Financial Services SpeedRead: 23 February 2024 edition

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.

Financial Markets

1. ESMA: Public statement: Deprioritisation of supervisory actions on the obligation to publish RTS 28 reports in light of the agreement on the MiFID/MiFIR review

On 13 February 2024, the European Securities and Markets Authority (ESMA) published a public statement providing investment firms with clarity regarding their obligation to publish reports on best execution under Article 27(6) of MiFID II and RTS 28 following agreement being reached on the MiFID II/MiFIR review. 

ESMA confirms that it expects national competent authorities (NCAs) not to prioritise supervisory actions towards investment firms relating to the periodic reporting obligation to publish RTS 28 reports on their top five execution venues and the quality of execution obtained pending transposition of the new Directive amending MiFID II (which removes the RTS 28 reporting obligation) into member states' national law. 

The statement also stresses that, aside from RTS 28 reports, investment firms should strictly adhere to the best execution requirements under the current and reviewed MiFID II framework.

2. ESMA: Warning for people posting investment recommendations on social media

On 6 February 2024, ESMA published a warning for people posting investment recommendations on social media, to raise awareness on some requirements established by the Market Abuse Regulation (MAR) which apply to such posts and highlighting the risks of market manipulation when posting on social media. 

The warning follows a rise in retail participation in EU financial markets, and the corresponding increase in online discussion of financial markets and investment strategies. The key messages of the warning are:

• to exercise caution when (i) sharing on social media any opinion in relation to the value or price of a financial instrument; or (ii) recommending an investment strategy, as this may constitute an investment recommendation under MAR;
• to comply with the requirements established in the MAR framework when posting an investment recommendation on social media, being conscious that spreading false or misleading information on social media or selectively disclosing inside information can be a serious offence;
• to be aware that the obligations you might be subject to when issuing recommendations may vary according to who you are and your activity (e.g. additional requirements apply to "professionals" and "experts") (noting that prohibitions of insider dealing, market manipulation and unlawful disclosure apply to everyone); and
• to be wary of suspicious posts and invitations to take part in strategies aimed at creating trends, as such conduct may be unlawful and lead to serious consequences under MAR.

The Annex to the warning contains practical examples of how MAR may apply to social media posts.

Banking and Prudential

No new entries.

Funds Management

No new entries.

Senior Managers and Governance

3. FCA: Notice: Information request to insurance companies in relation to non-financial misconduct

On 6 February 2024, the FCA published a notice to wholesale insurers and insurance intermediaries requiring these firms to provide information on incidents of non-financial misconduct (NFM), including information relating to incidents that did not previously meet the FCA reporting thresholds. 

This request follows on from the FCA's announcement that it would survey both insurance brokers and banks to build a clearer understanding of when and where these incidents occur, with a similar request expected imminently for banks.

The survey requests high-level, aggregated statistics for the previous three years on: 

• the number of NFM incidents recorded (by type/category);
• the method by which the incidents were detected (e.g. whistleblowing and surveillance within the firm);
• the outcomes of the incidents (e.g. dismissal/written warning/complaint not upheld); and 
• the number of further outcomes recorded (e.g. non-disclosure agreements and employment tribunals); 

Firms are asked to provide a breakdown of the data (i) between senior management functions (SMFs) and non-SMFs, and (ii) by the location of the incidents. 

The survey also includes high level queries on:

• regulatory references;
• governance and management information;
• Appointed Representatives;
• diversity and inclusion policies; and
• remuneration, disciplinary and whistleblowing policies and procedures.

The requested information must be submitted to the FCA by close of business on 5 March 2024. Completion of the survey is mandatory (the FCA is using its powers under section 165 of FSMA) and failure to provide this information may result in a firm being found in contempt of court and/or subject to FCA sanctions.

4. FCA: Final notice: Floris Jakobus Huisamen

On 13 February 2024, the FCA issued a final notice against Floris Jakobus Huisamen, a former director of London Capital & Finance plc (LCF) for recklessly signing off financial promotions that did not comply with FCA rules. This follows the FCA's decision to publicly censure LCF in October 2023 for failing to ensure that its financial promotions in relation to minibonds were fair, clear and not misleading.

The FCA found that Mr Huisamen played a key role in the sign-off process for ensuring financial promotions were compliant with FCA rules and, despite having experience drafting and approving financial promotions, he signed-off on promotions which clearly demonstrated a misleading picture of minibond investments. The FCA also found that Mr Huisamen failed to provide proper scrutiny or sufficiently challenge senior management.

Mr Huisamen was fined a total of £31,800 pursuant to section 66 of FSMA. In addition, the FCA has made an order prohibiting Mr Huisamen from performing any function in relation to any regulated activities carried on by any authorised person, exempt person, or exempt professional firm pursuant to section 56 of FSMA.

Financial Crime

5. FCA: Press releases: Mohammed Zina found guilty of insider dealing and fraud

On 15 February 2024, the FCA published a press release announcing that Mr Mohammed Zina, a former analyst at Goldman Sachs International, had been found guilty of six offences of insider dealing and three offences of fraud following a trial brought by the FCA. The FCA then published a further press release the following day announcing that Mr Zina had been sentenced to 22 months in prison.

The press releases explain that Mr Zina had dealt in six shareholdings while being in possession of inside information relating to potential corporate transactions involving those shareholdings obtained through his role in the Conflicts Resolution Group at Goldman Sachs. From July 2016 to December 2018, Mr Zina traded using this information and made a profit of approximately £140,486. The trading was partially funded using three fraudulently obtained loans from Tesco Bank totalling £95,000.

The FCA has commenced confiscation proceedings against Mr Zina, with a hearing listed for 27 September 2024.

6. FCA: Market Watch 77

On 14 February 2024, the FCA published Market Watch 77 which sets out the FCA's observations on trade by organised crime groups (OCGs) and how firms can mitigate the risks of being used to facilitate insider dealing by members of OCGs.

The FCA notes that suspicious trading by members of OCGs in products whose underlying securities are UK and internationally listed equities make up a significant portion of the overall volume of suspicious trading in equity markets. 

The FCA refers to firms' obligations to counter the risk of being used to further financial crime under SYSC 6.1.1R, and the range of enforcement options that the FCA can use should firms fail to comply with their obligations. In particular, the FCA notes that:

• executing firms should be alert to the possibility of being used to facilitate insider dealing by members of OCGs; and 
• advisory firms should be alert to members of staff who have access to inside information being approached by members of OCGs with a view to disclosing inside information

For more information, please see our briefing here.

7. FCA: Publication: Reducing and preventing financial crime

On 8 February 2024, the FCA published an update on its progress with respect to reducing and preventing financial crime at the midpoint of its three-year strategy published in 2022. The FCA summarises the work it has delivered over the last 18 months that is having an impact in tackling fraud, money laundering and sanctions evasion.

The FCA also outlines its four key areas of focus and collaboration for the coming year:

• Data and technology: The FCA states that firms must have systems and controls in place that keep up with the increasing scale, sophistication and impact of cyber fraud, cyber attacks and identity fraud;
• Collaboration: The FCA encourages firms and partners in other sectors to share data and intelligence and explore the latest advances in data sharing technology;
• Consumer awareness: The FCA emphasises that raising consumer awareness is essential to combatting financial crime as fraudsters are increasingly targeting consumers directly; and
• Metrics: The FCA expects firms to be able to measure the effectiveness of their interventions at reducing financial crime using outcomes and metrics.

For these areas, the FCA provides case studies and suggests questions for firms' boards to consider,  to help the FCA in reducing the rates of fraud and money laundering. In the meantime, the FCA will be working to support the Government's proposals to reform the AML supervisory regime.

8. Home Office: Policy Paper: Response to Law Commission review of the SARs regime

On 12 February 2024, the Home Office published its response to the Law Commission's review of certain aspects of the anti-money laundering regime in Part 7 of the Proceeds of Crime Act 2002 (POCA) and the counter-terrorism financing regime in Part 3 of the Terrorism Act 2000.

The review focused on whether there is scope within the existing legislative framework for reform of the system of voluntary disclosures known as the "consent regime". The policy paper sets out the Home Office's views on whether the 19 recommendations set out in the Law Commission's 2019 report on the suspicious activity reports (SARs) regime should be accepted.

The Home Office rejected (wholly or partially) several of the recommendations, including a proposed amendment to POCA to impose an obligation on the Secretary of State to issue guidance covering the operation of Part 7 of POCA (in particular on the suspicion threshold, appropriate consent and reasonable excuse). 

The recommendations accepted by the Home Office include the establishment of a SARs advisory group, issuing guidance on the operation of the mixed-funds clause within the Economic Crime and Corporate Transparency Act 2023, and conducting further research into the utility of targeted reporting.

Retail Services

9. FCA: Statement: FCA requests information from financial adviser firms about delivery of their ongoing advice services and the Consumer Duty

On 15 February 2024, the FCA published a statement explaining that it had requested information from a number of financial adviser firms regarding their delivery of ongoing services, for which their clients continue to be charged after advice has been given. 

This request forms part of the FCA's ongoing work on the consumer investment market, including its portfolio letter for financial advisers and intermediaries published in December 2022.

The FCA has requested information from firms on:

• if they have assessed their ongoing services in light of the Consumer Duty and whether they have made any changes as a result;
• the number of clients who are due a review of the ongoing suitability of their advice as part of the service;
• how many clients have received a suitability review; and
• how many clients paid for ongoing advice but whose fee was refunded given that the suitability review did not happen.

The FCA is gathering this information to assess what (if any) further regulatory work it may undertake in this area and expects to provide a further update once it has considered the responses received.

10. LSB: Consultation Response: Review of the Standards of Lending Practice for business customers

On 13 February 2024, the Lending Standards Board (LSB) published a consultation response which provides a summary of the feedback it received to its review of the Standards of Lending Practice for business customers (Standards) consultation, published in June 2023. The Standards set out a framework of protections across the lifecycle of lending products provided to small and medium sized enterprises (SMEs) with a turnover of up to £6.5m.

The LSB states that the feedback it received suggests that the existing framework and content of the Standards continue to provide appropriate safeguards for business customers. No substantive changes to the current requirements were identified, though the review did highlight a gap in good practice to enable firms to better support business customers to achieve their sustainability goals. The review also underscored the need for further measures to ensure that all customers can access and use their products in a way that suits their own particular needs.

Action that the LSB will take following the feedback received to its review includes:

• exploring how the Standards and/or supporting guidance can be updated to contemplate the emergence of sustainability-linked lending;
• considering how the Standards framework could be extended to a broader range of products and sectors to achieve a consistency of protection for business customers;
• developing guidance on digital journeys to support the application of the Standards (and continuous oversight of developments in the business lending landscape); and
• enhancing existing guidance to support firms to consider a broad range of customer circumstances and needs throughout the product design, approval and review stages and facilitate the application of the Standards in areas such as personal guarantees and declined applications.

The LSB will publish a timetable of work which sets out how it will proceed with the measures above.

Payments

11. BoE: Discussion papers: RTGS operating hours and access policies

On 8 February 2024, the BoE published discussion papers on real-time gross settlement (RTGS) operating hours and access policies, which aim to ensure that RTGS continues to support the changing needs of industry and form the basis of further research and dialogue with the industry on these topics.

The discussion paper on operating hours examines the benefits and drawbacks of extending operating hours for RTGS and CHAPS (the UK's high-value payment system) to near 24x7 (rather than the current 12x5). The BoE considers that longer RTGS operating hours would enable faster, cheaper, and safer cross-border payments by reducing time zone barriers, easing liquidity management and decreasing peak-time congestion. However, extending RTGS operating hours would create material costs for payment system operators and participants to upgrade technologies and infrastructure, and could create operational risks which would need to be managed.

The discussion paper on RTGS access identifies four priority areas for further work to facilitate wider access to RTGS accounts for settlement and settlement services while maintaining resilience:

• enhancing the BoE/FCA process for consideration of non-bank payment service providers (NBPSPs) seeking access to RTGS;
• understanding demand of foreign banks for access to RTGS to support payment system settlement;
• clarifying requirements for FMIs to access RTGS; and 
• the BoE's plans to review the CHAPS value threshold above which indirect participants are generally expected to join CHAPS as a direct participant.

The closing date for feedback on the discussion papers is 30 April 2024.

12. European Parliament: Legislation: Regulation on instant euro credit transfers adopted

On 7 February 2024, the European Parliament adopted the proposed Regulation amending Regulation (EU) No 260/2012 (SEPA Regulation) and Regulation (EU) No 2021/1230 (Cross-Border Payments Regulation) with respect to instant credit transfers in euro.

The new Regulation updates the current Single Euro Payments Area (SEPA) rules. The new rules aim to (i) ensure transferred funds arrive immediately (i.e. within ten seconds) into the bank accounts of retail clients and businesses, especially SMEs, across the EU, and (ii) enhance the safety of credit transfers.

Under the new rules:

• banks and other payment service providers (PSPs) must ensure that when transferring funds, the recipient receives the money into their account within ten seconds; 
• the payer should also be informed within ten seconds whether the funds have ben transferred to the intended recipient; 
• PSPs are required to have robust and up-to-date fraud detection and prevention measures in place to avoid credit transfers going into the wrong account due to fraud or error. PSPs operating in the EU should provide a service to verify the identity of the recipient; and 
• PSPs must not impose charges in relation to instant credit transfers in euro that are higher than the charges applied to "non-instant" credit transfer transactions.

The Regulation will enter into force 20 days after its publication in the Official Journal. PSPs located in the EU will then have nine months to be ready to receive instant credit transfers in euro and 18 months to send them. There is a longer transition period for those member states whose currency is not the euro where the accounts already offer regular transactions in euros. There will also be a special derogation from making payments within ten seconds for such accounts outside business hours, due to possible concerns about access to liquidity in euro.

Digital Services and Fintech

No new entries.

ESG

No new entries.

Other

13. Upper Tribunal: Case: Nvayo Ltd v Financial Conduct Authority [2024] UKUT 35 (TCC)

On 5 February 2024, the Upper Tribunal published its decision in the matter of Nvayo Ltd v Financial Conduct Authority [2024] UKUT 00035, which related to Nvayo Limited (Nvayo)'s application to suspend the FCA's restrictions on its business.

The FCA imposed restrictions on the business of e-money firm Nvayo following the arrest of its ultimate beneficial owner (UBO), Christopher Scanlon, on charges of conspiracy to control and own an unlicensed money transmitting business in violation of US federal law in May 2023. The restrictions were imposed by the FCA on 8 August 2023 and include that Nvayo must not:

• carry out any e-money services without the FCA's prior written consent until the FCA's concerns over Nvayo's UBO are mitigated, and it has remediated its systems and controls failings to the FCA's satisfaction;
• transfer sums to its customers until AML standards are deemed adequately met; and
• without the FCA's prior written consent, in any way dispose of, withdraw, transfer, deal with or diminish the value of its own assets until broadly the same conditions as above have been met.

Nvayo applied to the Upper Tribunal to suspend these restrictions pending the substantive hearing of US proceedings against its UBO, arguing that the restrictions were disproportionate and there would be no significant risk to consumers if they were lifted.

The Upper Tribunal refused Nvayo's suspension application on the basis that it would not be satisfied that the interests of the persons intended to be protected by the restrictions in the first instance would not be prejudiced if the restrictions were suspended. Nvayo's application was therefore refused and the restrictions on its business remain in place.