On 27 July 2018, HM Treasury published a response to its April 2016 consultation on claims management secondary legislation.
The consultation response document summarises the responses received and confirms the final approach to defining the scope of claims management activities for the purposes of FCA regulation. It also sets out the government’s policy intent for transitional provisions.
On 7 August 2018, the Financial Conduct Authority (FCA) published a consultation paper on the creation of a Global Financial Innovation Network (GFIN). The network will seek to provide a more efficient way for innovative firms to interact with regulators, helping them navigate between countries as they look to scale new ideas. It will also create a new framework for co-operation between financial services regulators on innovation related topics, sharing their different experiences and approaches.
The FCA says that the GFIN could serve three main functions:
On 1 April 2019 the FCA will become the regulator of claims management companies (CMCs) established or serving customers, in England, Wales and Scotland. CMCs that wish to continue trading from 1 April 2019 will have to register for temporary permission between 1 January – 31 March 2019. They will then subsequently be able to apply for full authorisation. The FCA has also developed an authorisations gateway and a new supervisory structure for CMCs.
In a consultation paper published on 20 August 2018, the FCA sets out its proposals for recovering the costs of setting up these facilities, as well as supervising CMCs going forward.
Responsibility for considering complaints about CMCs will also transfer from the Legal Ombudsman Service to the Financial Ombudsman Service. As such, the consultation paper also sets out the FCA's proposals for recovering the associated transfer costs and the Financial Ombudsman Service’s ongoing costs.
Feedback is sought by 22 October 2018.
On 24 July 2018 the UK government published a draft version of the EEA Passport Rights (Amendment, etc, and Transitional Provisions) (EU Exit) Regulations 2018 (the Regulations).
The purpose of the draft Regulations is to remove references to the passporting framework set out in the Financial Services and Markets Act 2000 (FSMA) in FSMA itself and in other UK legislation. The draft Regulations also establish a temporary permissions regime to enable EEA firms currently operating in the UK using a passport to continue their activities in the UK for a limited period after exit day.
HM Treasury states that the regime will ensure that:
The FCA has provided an update setting out in more detail on how the temporary permissions regime will operate; including its initial views on the rules it proposes will apply to firms while they are in the regime. The temporary permissions regime will only apply to incoming EEA firms. It remains unclear what, if any, reciprocal arrangements will be proposed by EU regulators.
The government has also laid in Parliament a separate draft statutory instrument that will, subject to parliamentary approval, deliver a temporary recognition regime for non-UK central counterparties. The Bank of England published a webpage on its and the PRA's approach to the temporary permissions regime and the temporary recognition regime.
On 6 August 2018, the Financial Markets Law Committee (FMLC) published a report titled U.K. Withdrawal from the EU: Issues of Legal Uncertainty Arising in the Context of the Robustness of Financial Contracts. This report considers the possible consequences of a hard Brexit on existing financial contracts and highlights the legal uncertainty which will arise if there is no clarity as to the future of the UK-EU relationship post-Brexit. It also suggests a number of ways this uncertainty could be reduced or avoided.
The report divides the possible consequences of a hard Brexit on financial contracts into three broad categories:
Three possible solutions to these consequences are considered in chapter 5 of the report.
The FCA published a “Dear CEO” letter to firms on 8 August 2018 concerning cross-border booking arrangements and advising firms of its position in relation to the use of cross-border booking models in the context of Brexit.
The FCA appreciates that the UK’s withdrawal from the EU has necessarily resulted in firms needing to put into place contingency plans which, when executed, will impact current business models, legal entity strategies and booking arrangements. In contrast with some EU supervisors, who have set out specific business model requirements, the FCA is open to a broad range of legal entity structures or booking models. This includes those making use of back-to-back and remote booking, provided their associated conduct risks are effectively controlled and managed.
The FCA expects UK boards and senior managers to ensure that effective governance is in place to identify and mitigate the potential harm that could arise from modified booking arrangements. Firms also should be able to demonstrate to the FCA (whenever requested) how the principles have been observed and implemented.
On 20 August 2018, the UK government published a presentation setting out its views on the framework for the UK-EU partnership in regard to financial services once the UK leaves the EU.
Key themes discussed in the presentation include the following:
On 23 August 2018, the UK government published guidance on the effect on banking, insurance and other financial services if the UK leaves the EU without an agreement in place. A "no-deal" scenario describes the situation in which the UK and the EU fail to conclude a draft withdrawal agreement by the time of the UK's exit from the EU. This would mean no transition period and a sudden "cliff-edge" break in the application of EU rules to the UK at 11pm on 29 March 2019.
The technical notice discusses the impact of a no-deal Brexit on a variety of stakeholders, including:
The PRA published a consultation paper (CP18/18) on 31 July 2018 setting out its proposed rules for a technical correction to the Solvency II firms: Insurance General Application Part of the PRA Rulebook, along with some consequential changes and minor administrative amendments related to the extension of the Senior Managers and Certification Regime.
The consultation paper should be read in conjunction with the PRA's Policy Statement 15/18 Strengthening individual accountability in insurance: Extension of Senior Managers and Certification Regime to insurers, and the FCA's Policy Statement 18/15 Extending the Senior Managers and Certification Regime to insurers – Feedback to CP17/26 and CP17/41 and near final rules.
The consultation closes on 1 October 2018.
On 31 July 2018, the Payment Systems Regulator (PSR) published a report setting out its understanding of the Contactless Mobile Payments sector.
Contactless Mobile Payments (CMPs) are in-store payments that consumers make by using apps installed on their mobile devices. In the UK, the CMP apps that are currently available – Amex Pay, Apple Pay, Barclays Contactless Mobile, Google Pay and Samsung Pay – allow consumers to upload their card details onto the app to make payments from those devices.
To better understand the CMP sector in the UK, the PSR undertook a call for information exercise in 2016 and 2017 which focused on:
The report explains how CMPs work from a functional and technical perspective, outlines the main participants and their respective roles, summarises the PSR's consideration of particular issues and proposes next steps.
The FCA is consulting on proposals to apply existing rules and guidance that clarify its expectations on conduct and communication across the payment services and e-money sectors.
Consultation paper 18/21, published on 1 August 2018, proposes to extend the application of the FCA Principles for Businesses and certain specific rules about promotions and communications to cover wider categories of businesses that it regulates (including businesses authorised or registered under the Payment Services Regulations or the Electronic Money Regulations).
The FCA is also proposing new guidance to help ensure that firms do not mislead consumers when they are advertising payment services or e-money that involves a currency conversion.
The deadline to provide comments on the proposals is 1 November 2018.
On 30 July 2018, the FCA published a policy statement containing the final rules and guidance on assessing creditworthiness for consumer credit products. This policy statement summarises and responds to feedback on consultation paper CP17/27 and also publishes final rules and guidance in the Consumer Credit sourcebook of the FCA Handbook.
The rules and guidance come into effect in 1 November 2018.
The Upper Tribunal has published its decision in the case of Plaxedes Chickombe and 44 others v The Financial Conduct Authority (FCA) and Barclays Partner Finance as Interested Party. The decision relates to consumer credit agreements entered into through the intermediation of an unauthorised broker and whether the decision of the FCA to validate the agreements was reasonably open to the FCA.
The Upper Tribunal determined that the FCA had failed to consider the issue of potential consumer detriment in considering whether to make the validation order at issue, and as such allowed the applicants’ references. The Tribunal remitted the matter to the FCA with a direction to reconsider its decision to issue the validation order in accordance with the tribunal’s findings.
The Upper Tribunal has published its decision in the case of Alistair Rae Burns v The Financial Conduct Authority:  UKUT 0246 (TCC). The decision relates to an independent financial adviser firm which advised on the suitability of transferring occupational pension and personal pension benefits into a self-invested pension scheme.
In December 2016 the FCA fined Mr Burns £233,600 and banned him from performing any senior management or significant influence function in relation to regulated activity in financial services. In the FCA’s view, Mr Burns failed to ensure that his firm, TailorMade Independent Limited (TMI), provided suitable advice to its clients and failed to ensure that TMI managed fairly and clearly disclosed his own personal conflicts of interest and the conflicts of interest relating to other individuals at TMI.
Mr Burns referred the FCA's decision to the Upper Tribunal. The Upper Tribunal determined that the appropriate fine to be imposed is £60,000 and that the FCA was open to make a prohibition order against Mr Burns.
The Upper Tribunal also confirmed the FCA’s position that when a financial adviser gives advice to a customer who wishes to transfer out of their current pension arrangement to release funds to allow them to invest in an overseas property investment through a SIPP, then the financial adviser must consider not only the suitability of the SIPP itself but the suitability of the investments to be held in it.
The Financial Action Task Force (FATF) published a report looking at the techniques and tools used by professional money launderers (PMLs), in order to help authorities target, prosecute and dismantle them. PMLs are individuals or entities that operate large scale schemes to assist criminals with circumventing anti-money laundering and counter-terrorism financing practices.
The report identifies the key characteristics of the individual PML, the professional money laundering organisation and the professional money laundering network of associates and contacts that work together to facilitate money laundering.
The FCA provided an update on its investigation into the treatment by the Royal Bank of Scotland (RBS) of SME customers transferred to its Global Restructuring Group (GRG).
The FCA first commissioned an independent review of GRG in 2014, the findings of which were published in September 2016. In November 2016, the FCA began its own investigation into the concerns raised by the independent review. The FCA states that this review provided a better understanding of RBS senior management’s awareness and involvement in matters highlighted.
It found, however, that there was no evidence that any member of senior management was dishonest or lacking in integrity and no credible basis to conclude that senior management sought to treat customers unfairly. The FCA says that, based on its investigation, it has concluded that bringing a prohibition case against any member of GRG senior management would not have a reasonable prospect of success.
Recognising the significant public interest in this matter the FCA will publish a fuller account of its findings in as much detail as possible and to the extent permitted by the law.
The FCA has begun a criminal prosecution against Mark Starling in relation to unauthorised investment schemes alleged to have been operated between 1 August 2008 and 25 April 2017. The alleged offences are as follows:
Mr Starling’s first court appearance was at City of London Magistrates’ Court on 21 August 2018. The case was passed to Southwark Crown Court with the first preliminary hearing scheduled for 18 September 2018.
Contributor: Suliat Ogunyinka
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