Financial Services Speedread 4 April edition

1. ESMA Guidelines on CCP recovery plan indicators

On 24 March 2023, ESMA published guidelines on CCP recovery plan indicators. ESMA is mandated to publish guidelines to specify the minimum list of qualitative and quantitative indicators that are included in CCP recovery plans. The Guidelines also apply to provide guidance on the integration of the CCP recovery plan indicators within the CCP's monitoring system.

ESMA also published guidelines to specify the range of recovery plan scenarios that should be considered for the purposes of CCP recovery plans.

2. FCA: Update on authorisations operating service metrics

On 21 March 2023, the FCA published an update on its authorisations operating service metrics. The last set of metrics were published in October 2022 covering the period from April to September 2022.

The FCA saw some improvements in January and February 2023 compared to 2021/2022. However, a number of areas remain below target including: approved persons applications; change in control applications; new firm authorisations; and payment services and e-money authorisations, registrations and notifications.

The FCA notes that it continues to see poor-quality applications in particular for MLR, PSR and EMR applications. The FCA will continue to issue detailed guidance in relation to cryptoasset businesses and mortgage intermediaries in order to improve the quality of applications.

The FCA will be publishing quarterly reports on its operating service metrics performance including the time taken to process applications from Q4 2023.

3. FCA: Newsletter: Primary Market Bulletin 44

On 20 March 2023, the FCA issued edition 44 of the Primary Market Bulletin. This edition looks at the disclosure requirements in relation to diversity and inclusion (D&I) on listed companies' boards and executive management. This follows the introduction of the new Listing Rules which require in-scope companies to disclose, in the annual financial report, whether they meet specific board diversity targets on a "comply or explain" basis.

In the Bulletin, the FCA also explains its supervisory approach when identifying cases where regulatory intervention may be needed to ensure listed companies comply with the new requirements and improve the quality of their disclosures. The FCA has outlined some of the steps that it expects listed companies to have considered in preparation for making the relevant D&I disclosures.

Separately, the Bulletin also confirmed that the FCA will not proceed with Technical Note 606.1 regarding the requirement to publish a public offer prospectus where securities are issued pursuant to a scheme of arrangement which it proposed in Primary Market Bulletin 30.

The last part of the Bulletin warns against the risks of primary information providers (also referred to as regulatory information services) offering the ability for issuers to include multimedia content, including audio and video content, in regulatory news announcements.

4. FCA: Updated webpage: Notification and disclosure of net short positions

On 20 March 2023, the FCA updated its webpage on the notification and disclosure of net short positions under the UK version of the Short Selling Regulation (EU) No 236/2012 (UK SSR).

The UK list of exempted shares that was valid until 31 December 2022 (which included the ESMA list dated 31 December 2020) is now archived. The updated UK list of exempted shares (valid from 1 January 2023) has been reviewed to include shares admitted to trading on UK trading venues in November and December 2022. A revised version of the list will be published on, and be valid from, 1 April 2023. In the meantime, the existing updated UK list can still be used to determine whether a reportable position has been reached.

5. FCA: Consumer Duty Update

On 16 March 2023, the FCA launched a Consumer Duty firm survey that has been circulated to a group of selected small and medium-sized firms. The survey is intended to understand the progress made by selected firms in implementing Consumer Duty and the likelihood of meeting the implementation deadline of 31 July 2023.

6. FCA: Updated webpage: Appointed Representatives

On 13 March 2023, the FCA published updates to its webpage on Principals and Appointed Representatives. The FCA circulated a mandatory section 165 request to Principal Users of each Principal Firm through Connect between 8 December 2022 and 12 December 2022. Information pertaining to the current and new appointed representatives was asked to be provided by 28 February 2023. Relevant firms that have not provided this information to the FCA yet should do so immediately.

7. HM Treasury and Bank of England: Credit Suisse statements

On 19 March 2023, the Swiss Financial Market Supervisory Authority (FINMA) issued a statement confirming it has approved the takeover of Credit Suisse by UBS. The nominal value of all Additional Tier 1 (AT1) debt of Credit Suisse will be written down. Both the Swiss National Bank and the Swiss Confederation will also provide additional liquidity assistance for the transaction.

On the same day, the FCA and the Bank of England issued statements welcoming the steps taken by the Swiss authorities and were minded to approve the actions with respect to Credit Suisse entities that fall under their regulatory and supervisory remit.

On 20 March 2023, the Bank issued a statement which reaffirmed the statutory order under the UK bank resolution framework in which shareholders and creditors would bear losses in a resolution or insolvency scenario. The statement confirms that AT1 instruments rank ahead of CET1 and behind T2 in hierarchy, adding that holders of these instruments should expect to be exposed to losses in resolution or insolvency in the order of their positions in the hierarchy.

8. Bank of England and FCA: Statements on Silicon Valley Bank

On 13 March 2023, the Bank of England and FCA both issued statements in relation to Silicon Valley Bank.

The Bank of England statement confirms that the Bank of England, in consultation with the PRA, HM Treasury and FCA, has taken the decision to sell Silicon Valley Bank UK Limited (SVBUK), to HSBC UK Bank Plc. The Bank states that this action was taken to stabilise SVBUK, ensuring there is continuity of banking services, disruption to the UK technology sector is minimised, and confidence is supported in the financial system. The Bank further confirms that all depositors' money with SVBUK is "safe and secure" as a result of this transaction.

The FCA statement largely repeats that of the Bank and confirms that "SVBUK customers will continue to have access to the Financial Services Compensation Scheme and Financial Ombudsman Service, and their other consumer rights are unaffected."

9. HM Treasury and Bank of England: Sale of Silicon Valley Bank UK Limited to HSBC

On 13 March 2023, HM Treasury made the Amendments of the Law (Resolution of Silicon Valley Bank UK Limited) Order 2023 and the Bank of England exercised its stabilisation powers by making the Silicon Valley Bank UK Limited Mandatory Reduction and Share Transfer Instrument (see related statement from the Bank). These steps were taken to enable the sale of Silicon Valley Bank UK Limited to a private sector purchaser, HSBC UK Bank plc.

10. Bank of England: Report on climate-related risks and the regulatory capital frameworks

On 13 March 2023, the Bank of England published a report on climate-related risks and the regulatory capital frameworks. This follows the Bank's October 2021 climate change adaptation report which outlined the thinking on climate change and the regulatory capital frameworks for banks and insurers.

This report provides an update and key findings, but does not contain any policy changes. The report also sets out areas for future work.

Key findings include:

• existing capability and regime gaps create uncertainty over whether banks and insurers are sufficiently capitalised for future climate-related losses;
• the Bank's priority in the short term is ensuring firms make progress to address capability gaps to improve their identification, measurement, and management of climate risks;
• the unique nature of climate risks means any accompanying capital frameworks would need a more forward-looking approach than that adopted for many other risks; and
• current evidence suggests that the existing time horizons over which risks are capitalised by banks and insurers are appropriate for climate risks, therefore, a policy change to these time horizons does not appear to be needed at present.

The Bank will continue to supervise against Supervisory Statement "Enhancing banks' and insurers' approaches to managing the financial risks from climate change" (SS3/19, April 2019), and also continue work in relation to Pillar 2 add-ons.

No updates for this edition of the FSS.

No updates for this edition of the FSS.

11. JMLSG: Press Release: Amendments to Sectors 8 and 9 of Part II of the JMLSG Guidance

On 17 March 2023, the JMLSG published amendments to its Guidance in Sectors 8 (Non-life Providers of Investment Fund Products) and 9 (Discretionary and Advisory Investment Management), the amendments have been sent to HM Treasury for approval.

A consistent theme throughout the reforms is the importance of firms taking a risk-based approach to AML and CTF. Amendments include:

• helpful risk ratings for sections including: product and service characteristics; transactions, client characteristics; and delivery channels;
• clarification of the degree of customer due diligence required for non-UK fund platforms;
• identifying politically-exposed persons;
• a new section on correspondent securities relationships; and
• further guidance on custody and third party payments and transfers.

No updates for this edition of the FSS.

12. PSR: Policy Statement on measures to improve transparency on APP scam data and Specific Direction 18

On 23 March 2023, the PSR published a policy statement (PS23/1) on measures to improve transparency on authorised push payment scam data. A specific direction has been issued for the 14 payment service provider groups to collect and report on three performance metrics regarding their management of APP scams. This will cover over 95% of consumer payments by both volume and value sent via Faster Payments.

The data collected is expected to be received by May 2023 and published in October 2023. Updates will follow on a six monthly basis thereafter.

13. PSR: Call for views: First review of Specific Direction 12

On 22 March 2023, the Payment Systems Regulator (PSR) issued a call for views pertaining to its first annual review of Specific Direction 12 (SD12). The review is intended to evaluate if SD12:

• maintains a broad geographic spread of the UK's free to use (FTU) cash machine network; and
• meets service-user needs by having in place and maintaining appropriate and effective policies and measures.

The call for views is scoped on the four areas outlined below:

• how effective SD12 has been in ensuring appropriate policies and measures are in place to support the maintenance of a broad geographic spread of the FTU ATM LINK network in the UK and meet service-user needs;
• how well the requirements under SD12 have worked in practice in relation to maintaining and replacing protected ATMs;
• whether the monitoring requirements under section 8 of SD12 have led to sufficient transparency, if any of it is superfluous, or if any further aspects require monitoring; and
• whether SD12 should remain in place, given some of the wider initiatives that have been introduced. These include, among others, the Financial Services and Markets Bill.

14. FCA: Payment Firms Portfolio Letter

On 16 March 2023, the FCA issued a portfolio letter to payment firms setting out how it expects them to achieve three outcomes and three cross-cutting priorities.

• Outcome 1: ensure customers' money is safe. The letter notes that some firms have not yet appointed auditors to carry out their annual audit of safeguarding arrangements, and the FCA is not being consistently informed of adverse findings or the actions being taken to address these. Firms are also expected to regularly review their prudential risk management arrangements.
• Outcome 2: ensure financial system integrity is not compromised. Payment institutions and electronic money institutions are a target for bad actors and they must ensure that the systems and controls in place for identifying and managing money laundering risk are comprehensive and proportionate to the nature and scale of the activities they carry out.
• Outcome 3: meet customers' needs. Payment firms must implement and comply with the FCA's Consumer Duty, as outlined in the FCA's February 2023 letter to payment firms on implementing the Consumer Duty.
• Priority 1: governance and leadership. The FCA continues to see deficiencies in governance, oversight and leadership in the sector, adding that this is the root cause of the regulatory issues in the payments portfolio. The letter also sets out firms' responsibilities when using agents and distributors.
• Priority 2: operational resilience. The FCA is proactively monitoring firms' progress in complying with recently introduced regulatory requirements in this area. Firms are expected to monitor their dependency on providers of critical services (including technology and banking services) and have appropriate contingency plans to move providers if necessary.
• Priority 3: regulatory reporting. The FCA refers to sustained non-compliance with its reporting requirements, adding that it will make use of its power to charge firms failing to meet the reporting deadlines.

The letter also outlines a number of actions and next steps that firms in the payments portfolio should take in light of the risks that have been identified.

15. FCA: Updated Webpage: Cryptoassets AML and CTF Regime

On 17 March 2023, the FCA updated its webpage on cryptoassets to clarify the position on change in control notification. Any person who decides to acquire or increase control over an FCA-registered cryptoasset firm and they become a beneficial owner within the meaning of Regulation 5 or 6 of the MLRs must submit a change in control notification. The transaction cannot complete until FCA approval has been obtained and continuing with the transaction is a criminal offence.

16. HM Treasury: Report on pro-innovation regulation in relation to digital technologies

On 15 March 2023, HM Treasury published a report titled "Pro-innovation Regulation of Technologies Review: Digital Technologies" (the Report) and HM Government's response to that report (the Response).

The Report brings together views from government, regulators, industry and academic experts. It covers technologies including artificial intelligence, autonomous vehicles, drones, cyber security, and space and satellite technologies.

The Report notes that digital technologies are challenging existing regulatory structures. It asserts that well-designed regulation can drive growth and shape the digital economy. It further asserts that a proportionate and agile regulatory approach can offer clarity and confidence to investors, businesses and the public.

The Report proposes a three-stage approach:

• early stage: regulatory flexibility and divergence for emerging technologies so as to define regulations and standards in the global markets where the UK wants to lead;
• scaling: promoting and learning from experimentation to support the scaling of key technologies, including through regulatory sandboxes / testbeds; and
• international harmonisation: when technologies are becoming established, seeking international regulatory harmonisation in order to ensure market access for the UK's companies.

In the Response, HM Government accepts all nine of the Report's recommendations and sets out proposals as to how to implement them.

17. FCA: Dear CEO Letter: ESG benchmarks review

On 20 March 2023, the FCA published a Dear CEO Letter to benchmark administrators which outlines issues it has identified in relation to ESG-related disclosures. It deems the overall quality of ESG-related disclosures to be poor. The FCA expects firms to be able to explain their strategies to address the issues identified in its letter on request, and warns that it will use its enforcement powers if necessary.

This follows a Dear CEO Letter to benchmark administrators in September 2022, which outlined the FCA's supervisory priorities and its view of the risks in the sector.

The FCA notes that high quality ESG benchmarks are crucial to facilitate trust in the market for ESG products and the transition to a net zero economy. The FCA further notes that ESG matters are a high priority, having published its ESG strategy in November 2021.

Issues that the FCA identified include:

• insufficient detail on the ESG factors considered in benchmark methodologies;
• underlying methodologies for ESG and ratings products used in benchmarks are not accessible, clearly presented and explained to users;
• ESG disclosure requirements not being fully implemented; and
• incorrect implementation of methodologies, such as using outdated data and ratings, or failing to apply ESG exclusion criteria.

The FCA notes that it supports and encourages the development of a voluntary Code of Conduct by the industry and that it is working closely with the UK Government on introducing regulation in this area. The FCA states that the UK Government is expected to shortly consult on extending the FCA's regulatory perimeter to include ESG ratings providers.

18. FOS: Press Release: Latest complaints data about individual businesses

On 22 March 2023, the FOS published the latest statistics on the number of complaints received by the FOS between 1 July 2022 and 31 December 2022 about individual businesses. A total of 79,921 new complaints were received in the time period, a 9.5% increase on comparative statistics in the first half of 2022. Only 34 % of complaints were upheld in the consumers' favour, a decrease from the 37% upheld in the first half of 2022.

19. FOS: Press Release: Award limits increase

On 20 March 2023, the Financial Ombudsman Service (FOS) announced that the FCA has confirmed that the maximum award limits the FOS can require a financial business to pay when a complaint is upheld will be increased from 1 April 2023.

The limits are adjusted annually in accordance with inflation as indicated by the Consumer Prices Index. These limits have been updated to the following:

• £415,000 for complaints referred to the FOS on or after 1 April 2023 abouts acts or omissions by firms on or after 1 April 2019; and
• £190,000 for complaints referred to the FOS on or after 1 April 2023 about acts or omissions by firms before 1 April 2019.

Further background on the increases of the award limits can be found in the FCA's Policy Statement (PS19/8).

20. FCA: Call for Input: SME access to the Financial Ombudsman Service

On 17 March 2023, the FCA announced a call for input to inform its review of the thresholds for SMEs referring complaints to the Financial Ombudsman Service. The FCA will be considering the thresholds against its policy objective of providing limited resource SMEs with access to dispute resolution mechanisms in light of an increase in complaints from SMEs relating to financial services.