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.

20 February 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: 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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