fairness and transparency of terms is not a one-size-fits-all exercise. Determining whether a term is fair or transparent will always depend on the specific circumstances, and wording that is fair or transparent in one agreement is not necessarily fair or transparent in another. The only constant is that when it comes to consumer terms clarity remains key in ensuring compliance with the CRA.


Update posted: 21 June 2019

By Anna Davis

Chancellor announces review of UK regulatory framework in 2019 Mansion House speech

On 20 June 2019, HM Treasury published the Mansion House given by Philip Hammond.

Amongst other things, Mr Hammond announced the plan is to launch a major, long-term review into the future of the UK regulatory framework, which will deliver a regulatory system that:

  • enables, rather than stifles, innovation
  • protects consumers
  • maintains the highest possible standards
  • is proportionate and policed by independent regulators
  • recognises that the EU will continue to be one of our major trading partners
  • lays the groundwork for the more global nature of our future financial services industry
  • manages the cumulative impact of regulatory change emanating from different sources.

While we wait for the future relationship with the EU to be clear, Mr Hammond says the first phase of this review will take action to improve coordination between the regulatory authorities – starting with a summit of all the relevant regulators at No11 in July, leading to a Treasury call for evidence before the summer.


Update posted: 21 June 2019

By Anna Davis

BoE speech on diversity and PRA's role as regulator

On 19 June 2019, the Bank of England (BoE) published a speech at the Insurance Insider Progress Network event, by Anna Sweeney, BoE Director of Insurance Supervision, on making impactful change on diversity across the financial services sector.

Among other things, Ms Sweeney comments on the role of the regulator in this area. In particular, she states that the PRA cares particularly about how 'groupthink' impacts the quality of decision-making, with the rules focussing on promoting diversity of skills and experience of the Board. She also noted that any allegations of sexual harassment or bullying would , if proven, speak to personal integrity and could impact the PRAs view of the fitness and properness of individuals in the SMCR regime and the PRA’s colleagues at the FCA have a strong interest in te culture as an indicator as to how firms could treat customers.


Update posted: 20 June 2019

By Anna Davis

FCA still concerned about standards in DB pensions advice market

On 19 June 2019, the FCA published a webpage setting out the results of data obtained from firms on the size and value of the DB pensions advice market.

Although the data is not an assessment of the suitability of advice, the FCA is still concerned that, despite its clear expectation that advisers should start from the position that a pension transfer is unlikely to be suitable for their client, 69 per cent of the 234,951 total members seeking advice had been recommended to transfer. What is more concerning is that 1,454 firms of the total 2,426 firms providing transfer advice during this period (60 per cent) had recommended 75 per cent or more of their clients to transfer.

The FCA will be directly assessing the firms most active in this market throughout the remainder of 2019. It will also write to all firms where we have identified potential harm in their DB pension transfer advice from the data received, and we will set out our expectations and the actions firms should take. Depending on the outcome of the assessments in 2019 it will consider extending its assessments to take in a wider range of firms in 2020. In 2020 it will also roll out a series of events aimed at raising standards in the industry and engaging with a wider range of stakeholders.


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Update posted: 19 June 2019

By Heather Musk

FCA perimeter report 2018/19

The FCA has published its first perimeter report. The report focuses on where perimeter issues are most likely to cause harm to UK consumers and markets. The FCA provides three reasons why it has decided to provide the report, 1) firms operating on the edges of the perimeter have recently caused serious harm to consumers, which in turn damages public trust in the industry; 2) the use of technology and data are quickening the speed of change; 3) the FCA perimeter is a patchwork of UK and EU level regimes. Post-Brexit there is the opportunity to create a simpler approach to the regulatory perimeter.

The intention is to provide this report going forwards on an annual basis. We can see that in a ‘post-Brexit’ ecosystem, the flux created by leaving the EU will raise more pressing questions around what is in or out of the regulatory perimeter.

The FCA also sets out how the RAO regime governing ‘regulated activity’ is not the only basis for regulatory responsibilities. For example:

  • The FCA are the UK’s listing authority. Most listed companies are not FCA authorised firms.
  • The market abuse regime applies to the behaviours of any person, irrespective of whether they are authorised by the FCA.
  • The FCA are responsible for regulating some entities or conduct under standalone legislation outside the FSMA framework such as the Payment Services Regulations.
  • Concurrent competition powers shared by the Competition and Markets Authority and other regulators.
  • Financial Promotions Regime. There is no need to seek FCA approval to communicate or approve financial promotions.
  • The FCA can enforce provisions of the Consumer Credit Act 1974, even against unauthorised persons.

Products which are identified as being on the edge of the perimeter are: pre-paid funeral plans, unregulated introducers (e.g. those contacting consumers to offer free pension reviews), unregulated mortgage book purchasers, investment consultants and proxy advisers and cryptoassets.

The FCA recognised that the complexity of the perimeter makes it difficult for consumers to understand which FCA protections apply in what circumstances, and what compensation they may be eligible for. It aims to:

  1. make its role clearer and explain the protections available
  2. continue to monitor activity outside the perimeter that may cause consumer harm and require the perimeter to be widened
  3. horizon scan to anticipate future market developments.

Update posted: 8 June 2019

By James Green

FCA publishes checklists for solo-regulated firms implementing SMCR

The senior managers and certification regime (SMCR) comes into force for FCA solo-regulated firms on 9 December 2019. There are three categories of firms within the regime (core, limited and enhanced) and each are subject to particular requirements, reflecting the differing size and complexity of each category. To help firms prepare, the FCA has published checklists detailing the steps each category of firm will need to take to get ready for implementation.

Those include:

  • identifying Senior Managers and certified staff
  • allocating prescribed responsibilities and preparing statements of responsibility
  • reviewing and amending HR policies to accommodate fitness and propriety checks
  • implementing the regulatory reference regime
  • training staff on the Conduct Rules.

You can find the checklists here.


Update posted: 5 June 2019

By Heather Musk

FCA sets out requirements on loan based and investment based crowdfunding platforms

The FCA has issued its policy statement on loan based and investment based crowdfunding platforms: feedback to CP18/20 and final rules (PS19/14).

For the most part this policy statement brings into fruition the rules consulted on in CP18/20, with the exception of a few modifications. The changes that will be introduced under the policy statement include:

  • More explicit requirements to clarify what governance arrangements, systems and controls platforms need to have in place to support any outcomes that they advertise. In particular, these will need to focus on credit risk assessment.
  • Improving the rules on the wind down of a P2P platform.
  • Setting out the minimum information that P2P platforms must provide to investors.
  • If no advice has been given to an investor, then the rules introduce a requirement that an appropriateness assessment (on the investor’s knowledge and experience of P2P investments) needs to be undertaken.
  • Applying marketing restrictions to P2P platforms, designed to protect new or less experienced investors.

Most of the rule changes won’t be implemented until December 2019, with the exception of some changes that are being made to MCOB and the operation of some peer to peer (P2P) platforms, which apply with immediate effect.


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Update posted: 31 May 2019

By Paschalis Lois

FCA and PRA fine Raphaels bank for failure to manage outsourcing risks

Both the FCA and PRA (the 'Authorities') issued final notices to R. Raphael & Sons plc fining the bank £777,100 and £1,121,512 respectively. The fines come as a result of the bank’s failure to properly manage the risks associated with outsourced payment services provided through a third party ('Card Processor'). In their final notices, the Authorities stressed that notwithstanding a regulated firm’s ability to delegate some of their tasks, they cannot delegate their regulatory obligations for which they remain fully accountable. This is the case whether the outsourcing occurs at intragroup level or to third parties.

The events that led to the fines occurred on 24 December 2015. An IT incident caused a complete failure on the Card Processor’s network leaving 3,367 of the bank’s customers unable to execute transactions for a total of eight hours. The aggregated value of failed transactions was £558,400. The cause and duration of the IT Incident reflected shortcomings in the bank’s understanding of the business continuity and disaster recovery arrangements of the Card Processor. The bank had no adequate processes for capturing and assessing information regarding these arrangements, particularly how they would support the continued operation of the Card Programmes during a disruptive event. The absence of such processes exposed the bank and its customers to a serious risk of harm. As the bank was unaware of the risk, it could take no steps to manage or mitigate it.

This was not the first time the bank was fined for similar failings on risk management of critical outsourced functions; the bank was fined £1,278,165 by the PRA in 2015. This was reflected in the level of the fines levied.


Update posted: 24 May 2019

By Heather Musk

The FCA has extended the Temporary Permission Regime deadline to October

Following the continued uncertainty around Brexit, the FCA has extended the deadline for the notifications for the temporary permissions regime (TPR) until 30 October 2019. Previously the TPR notification period was extended from the end from the end of 28 March to the end of 11 April 2019.

Other than extending the deadline there have been no other changes to the TPR.

Please find the full press release from the FCA here.


Update posted: 22 May 2019

By Heather Musk

Dear CEO letter on principals and appointed representatives in the investment management sector

On 20 May, the FCA published a Dear CEO letter on its expectations of principal firms in the investment management sector. This letter was published following the completion of the FCA’s review into the supervision of principal firms of their appointed representatives (AR) in the investment management sector.

The findings of the report included issues centered around the following areas:

  • Most principal firms in the FCA’s review had weak or under-developed governance arrangements in place, including a lack of effective risk frameworks, internal controls and sufficient resources.
  • Firms need to understand their continuing obligations as a principal firm. In particular to ensure that its ARs are fit and proper to deal with clients in its name and to ensure that clients dealing with its ARs have the same level of protection as if they had dealt with the principal firm itself.

Any shortcomings in firms’ practices should be addressed. The letter emphasises that if principals cannot demonstrate compliance with the Handbook and the risks relating to the activities of ARs then these principals should consider ending their relationships with AR.


Update posted: 16 May 2019

By Heather Musk

Regulation trends in insurance

Karina McTeague, the Director of General Insurance and Conduct Specialist Supervision at the FCA delivered a speech titled ‘Leading the Way on Regulation’ at the British Insurance Brokers’ Association (BIBA) Conference 2019 on 15 May 2019. Some of the main themes discussed in her speech regarding regulation in the insurance sector were:

  • Sustainable business models – the key areas insurers should have consideration of in order to avoid consumer harm are operational resilience, fraud and the impact of incentives and rewards on individual’s behaviours, and the budget pressures on critical functions such as risk, compliance and HR. The insurance industry will need manage the following common features:
    • Rapid technological change – to what extent will InsurTech disrupt or dislodge the current insurance providers/ model?
    • Societal change – how have consumers’ expectations changed for speed and convenience. If customers are treated unfairly they can now show their displeasure quickly through social media.
    • The ‘new normal’ of low interest rates and the impact this has on the returns that insurers are able to generate through investment activity.
  • Customer focussed culture – the insurance sector can look to learn from several lessons from the retail banking sector:
    • Set the tone from the top. Have a clearly articulated purpose and supporting values.
    • Encourage and reward behaviours and outcomes that align with the firm’s purpose and values.
    • Create a working environment which encourages everyone to speak up.
  • IDD - The Directive has helped to work towards good customer outcomes - customers being directed to products that meet their demands and needs, paying a price that is fair and not having subsequent cuts paid to firms further down the distribution chain with little value.

McTeague also pointed toward the FCA’s recent ‘Dear CEO letter concerning the GI Distribution Chain’ and the need to ensure that firms are not falling by certain standards such as:

  • Customers being offered products with limited value
  • Customers paying excessive prices due to the remuneration taken by various parties in the distribution chain.
  • Customers receiving poor service where lack of clarity on roles and responsibilities means no-one in the distribution chain takes ownership for dealing with a customer issue.


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Update posted: 29 April 2019

By Anna Davis

FCA thematic review and Dear CEO letter on fair treatment of with-profits customers

On 25 April 2019, the FCA published a thematic review report (TR19/3) and a Dear CEO letter on the fair treatment of with-profits customers.

Most firms the FCA assessed were taking reasonable care to manage the risk of customer harm in their with-profits business and the FCA did not find evidence of widespread customer harm arising from firms’ practices. However, there were some areas of poor practice:

  1. Run-off plans – most firms with closed with-profits funds were not using their run-off plans fully as intended and described in the rules and guidance (namely as a tool to manage the ongoing run-off of a closed with-profits fund in a fair manner).
  2. Assessments of excess surplus - several firms were not carrying out assessments of excess surplus as required by FCA rules.
  3. Fund-level capital management approaches - some firms lacked a clear definition of the desired level of reserves to protect against risks in their funds.

The FCA is not proposing to consult on new rules and guidance on the basis of its findings of the thematic review, but firms should consider their with-profits practices in light of the contents of the thematic review and take remedial actions for any shortcomings identified.


Update posted: 18 April 2019

By Anna Davis

FCA Market Watch issue 59

On 17 April 2019, the FCA published issue 59 of Market Watch, its newsletter on market conduct and transaction reporting issues.

Issue 59 covers:

  • transaction reporting observations – the FCA has identified a variety of data quality issues including:
    • systems & controls – the FCA provides a facility for firms to request samples of their transaction reporting data for reconciliation purposes but the number of data extract requests being received suggests some may not be aware of this, or may not be conducting regular or sufficiently thorough reconciliation
    • reporting trade time, price, and venue – the FCA has identified instances of firms reporting inaccurate details for trading date time, price and venue
    • party identifiers – the FCA has noted a number of firms misreporting buyer and seller identification codes
    • errors and omissions – the FCA has noted that some firms have identified errors or omissions in their transaction reports but failed to cancel, correct and resubmit corrected reports to the FCA
  • telephone recording and retention – some firms have not properly ensured conversations are being recorded, despite having telephone recording systems installed. In some recent cases, several months passed before firms realised that telephone conversations were not being correctly recorded due to system failings.


Update posted: 18 April 2019

By Anna Davis

FCA publishes its 2019/20 business plan

On 27 April the FCA published its Business Plan for 2019/20. The FCA’s key priorities and planned activities for this year are set out under eight cross sector priorities as well as its priorities for the seven specific sectors it regulates. In addition to Brexit related priorities, the Business Plan outlines the following cross-sector priorities:

  • firms’ culture and governance
  • fair treatment of existing customers
  • operational resilience
  • combating financial crime and improving anti-money laundering practices
  • innovation, data and data ethics
  • demographic change
  • the future of regulation.


Update posted: 15 April 2019

By Alex Gillespie

FCA publishes report and consultation on the GI distribution chain

On 10th April, the FCA published its report on the key findings from its thematic work on the general insurance ('GI') distribution chain. As part of its thematic review, the FCA identified a number of examples of possible harm to consumers which it attributed to two primary causes, being:

  • firms having a purpose and culture with insufficient focus on customers, particularly in relation to value and customer outcomes
  • poor governance and oversight of product design, manufacture and distribution processes and practices – both over firms’ own business activities and where these were undertaken by other parties in the distribution chain.

In response to the findings in its report, the FCA also published a consultation on proposed non-handbook guidance which sets out the FCA’s expectations, in particular in relation to the design and distribution of insurance products and the requirements to act in accordance with the customer’s best interests. The key points are as follows:

  • all firms in the distribution chain have an obligation to act fairly, honestly and professionally in accordance with the best interests of the customer
  • value is an important consideration for firms when designing products, determining distribution strategies and setting their remuneration structures
  • manufacturers have an obligation to design, monitor and review products to ensure they meet the needs of the target market and prevent/mitigate customer harm. This includes considering the cost of the product to the customer, and overseeing the impact on value from the distribution chain
  • with the introduction of the SM&CR, the FCA expects there to be clear lines of individual accountability within all firms for each of the expectations and related activities detailed in the guidance.

Stakeholders have until 9 July 2019 to respond to the consultation.

In addition to its non-handbook guidance, the FCA has also written to the CEO’s of every authorised GI firm to highlight its findings and expectations and to call on firms to act immediately to identify and mitigate any shortcomings. The FCA has said that it will reinforce its message through engagement with the industry as well as, going forwards, undertaking coordinated supervisory work in this area. A full copy of the letter can be found here.


Update posted: 13 April 2019

By Anna Davis

Brexit - FCA extends notification window for temporary permissions regime

On 12 April 2019, the FCA published directions (dated 11 April 2019) which extend the window for notifications to the FCA by firms wishing to enter the TPR from the end of 11 April 2019 to the end of 30 May 2019.


Update posted: 12 April 2019

By Heather Musk

FCA publishes Dear CEO letter for the FCA’s expectations on the approval of financial promotions

On 11 April 2019, the FCA issued a Dear CEO letter to remind firms involved in the approval of financial promotions for unauthorised persons of their obligations when doing so. In the letter the FCA cite that they have identified a number of examples where it appears the due diligence carried out on a financial promotion may have fallen ‘well short of the standard we expect’.

The letter in particular also reminds CEOs that:

  • before a firm approves a financial promotion for communication by an authorised person, it must confirm that the promotion complies with the financial promotion rules
  • if at any time a firm becomes aware that the financial promotion no longer complies with the rules, it must withdraw its approval
  • a firm that communicates or approves a financial promotion must have put in place adequate systems and controls, or policies and procedures, to comply with these rules
  • firms must ensure that information presented is accurate and always given a fair and prominent indication of any relevant risks when referencing any potential benefits.

This letter follows a Dear CEO letter published on 9 January 2019 reminding firms of their responsibilities relating to publishing financial promotions. This area clearly remains one of focus for the FCA.


Update posted: 12 April 2019

By Anna Davis

Brexit: second extension to Article 50 period agreed

On 11 April 2019, the European Council and the UK government agreed a second extension to the Article 50 period, avoiding a no-deal Brexit on 12 April 2019. The extension will last until 31 October 2019 at the latest, but may end sooner if:

  • the UK fails to hold elections to the European Parliament on 23 to 26 May 2019 and has not ratified the withdrawal agreement by 22 May 2019. In that case it will end at 11.00 pm on 31 May 2019 (UK time).
  • the extension continues after 31 May 2019, but the withdrawal agreement is ratified sooner than 31 October 2019. In that case, then the UK will leave the EU at 11.00 pm (UK time) on the last day of the month in which it is ratified.


Update posted: 9 April 2019

By Anna Davis

The Money and Pensions Service officially launches

On 8 April 2019, the Money and Pensions Services ('MAPS') officially announced its launch. MAPS combines the duties of the Pensions Advisory Service, Pension Wise and the Money Advice Service into a new body (previously named in the legislation as the Single Financial Guidance Body).

MAPS also published a listening document on a national strategy for money and pensions and MAPS' three-year corporate plan (together with an executive summary).

MAPS is consulting on the listening document until 30 June 2019. Input will be obtained during a UK-wide programme of 'listening events'. Written comments are also invited. Input from interested parties will influence MAPS' strategy to collectively address five building blocks to managing money and pensions well (that is, savings, credit use, debt advice, retirement and financial education). MAPS will publish a national strategy and its corporate plan for 2020-2023 (setting out how MAPS will organise, encourage and monitor the national strategy) in autumn 2019. MAPS has also published the Financial Capability Board's three-year review of lessons learned document, which makes recommendations for the national strategy and should be read alongside the listening document.

MAPS has also published its business plan for 2019-20 setting out the key performance indicators for the organisation's 'transition year' during which it will continue the three services provided by Pension Wise, Money Advice Service (MAS) and the Pensions Advisory Service (TPAS). Among other things, MAPS expects to publish by the end of 2019/20 the results of tests on different approaches for defaulting pension holders into guidance at the point they seek to access or transfer their pension savings. This will contribute to the evidence base for making the rules on referring pension scheme members to financial guidance required by sections 18 and 19 of the Financial Guidance and Claims Act 2018.

The new MAPS customer website will go live towards the end of 2019. Until then, guidance will continue to be available through the existing websites of MAS, TPAS and Pension Wise.

MAPS will also be responsible for delivering and overseeing pensions dashboards, in partnership with the DWP. It will bring together an industry delivery group that will set out a clear timetable and roadmap to drive progress towards fully operational dashboards throughout 2019 (see Legal update, Pensions dashboards: DWP sets out next steps).


Update posted: 8 April 2019

By Alex Gillespie

FCA publishes update on access to insurance

In 2017 the FCA released a call for input inviting views on the ability of consumers who have, or have had, cancer to access travel insurance. This was followed by a feedback statement in June 2018 which identified three main interrelated themes coming out of stakeholder feedback, being:

  • pricing - a lack of transparency around how premiums are calculated and the risk factors that drive quotes
  • signposting – a lack of high quality information on options available to consumers after they receive a high quote or have been refused cover
  • consumer understanding – a general lack of consumer understanding around insurance terminology and the risk factors that are considers by providers when calculating premiums.

On the 4 April 2019, the FCA provided an update on its progress since its feedback statement including exploring different options for signposting people with pre-existing medical conditions (PEMCs) to travel insurance providers that are able to provide suitable insurance. The FCA has been exploring the following signposting structures to help consumers:

  • for signposting to be hosted by a single source (such as BIBA’s Find a Broker Service)
  • for a signposting service to be hosted by a brand new-single source service and to be hosted by an independent body
  • a multi lateral approach that provides ‘signposting’ across the industry whilst giving providers some flexibility to build their own signposting arrangements.

The FCA believes that the multi-lateral approach would be the most effective and efficient way of improving the way the market works for people with PEMCs and is considering options for using its rule-making powers to support the delivery of this across the industry.

Additionally, the FCA proposes to produce a user-friendly guide to travel insurance for consumers with PEMCs with a view to improving consumer understanding.

The FCA plans to consult on its proposals before this summer. Further details of the FCA’s progress in this area can be found here.


Update posted: 1 April 2019

By Heather Musk

No deal Brexit - FCA final rules and guidance published

Following the FCA’s policy statement in February 2019 with near-final versions of its instruments and guidance relating to a no-deal Brexit (PS19/5), on 29 March 2019 the FCA published a press release announcing that it had published final instruments and guidance that will apply if there is a no-deal Brexit.

Although the FCA has stated that the final instruments are largely unchanged from the near-final versions, they have identified three areas where amendments have been made to the near-final directions published in February. These changes relate to:

  • UK managers of EEA UCITS funds
  • the application of the Client Assets sourcebook (CASS) to activities carried on from an EEA branch
  • the distance marketing provisions.


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Update posted: 30 March 2019

By Heather Musk

Brexit updates - The FCA and the SEC (US Securities and Exchange Commission) have signed updated Memoranda of Understanding

The regulatory authorities of the UK and the US signed updated Memoranda of Understanding (MoUs) to ensure the continued ability to cooperate and consult with each other regarding the efficient oversight of regulated entities across national borders. The MoUs were updated as part of preparations for Brexit.

The two MoUs were originally created in 2006 and 2013 respectively. The oldest facilitates supervisory arrangements covering regulated entities that operate across national borders. The MoU was updated to cover the scope of firms covered to include firms that conduct derivatives, credit rating and derivatives trade repository business to reflect (i) post-financial crisis reforms related to derivatives and (ii) the FCA’s assumption of the responsibility from ESMA for overseeing credit rating agencies and trade repositories in the event of the UK’s withdrawal from the EU.

The more recent MoU, was required under the UK’s AIFM (Alternative Investment Fund Managers) Regulations 2013 and provides a framework of supervisory co-operation and exchange of information relating to the supervision of covered entities in the alternative investment fund industry. The updates to the MoU ensure that investment advisers, fund managers, private funds and other covered entities in the alternative investment fund industry are regulated by the SEC and the FCA will be able to continue to operate on cross-border basis without interruption, regardless of the outcome of the UK’s withdrawal from the EU.

The updated MoUs will be in effect from the date that EU legislation does not have direct effect in the UK.


Update posted: 26 March 2019

By Anna Davis

Brexit updates

TPR notification period extended

Following the EU's decision to agree to a short extension to the Article 50 period, the FCA and PRA have confirmed on their respective websites that they intend to extend the notification window for firms wishing to enter the Temporary Permissions Regime will be extended from end of 28 March to the end of 11 April 2019.

The FCA’s webpage will be updated with further information, including the Directions giving effect to the extension, in due course.

Withdrawing from the TPR

On 25 March, the FCA updated its Temporary Permissions Regime (TPR) webpage to announce the publication of supplementary Directions which confirm that a firm may withdraw its notification to enter the TPR in writing to the FCA before exit day. In this case, such firm will not enter the TPR.

The PRA previously published an equivalent direction for dual authorised firms.


Update posted: 24 March 2019

By Anna Davis

FCA Dear CEO letter on managing risks of DB to DC transfers

On 22 March, the FCA published a Dear CEO letter following the conclusion of its review of pension providers which was part of its work to evaluate and reduce the risks of harm to consumers arising from the transfer of funds from their defined benefit (DB) schemes to defined contribution (DC) products.

The letter sets out what the FCA expects of pension providers when designing, marketing and providing pension products in the following areas (although the expectations are likely to also be relevant for providers of non-pension products):

  • Product design and target market
  • The information given to distributors
  • Procedures to check FCA permissions of advisers
  • Management Information
  • Remuneration structures
  • Governance and risk management, and
  • Documentation and tools.

The FCA expect providers to gain assurance that they have appropriately implemented and fully comply with the recommendations of PROD, the RPPD and all relevant rules and regulations.


Update posted: 24 March 2019

By Anna Davis

FCA Speech – Brexit and Beyond

Amongst many other things, in her speech delivered by to the City and Financial 4th UK Financial Services Brexit Summit on 21 March, Nausicaa Delfas, Executive Director of International at the FCA, flagged some residual risks, despite all the regulatory work seeking to avoid the ‘cliff-edge’ risk of a no-deal Brexit.

  • UK and global banks are transferring activities to EU-incorporated entities, but are to some extent dependent on their clients agreeing to move contracts to these new entities; the FCA is aware there is varying progress with this.
  • The process of migrating businesses, assets and contracts in a short period could pose operational risks.
  • The issue of contract continuity. The EU does not have a pan-European equivalent to the UK’s Temporary Permissions and Financial Services Contracts regimes. While some Member States are taking action, and firms are taking their own action, there are likely to be some remaining areas where the legal risks relating to the ongoing service of existing customers have not been fully mitigated.
  • There are the implications of a lack of equivalence in certain areas. For example, the EU’s trading obligation for shares and derivatives will require EU firms to trade these instruments on EU or equivalent venues.

As regards the third bullet in particular, the FCA is encouraging firms to take the steps they can to act lawfully and consistent with local regulators’ expectations, and equally to ensure their decisions are guided by what is the right outcome for consumers, recognising that it will often be a poor outcome for consumers if firms simply stop servicing them.

Nausicaa’s overriding message was that we will continue to work in pragmatic way with firms, and firms should raise any concerns or issues with the FCA, as early as possible.


Update posted: 15 March 2019

By Anna Davis

FCA fines The Carphone Warehouse £29 million for insurance misselling

On 13 March 2019, the FCA published its final notice to The Carphone Warehouse Ltd (CPW), fining it £29,107,600 for failings that led to the misselling of its mobile phone insurance and technical support product, 'Geek Squad'.

The FCA found that, between 1 December 2008 and 30 June 2015, CPW breached Principle 3 (Management and control), Principle 6 (Customers' interests) and Principle 9 (Customers: relationships of trust) of the FCA's Principles for Businesses. During the relevant period, CPW made regulated sales of Geek Squad policies worth c. £445 million.

CPW operated an advised sales process for Geek Squad, but failed to equip its sales consultant properly to establish the customer’s demands and needs and to undertake an assessment of whether Geek Squad was suitable for the customer. In particular:

  • The focus of the training given to sales consultants was on selling Geek Squad. They were not trained to properly assess a customer’s demands and needs and to make a suitable recommendation. Instead, they were trained to ask questions in order to help identify reasons why the customer 'needed' Geek Squad, in order to persuade them to purchase it.
  • Insufficient guidance was provided to sales consultants on circumstances where it may not be appropriate to recommend Geek Squad.
  • Sales consultants were trained in 'objection handling', which undermined the advised sales process, and to encourage customers to purchase Geek Squad and to cancel it within 14 days if they found that they did not need it. This created a risk that customers would purchase insurance that they did not need and would be exposed to the risk of paying for it if they did not cancel in time.
  • Sales consultants were not trained to tell customers that they were making a personal recommendation, or that there was only one kind of insurance policy that they could sell, despite an obligation to do so. As a result, there was a risk that customers would not understand that they should disclose relevant information to help the sales consultant provide proper advice, and they would not have been aware of the limitations on the scope of the advice that the sales consultant was able to give.

These failings created a risk that CPW’s sales consultants would fail to give suitable advice to customers. It is evident from cancellation calls received by CPW that this risk crystallised during the relevant period with customers confirming that they had been pressured into purchasing Geek Squad, told it was compulsory or sold on the basis that it could be cancelled at a later date. For example, one customer stated “I just want to cancel the policy. I had to take it on because when I got a new phone…it was shop policy to get it and I’ve been told I can cancel it if I needed to”.

A committee of CPW’s Board was ultimately responsible for the compliance of CPW’s advised sales of Geek Squad. It relied on MI which was flawed, and as a result the Committee was not provided with sufficient information to be able to identify and/or address the risk of mis-selling.

Furthermore, CPW’s systems and controls for handling complaints were defective, and CPW did not properly investigate and fairly consider complaints.


Update posted: 12 March 2019

By Anna Davis

Brexit update – FCA Briefings

This week we attended the FCA’s London Brexit Briefing. The FCA covered the following aspects of its approach to managing the impact of Brexit and how it may affect firms:

  • passporting rights
  • the Temporary Permissions regime and the Financial Services Contracts Regime
  • Investment Funds
  • UK branches of overseas firms
  • MiFID, GDPR and the Shareholder’s Rights Directive II
  • the FCA’s transitional powers
  • consumers
  • trading venues.

The key takeaways for firms from the FCA were as follows:

  • know how your firm will be affected and take legal advice if necessary
  • understand all issues that will affect your firm
  • clearly communicate any changes to affected customers.

If we can assist in your firms’ preparations for Brexit, please do let us know.


Update posted: 8 March 2018

By Alex Gillespie

Dear CEO Letter: Loan-based P2P crowdfunding platforms asked to review wind-down arrangements

The FCA has written a Dear CEO letter to firms operating loan-based peer-to-peer ("P2P”) crowdfunding platforms requesting they review their wind-down arrangements.

The FCA is concerned that some operators of P2P platforms have inadequate wind-down arrangements which could cause considerable harm to consumers if the operator ceased to provide management and administration services for existing P2P agreements. In such an eventuality, investors might not receive some or all of the loan repayments or might otherwise need to recover repayments directly from the borrowers (which may not be economically viable where the investor has P2P agreements with a large number of borrowers).

The FCA reminds firms of their obligations under SYSC 4.1.8AR to take reasonable steps to ensure they have arrangements in place to ensure that P2P agreements will continue to be managed and administered if the platform ceases to operate. The FCA has identified the following three main areas requiring urgent attention:

  1. Systems and controls relating to wind-down: The FCA believes that some firms are not taking reasonable steps to put wind-down arrangements in place. The FCA recommends that firms consider the FCA’s Wind-down Planning Guide when reviewing its wind-down plans (WDPs”). As part of its planning, firms should (amongst other things) develop realistic scenarios in which its business would no longer be viable and identify and monitor the triggers that would invoke an orderly wind-down.
  1. Platform funding and remuneration models: Firms should consider how their WDPs will be funded. The FCA is concerned that some platforms are likely to experience a dwindling amount of fee and spread income from the loan books they manage. Consequently, it may make it difficult to sell the P2P platform to potential buyers and ensure the continued management and administration of existing P2P agreements. The FCA therefore expects all WDPs to include how expenses of a wind-down will be covered.
  1. Third-party permissions required for wind-down: Where WDPs include entering into an arrangement with another firm to take over the management and administration of P2P agreements, the FCA expects the firm to consider both (i) what regulated activities the other firm would be carrying out if the wind-down arrangements were initiated and (ii) whether the other firm has the appropriate permissions to carry out those activities.

The Dear CEO Letter follows the FCA’s consultation last year on loan based and investment based crowdfunding platforms (CP 18/20), in which the FCA expressed some concerns over wind-down arrangements. The FCA’s policy statement is expected in the second quarter of this year.


Update posted: 1 March 2019

By Heather Musk

The FCA provides some clarity on Brexit requirements following CPs

Following the recent flurry of CPs, in the run up to the 29 March 2019 ('Exit Day') the FCA has published PS19/5, its Brexit policy statement, to provide some additional clarity on what would happen for UK financial services if the UK leaves the EU without a withdrawal deal or implementation period (i.e. 'no-deal'). The PS also adds in some additional changes required to ensure the Handbook is operable on Exit Day. The FCA have provided that they are continuing to maintain the same approach, i.e. 'treating the EU and its Member States in the same was as non-EU or third countries after exit day.'

As a recap on the CPs that have been issued prior to this PS, the FCA has published the following CP to consult on the impact of Brexit to date:

  • CP18/28 - Brexit – Changes to Handbook and Binding Technical Standards ('BTS')
  • CP18/29 - TPR for inbound firms and funds
  • CP18/34 - Regulatory fees and levies for 2019/20
  • CP18/36 - Brexit – Changes to Handbook and BTS
  • CP19/2 - Brexit and contractual continuity.

A theme of the responses the FCA received was the concern that there was insufficient time to comply with the requirements and the lack of clarity on the transitional relief available for certain parties. In addition, there are other practical changes that will need to be made to the Handbook such as removing references to sharing information with European Supervisory Authorities, references to the official language of the Member State or to information being submitted in languages other than English etc. Apart from certain matters that were not dealt with by the CPs, the PS provides confirmation that the majority of proposals raised in the CPs will be proceeded with.


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Update posted: 28 February 2019

By Heather Musk

CMA consults on expanding scope of market investigation to include pre-paid funeral plans

On 28 February 2019, the CMA published a consultation seeking views on whether, if it decided to make a market investigation reference, the scope of that reference should funeral services supplied by funeral directors in the United Kingdom arising from the redemption of pre-paid funeral plans.

Originally the market study notice issued by the CMA (1 June 2018) was not intended to include such services but following feedback that the CMA has received it is seeking views on whether the review should be opened up to also include them. The CMA is requesting responses on this point up until the 13 March 2019.

The reason for the original market study notice was concerns regarding: high funeral prices; significant price increases; price differentials; lack of transparency about pricing; difficulties in comparing funeral packages; and consumer protection concerns in relation to pre-aid funeral plans. On 29 November 2018, the CMA published its interim report; it considered that the statutory test for a market investigation reference are met.

Alongside the CMA review the Government consulted in June 2018 on reviewing and strengthening the regulation in the sector by bringing all pre-paid funeral plans into the remit of the FCA. The matters that the Government intend to focus on are: (i) how the pre-paid funeral plan market currently operates; (ii) the potential risk of consumer detriment under the current regulatory framework; and (iii) the initial policy proposal to amend the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) to allow for additional regulation of the sector by the FCA.


Update posted: 22 February 2019

By Heather Musk

Ban on cold-calling for pensions

The Privacy and Electronic Communications (Amendment) (No.2) Regulations came into force in January 2019. They introduce a ban for cold calling in relation to pensions, with certain exclusions.

In particular the regulations introduce restrictions on ‘calls for direct marketing in relation to pension schemes’. This includes:

  • the marketing of a product or service to be acquired using funds held, or previously held, in a pension scheme
  • the offer of any advice or other service that promotes, or promotes the consideration of, the withdrawal or transfer of funds from a pension scheme
  • the offer of any advice or other service to enable the assessment of the performance of a pension scheme (including its performance in comparison with other forms of investment).

‘Public electronic communications services’ cannot be used to make unsolicited calls for the purposes of direct marketing in relation to pension schemes, except in certain situations.

Such situations include:

  • if the caller is an authorised person or a person who is the trustee or manager of a pension scheme
  • the recipient has previously notified the caller that for the time being she/he consents to such calls being made by the caller on that line
  • if there is an existing client relationship with the caller such that the recipient might reasonably envisage receiving unsolicited calls for the purpose of direct marketing in relation to pension schemes; and the recipient of the call has been given a simple means of refusing (free of charge except for the costs of the transmission of the refusal).

Failure to comply with these new requirements in relation to cold calling, may be liable to pay compensation to the victim and may be subject to enforcement action by the Information Commissioner’s Office under the Data Protection Act 1998. Potential fines for breach extend to £500,000 and an enforcement notice.

Please read more regarding the pensions cold calling ban in the following article: The long awaited ban on cold-calling in relation to pensions comes into force.


Update posted: 20 February 2019

By Anna Davis

Brexit update – Insurance

On 19 February 2019, EIOPA published recommendations providing guidance to national competent authorities (NCAs) on the treatment of UK and Gibralta insurers and distributors providing cross-border services in the EU in the event of a no-deal Brexit.

The general objective of the recommendations is to foster convergence and consistent supervisory approaches in the treatment of UK insurance undertakings and distributors across Member States by setting out guidance on the application of the existing legal framework considering arrangements between EU and non-EU counterparties.

The recommendations relate to such matters as:

Orderly run-off - NCAs should provide a legal mechanism to facilitate the orderly run-off of cross-border business, or they should require the insurers to become authorised in the EU. NCAs should prevent UK insurers from undertaking new cross border business without authorisaton. This is without prejudice to policyholder rights to exercise an option or right in an existing insurance contract to realise their pension benefits.

NCAs should make every effort to supervise the cross-border business of UK insurance undertakings in their jurisdictions. The supervision should be risk-based and take into account proportionality.

Authorisation of third-country branches - UK insurance undertakings may seek authorisation to carry out cross-border business through a branch in a Member State. In assessing whether the legal conditions for the authorisation of such a branch are fulfilled, NCAs should apply the principle of proportionality and take into account that the UK insurance undertaking was subject to Solvency II requirements before the UK’s withdrawal. Where it would accelerate the authorisation procedure, NCAs should consider restricting the authorisation of the branch to the run-off of existing business.

Portfolio transfers – NCAs should allow the finalisation of portfolio transfers from UK to EU27 insurance undertakings, provided that it was initiated before the withdrawal date.

Change in the residence or establishment of a policyholder - Where a UK policyholder concluded a life insurance contract (or a general insurance contract, other than buildings, contents or motor) with a UK insurance undertaking and afterwards changed its residence to a EU27 Member State, NCAs should take into account in the supervisory review that the insurance contract was concluded in the UK and the UK insurance undertaking did not provide cross-border services for the EU27 for this contract.

Communication to policyholders and beneficiaries - UK insurance undertakings with cross-border business in the EU27 must disclose to the policyholders and beneficiaries of those contracts, the consequences of Brexit on their rights and obligations. NCAs should remove the UK insurance undertakings from the national register of insurance undertakings on Exit Day and inform the public about the legal framework applicable to the cross-border business of UK insurance undertakings.

Distribution activities – NCAs should ensure that UK intermediaries and entities which intend to continue or commence distribution activities to EU27 policyholders and for EU27 risks after the UK’s withdrawal are established and registered in the EU27 in line with the relevant provisions of the IDD. NCAs should ensure that intermediaries demonstrate an appropriate level of corporate substance, proportionate to the nature, scale and complexity of their business; they should not be empty shells. Moreover, the professional and organisational requirements of the IDD must be met on a continuous basis. This is without prejudice to the right of the Member States to introduce special provisions in their national law for third country intermediaries, provided that equal treatment of intermediaries on the respective market is guaranteed.


Update posted: 16 February 2019

By Anna Davis

Brexit update – FCA Briefings

The FCA is hosting two briefings in March for regulated firms in preparation for Brexit. These will take place in London and Edinburgh with live webcasts.

Nausicaa Delfas, Executive Director of International, will explain how the FCA has been preparing for Brexit and its expectations of firms, and there will be a panel Q&A session. Two representatives per firm may attend in person, but there is no limit to the numbers who can attend the webcast.

You can register to attend, either in person or via a webcast (where you can also submit questions in advance for the Q&A session).

We will be attending so watch this space for further updates.


Update posted: 15 February 2019

By Anna Davis

Berkeley Burke granted permission to appeal

On 13 February 2019, the Court of Appeal updated its civil appeals case tracker to indicate that permission to appeal the High Court's decision in Berkeley Burke SIPP Administration Ltd v Financial Ombudsman Service Ltd [2018] EWHC 2878 has been granted.

You will recall that the High Court dismissed Berkeley Burke’s claim for judicial review of the final FOS decision a regarding a complaint against it, which related to Berkeley Burke’s acceptance of its customer’s (Mr Charlton’s) instruction to invest in (it later emerged) a fraudulent 'green oil' scheme in Cambodia. The FOS upheld Mr Charlton’s complaint that Berkeley Burke had not acting fairly and reasonably by accepting Mr Charlton’s instruction. Berkeley Burke subsequently applied for judicial review of the FOS’s finding, which was dismissed in October.


 Update posted: 7 February 2019

By Anna Davis

The latest on the Senior Managers & Certification Regime – CP19/4

On 23 January the FCA published a further consultation paper on SM&CR, designed to provide extra clarity on the regime and set out the feedback received to DP16/4 (its discussion paper entitled 'Overall responsibility and the legal function').

FCA made ‘near-final’ rules on the SM&CR in July 2018. When consulting the FCA identified certain areas where further change was needed; the proposals for those changes are now set out in CP19/4.

In summary, the changes relate to:

  • clarifying the application of the SM&CR to the Legal Function
  • amending the intermediary revenue criterion for the Enhanced Regime
  • amendments to the Certification Regime
    • amending the scope of the Client Dealing Function
    • clarifying the application of the Certification Regime to systems and controls roles along with several more minor proposed amendments to the SM&CR (including changes to align the SM&CR regime for solo-regulated firms with the equivalent regime for insurers).

When SM&CR was introduced for banking firms, there was a lack of clarity (and, it has to be said, some concern) about how the concept of Overall Responsibility and the SMF18 applied to the legal function, if at all. You may recall our article on this from 2016. In CP19/4, FCA has confirmed that, having considered the responses to DP16/4, it proposes to exclude the Head of Legal from the requirement to be approved as a Senior Manager. The rules in CP19/4 won’t come into force until 9 December 2019, but insurers and banking firms can rely on the FCA’s statement on the Legal Function when considering how overall responsibility applies to their legal function until then.

The deadline for responses to CP19/4 is 23 April 2019.


 Update posted: 7 February 2019

By Anna Davis

Brexit update – temporary transitional power

The Treasury has published draft legislation that would temporarily empower the FCA and the PRA to make transitional provisions if the UK leaves the EU without an agreement in place.

The Treasury has already introduced various transitional regimes and arrangements within financial services legislation made under the EU (Withdrawal) Act 2018; the FCA previous stated that it did not expect firms to prepare now to implement changes under the Act from exit day. The new temporary transitional power will allow the regulators to make transitional provisions connected to these changes. The intention is for this power to be used broadly to ensure that firms and other regulated entities can generally continue to comply with their regulatory obligations as they did before exit day for a temporary period.

However, the FCA has identified some areas where such transitional relief will not be granted and as such, firms should begin preparing to comply with changed obligations now. 


Update posted: 7 February 2019

By Anna Davis

Brexit update - passporting

Incoming EEA firms

As you will all know, the UK and the EU agreed on an implementation period as part of the draft withdrawal agreement, during which time (from exit day until the end of December 2020), EU law (including the passporting regimes) would continue to apply in the UK. However, in the event that a withdrawal agreement cannot be agreed and we face a no-deal Brexit, the passporting regimes will no longer apply to the UK.

As such, a temporary permissions regime (TPR) has been put in place, which will allow incoming firms who plan to continue to do business in the UK to continue to use their passports for a limited period (likely three years) while they seek full UK authorisation. It will also allow funds with a passport to continue temporary marketing in the UK. Incoming firms which wish to enter the TPR must notify the FCA. The notification window opened on 7 January and closes at the end of 28 March. FCA has also consulted on the rules it intends to apply to incoming firms and funds in the regime (see CP18/29 and CP18/36) and so those wishing to enter the TPR should start to consider any changes they might need to make in this event.

For incoming firms planning not to continue business in the UK after Brexit, the Financial Services Contracts Regime may be relevant. The regime is a set of run-off mechanisms that will allow incoming firms who will not write any new business in the UK to service their existing clients for a limited period (of up to five years) after Brexit.

Outgoing UK firms

UK investment firms providing services to professional clients or eligible counterparties in the Netherlands will be pleased to know that the Dutch Ministry of Finance has announced its own temporary permissions regime which will allow such firms to continue servicing their clients in the event of a no-deal Brexit. As in the UK, a notification will need to be submitted to the Netherlands Authority for the Financial Markets if a firm wishes to enter this regime.

We understand Italy has also announced it is preparing a similar regime for UK banks, insurers and other financial services firms who passport into Italy.


 Update posted: 7 February 2019

By Anna Davis

Permitted Links

The FCA has published consultation CP18/40 regarding changes to the existing permitted links framework to allow investment in 'patient capital'. The current rules can be found in COBS 21 and apply to insurers providing linked long-term contracts of insurance. The deadline for responses to CP18/40 is 28 February 2019.

Patient capital is the name given to investment in illiquid assets such as infrastructure, corporate loans and venture capital that aim to deliver long-term returns. They, in theory, should be a popular form of investment for pension schemes, but the current permitted links rules have had the consequence of preventing investors from accessing such assets via linked insurance contracts such as trustee investment plans (or TIPs).

Insurers providing investments for registered pension schemes and wishing to expand their offering following the introduction of the new rules may want to take into account the requirements in the relevant pensions legislation, which apply at the pension scheme level. Even with these restrictions, the proposed FCA changes will represent a significant expansion of the investment options available.

You can find our fuller briefing on the changes proposed here.


Update posted: 7 February 2019

By Anna Davis

Transparency Taskforce Symposium

On Wednesday 16 January, we were delighted to host the Transparency Taskforce’s symposium on the Competition and Markets Authority’s (CMA) final report on the Investment Consulting and Fiduciary Management Markets. The aim of the Transparency Taskforce is to increase the level of transparency in financial services around the world by bringing interested parties together to discuss problems affecting the industry.

Representatives from the CMA, the FCA, the Pensions Regulator, the financial services and pension industries, and investors were all in attendance. A welcome speech from Chris Worrall kicked off a day of talks and discussion on the CMA’s report, including a presentation from the CMA on the findings of its investigation into the investment consultancy and fiduciary management industries and its proposed remedies for dealing with obstacles to fair competition. Considerable debate across a number of roundtables followed on more controversial areas of the CMA’s report, such as whether all trustee tenders for fiduciary managers be open-ended.

You can find more information here.

You can also read our summary article on the CMA’s final report here.

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