Financial Services SpeedRead 18 August 2021

1. FCA publishes revised direction on the application for ROIE status

In September 2018, the FCA published a direction clarifying its expectations of EEA market operators wishing to apply for recognised overseas investment exchange (ROIE) status to continue access to UK markets post-Brexit. To facilitate the transition, this direction streamlined the application requirements for EEA market operator applicants.

On 4 August 2021, the FCA updated its application for ROIE status direction to remove this temporary measure. The revised direction to remove this temporary measure. The revised direction clarifies the FCA's expectations for new applications by all overseas investment exchanges.

2. US Securities and Exchange Commission, FCA and Bank of England enter into memorandum of understanding

On 11 August 2021, the US Securities and Exchange Commission, the FCA and the Bank of England (together, the Authorities) entered into a memorandum of understanding (MOU) on the consultation, cooperation and exchange of information in the supervision of certain OTC derivatives entities that operate on a cross-border basis in the US and the UK.

Through the MOU, the Authorities intend to cooperate with each other to help facilitate compliance of the entities covered by the MOU with particular US requirements. This is to be achieved through substituted compliance with certain provisions under the laws of the UK and supervision and enforcement by the SEC of its laws and regulations.

The MOU states that it is intended to advance the Authorities' interests in fulfilling their respective regulatory mandates, particularly in the areas of investor protection; maintenance of fair, orderly and efficient OTC derivatives markets; capital formation; and mitigation of systemic risk.

3. Delegated legislation integrating sustainability into UCITS Directive, AIFMD, MiFID II, Solvency II and IDD

On 2 August 2021, five EU Commission Delegated Regulations and one EU Commission Delegated Directive, collectively forming part of the EU Commission's work on sustainable finance, were published in the Official Journal:

• Commission Delegated Regulation (EU) 2021/1253 amending Delegated Regulation (EU) 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms. Delegated Regulation (EU) 2017/565 supplements the MiFID II Directive;
• Commission Delegated Regulation (EU) 2021/1254 correcting Delegated Regulation (EU) 2017/565 supplementing the MiFID II Directive as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of the MiFID II Directive;
• Commission Delegated Regulation (EU) 2021/1255 amending Delegated Regulation (EU) 231/2013 as regards the sustainability risks and sustainability factors to be taken into account by alternative investment fund managers. Delegated Regulation (EU) 231/2013 supplements the Alternative Investment Fund Managers Directive;
• Commission Delegated Regulation (EU) 2021/1256 amending Delegated Regulation (EU) 2015/35 as regards the integration of sustainability risks in the governance of insurance and reinsurance undertakings. Delegated Regulation (EU) 2015/35 supplements the Solvency II Directive;
• Commission Delegated Regulation (EU) 2021/1257 amending Delegated Regulations (EU) 2017/2358 and (EU) 2017/2359 as regards the integration of sustainability factors, risks and preferences into the product oversight and governance requirements for insurance undertakings and insurance distributors and into the rules on conduct of business and investment advice for insurance-based investment products. Delegated Regulation (EU) 2017/2358 and Delegated Regulation (EU) 2017/2359 supplement the Insurance Distribution Directive; and
• Commission Delegated Directive (EU) 2021/1270 amending Directive 2010/43/EU as regards the sustainability risks and sustainability factors to be taken into account for UCITS. Directive 2010/43/EU supplements the UCITS Directive.

On 11 August 2021, the EU Commission further published Commission Delegated Directive (EU) 2021/1269 amending Delegated Directive (EU) 2017/593 as regards the integration of sustainability factors into the product governance obligations. Delegated Directive (EU) 2017/593 supplements the MiFID II Directive.

The Delegated Regulations and Directive enter into force on 20 days after publication in the Official Journal. Delegated Regulations (EU) 2021/1253, (EU) 2021/1255, (EU) 2021/1256 and (EU) 2021/1257 will apply from 2 August 2022.

4. FCA board minutes on discussion of topical issues

The FCA Board minutes of 24 June 2021 state that Mr Nikhil Rathi, CEO of the FCA, briefed the board on a number of topical issues. We summarise his briefing below.

• Google: Google intends to change its terms and conditions, requiring those wishing to run Google advertisements that relate to financial products or services to be authorised by the FCA or to have their advertisements approved by an FCA-authorised firm. Google plans to consult on the requirement during July and August 2021, with the intention of the requirement coming in to force from September 2021. The Board is keen to be kept updated regarding these measures including evidence of their effectiveness
• Access to cash: the FCA and the Payment Systems Regulator are working together to submit a joint response to HM Treasury's Access to Cash consultation. The changing economics and usage of branches, exacerbated by the Covid-19 pandemic, are acknowledged and the Board decides that these should be further considered by the Risk Committee.
• E-payment firms: in relation to the risks associated with the current supervisory approach focussed on safeguarding, the Board notes that additional resources are being sought to bolster this approach.
• Use it or lose it: in progressing the pilot, the team is considering how best to optimise the use of data when triaging and prioritising activity in this area. The Board is also keen to explore the options to address failure to submit or poor-quality regulatory returns.
• Document Management Transformation: senior engagement continues to ensure the momentum of the project. The Board acknowledges the tight delivery timetable and the accompanying risks.

No updates for this fortnight's edition of the FSS.

5. ESMA publishes official translations of its guidelines for funds' marketing communications under the Regulation on the cross-border distribution of collective investment undertakings

On 2 August 2021, ESMA published the English language version of its guidelines for funds marketing communications under Article 4 of the Regulation on the cross-border distribution of collective investment undertakings.

ESMA notes that the aim of these guidelines is to specify the requirements for marketing communications sent to investors to promote UCITS and alternative investment funds, including European social entrepreneurship funds, European venture capital funds and European long-term investment funds. Among other obligations, marketing communications must be identifiable as such and contain clear, fair and not misleading information, taking into account the online aspects of marketing communications.

The guidelines will apply from February 2022. See our previous briefing on the guidelines here.

6. FCA publishes 'Dear Chair of the Remuneration Committee' letter on remuneration

On 3 August 2021, the FCA published a 'Dear Chair of the Remuneration Committee' letter, setting out its approach to remuneration and highlighting some areas for Remuneration Committees to consider. We summarise the key points below. Please refer to our previous briefing for further details.

• The FCA states that the role of the Remuneration Committee Chair remains critical in ensuring that the firm's remuneration policy and approach to paying variable remuneration adapts and evolves in the continuing context of the Covid-19 pandemic.

• The Senior Managers and Certification Regime is a key tool in ensuring high standards of conduct and culture within firms and can provide a clear and evidenced link between behaviours and remuneration outcomes. Hence, the Remuneration Committee has a crucial role in ensuring that the remuneration policy supports and connects remuneration outcomes to the firm's strategic priorities, purpose and values.

• The FCA recognise the steps firms have already taken to embed diversity and inclusion, but notes that there is much more that needs to be done. The FCA urges firms to review pay data across all protected characteristics.
• The FCA states that it will continue to engage internationally on remuneration, in particular as a member and as chair of the Financial Stability Board's Compensation Monitoring and Contact Group.

7. ESMA updates Q&As on Market Abuse Regulation

On 6 August 2021, ESMA updated its Q&As on the Market Abuse Regulation (MAR). Specifically, ESMA inserted answers to the following new questions, all dealing with the disclosure of inside information:

• Q5.8: interaction between MAR and Credit Rating Agencies Regulation;
• Q5.9: disclosure to the public of credit ratings and inside information; and
• Q5.10: distribution of subscription ratings and disclosure of inside information.

In the Q&As, ESMA confirmed that:

• credit ratings, rating outlooks and information relating thereto are presumed to be inside information until their disclosure to the public;
• credit ratings, rating outlooks and information relating thereto will no longer to be considered inside information once published on the public website of the credit rating agency; and
• once credit ratings are disclosed by a credit rating agency to a distribution list of subscribers, the credit ratings are no longer considered to be inside information.

8. FCA publishes portfolio letter on investment-based crowdfunding

On 17 August 2021, the FCA issued a portfolio strategy letter, dated 2 July 2021, on investment-based crowdfunding. This follows a similar letter issued by the FCA in February 2020. In the letter, the FCA states that it wants firms operating in this sector to promote investment opportunities appropriately so that consumers understand the risks posed.

The FCA identifies the following key risks and expectations of firms:

• Inappropriate investments: the FCA considers that too many consumers are still investing in inappropriate high-risk investments, with many paying insufficient attention during the client categorisation process. The FCA also expresses concern about the risks posed by consumers holding more than 10 per cent of their investment portfolio in high-risk and speculative investments. The FCA sets out its expectations of firms and reminds them of FCA rules, in particular the FCA's COB rule 7.1 and principle 8 of the FCA's Principles for Businesses.
• Scams: the FCA notes the risks of fraud and investment scams to consumers arising from lack of due diligence when hosting investments and approving financial promotions. It highlights the importance of firms understanding the risks present in their business model and having appropriate safeguards in place.
• Appointed Representatives oversight: the FCA expects firms to have robust systems and controls in place for the oversight of activities of appointed representatives in order to lessen risks posed to consumers.
• Disorderly firm failure: the FCA notes that there is a risk of firms failing in a disorderly way, owing to the fact that firms operating in this sector are predominately loss making.

9. Bank of International Settlements and Monetary Authority of Singapore publish blueprint for instant cross-border payments

On 16 August 2021, the Bank for International Settlements and the Monetary Authority of Singapore published Project Nexus, a blueprint for linking domestic real-time payment systems to cross-border payment platforms, which is aimed at enabling real-time transfers in the next two to four years. Under the proposed model, any country can join by adopting technical and governance requirements, removing the need for countries to negotiate with each jurisdiction. The development of the blueprint included extensive consultation with central banks and financial institutions globally.

10. Six major UK banks commit to deliver Confirmation of Payee extended capability

On 25 June 2021, in response to a recent call for views from the Payment Systems Regulator (PSR), the SD10 firms, a group of six major UK banks including Lloyds Banking Group, Bank of Scotland, Barclays, HSBC, NatWest, Nationwide and Santander, which were initially directed by the PSR to introduce Confirmation of Payee checks for Faster Payments and CHAPS transactions, wrote to the PSR to provide a public commitment to deliver the necessary Confirmation of Payee role profile by the end of 2021.

No updates included for this fortnight's edition of the FSS.