Financial Services Speedread 25 May 2022

No updates for this edition of the FSS.

1. Council of the EU Press Release on European long-term investment funds

On 24 May 2022, the Council of the EU issued a press release adopting its position on European long-term investment funds ("ELTIFs") in order to improve the regulation of these and "facilitate long-term investment in the real economy".

The Council has highlighted a discrepancy in the advantages of ELTIFs, in that they are the only type of funds dedicated to long-term investments which can be distributed on a cross-border basis to both professional and retail investors, and their limited adoption (in only four member states) due to the constraints on distribution and portfolio composition.

As a result of this, the Council will be conducting a review to:

• make ELTIFS more attractive for asset managers (for example, by updating the scope of eligible assets); and
• to make it easier for retail investors to invest in ELTIFs (for example, by removing the EUR 10,000 investment limit).

The Council will enter negotiations with the European Parliament to agree a final version of the text.

2. ESMA publishes consultation paper on draft technical standards on the notifications for cross-border marketing and cross-border management of AIFs and UCITS

On 17 May 2022, ESMA published its consultation paper on the information and templates to be provided, and used by firms, when they inform regulators of their cross-border marketing and management activities under the UCITS Directive and the AIFMD.

The purpose of the consultation is to facilitate the process for notifying cross-border marketing and management activities in relation to UCITS and AIFs. This will be achieved by defining harmonised information to be notified to competent authorities, and developing common templates to be used by management companies, UCITS and AIFMs.

The closing date for responses to the consultation is 9 September 2022 and following this consultation period, the draft RTS and ITS will be finalised and submitted to the European Commission.

3. ESMA: Public statement: Actions to manage the impact of the Russian invasion of Ukraine on investment fund portfolios

On 16 May 2022, ESMA issued a public statement on actions to manage the impact of the Ukraine crisis on investment fund portfolios. The statement sets out general principles and actions for EU fund managers in the case of exposures to Russian, Belarusian and Ukrainian assets. This includes a discussion of possible liquidity management tools such as side pockets.

The FCA consulted on the possible use of side pockets by asset managers (please see entry 5 of the Ashurst FSS edition week ending 12 May 2022) in light of the Ukraine crisis.

4. Boosting socio-economic diversity at senior levels in financial services: website of Progress Together launched

On 22 May 2022, the City of London Corporation published a webpage in respect of a new membership body, Progress Together.

Progress Together was launched to improve socio-economic diversity at senior levels across UK financial services. This is in response to research suggesting that employees from non-professional backgrounds are 30% less likely to be working at a senior level compared with colleagues from professional backgrounds. In November 2020, the HM Treasury and BEIS commissioned the City of London Corporation to set up an independent taskforce to address this issue. The body will seek to improve socio-economic diversity through workshops, firm to firm mentoring and benchmarking.

5. The FCA publishes market watch 69 on market conduct and transaction reporting issues

On 17 May 2022, the FCA published market watch 69 in relation to market conduct and transaction reporting issues ("Market Watch 69").

The FCA, amongst other things, observed that:

• the most effective market abuse risk assessments are those which involve consideration of the different types of market abuse and how they apply across different areas of the business and asset classes;
• some firms do not consider different types of market abuse, the different areas of business in which they operate, how that business is undertaken, and the different asset classes and instruments traded, and as a result they may not be able to adequately identify market abuse risks and align their monitoring programme to them to ensure effective surveillance;
• surveillance arrangements are improving across the industry, however, there continues to be variance;
• some firms have clear, detailed and up-to-date policies and procedures for monitoring market abuse and it appears these may provide a helpful reference point for staff and assist with work in areas such as alert review and escalation although others were vague with limited detail;
• some firms outsource aspects of their surveillance to another part of their organisation, or to a separate organisation and whilst the FCA recognises that there may be organisational benefits in these arrangements, in some cases, there is a limited understanding and / or oversight of the surveillance taking place;
• firms should consider whether their market abuse training is effective and tailored to the risks associated with the desk, asset classes traded, client types and other relevant factors. The FCA also added that front office staff may benefit from clear escalation policies and senior management support in helping them in making appropriate decisions; and
• all the firms asked to complete questionnaires since the FCA published the Chapter 8 of the Financial Crime Guide said that they have read the guide and have policies in place.

6. PSR Consultation Paper: Confirmation of Payee: Requirements for further participation in CoP

On 24 May 2022, the Payment Systems Regulator ("PSR") issued a consultation paper to allow the PSR to give a specific direction to payment service providers ("PSPs") to implement a system to offer confirmation of payee ("CoP") to the customers of PSPs.

As per the associated webpage the consultation sets out the PSR's plans to direct 400 or more firms to introduce CoP security measures in two groups:

• Group 1: this will be a group prioritised based on complexity and size of the institution and / or firms where the adoption of CoP would have the biggest impact in preventing authorised push payment scams; and
• Group 2: this will be a group including all other firms which use unique sort codes or are building societies using a secondary data reference type.

Firms can respond to the consultation in order to give their opinions on the workability of the proposals for the direction and industry capacity for implementation of CoP systems.

The consultation closes on 8 July 2022.

7. HM Treasury: Access to Cash Consultation, Summary of responses

On 19 May 2022, HM Treasury issued a summary of responses in respect of its July 2021 consultation on legislative proposals for maintaining access to cash. This was in response to concerns that despite the transition to digital payments as the main method of payment, measures were needed to safeguard access to cash for sections of the UK that still rely on cash in their daily lives (including more vulnerable members of society). The Government notes that decline in cash usage was heightened by the COVID 19 pandemic and refers to a number initiatives that have arisen to maintain access to cash that have been facilitated via the Cash Action Group (a body consisting of major retail banks and building societies).

In the summary of responses the Government confirms that it will:

• proceed with its proposals to enable HM Treasury to specify geographic baselines for reasonable access to cash withdrawal and deposit facilities across the UK (with distances for deposit facilities likely to be greater in light of increased cost for providing depositing facilities);
• provide HM Treasury with powers to designate firms to bring them in scope of requirements under legislation (this will be based on factors such as a firms’ geographic coverage, distribution of consumers, and share of the UK payments account market); and
• to appoint the FCA as the lead regulator for retail access to cash, with powers for ensuring designated firms continue to provide deposit and withdrawal facilities across the UK.

In an accompanying press release, the Government confirms that measures to protect access to cash will be legislated for in the upcoming Financial Services and Markets Bill referenced in the Queens Speech.

8. FCA: Updated webpage: Payment Accounts Regulations: Linked Services List

On 18 May 2022, the FCA updated its webpage in respect of its 'Linked Services List'. Under the Payment Accounts Regulations 2015 ("PARs"), the FCA is required to maintain and publish a list of the most representative services linked to payment accounts that are subject to a fee in the UK. The Linked Services List includes standard terms and definitions to describe the linked services, which providers of payment accounts must use where applicable. The FCA completed its review of the Linked Services List in April 2022 and confirmed that it would not be updating the list, as it considers that the list continues to meet the statutory requirements.

The FCA confirms:

• PSPs do not need to take any action by way of next steps;
• following the UK's withdrawal from the EU, the FCA is no longer bound to use the standardised terminology set out in regulatory technical standards adopted by the European Commission; and
• the next review of the Linked Services List will be within four years from April 2022.

9. The FCA publishes new webpage in relation to its two-day CryptoSprint

On 12 May 2022, the FCA published a new webpage in relation to the CryptoSprint event hosted by the FCA on 10 and 11 May 2022 to explore how the evolving world of cryptoassets could be regulated in the UK.

Around 100 participants attended the CryptoSprint and collaborated to inform the development of future regulations on cryptoassets. This is the first time that the FCA have gathered views from industry and other stakeholders to help shape future policy in this way, and the CryptoSprint provided an opportunity to explore what the UK policy solutions may be for this sector.

With regards to next steps, the webpage informs us that "this is the first of many planned industry engagements that will inform what a future regulatory regime for cryptoassets could look like".

10. BEIS: Update to Green Finance Strategy – Call for Evidence

On 12 May 2022, the Department for Business, Energy and Industrial Strategy issued a Call for Evidence in relation to an update to the UK’s Green Finance Strategy (this update will be published in late 2022).

The 2019 Green Finance Strategy outlined the Government's approach to greening financial systems and mobilising finance for clean and resilient growth. The updated Green Finance Strategy will review progress so far and outline how the UK financial services industry can assist in delivering the UK’s energy security, climate and environmental objectives.

Questions asked in the Call for Evidence include the following:

• How can the UK support a financial system that leverages private investment to meet the UK’s climate and environmental objectives?
• What are the key characteristics of a Net Zero-aligned Financial Centre? How would these characteristics apply to a typical UK-based bank, insurer, asset manager?
• What market barriers are there to the integration of environmental-related factors into financial decision-making?
• What should the role of the UK government or regulators be to support the greening of the financial system? How could they go further?
• What steps can the UK government take to support a robust investment data ecosystem to attract green finance flows?
• Are Scope 3 (supply chain) emissions data important for investors to assess and manage climate-related risks and opportunities?
• Up to 2030, how can the UK government best support the global transition to a net zero, nature-positive financial system that is both inclusive and resilient?

The closing date for comments is 22 June 2022.

11. ESMA: Final report: ESMA’s Technical Advice to the Commission on the possibility to extend the transitional period pursuant to Article 48(3) of the Crowdfunding Regulation

On 19 May 2022, ESMA published its final report containing technical advice on extending the transitional period set out in Article 48 of the EU Crowdfunding Regulation. Under the Crowdfunding Regulation, crowdfunding service providers can continue to provide crowdfunding services that are included within the scope of the Regulation until 10 November 2022. In the report, ESMA states that that it supports granting an extension of the transitional period.

12. FCA: Policy statement: New cancellation and variation power: Changes to the Handbook and Enforcement Guide (PS22/5)

On 19 May 2022, the FCA issued a Policy Statement in respect of changes to its Handbook and Enforcement Guide (EG) concerning a new cancellation and variation power under the Financial Services Act 2021. Under the FS Act 2021, the FCA is given an additional power (Schedule 6A to FSMA) to expedite the process for cancelling permissions of firms. The FCA will provide a firm with two warnings where it believes it is not using its regulatory permission and will then cancel the permission or change it 28 days after the first warning if the firm has not taken appropriate action.

The FCA consulted on these proposals in September 2021 in consultation paper CP21/28 and confirms that it has made some minor changes to its initial proposals (these are contained in Appendix 1 to the Policy Statement). This includes clarifying that the FCA will look at all relevant facts and circumstances when deciding whether to use the new power. The changes apply only to firms authorised or deemed, under the temporary permissions or supervised run-off regimes, to be authorised by the FCA under Part 4A of FSMA. The rules do not apply to payment service providers or e-money issuers, or to firms authorised by the PRA rather than by the FCA.

In an accompanying press release, the FCA states that its new power supports it’s the existing "use it or lose it" initiative, which since May 2021, has seen the FCA undertake 1,090 assessments to see whether firms are undertaking the financial activity for which they have permission.