Financial Services SpeedRead 12 April 2024 edition
12 April 2024
Welcome to the latest edition of the Financial Services SpeedRead, a collection of bite-sized updates designed to help you keep on top of key regulatory developments in financial services over the preceding fortnight. Please get in touch if you want to explore any of the topics covered in this fortnight's edition of Financial Services SpeedRead in more detail.
On 26 March 2024, the FCA published its finalised guidance on financial promotions on social media.
The guide follows feedback received on the FCA's consultation paper (GC23/2).
While the finalised guidance does not provide any new obligations for firms, it re-affirms the FCA's existing financial promotion rules are technology agnostic and clarifies the FCA's expectations on firms and affiliate marketers, such as influencers.
This includes the following expectations:
Standalone compliance: financial promotions should be standalone compliant, meaning that each communication must comply with the rules individually. For promotions via a dynamic medium (such as Instagram stories), the FCA considers the promotion as a whole and takes a proportionate view based on the number of frames and where important information, including about risk, is displayed within the promotion.
Prescribed risk warnings: Prescribed risk warnings should be clear to consumers on the face of the promotion. In addition, the FCA provides examples of what it considers to be prominent risk warnings across various social media channels and forms. The FCA also draws attention to social media features such as truncated text, noting risks can be truncated in such a way that ceases to comply with existing applicable rules.
Consumer Duty: firms using social media for financial promotions must consider how their marketing strategies align with acting to deliver good outcomes for retail consumers, beyond ensuring that an individual promotion supports consumer understanding by providing balanced information about the risks and benefits in a way that is clear, fair and not misleading.
Affiliate marketing: firms working with affiliate marketers, such as influencers, should take proactive responsibility for how their affiliates communicate financial promotions, including appropriate monitoring and oversight. Firms remain responsible for the compliance of every promotion they make or cause to be made.
On 19 March 2024, the FCA published three new webpages outlining its approach to (i) supervision, (ii) consumers and (iii) competition.
On 19 March 2024, the FCA published a new webpage with an updated version of its approach to international firms, outlining its expectations for international firms providing financial services in the UK, or preparing to apply for full UK authorisation.
The webpage covers:
On 20 March 2024, Commission Delegated Regulation (EU) 2024/895 of 13 December 2023 amending Delegated Regulation (EU) 2015/63 was published in the Official Journal of the EU.
The amendments to Delegated Regulation (EU) 2015/63 include:
The regulation applies from 21 March 2024, with the exception of Article 1(3) and (4) which apply retroactively as of 1 December 2023.
On 26 March 2024, the Official Journal of the EU published Directive (EU) 2024/927 (AIFMD II) amending the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) and the UCITS Directive (2009/65/EU).
AIFMD II makes several target changes to AIFMD and the UCITS Directive, reflecting the outcome of the AIFMD review. The changes include:
The Directive will enter into force on 15 April 2024, from which member states will have until 16 April 2026 to implement the amendments into their national legislation.
For more information, see our briefing on AIFMD II here.
On 25 March 2024, the FCA published a new webpage addressing the risks associated with the host model used by alternative investment fund managers (AIFMs) to manage alternative investment funds (AIFs).
Under the host model, the AIFM employs staff on secondment from a third party to carry out both regulated and unregulated tasks, with secondees sometimes sourced from one of the AIFM's appointed representatives (ARs).
The FCA webpage does not provide any substantially new information, but synthesises its conclusions from a its previous supervisory work in 2019 and its 2023 review. The FCA has identified three main harms arising from the host model:
The FCA states that it has taken action already against firms where it has seen harms arising from the host model and that it will continue to monitor these arrangements closely. It reminds AIFMs that they are responsible for the actions of their secondees and most have robust monitoring in place to review the actions of secondees.
The FCA also reminds firms that where they are a principal for an AR, they must tell the FCA about proposed secondments when adding new ARs on Connect.
No new entries.
No new entries.
On 20 March 2024, the FCA published a Dear CEO letter on its strategy for consumer lending, focusing on three portfolios in the consumer lending market: high-cost lending, mainstream consumer credit lending, and credit unions.
The letter sets out the key risks of harm the FCA believes these portfolios may pose to their consumers and the markets in which they operate. This will shape the FCA's focus and engagement with the consumer lending market over the next two years.
The FCA has identified three key focus areas to achieve their market-wide strategic objective to ensure the relevant markets function well. The Dear CEO letter sets out the consumer lending-specific harms under each focus area. These are:
The FCA states that significant part of their supervisory activity over the next two years will be to test firms against the FCA's expectations, including the expectations set out in the letter. The FCA therefore advises firms to discuss the letter with their board or governing body, and be able to demonstrate the steps taken to address the risks covered in the letter.
On 18 March 2024, the FCA, Ofgem, Ofwat and Ofcom published a joint statement on debt collection and consumer vulnerability, as well as their expectations on how firms should support vulnerable customers.
This letter, which follows an earlier joint letter from June 2023 on supporting consumers in financial difficulty, sets out the following outcomes which the regulators expect firms across their respective sectors to deliver:
The regulators have stated they will take robust action where firms fail to meet the standards expected of them.
On 19 March 2024, Regulation (EU) 2024/886 of the European Parliament and of the Council of 13 March 2024 (Instant Payments Regulation) was published in the Official Journal of the European Union. The Instant Payments Regulation amends Regulation (EU) No 260/2012 (SEPA Regulation), Regulation (EU) 2021/1230 (Cross-Border Payments Regulation), Directive 98/26/EC (Settlement Finality Directive) and Directive (EU) 2015/2366 (PSD2).
The Instant Payments Regulation requires payment service providers (PSPs) who offer credit transfers to make instant credit transfer services in euro readily available to customers, such that transfers can be made within 10 seconds, 24 hours a day within the same country and also to other EU member states.
As part of the instant credit transfer framework, PSPs will be required to verify the match between IBAN account numbers and the beneficiary's name as soon as possible to alert the payer to possible mistakes or fraud before a transaction is made.
The Instant Payments Regulation entered into force on 8 April 2024. PSPs in the eurozone will need to be able to receive instant credit transfers in euro by 9 January 2025, and to be able to send them by 9 October 2025. There is a longer transition period for PSPs located outside of the eurozone, who have until 9 January 2027 to be able to receive instant credit transfers in euro, and until 9 July 2027 to be able to send them.
On 3 April 2024, the FCA and BoE published a joint consultation paper (CP 24/5) setting out their proposals to implement and operate the Digital Securities Sandbox (DSS). The DSS will allow firms to use developing technology, including distributed ledger technology, in the issuance, trading and settlement of securities such as shares and bonds.
The consultation paper outlines the regulators' overarching aims of facilitating innovation to promote a safe, sustainable and efficient financial system, protecting financial stability, and protecting market integrity and cleanliness. It sets out the regulators' joint proposed approach to implementing and operating the DSS, including:
The consultation paper also includes a draft guidance document for potential DSS applicants.
The closing date for feedback on the consultation paper is 29 May 2024. The regulators propose to publish final guidance and open the DSS for applications during summer 2024.
On 25 March 2024, ESMA published its final report on its first package of draft technical standards under the Markets in Crypto Assets Regulation (MiCA). The final report contains five of the six draft technical standards related to investor protection topics included in ESMA's July 2023 consultation paper. These relate to:
The final report on the technical standards on conflicts of interest for crypto-asset service providers will be published at a later stage.
The draft technical standards contained in the final report have been submitted to the European Commission, who will determine whether they should be adopted within three months.
On 25 March 2024, ESMA published its third consultation package under MiCA, which contains draft technical standards and guidelines specifying certain requirements on the detection and prevention of market abuse, investor protection and operational resilience.
Specifically, the consultation package seeks input on:
Comments on the consultation paper can be submitted until 25 June 2024 via the response form here. ESMA will publish a final report based on the feedback received, and submit the draft technical standards for approval by the European Commission by 30 December 2024.
No new entries.
On 21 March 2024, HMT published a policy paper outlining its approach to designating critical third parties (CTPs) to the UK financial services sector.
The policy paper covers:
On 19 March 2024, the FCA published a consultation paper on proposed amendments to its 2021 guidance for insolvency practitioners on how to approach regulated firms (FG 21/4).
The FCA's proposed amendments to the guidance include:
The consultation closes on 30 April 2024. The FCA will review all responses and aims to publish the finalised guidance later this year.
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.