Financial Services SpeedRead 22 December 2021

1. 10% depreciation notifications: further extension of temporary measures for firms

On 21 December 2021, the FCA issued a statement on 10% depreciation notifications. The statement refers to measures put in place since March 2020 to assist firms during market volatility linked to Covid-19 and the Brexit transitional period. The FCA confirms that it is extending the temporary measures for firms until 31 December 2022 whilst work on the requirement's future, currently being carried out as part of HM Treasury's Wholesale Markets Review, is concluded.

The FCA confirms that it will not be taking any action during this period for breach of COBS 16A.4.3 UK for services offered to retail investors provided that the firm has:

• issued at least one notification in the current reporting period, indicating to retail clients that their portfolio or position has decreased in value by at least 10%;
• informed these clients that they may not receive similar notifications should their portfolio or position values further decrease by 10% in the current reporting period; 
• referred these clients to non-personalised communications (perhaps made available on public channels) that outline general updates on market conditions; and 
• reminded clients how to check their portfolio value, and how to get in touch with the firm.

The FCA still expects firms to have due regard to the interests of their customers and treat them fairly (Principle 6), pay due regard to the information needs of their clients, and communicate information to them in a way which is clear, fair and not misleading (Principle 7). 

The FCA confirms that it will not take action for breach of COBS 16A.4.3 UK in respect of services provided to professional investors, provided that such firms have allowed professional clients to opt-in to receiving notification.

2. HM Treasury publishes Summary of Responses on UK Prospectus Regime Review

On 16 December 2021, HM Treasury released the Summary of Responses from the UK Prospectus Regime consultation. Overall, respondents agreed with the proposals including the following:

1. Powers on admission to regulated markets:
   • granting the FCA discretion when determining whether a prospectus is required when securities are admitted to trading on UK regulated markets, including further issues;
   • granting the FCA discretion to recognise prospectuses prepared in accordance with overseas regulation in connection with a secondary listing in the UK, should it deem it appropriate (e.g. is it in line with the consumer protection objective);
2. The scope of the UK's public offering rules:
   • introducing a new exemption from the public offer provision for offers aimed at existing holders of a company's securities;
   • retaining the 150-person threshold for public offers of securities, retaining the 'Qualified Investors' exemption and the exemption for public offers to employees, former employees, directors and ex-directors;
3. Public offerings by private companies: amending the Regulated Activities Order to create a new permission for firms "operating platforms facilitating public offers of securities";
4. Public offering by overseas companies: replacing the jurisdictional equivalence regime with a new regime of regulatory deference involving a jurisdictional assessment by HMT, together with FCA support. Companies with securities listed on a non-UK stock market could extend an offer to the UK public, on the basis of offering documents prepared in accordance with the rules of that market’s jurisdiction. There would be no FCA review of the documents.

The Government will outline its next steps in due course.

3. PRA publish Policy Statement on changes to designating investment firms

On 15 December 2021, the PRA published a Policy Statement (PS 27/21) which sets out changes to its policy on designating investment firms following Consultation Paper (CP 15/21) published in July 2021.

The PRA received no responses to CP 15/21 and has therefore made no changes to its proposals as put forward in the Consultation Paper which were to amend the statement of policy (SoP), 'Designation of investment firms for prudential supervision by the PRA' in order to:

• reflect HMT's proposed amendments to the PRA RAO including amending the scope of firms that can be designated;
• clarify that there will usually be 6 months rather than 3 months between the Prudential Regulation Committee designating an investment firm and it becoming PRA regulated;
• note that when making a designation decision, the PRA will take into account whether or not an investment firm is a clearing member of a central counterparty offering clearing services to other financial institutions; and
• delete obsolete text and make minor textual amendments.

The updated policy statement can be found in Appendix 1 to PS 27/21.

The PRA Rulebook shall also be amended to increase the base capital resources requirement for designated investment firms to £750,000 (from €730,000) (as set out in Appendix 2).

The updated SoP will come into effect on 1 January 2022.

4. HMT's Review of the Securitisation Regulation

On 13 December 2021, HMT published its "Review of the Securitisation Regulation: Report and call for evidence response". This Review followed a consultation and call for evidence on updating the Securitisation Regulation that ran from June to September 2021. The stated aim of the Review is to amend the Securitisation Regulation in order to create better investor protection, market transparency and to support the development of the securitisation market.

Following this Review, HMT, the PRA and the FCA will work together to deliver the proposals of this Review such as:

• excluding certain unauthorised non-UK AIFMs from the definition of institutional investor under the Securitisation Regulation;
• updating the due diligence requirements for investors investing in non-UK securitisations;
• introducing an STS equivalence framework; and
• reviewing the risk retention requirements, disclosure templates and governance impact.

5. FCA sets out final messages on LIBOR

On 10 December 2021, the FCA issued their final LIBOR publications ahead of the end of 2021 deadline.

This included a speech delivered by Director of Markets and Wholesale Policy and Wholesale Supervision Edwin Schooling Latter on 8 December 2021 on the remaining actions firms are required to take before 1 January 2022 when 24 of the 35 LIBOR settings will no longer be available. The main points from the speech are:

• Sterling, Swiss franc, Japanese yen and Euro LIBOR panels will terminate on 31 December 2021;
• Sterling interest rate markets have transitioned to SONIA and the majority of sterling legacy LIBOR contracts will have moved away from LIBOR by or at the end of 2021;
• In 2022, some firms will need to take further action to convert remaining legacy LIBOR contracts; and
• The six sterling and yen LIBOR settings which will be based on risk-free rates (known as 'synthetic LIBOR') are temporary.

The FCA will publish Notices requiring LIBOR's administrator to change the method for calculating synthetic LIBOR and to permit their use for legacy contracts (except cleared derivatives) on 1 January 2022.

6. FCA and PRA publish joint Dear CEO letter on global equity finance businesses review

On 10 December 2021, the FCA and the PRA published a Dear CEO letter in relation to the supervisory review of global equity finance businesses.

In response to the default of Archegos Capital Management, the FCA and the PRA have undertaken a review of the firms' equity finance businesses. In summary, the FCA and the PRA identified a number of cross-firm deficiencies in the following areas: business strategy and organisation; onboarding and reputational risk; financial risk management controls and governance; and liquidation and close-out.

The regulators stress that given the above, it is extremely important for firms to invest in their risk management frameworks, and have asked firms to carry out a systematic review of their equity finance business and risk management practices and controls.

Firms are required to report their findings to the regulators, along with plans for remediation (where necessary) by the end of Q1 2022.

7. FCA publish Primary Market Bulletin 37

On 9 December, the FCA published the 37th edition of its Primary Market Bulletin. One of the key messages is that sponsors are required to take all reasonable steps to identify and manage conflicts of interest that could adversely affect their ability to perform their functions under LR 8 properly. Where a sponsor is in any doubt about whether a conflict can be effectively managed, it should contact the Primary Market Specialist Supervision Team at the FCA before it decides if it can provide any sponsor services, as stated in Technical Note 701.3 (TN 701.3).

The FCA observes the following as part of its review of sponsor requirements:

• The majority of sponsors have not submitted a conflict guidance request since the introduction of TN 701.3;
• There was an uptick in conflict queries during 2020 driven by Covid-19 related capital raising transactions; and
• Over 75% of queries relate to potential conflicts involving the sponsor’s group acting as a lender to the issuer or other party connected with the transaction.

Primary Market Bulletin 37 also covers the implementation of the FCA's postponed rules that require issuers to publish their annual financial reports in a structured format and touches on business continuity procedures for Primary Information Providers.

8. EBA publishes methodological framework for reclassifying investment firms as credit institutions

On 20 December 2021, the European Banking Authority (EBA) published two final reports on the final draft regulatory standards (RTS) setting out the methodological framework for (i) calculating the EUR 30bn threshold to be re-classified as a credit institution, and (ii) effectively monitoring such thresholds.

• Final Report: Draft RTS on the reclassification of investment firms as credit institutions in accordance with Article 8a(6)(b) of Directive 2013/36/EU – outlines the threshold calculation methodology, as well as the accounting standards for calculating asset values and how to (i) implement the solo and group test, (ii) determine total assets on a monthly basis and (iii) treat assets belonging to third-country groups.
• Final Report: Draft RTS on the provision of information for the effective monitoring of the credit institution thresholds under Article 55(5) of Regulation (EU) 2019/2033 (including Annex 1 (Templates), Annex 2 (Instructions) and Annex 3 (Validation rules and DPM)) – provides competent authorities with the means to monitor the EUR 30 bn threshold on an ongoing basis.

Those investment firms which are reclassified as credit institutions will be subject to the Capital Requirements Regulation and Capital Requirements Directive.

Feedback from the June 2020 and June 2021 consultations on the draft RTS and the EBA's subsequent policy decisions are located in chapter 4 of the final reports.

The next steps are for the draft RTS to be submitted to the European Commission for endorsement.

9. Deadlines for IFPR applications and notifications

On 17 December 2021, in their IFPR newsletter, the FCA outlined the following upcoming application and notification deadlines under the IFPR transitional provisions (TPs):

• TP 1.8R – FCA investment firms and their parent undertakings subject to the UK Capital Requirements Regulation (UK CRR) and who hold additional tier 1 instruments must notify the FCA of their intended treatment of such instruments by no later than 1 February 2022;
• TP 3 – firms/groups wanting to rely on the GCT must submit their application to the FCA by no later than 1 February 2022; and
• TP 7.4R(2)(b) – FCA investment firms and their parent undertakings who are not subject to the UK CRR definition of capital and want to classify their existing instruments as own funds, must notify the FCA by no later than 1 January 2022.

10. PRA Policy Statement: Identification of material risk takers (PS28/21)

On 17 December 2021, the PRA issued a Policy Statement on the identification of material risk takers (PS28/21). This includes feedback to its September 2021 consultation paper.

The PRA consulted on amendments owing to the fact that new RTS setting out the rules for identifying employees whose professional activities have a material impact on a firm’s risk profile (contained in Commission Delegated Regulation (EU) 2021/923) came into force after the Brexit Transition Period (although they were published by the EBA in June 2020), with the effect that the Commission Delegated Regulation (EU) No 604/2014 on identifying MRTs was onshored onto UK law. As part of its transposition of CRD V, the PRA included references in the Remuneration Part of the PRA Rulebook to the newer RTS on MRTs, with the result that there were two sets of duplicative and partially-diverging requirements applicable in relation to the identification of MRTs in the UK for PRA-regulated firms.

In its consultation paper, the PRA proposed:

• revoking the application of the onshored version of 2014 RTS in regards to PRA-regulated firms;
• inserting the provisions of the 2021 MRT Regulation into the Remuneration Part of the PRA Rulebook, without substantive policy amendments and amended only as needed for consistency with Rulebook style;
• making technical drafting fixes; and
• to update its Supervisory Statement (SS 2/17) "Remuneration" to reflect the rule changes and the amended process for excluding an employee identified solely based on the quantitative criteria.

The PRA will be proceeding with the proposals set out in its consultation paper but confirms it has made two changes to its initial proposals, neither of which are deemed a material change to policy:

• deleting the reference to the Material Risk Takers Regulation in the Certification Part of the PRA Rulebook, and replacing it with updated rules in the Remuneration Part (owing to the fact that the PRA is revoking the PRA version of the 2014 RTS); and
• a clarification that the threshold referred to in Rule 3.3A(2)R of the Remuneration Part which sets out quantitative criteria for identifying MRTs (where a firm has over 1,000 employees, the employee is within the 0.3 per cent of employees within the firm who have been awarded the highest total remuneration in or for the preceding performance year) should be calculated on an individual entity basis, and not calculated at the consolidated level.

The changes take effect on 30 December 2021 and firms are required to implement these changes from the first performance year starting after this date. The changes to the Certification Part of the PRA Rulebook take effect on 1 March 2022.

11. Directive on credit servicers and credit purchasers published in the Official Journal

On 8 December 2021, the Directive on credit servicers and credit purchasers was published in the Official Journal. The Directive regulates the sale, purchase and servicing of non-performing loans (NPLs) originated by EU banks.

For more information, see the Ashurst briefing here.

12. Updated ESMA Q&As on application of AIFMD

On 17 December 2021, the European Securities and Markets Authority ("ESMA") published updated Q&As on the application of the Alternative Investment Fund Managers Directive ("AIFMD").

One update was made to the Q&As. ESMA provided a response to the question "are managers of undertakings investing in crypto-assets subject to the AIFMD?"

ESMA provides that in principle, AIFs can invest in any traditional or alternative assets (including crypto-assets) as long as they comply with the AIFMD. Market participants and investors should consider (i) whether an undertaking meets the definition of an 'AIF' under article 4(1)(a) on a case-by-case basis, (ii) whether there are any specific requirements and/or limitations on a national level, and (iii) the high risks of investing in crypto-assets (as per the joint ESMA, EBA and EIOPA warning from February 2018).

13. FCA Decision notice: BlueCrest Capital Management (UK) LLP

On 22 December 2021, the FCA published a Decision Notice to hedge fund management group BlueCrest Capital Management (UK) LLP (BCMUK), setting out its decision to impose a financial penalty of £40,806,700 on BCMUK for breaching Principle 8 of the FCA's Principles for Businesses (managing conflicts of interest fairly) and SYSC 10.1.7R and SYSC 10.1.8R.

Between 1 October 2011 and 31 December 2015, the FCA found that BCMUK did not manage a conflict of interest relating to the appointment of portfolio managers on both an external fund and an internal fund open only to partners and employees, in a fair manner. BCMUK's systems and controls were inadequate for managing the risk that internal fund investors would be favoured over external fund investors when portfolio managers were appointed. Amongst other things, BCMUK failed to give its customers adequate disclosure of the conflict of interest and as a result, the external fund's investors received a "sub-standard" investment service from BCMUK.

The FCA added that asset managers are susceptible to conflicts of interest arising between their own interests and those of their customers, however such conflicts of interest should not interfere with their obligations to their customers.

The FCA has also imposed a requirement for BCMUK to carry out a redress programme to compensate clients who suffered a loss as a result of BCMUK's failings.

BCMUK has not yet made representations so the findings in the Decision Notice are provisional. BCMUK has referred the case directly to the Upper Tribunal.

14. Metro Bank issued £5.376m fine from PRA for regulatory reporting and governance and controls failings

On 21 December 2021, the PRA issued a final notice to Metro Bank, in which it imposed a £5,376,000 fine for breaching Fundamental Rule 2 (conducting business with due skill, care and diligence) and Fundamental Rule 6 (organising and controlling affairs responsibly and effectively) of the PRA Rulebook for the following reasons:

• Metro Bank failed to act with due skill, care and diligence when reporting its capital position; and
• there were inaccuracies in the Common Reporting (COREP) returns it sent to the PRA between 13 May 2016 to 23 January 2019. Although Metro Bank corrected these on 23 January 2019, incorrect risk-weightings in the original COREP returns painted an inaccurate representation of Metro Bank's regulatory capital position at the time.

The PRA also found that despite Metro Bank's "rapid growth" and expansion pre-2019, it failed to implement proportionate investment in governance arrangements and systems and controls for its COREP reporting, particularly in relation to ensuring Metro Bank:

• took adequate care to ensure accurate reports were made to the PRA;
• had escalation routes for reporting purposes which were clear, documented and effective;
• had effective controls for interpreting relevant regulatory rules and guidance; and
• had sufficient and appropriate resources to allow it to comply with relevant reporting obligations.

Metro Bank qualified for a 30% discount in the fine for agreeing to resolve this matter.

15. Standard Chartered Bank fined £46.55m by PRA over misreporting errors and failing to be open and cooperative

On 20 December 2021, the PRA issued a final notice and imposed a £46.55 million fine on Standard Chartered Bank (SCB) for not being open and cooperative, and for failings in its regulatory reporting governance and controls relating to a temporary additional liquidity expectation the PRA imposed in October 2017.

In breach of Fundamental Rule 6 (organising and controlling affairs responsibly and effectively), SCB failed to:

• check that its liquidity reporting escalation framework was fully embedded within the relevant part of its business;
• establish a documented policy outlining when to notify the PRA of any liquidity errors or potential liquidity errors;
• maintain and run appropriate controls testing and checks for liquidity metric reporting; and
• ensure adequate HR resources to examine any liquidity metric misreporting.

In breach of Fundamental Rule 7 (dealing with regulators in open and cooperative way), SCB failed to promptly notify the PRA of one of its miscalculation and misreporting errors (Fundamental Rule 7).

This is the highest fine issued by the PRA for a PRA-only enforcement case. SCB qualified for a 30% discount in the fine after agreeing to resolve this matter.

16. FCA fined GIML £9.1m and Timothy Haywood £230,037 for failing to manage conflicts of interest

On 16 December 2021, the FCA issued warning notice statements to GAM International Management Limited (GIML) and Timothy Haywood in relation to conflicts of interests and failure to comply with gifts and entertainment policies:

• GIML – breached principle 2 of the FCA's Principles for Business for failing to ensure the effective operation of its conflicts of interest systems and controls, and principle 8 for failing to manage customer conflicts of interest fairly; and
• Mr Haywood – breached Statement of Principle 7 for failing to take reasonable steps, as a person performing an accountable significant-influence function at GIML, to ensure the firm complied with the relevant regulatory rules requiring the fair management of conflicts of interest, and Statement of Principle 2 for failing to adhere to GIML's Gifts and Entertainment Policy.

The FCA fined GIML £9.1m and Timothy Haywood £230,037, which includes the 30% discount for both parties agreeing to resolve all issue of fact and liability.

The FCA is yet to publish final notices related to this matter.

17. JMLSG publishes consultation on syndicated lending and new revisions to monitoring customer activity guidance

On 16 December 2021, the Joint Money Laundering Steering Group (JMLSG) announced its proposals to revise its syndicated lending guidance in Part II, Sector 17 of its AML Guidance. The proposal is to insert a new paragraph 17.29A on customer due diligence for syndicated lenders. Comments must be submitted by 17 January 2022.

Further, on 20 December 2021, JMLSG announced the publication of amendments to the "monitoring customer activity" section in Part I, Chapter 5.7 of its AML Guidance, as well as a clarificatory amendment to Part II, Sector 16. JMLSG has submitted the amendments to the Treasury for approval.

18. HSBC fined £63.9m for deficient transaction monitoring controls

On 17 December 2021, the FCA published the decision notice it issued to HSBC Bank plc (HSBC) which imposed a civil penalty of £63,946,800 for "serious weaknesses" in HSBC's transaction monitoring systems from 31 March 2010 to 31 March 2018.

The FCA found that HSBC failed to comply with regulations 20(1)(a) and 20(1)(f) of the Money Laundering Regulations 2007 on the grounds that it failed to "establish and maintain appropriate and sufficiently risk-sensitive policies and procedures" to allow it to identify any unusual activity and/or indications of money laundering or terrorist financing.

The FCA identified three key deficiencies in HSBC's transaction monitoring systems, being a failure to: (a) review the scenario coverage of money laundering or terrorist financing indicators; (b) assess and update the parameters for identifying potentially suspicious activities; and (c) examine the accuracy and completeness of data in its monitoring systems.

HSBC's failings were of particular seriousness because:

• they occurred over a prolonged period of time despite being identified in a number of internal and external reports;
• HSBC were put on notice of potential weaknesses in their transaction monitoring controls in 2012 following separate action by the U.S. Department of Justice; and
• the FCA issued continual guidance on the importance of maintaining appropriate financial crime controls both before and during the period in question.

The FCA supervised HSBC's large-scale remediation programme into its AML processes and recognises its commitment and the successful enhancements it has made to date.

19. Natwest fined £265m for money laundering failings

On 13 December 2021, Natwest was fined £265 million at Southwark Crown Court for three convictions brought against them by the FCA under the Money Laundering Regulations 2007, following Natwest pleading guilty on 7 October 2021. This is the first time the FCA have brought criminal charges against an entity for money laundering failings.

The charges were concerned with the bank's failure to monitor the accounts of Fowler Oldfield, a jewellery business based in Bradford between 8 November 2012 and 23 June 2016 resulting in over £360 million of laundered money passing through the bank.

The following sentence was issued:

• a fine of £397,156,944.14 (minus a reduction of one third due to Natwest's plea);
• a confiscation Order of £460,047.04; and
• payment of the FCA's costs amounting to £4,297,466.27.

20. EBA Consultation Paper: Draft Guidelines on the use of Remote Customer Onboarding Solutions

On 10 December 2021, the EBA published a consultation paper on draft guidelines concerning remote customer onboarding solutions under MLD4. This follows the September 2020 EU Digital Finance Strategy which identified that the current AML/CFT rules on customer due diligence (CDD) in MLD4 do not provide sufficient clarity about what is, and what is not, allowed in a remote and digital context.

The draft guidelines cover the following:

• Acquisition of information: the conditions that need to be met when innovative technologies are used to onboard customers remotely;
• Document authenticity and integrity: the steps that firms need to take to satisfy themselves of the veracity of the documentation they have obtained remotely;
• Authenticity checks: the processes that firms should have in place to mitigate impersonation fraud risks;
• Digital identities: firms to determine for themselves whether a Digital Identity Issuer (a third party trusted with the assessment and verification of the authenticity of the credentials or attributes which will serve as basis for the customer’s identification) is independent and sufficiently reliable to perform the initial CDD process, subject to certain conditions set out in the guidelines;
• Reliance on third parties and outsourcing: points specific to the remote onboarding context that need to be considered by firms.
• ICT and security risk management: clarification of several aspects concerning ICT and security risks that are specific to the relation between the customer and the firm under a remote context.

The deadline for the consultation is 10 March 2022.

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

21. EPC publishes updated SEPA rulebooks and payment scheme management rules

On 13 December 2021, the European Payments Council (EPC) published updated versions of the following 2021 Single European Payments Area (SEPA) scheme rulebooks and payment scheme management rules:

• 2021 SEPA Direct Debit Business-to-Business rulebook – version 1.1 – effective 11 January 2022
• 2021 SEPA Direct Debit Core rulebook - version 1.1 – effective 11 January 2022
• 2021 SEPA Instant Credit Transfer rulebook - version 1.1 – effective 11 January 2022
• Maximum Amount for Instructions under the 2021 SEPA Instant Credit Transfer Rulebook -version 1.1
• 2021 SEPA Credit Transfer rulebook - version 1.1 – effective 11 January 2022
• SEPA Payment Scheme Management Rules – version 4.4 – effective 11 January 2022

22. Treasury Committee welcomes tech giants only hosting FCA approved adverts

On 14 December 2021, Chair of the Treasury Committee Rt. Hob Mel Stride commented on the decision by key online platforms such as Facebook (now Meta), Microsoft and Twitter to only publish financial product advertisements from firms that are authorised by the FCA. The Chair welcomed the decision as "a positive step in the right direction".

Together with support from the Joint Committee on the draft Online Safety Bill, the Treasury Committee has also called for the scope of the Online Safety Bill to be widened to include fraudulent advertisements. The Online Safety Bill is scheduled to be put to Parliament for approval in 2022.

23. FCA publish new rules on climate-related disclosures

On 17 December 2021, the FCA published two Policy Statements outlining the final rules and guidance on promoting improved climate-related financial disclosures:

• PS 21/23 – climate-related disclosure requirements will also apply to issuers of standard listed shares and Global Depositary receipts. The policy statement also outlines the considerations that apply to issuers of standard listed debt and debt-like securities, as well as updated guidance from the Taskforce on Climate-related Financial Disclosures (TCFD) on the existing and new rules. The Listing Rules (Disclosure of Climate-Related Financial Information) (No 2) Instrument 2021 can be found here.
• PS 21/24 – asset managers, life insurers and FCA-regulated pension providers must make mandatory annual disclosures in line with the TCFD's recommendations at an entity level and a product or portfolio level. This will involve (amongst other things) outlining how the firm considers climate-related risks and opportunities when managing or administering investments for its clients and consumers. The Disclosure of Climate-Related Financial Information (Asset Manager and Asset Owner) Instrument 2021 can be found here.

Both sets of new rules will enter into force on 1 January 2022. For asset managers and asset owners, the rules will apply to the largest firms from 1 January 2023 and to smaller firms (above £5 billion threshold) from 1 January 2023.

24. Publication of Delegated Regulation supplementing Article 8 of the Taxonomy Regulation in the Official Journal

On 10 December 2021, the European Union published Commission Delegated Regulation (EU) 2021/2178 in the Official Journal. The Delegated Regulation supplements Article 8 of the Taxonomy Regulation (EU 2020/852) and specifies the key performance indicators for both non-financial and financial undertakings (credit institutions, asset managers, investment firms and insurance and reinsurance undertakings) in relation to their "environmentally sustainable economic activities".

The Delegated Regulation also clarifies the "content and presentation" of the information that must be disclosed by all undertakings as well as setting out the methods of compliance with such disclosures.

The Delegated Regulation will come into force on 30 December 2021 and will apply from 1 January 2022.

25. Publication of Taxonomy Climate Delegated Act in the Official Journal

On 9 December 2021, the European Union published Commission Delegated Regulation (EU) 2021/2139 (widely known as the Taxonomy Climate Delegated Act) in the Official Journal. The Taxonomy Climate Delegated Act supplements the Taxonomy Regulation (EU 2020/852) and sets out the technical screening criteria for activities that meet the Taxonomy Regulation's six environmental objectives, which include climate change mitigation, transition to a circular economy and climate change adaptation.

The Taxonomy Climate Delegated Act will come into force on 29 December 2021 and will apply from 1 January 2022.

26. Gibraltar passporting rights to continue until 31 December 2022

On 20 December 2021, the FCA confirmed that passporting rights for firms operating between the UK and Gibraltar will be extended until 31 December 2022, as a result of SI 2021/1252, which came into force on 15 December 2021.

27. UK signs new trade agreement with Australia

On 16 December 2021, the UK and Australia signed a new free trade agreement, which includes a chapter on financial services. This is the first trade agreement to be signed by the UK since Brexit.

Chapter 9 of the agreement covers Financial Services. Areas addressed by the new free trade agreement include (amongst others):

• Article 9.6 – no limitations on measures such as the number of established financial service suppliers (including cross-border supplies) and the total value of financial service transactions. However, parties can impose terms, conditions and procedures for the authorisation of the establishment and expansion of a "commercial presence" (i.e. licensing requirements);
• Article 9.7– when granting cross-border market access for certain financial services, neither party can impose a condition for the other to establish or maintain a representative office or an enterprise (or branch of an enterprise), or to be resident in its territory;
• Article 9.9 – neither party can impose requirements on the make-up of the other party's senior management and board of directors, such as requiring natural persons of any particular nationality;
• Article 9.24 – parties shall promote and further advance regulatory cooperation in financial services.

The impact assessment of the free trade agreement can be found here.

28. HM Treasury Consultation: Financial promotion exemptions for high net worth individuals and sophisticated investors

On 15 December 2021, HM Treasury issued a consultation on exemptions under the Financial Promotion regime in relation to high net worth individuals and sophisticated investors.

The key proposals are:

•  increasing the net income threshold to £150,0000 and the net assets threshold to £385,000, for HNW individuals;
• with respect to self-certified sophisticated investors, removing the "one investment in an unlisted company in the previous two years" as an indicator of sophistication, and increasing the threshold of being in the last two years a director in a company with annual turnover of at least £1 million to £1.4 million;
• introducing a requirement for firms to believe on reasonable grounds that an investor meets the HNW or sophisticated investor definitions and to document how they've came to this conclusion; and
• updating the HNW and self-certified sophisticated investor statements.

The deadline for responses is 9 March 2022.

For more information, please see our briefing.

29. Application of best execution to closing out of open positions: Nicolas de Boinville and IG Index Limited

On 10 December 2021, in the case of De Boinville v IG Index Ltd, [2021] EWHC 3326 (Comm), the High Court considered the application of FCA best execution rules in relation to the closing out of a client's spread-bet positions following the client's failure to post margin.

In summary, the claim was dismissed by the court for the following reasons:

• taking the approach of Jacobs J in Berkeley Burke SIPP Administration Ltd v Financial Ombudsman Service Limited v Mr Wayne Charlton, Financial Conduct Authority [2018] EWHC 2878 best execution does not apply to the decision on whether to close a position, but the mechanics of carrying it out once the decision has been taken. There has therefore been no breach of best execution requirements; and
• there had also not been a breach of fiduciary or common law duty relating to best execution owing to the fact that the defendant's relationship with the claimant was execution only. The defendant's duties were limited to those set out in the customer agreement.

The facts of the case are as follows:

The claimant, Nicholas de Boinville, brought a claims against the defendant, IG Index, a provider of spread betting services on an "execution only" basis, for damages for breach of contract, breach of fiduciary duty, misrepresentation and a statutory claim under FSMA for alleged breaches of the applicable Conduct of Business Sourcebook (COBS) Rules relating to best execution and client's best interests.

The customer agreement between the defendant and the claimant provided that defendant would take all reasonable steps to provide the claimant with best execution. The agreement also provided that, in the event of the claimant defaulting on payment or substantive obligations, the defendant could, close or part-close all or any of the claimant's spread-bets at the then prevailing market quotations or market prices in or, if these were not available, at such levels as the defendant considered fair and reasonable.

On many occasions, the claimant failed to provide margin, with the result that he was in default, so that some of his open positions were closed by the defendant. The claimant argued that the defendant repeatedly failed to apply best execution when closing the claimant's positions in breach of the customer agreement, COBS, as well as fiduciary duty and common law duty to obtain the best possible result.