Legal development

Financial Services SpeedRead 4 May edition

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    IN THIS EDITION OF THE FINANCIAL SERVICES SPEEDREAD WE COVER THE FOLLOWING UPDATES:

    Financial Markets 

    1. ECB: Opinion of the European Central Bank on the review of the European Market Infrastructure Regulation (EMIR 3 package)

    2. Treasury Committee: Correspondence: The work of the FCA

    3. FCA: Press release: FCA announces plan to deliver significant redress to Woodford investors

    Banking and Prudential

    4. EBA: Consultation paper on guidelines on the STS criteria for on-balance-sheet securitisation under securitisation regulation

    5. European Commission: Legislative package in relation to EU bank crisis management and deposit insurance regime

    6. ECB: Report: Assessment of the European Central Bank’s Supervisory Review and Evaluation Process

    7. European Commission: Report from the European Commission on the Single Supervisory Mechanism

    8. BoE: Statement: Improving depositor outcomes in bank or building society insolvency

    Senior Managers and Governance

    9. HM Treasury/HMRC: Consultation: Reserved Investor Fund

    Financial Crime

    10. FCA: Market Watch 73: Newsletter on market conduct and transaction reporting issues

    11. The Insider Dealing (Securities and Regulated Markets) Order 2023

    12. FCA: Press Release: Financial watchdog puts banks on alert in fight against money laundering via the Post Office

    Retail Services

    13. House of Commons: Letter from Nikhil Rathi, Chief Executive, FCA, to Harriet Baldwin, Chair, Competition in the retail banking market

    14. FCA: Evaluation Paper 23/1: An evaluation of our 2019 overdrafts intervention

    Payments

    15. FCA/PSR (Joint Regulatory Oversight Committee): Recommendations for the next phase of open banking in the UK

     Digital Services and FinTech

    16. House of Commons: Digital Markets, Competition and Consumers Bill: Bill 294 2022-23 (as introduced)

    17. HM Treasury: Press release: Economic Secretary re-establishes the Asset Management Taskforce

    18. FCA: Updated webpage: Digital Sandbox

    ESG

    19. ECB: Report on review of climate-related and environmental risks disclosures practices and trends

    Other

    20. European Commission: Commission Delegated Regulation (EU) of 19.4.2023 on amending the regulatory technical standards laid down in Delegated Regulation (EU) 2018/1229 as regards the penalty mechanism for settlement fails relating to cleared transactions submitted by CCPs for settlement (C(2023) 2484 final)

    21. EBA: Draft consultation paper on EBA Guidelines on the assessment of adequate knowledge and experience of the management or administrative organ of credit servicers, as a whole, under Directive (EU) 2021/2167 (EBA/CP/2023/07)

    22. FCA: Speech by David Geale, Director of Retail Banking: The FCA’s view of green mortgages

    23. BIS/BoE: Project Meridian: innovating transactions with synchronisation

    FINANCIAL MARKETS
    1. ECB: Opinion of the European Central Bank on the review of the European Market Infrastructure Regulation (EMIR 3 package)

    On 26 April 2023, the European Central Bank (ECB) published its Opinion on the legislative proposal to amend the European Market Infrastructure Regulation to mitigate excessive exposures to central counterparties (CCPs) in third countries and improve the efficiency of EU clearing markets (EMIR 3 package).

    The Opinion confirms that the ECB supports the EMIR 3 package, which aims at strengthening the EU clearing system by introducing targeted enhancements of the regulatory framework. The ECB agreed with the need to: (1) strengthen cooperation between EU authorities and update prudential requirements for CCPs and bank exposures to CCPs; (2) streamline the CCP supervisory process; and (3) reduce excessive exposures of EU clients and clearing members to third-country CCPs in order to limit risks outside the control of EU authorities.

    Specific observations were made by the ECB in relation to:

    • enhancing cooperation between authorities (in relation to colleges, cooperation in joint supervisory teams, EMSA's role, cooperation within the CCP supervisory committee, developing a cross-sectoral monitoring mechanism, and supervision of third-country CCPs);
    • updating prudential requirements (amongst other things, in relation to admission criteria for non-financial counterparties as direct participants, the standardisation of transparency requirements regarding margin, and exemptions of intragroup transactions based on equivalence assessments);
    • simplifying and accelerating supervisory approval processes (amongst other things, in relation to timelines for concluding assessments of whether an application is complete and the criteria for non-objection procedures for non-material changes); and
    • reducing excessive exposures to third-country CCPs (amongst other things, on the implementation and calibration of the active account requirement, as well as reporting compliance with the requirement to the competent authority of the relevant EU CCP).
    2. Treasury Committee: Correspondence: The work of the FCA

    On 25 April 2023, the FCA published a letter dated 20 April 2023 in response to the questions contained in the Chair of the Treasury Committee's letter dated 28 March 2023. Some of the key takeaways are set out below.

    Greenwashing: in response to Government concerns about greenwashing, the FCA discusses the interaction between asset managers' voting rights and the claims made about the sustainability of funds and investment trusts.

    COBS 2.2B already requires asset managers to explain the most significant votes that they have made during the year and how they have cast votes. In addition, the FCA cites three actions it is taking to mitigate greenwashing:

    • in accordance with the FCA's Guiding Principles, a multi-firm review of funds marketed with ESG credentials, aimed at determining whether firms deliver on their claims;
    • supervisory focus on governance structures that oversee ESG and stewardship considerations, in accordance with its February 2023 Asset Management portfolio letter; and
    • Vote Reporting Group (VRG), an industry working group to introduce vote disclosures to increase transparency of asset manager voting activity. The aim is to increase accountability of asset managers. VRG will consult on the voluntary proposals in the first half of this year.

    Market fragility and adjustment to higher interest rates: the FCA identified the speed and scale of interest rate movements, as well as broader market fragility, as contributors to severe stress in some banks. The FCA plans to monitor closely data relating to liquidity and leverage in the parts of the financial system under its supervision. It is also mindful of the heightened risk of market abuse during periods of volatility. Market participants should update their stress scenarios and pay particular attention to leverage, concentration risk (counterparty and market positions), as well as liquidity mismatches in business models and products. Regardless of trading conditions, firms must manage conduct risk effectively and senior management should be extra vigilant. Finally, firms must step up to support customers that face economic challenges.

    Cryptoasset financial promotions: as detailed in last month's FSS publication, available here, the new financial promotion rule for qualifying cryptoassets is a significant development. In the letter, the FCA sets out that it expects to see an uptick in crypto asset registration applications and firms looking to register under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), as the financial promotion exemption will enable MLR registered cryptoasset firms to approve their own financial promotions. The FCA predicts that overseas firms will be encouraged to register in the UK as a result.

    The FCA notes the poor quality of advertisements in the sector, with the Advertising Standards Agency having issued 50 enforcement notices to firms due to misleading promotions.

    With regard to overseas companies, against whom the FCA does not have legal powers to take action, the FCA will rely on its close relationships with website hosts and platforms to remove the misleading and harmful promotion and will publish alerts. The

    FCA considers that the Online Safety Bill will be helpful in preventing harm in this space.

    3. FCA: Press release: FCA announces plan to deliver significant redress to Woodford investors

    On 19 April 2023, the FCA published a press release detailing its plan to deliver redress to over 300,000 investors in the LF Woodford Equity Income Fund (WEIF). These investors suffered losses due to failures by Link Fund Solutions (LFS), as the authorised corporate director (ACD), in managing the liquidity of the fund. LFS and its parent, Link Administration Holdings (Link Group), have agreed to provide a redress payment of up to £235 million. The agreed redress equates to 77 pence in the pound being recovered.

    • The £235 million in redress comprises:
    • LFS's assets (cash and capital resources of £47 million and insurance cover of up to £48 million); and
    • sale proceeds from Link Group's Fund Solutions business of approximately £140 million, which includes a voluntary contribution of approximately £60 million by Link Group.

    The agreement therefore is subject to the sale of Link Group's Fund Solutions business (which includes LFS's business) to the Waystone Group. For more information about the sale please see Link Group's announcement here. In addition, entitled WEIF investors and the Court must also approve a scheme of arrangement (Scheme).

    If the sale is completed and the Scheme is approved, LFS will agree to settlement of the FCA's investigation. The FCA's findings will be published at that stage and the FCA's enforcement case against LFS will end.

    If the Scheme is not approved:

    • the FCA will proceed with its enforcement case against LFS involving a proposed financial penalty of £50 million; LFS has said the case would be fully contested; and
    • Link Group would not make the voluntary contribution, any redress would be dependent upon the outcome of the case between the FCA and LFS and would be limited to the net assets of LFS, less litigation and any other costs.

    The redress covers failures in LFS's conduct and not investment losses due to poor financial performance of investments held by the fund. The Scheme offers investors the opportunity to recover more than would otherwise be recoverable from LFS alone.

    BANKING AND PRUDENTIAL
    4. EBA: Consultation paper on guidelines on the STS criteria for on-balance-sheet securitisation under securitisation regulation

    On 21 April 2023, the EBA published a consultation paper on guidelines in relation to the criteria for simplicity, standardisation and transparency and additional specific criteria (STS criteria) for on-balance-sheet securitisations.

    The main objective of the guidelines is to ensure a consistent interpretation and application of the STS criteria by originators, original lenders, securitisation special purpose entities (SSPEs), investors, competent authorities and third party verification agents. Meeting the STS criteria is a prerequisite for preferential and risk-sensitive treatment under the CRR for exposures to senior tranches of securitisations. The EBA has already developed guidelines for harmonising STS requirements for traditional securitisation.

    The draft Guidelines also propose targeted amendments to the guidelines for traditional securitisation Asset-backed commercial paper (ABCP) and non-ABCP securitisation.

    The deadline for comments is 7 July 2023.

    5. European Commission: Legislative package in relation to EU bank crisis management and deposit insurance regime

    On 18 April 2023, the European Commission issued a package of legislative proposals in relation to EU bank crisis management and the deposit insurance regime (CMDI). The current regime for the CMDI is found in the Bank Recovery and Resolution Directive (BRRD); the Single Resolution Mechanism Regulation (SRMR); and the Deposit Guarantee Schemes Directive (DGSD). The Commission also published a Communication.

    Strengthening the CMDI is considered an important step in completing the EU Banking Union, the initiative established by the EU in 2014 in the wake of the financial crisis and the sovereign debt crisis. The Commission's legislative package has been introduced to address the reliance that has been placed in the past on national regimes (often involving the use of taxpayer money) to deal with the failure of smaller and medium size banks.

    Directive amending the BRRD (BRRD 3)

    Amendments contained in the proposed Directive include:

    • removing early intervention measures in the BRRD that currently overlap with some supervisory powers found in CRD IV;
    • changing the triggers for resolution action by, amongst other things, amending the resolution objectives and expanding the application of the public interest assessment;
    • amending depositor preference in the hierarchy of claims on insolvency;
    • amending provisions relating to MREL;
    • facilitating the use of national deposit guarantee schemes (DGS) funds in financing crisis management tools.

    Regulation amending the SRMR

    The proposed Regulation contains amendments that are broadly similar to those contained in the BRRD 3.

    Directive amending the DGSD

    The amendments contained in the proposed Directive include:

    • changing the scope of depositor protection and harmonising the protection for temporary high balances;
    • amending the repayment process for DGSs, including the determination of the repayable amount, the burden of proof for deposit eligibility and entitlement, the procedure for repayment, and the limitation period for claims against DGSs;
    • clarifying the use of DGS funds, namely that the primary purpose of DGS funds is to repay depositors, but DGS funds may also be used for the purposes of resolution financing, preventative measures that support a bank in distress, and alternative measures that support the transfer of a failing bank's deposits and assets to another bank;
    • amending provisions relating to the funding of DGSs;
    • amending provisions applicable to branches of banks and harmonising requirements for providing specified information to depositors on their DGS protections.

    Directive amending the BRRD and the SRMR

    The amendments contained in the proposed Directive are intended to improve the functioning and proportionality of the deduction mechanism found in Regulation EU 2022/2036. That Regulation amended the EU minimum requirement for own funds and eligible liabilities (MREL) framework by introducing a deduction mechanism for the indirect subscriptions of internal MREL through intermediate entities in a chain of ownership (i.e., between the ultimate subsidiary and the resolution entity).

    6. ECB: Report: Assessment of the European Central Bank’s Supervisory Review and Evaluation Process

    On 17 April 2023, the ECB published a report setting out the results of an external assessment conducted on the Supervisory Review and Evaluation Process (SREP).

    The report published the following findings on the SREP:

    • that supervisory practices were now sufficiently mature;
    • that ECB Banking Supervision, since 2014, has successfully established itself as an effective and respected supervisor;
    • that good progress has been made in ensuring banks maintain sufficient capital levels;
    • that the current level of capital requirements for supervised banks look broadly adequate.

    Recommended adjustments to current procedures included:

    • enhancing risk-based supervision and empowering supervisory judgement;
    • promoting better integration into the SREP of other supervisory assessment outcomes;
    • streamlining SREP processes and shortening their timelines;
    • rebalancing capital and qualitative measures; and
    • reforming the process for determining Pillar 2 capital requirements.

    ECB will start implementing some of the report recommendations as early as the 2023 cycle.

    7. European Commission: Report from the European Commission on the Single Supervisory Mechanism

    On 18 April 2023, the European Commission published a report in respect of the single supervisory mechanism. The Single Supervisory Mechanism was set up in November 2014 as part of the Banking Union to ensure high-quality supervision of credit institutions in the EU. Regulation (EU) No 1024/2013 (SSM Regulation) requires the Commission to carry out a broad review of the application of the SSM Regulation every three years.

    This review (which was postponed due to COVID-19 and prioritisation of the 2021 Banking Package) follows up on the findings of the 2017 SSM Review Report to assess whether deficiencies identified have been adequately addressed. Overall, the European Commission reports that the review did not find areas that would require major changes to the SSM Regulation.

    Main findings include the following:

    • the SSM is facing challenges in relation to resources for carrying out supervision in highly specialised areas, limiting its ability to prioritise work in areas such as ICT/cyber risks and internal model assessments;
    • although transparency towards supervised entities in relation to supervisory initiatives has improved, communication with relevant stakeholders remains important so as to ensure that expectations and outcomes sought by supervisors are understood;
    • the SSM is facing difficulties in relation to non-harmonised areas of national law, including fit and proper assessments, sanctioning powers and anti-money laundering requirements; and
    • various memorandums of understanding established with the SSM and other supervisory authorities need to be maintained and used effectively, so as to ensure better supervisory outcomes.
    8. BoE Statement: Improving depositor outcomes in bank or building society insolvency

    On 18 April 2023, the BoE published an update on work launched with respect to improving depositor outcomes in the event of insolvency of a bank or building society. The aim is not only to improve the BoE's ability to protect depositors following a bank or building society failure, but also to support a diverse and competitive banking sector in the UK.

    UK authorities have identified three initial areas that could better support timely pay-out of eligible depositors' covered balances and that the BoE is proposing to take forward as a potential solution. This includes:

    • an online portal, enabling depositors to provide alternative account details for the FSCS to electronically transfer the covered balance of their deposit at the failed firm to another bank or building society; this would replace cheques as the primary means of pay-out;
    • improved continuity of banking services, by utilising infrastructure for sharing payment information and redirection of payments made to/from the insolvent institution when a customer moves banks; and
    • for those depositors who need to open a new bank account to achieve continuity, exploring better operational support and capacity at receiving banks, particularly in instances where there are challenges to opening a current account for the depositor.

    The BoE confirmed that the work predates the resolution of Silicon Valley Bank UK, but aims to incorporate lessons learnt. Meaningful progress towards a solution is expected to be made in 2023.

    FUND MANAGEMENT
    9. HM Treasury/HMRC: Consultation: Reserved Investor Fund

    On 27 April 2023, HM Treasury and HMRC published the Reserved Investor Fund consultation, which seeks views on the potential scope and design of a tax regime for a new type of investment fund, referred to as the Reserved Investor Fund (Contractual Scheme) (RIF).

    The consultation is in connection with the UK Government review into the UK funds regime and consideration of reforms to boost the attractiveness of the UK as a location for asset management and fund domicile. The rationale for introducing this new fund structure was that the RIF would meet industry demand for an unauthorised contractual scheme based in the UK.

    Further to the context above, the consultation is now inviting views on the scope of the RIF regime, and design of a tax regime of the fund, with particular focus on the following areas:

    • whether the Government should introduce the RIF, and if so whether this should be in a restricted or unrestricted form (both in terms of the assets the fund can invest in or the type of investors permitted to invest in the fund);
    • the eligibility and notification criteria;
    • the branding of the RIF;
    • the proposed design of a new tax regime for a RIF;
    • the application of the non-resident capital gains rules to a RIF; and
    • the treatment of unauthorised co-ownership contractual schemes that would not fall within the RIF regime.

    The consultation will close on 9 June 2023.

    SENIOR MANAGERS AND GOVERNANCE

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

    FINANCIAL CRIME
    10. FCA: Market Watch 73: Newsletter on market conduct and transaction reporting issues

    On 26 April 2023, the FCA published its Market Watch 73 newsletter detailing its observations and findings of the recent market abuse peer review into firms that offer Contracts for Difference (CFDs) and spread bets.

    The aim of the peer review was to better comprehend how firms that offer CFDs and spread bets are identifying and reporting potential market abuse. The FCA obtained information and data from nine selected firms in respect of their business models, market abuse risks and arrangements for detecting and reporting market abuse. The FCA's overall findings from the peer review were largely positive but there are further areas for improvement.

    Market abuse risks: not all firms were able to demonstrate that they had considered all market abuse risks relevant to their business. The firms reviewed tended to focus on market abuse risk relating to dealing in single stock equities, but did not consider market abuse risks in non-equity asset classes or market manipulation in all asset classes. Firms need to undertake more detailed and more comprehensive risk assessments that document those market abuse risks that apply to the business.

    Surveillance – market manipulation – narrowing the spread: a key focus of the FCA's review was the activity of 'narrowing the spread', a type of market manipulation that aims to influence the prices of spread bets or CFDs by narrowing the spread in the underlying market. The FCA note that although most firms were aware of this activity, no firm had listed it in their risk assessments or had Compliance-based surveillance to detect it.Surveillance systems: the FCA is concerned that firms do not monitor unrealised profits, use 'lookback periods' that are too short, and do not have effective surveillance for non-equity classes. Firms should review all trading activity before an event, rather than limiting investigations to the alerted trading, in order to be more effective at identifying potential market abuse that falls outside the system parameters.

    Surveillance alert investigations: the FCA notes that some firms are not considering the client's trading history when reviewing alerts. Firms should review all relevant information at their disposal when investigating alerts. In addition, firms which used information such as IP addresses and advertising IDs were more effective in identifying suspicious clients and connections.

    Other areas highlighted by the FCA include: where market abuse surveillance responsibilities should rest within a firm; how to engage with front office on surveillance matters; and establishing a framework to counter the risk of market abuse-related financial crime in accordance with SYSC 6.1.1R.

    In regard to next steps, the FCA's position is that firms should ensure that their systems and procedures for detecting and reporting potential market abuse are appropriate and proportionate to the scale, size and nature of their business activities. The FCA will continue to visit CFD providers (and other firms) to assess such arrangements.

    11. The Insider Dealing (Securities and Regulated Markets) Order 2023

    On 17 April 2023, the draft Insider Dealing (Securities and Regulated Markets) Order 2023 was laid. The draft Order amends the Criminal Justice Act 1993 (CJA 1993) to align the list of securities and markets on which the criminal offence can be committed under the CJA 1993 with that of the UK civil market abuse regime under the UK Market Abuse Regulation (UK MAR).

    The insider dealing offence in Part 5 of the Criminal Justice Act 1983 applies to any security listed in Schedule 2 of the CJA 1993 that falls within criteria specified in the Insider Dealing (Securities and Regulated Markets) Order 1994 (SI 1994/187).

    The Order:

    • revokes the Insider Dealing (Securities and Regulated Markets) Order 1994;
    • updates Schedule 2 of the Criminal Justice Act 1983 by replacing the list of securities in Schedule 2 with the list of financial instruments in Part 1 of Schedule 2 to the Financial Services and Markets 2000 (Regulated Activities) Order 2001; and
    • replaces the list of named trading venues with UK, EU and Gibraltar regulated markets, organised trading facilities and multilateral trading facilities so as to align with UK MAR (NASDAQ and the SIX Swiss Exchange remain within scope and NYSE has been added).

    The Order will also ensure that derivatives are in scope of the criminal insider dealing offences.

    The Order will enter into force 21 days after the day on which it is made.

    12. FCA: Press Release: Financial watchdog puts banks on alert in fight against money laundering via the Post Office

    On 24 April 2023, the FCA published a press release detailing measures aimed at reducing money laundering via cash deposit channels at the Post Office. In collaboration with the National Economic Crime Centre (NECC), industry and the Government, the FCA wants to ensure that money laundering protections do not prevent legitimate customers from using the Post Office for everyday banking.

    The measures include:

    • increased used of card-based transactions (rather than paying-in slips);
    • upskilling staff to spot suspicious behaviour;
    • increased monitoring capabilities in banks to allow them to identify suspicious activity;
    • reducing cash deposit limits at the Post Office (currently £20,000 per transaction);
    • reducing time taken to submit Suspicious Activity Reports to the National Crime Agency; and
    • improving intelligence sharing so information can be transferred to other firms, law enforcement and the FCA.

    The measures form part of the FCA's three-year strategy of reducing financial crime and increasing consumer protection. The FCA will test the safeguards that firms put in place to determine whether they have done enough to protect consumers.

    RETAIL SERVICES
    13. House of Commons: Letter from Nikhil Rathi, Chief Executive, FCA, to Harriet Baldwin, Chair: Competition in the retail banking market

    On 20 April 2023, the FCA published its response to the Treasury Committee's letter on high street bank savings rates.

    The Committee asked the FCA whether it had conducted any analysis of increases in net interest margins of high street banks and whether banks were earning disproportionate profits by increasing rates on mortgages far quicker than on savings products.

    The FCA states that the harm consumers suffer due to earning low savings rates with high street banks has increased as interest rates have risen.

    The FCA responds by discussing consumer duty as a solution requiring changes in firms' practices and culture. The FCA has challenged firms that have made "relatively small increases" or where there was a "material time lag" to pass through the increase in rates.

    The Committee is also questioning how the four retail banks decide on the proportion of interest rate rises that are passed on to their savings customers. You can read the banks' responses here.

    14. FCA: Evaluation Paper 23/1: An evaluation of our 2019 overdrafts intervention

    On 19 April 2023, the FCA published an evaluation paper (EP23/1), together with a technical annex, containing the findings of an evaluation of its remedies for consumer harm found in the overdrafts market. This follows the FCA's June 2019 High-Cost Credit Review policy statement (PS19/16) which contained remedies to address failures in the overdraft market.

    the FCA has also published examples of good practice and areas of concern by firms following its review of firms' repeat use strategies. From the perspective of the Consumer Duty, the FCA noted that it expects firms to pre-test their repeat use strategies, interventions and communications and refine them.

    Finding 1: Identifying and monitoring of overdraft repeat use customers

    • Good practice identified included: using a range of measures (such as missed payment data or use of other credit products) to identify and monitor repeat use customers; combining repeat use identification metrics to target remedies for customers using overdrafts repeatedly (and customers who are at risk of high charges); and adopting a test and learn approach.
    • Areas of concern identified included: the use of limited criteria to define repeat use; and assessing customers on an ad hoc basis without a clear framework for clearly identifying repeat use customers.

    Finding 2: Communicating with customers and gathering information

    • Good practice identified included: the use of a wide range of communication tools to engage with repeat use customers; firms reviewing and adjusting content and frequency of messages to customers using insight from customer-based research to evolve their approach; and the use of bespoke, personalised communications for repeat use customers, explaining the costs of repeat use.
    • Areas of concern identified included: overreliance placed by firms on customers contacting them following an initial communication from the firm; and firms not adapting their communications depending on whether customers showed signs of actual/potential financial difficulties.

    Finding 3: Interventions to support customers

    • Good practice identified included: offering a range of interventions to support customers to reduce their overdraft usage (e.g. reducing the credit limit, reducing APRs, payments arrangements, forbearance and write offs); dedicated sections on firms' websites offering help and support on budgeting and money management; and clear processes in place for customers showing actual or potential financial difficulty.
    • Areas of concern identified included: firms not providing information on the types of forbearance options that might be available to customers and not providing evidence of how approach is tailored for customers in vulnerable circumstances and/or for those customers most likely to be in financial difficulty.

    Finding 4: Monitoring the effectiveness of repeat use policies and procedures

    • Good practice identified included: processes for periodically reviewing policies, procedures and systems; using a range of metrics to monitor the effectiveness of policies, procedures and systems; clear lines of senior manager accountability; active leadership involvement; and keeping records of decisions made.
    • Areas of concern identified included: not providing evidence of a systemic review of policies, procedures and systems; waiting for FCA intervention before considering reviewing the firm's approach; and not providing data to show whether the firm's strategy was working to reduce repeat use and/or outstanding overdraft balances.
    PAYMENTS
    15. FCA/PSR (Joint Regulatory Oversight Committee): Recommendations for the next phase of open banking in the UK

    On 17 April 2023, the Joint Regulatory Oversight Committee (JROC), co-chaired by the FCA and Payment Systems Regulator (PSR), published its recommendations for the next phase of open banking in the UK. The JROC aims to facilitate growth in the open banking ecosystem, increase competition, promote open banking payments, and adopt a model that is scalable for future data sharing propositions.

    Prior to establishing a long-term regulatory framework for open banking, oversight of the Open Banking Implementation Entity (OBIE) will change. The report sets out JROC's intention with respect to the design of the future entity. However, JROC will not wait until the future entity is in place to start work on unlocking open banking.

    The report sets out a future roadmap, consisting of five themes to enable open banking to develop in a safe, scalable and economically sustainable way:

    • levelling up availability and performance;
    • mitigating the risks of financial crime;
    • ensuring effective consumer protection if something goes wrong;
    • Improving information flows to third party providers and end users; and
    • promoting additional services, using non-sweeping variable recurring payments as a pilot.

    A full timetable of next steps is set out in the publication.

    DIGITAL SERVICES AND FINTECH
    16. House of Commons: Digital Markets, Competition and Consumers Bill: Bill 294 2022-23 (as introduced)

    On 25 April 2023, the UK Government introduced the Digital Markets, Competition and Consumer Bill (Bill). The aim of the Bill is to address the dominance and unfair business practices of certain digital service providers by strengthening protections for consumers in the digital marketplace.

    Some of the key objectives and changes proposed by the bill from a consumer law perspective are set out below.

    New supervisory and competition regime for digital markets: the Bill establishes a new regime for digital markets, including conduct requirements, to be overseen by the Digital Markets Unit (DMU), a branch within the Competition and Markets Authority (CMA). This involves empowering the DMU to investigate and enforce compliance against firms conducting digital activities (i.e. services by means of the internet) who have been designated as having 'strategic market status' (SMS). This regime contains competition law aspects.

    Consumer protection measures: Part 4 of the Bill revokes the Consumer Protection from Unfair Trading Regulations 2008 and recreates the legal effect of its provisions, with minor amendments. Additional protections are also introduced in respect of subscription contracts and consumer savings schemes. Further, the Bill seeks to challenge online scams and fraud through new measures to tackle fake reviews, which require businesses to take reasonable steps to verify the authenticity of reviewers and prohibit the offering or advertising to submit, commission or facilitate fake reviews.

    Enforcement: Part 3 of the Bill sets out two enforcement regimes for consumer law infringement: a court-based regime and a direct enforcement regime operated by the CMA. This replaces the current regime in Part 8 of the Enterprise Act 2002. The CMA's enforcement powers now include the ability to award compensation to consumers and directly impose on companies financial penalties of up to 10% of global annual turnover.

    17. HM Treasury: Press release: Economic Secretary re-establishes the Asset Management Taskforce

    On 25 April 2023, HM Treasury issued a press release confirming that the Asset Management Taskforce has been re-established by the Economic Secretary to the Treasury, Andrew Griffith. The Asset Management Taskforce is comprised of senior executives from the investment industry. Its relaunch is focused on harnessing the potential of innovative new technologies for the UK asset management industry.

    In parallel to the taskforce, the Economic Secretary has also launched a new Technology Working Group, made up of Taskforce members, government and regulators, and wider non-asset management stakeholders. The work of the group will reportedly focus on articulating the benefits of technology for investors and industry. This will involve identifying the key opportunities presented by technologies such as tokenisation, artificial intelligence and distributed ledger technology.
    The group will produce a final report setting out their findings and recommendations for government, regulators and industry.

    18. FCA: Updated webpage: Digital Sandbox

    On 14 April 2023, the FCA updated its Digital Sandbox webpage to confirm that following two successful pilots, the FCA Digital Sandbox will become permanent during summer 2023. The FCA will publish more details in due course.

    ESG
    19. ECB: Report on review of climate-related and environmental risks disclosures practices and trends

    On 21 April 2023, the ECB published a report of its third review of the disclosure of climate-related and environmental (C&E) risks by significant institutions in the single supervisory mechanism, as well as a selected number of less significant institutions.

    The assessment is based on ECB's November 2020 guide on C&E risks, which was published to ensure comprehensive and effective disclosure of C&E risks by banks.

    The assessment covered a sample of 186 banks, reviewing disclosures across key areas of expectations including the materiality assessment, business model and strategy, governance, risk management, and metrics and targets. The ECB notes that banks within scope will also be required in 2023 to disclose information pursuant to the annexes of Commission Implementing Regulation (EU) 2022/2453 of 30 November 2022 concerning the disclosure of environmental, social and governance risks.

    Key findings include the following:

    • overall, the banks surveyed made clear progress in 2022 and now disclosed basic information;
    • the quality of disclosures remained low; disclosures were found to be generic and insufficiently substantiated;
    • the overall level of disclosures indicates low preparedness for compliance with the binding Pillar 3 disclosure standards, which the ECB will closely scrutinise;
    • the ECB has identified a group of institutions that persistently lag behind in their disclosures, with 15% of banks falling into this category (down from 45% of banks in 2021); and
    • although not yet aligned with supervisory expectations, the disclosures of the largest European banks outperform global peers across the board when assessed against the ECB standard (the report also contains a comparison of disclosure of C&E risks of EU GSIBs with non-EU based GSIBs).

    The ECB confirms in an accompanying press release that it will consider whether relevant banks comply with new standards, adding that non-compliance will be deemed a breach of CRR, resulting in supervisory action.

    20. FCA: Speech by David Geale, Director of Retail Banking: The FCA’s view of green mortgages
    • On 19 April 2023, the FCA published a draft speech by David Geale outlining the FCA's view on green mortgages. Geale touched upon the key Consumer Duty considerations that surround ESG products
    • the need for products to genuinely match up with any claims made in promotions (anti-greenwashing);>
    • correctly determining the target market and its needs, as well as ensuring that the target market understands the product (including the associated obligations and costs);
    • determining how the product will be distributed and whether all entities on the distribution chain promote similar customer outcomes;>
    • considering whether the product offers fair value and whether ongoing customer support is available over the lifetime of the mortgage.
    OTHER
    21. European Commission: Commission Delegated Regulation (EU) of 19.4.2023 on amending the regulatory technical standards laid down in Delegated Regulation (EU) 2018/1229 as regards the penalty mechanism for settlement fails relating to cleared transactions submitted by CCPs for settlement (C(2023) 2484 final)

    On 19 April 2023, the European Commission published a proposal for changes to the Delegated Regulation (EU) 2018/1229 with regard to the penalty mechanism for settlement fails relating to cleared transactions submitted by CCPs for settlement (C(2023) 2484 final) (RTS on settlement discipline).
    The RTS on settlement discipline contains procedures for management of cash penalties paid by users causing settlement fails.

    There is a process for the collection and distribution of penalties relating to cleared transactions by CCPs (in Article 19) and a parallel process for the collection and distribution of penalties managed by CSDs (in Article 17). The proposals would remove the separate process established in Article 19 and establish a purely CSD-run cash penalties process.

    22. EBA: Draft consultation paper on EBA Guidelines on the assessment of adequate knowledge and experience of the management or administrative organ of credit servicers, as a whole, under Directive (EU) 2021/2167 (EBA/CP/2023/07)

    On 19 April 2023, the EBA launched a public consultation on its draft guidelines on the assessment of adequate knowledge and experience of credit servicer management or administrative organs under the Non-Performing Loans Directive. The guidelines are intended to address the suitability of relevant organs to conduct the business of the credit servicer in a competent and responsible manner.

    The guidelines cover the following aspects:

    • the principle of proportionality;
    • criteria for assessing the adequate knowledge and experience of the management or administrative organ of a credit servicer, both collectively as a whole and on an individual level; and
    • appropriate corrective measures where an assessment (or re-assessment) concludes that adequate knowledge and experience is lacking.

    The EBA intends to publish the final guidelines by the end of 2023.

    23. BIS/BoE: Project Meridian: innovating transactions with synchronisation

    On 18 April 2023, the Bank for International Settlements (BIS) in collaboration with the Bank of England, revealed developments made in Project Meridian. Project Meridian investigates how innovations in the real-time gross settlement (RTGS) systems operated by central banks can be delivered.

    The prototype developed by Project Meridian utilises a synchronisation network based on distributed ledger technology (DLT) to settle transactions in central bank money in an RTGS system. Synchronisation is achieved by the introduction of a new synchronisation operator, which links the RTGS systems with financial market infrastructure. The prototype showcases the possibilities in how a DLT network may connect to the conventional centralised systems used by participants via open-standard application programming interfaces in order to orchestrate the automatic exchange in ownership of funds and assets.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.