Financial Services SpeedRead: 25 March 2024 edition
25 March 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 8 March 2024, the following were published in the Official Journal of the EU:
The MiFID Amending Directive and MiFIR Amending Regulation introduce changes to the MiFID II and MiFIR regime in order to improve access to market data and transparency. In particular the amending legislation:
The amending legislation will enter into force on 28 March 2024 (20 days after their publication in the Official Journal). The MiFIR Amending Regulation will then apply immediately, whilst member states will have until 29 September 2025 to transpose the MiFID Amending Directive to their local laws.
On 11 March 2024, the FCA published a statement updating its position on cryptoasset Exchange Traded Notes (ETNs) for professional investors.
The FCA stated that it will not object to requests from Recognised Investment Exchanges (RIEs) to create a UK listed market segment for cryptoasset backed ETNs, with such products to instead remain available for professional investors only. RIEs will need to continue to implement adequate controls, so trading is orderly and sufficient protection is afforded to professional investors. ETNs must also meet all requirements of the UK Listing Regime, such as rules relating to prospectuses and ongoing disclosure.
The FCA confirmed that the ban on the sale of crypto derivatives to retail consumers remains in place, and reminded consumers that cryptoassets are high risk and largely unregulated.
On 11 March 2024, HMT published a consultation on improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs) to prevent money laundering and terrorist financing.
HMT is consulting on changes to the MLRs as a part of a broader work programme focused on reducing money laundering, as laid out in the Economic Crime Plan 2023-26.
There are four critical themes to the consultation:
The consultation closes on 9 June 2024, and can be responded to in a number of manners, including answering the questions via the online form.
On 13 March 2024, the Single Resolution Board (SRB) published a public consultation on the adoption of the Minimum Bail-in Data Template (MBDT).
The minimum bail-in data points were updated in June 2022, requiring banks to self-assess themselves to ensure they have adequate management information systems to identify and produce the requisite data points within 24 hours. The SRB is considering adopting the MBDT to implement the bail-in data set instructions and explanatory note, by enhancing definitions and providing a template and guidance to ensure structured and standardised data collection across banks under the SRB's remit.
The consultation aims to gather stakeholders' views on the following:
The consultation closes on 8 May 2024, and can be responded to via the SRB's survey.
On 12 March 2024, the PRA published a policy statement setting out its feedback to responses to its consultation paper on solvent exit planning for non-systemic banks and building societies (CP 10/23), along with its final policy, including the following:
The PRA received eight responses to its consultation paper which generally supported its proposals on solvent exit policy and planning. Having considered the responses, the PRA has clarified its expectations in its final policy, making the following key changes:
Recovery Plans Chapter 7 will come into force on 1 October 2025, and firms are expected to meet the expectations set out in SS 2/24 by the same date.
On 6 March 2024, the European Securities and Markets Authority (ESMA) published the official translation (including in English) of the guidelines on stress test scenarios under the Money Market Fund (MMF) Regulation (Regulation (EU) 2017/1131).
The objective of the guidelines is to ensure common, uniform and consistent application of the provisions of Article 28 of the MMF Regulation. The guidelines establish common reference parameters of the stress test scenarios to be included in the stress tests conducted by MMFs or managers of MMFs, considering the following factors specified in Article 28(1) of the MMF Regulation:
The guidelines will apply from 6 May 2024, with the exception of the parts in red which will apply from the dates specified in Articles 44 and 47 of the MMF Regulation. The guidelines will then be updated at least every year to take into account the latest market developments.
On 6 March 2024, HMT published the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment and Transitional Provision) Order 2024 (SI 2024/301) (FSMA Order), together with an Explanatory Memorandum.
By way of background, the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) provides exemptions from the restriction on communicating financial promotions, including an exemption that enables financial promotions for unlisted companies to be made to high net worth individuals and self-certified sophisticated investors.
The FSMA Order amends the high net worth individual (article 48) and self-certified sophisticated investor (article 50A) exemptions in the FPO. The 2023 Order also applied these changes in relation to the promotion of collective investment schemes, by amending the similar relevant exemptions set out in the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (S.I. 2001/1060) (the PCIS).
The changes made by the FSMA Order can be summarised as follows:
The FSMA Order comes into force on 27 March 2024.
No new entries.
On 5 March 2024, the FCA published a Dear CEO Letter warning firms about common failings the FCA has found in firms' financial crime controls.
The FCA reiterated that the prevention of money laundering, terrorist financing and proliferation financing (together, Financial Crime) is an area of significant focus.
The FCA reviewed the Financial Crime policies, controls and procedures of a number of the firms it supervises under the MLRs. Common weaknesses were identified in the following areas:
The FCA expects firms to complete a gap analysis against each of the common shortcomings it has set out within six months of receipt of the letter. The FCA expects firms to take prompt and reasonable steps to close any gaps identified, with the senior manager responsible for the gap analysis having sufficient seniority to carry out the exercise effectively.
The FCA confirms that it is likely to follow up on such work in future engagements with firms, and an inadequate response to this letter may result in regulatory intervention.
On 15 March 2024, ESMA published an updated version of their consolidated Q&A on the PRIIPs Key Information Document (KID). ESMA has made clarifications in a number of areas, including, but not limited to:
On 15 March 2024, the FCA published a press release announcing its review of firms' treatment of customers in vulnerable circumstances.
This announcement follows the FCA's 2021 commitment, and will involve the FCA looking at firms’ understanding of consumer needs, the skills and capability of staff, product and service design, communications and customer service, and whether these support the fair treatment of customers in vulnerable circumstances.
The FCA will also look at the outcomes consumers in vulnerable circumstances receive and whether they are as good as the outcomes of other consumers.
The FCA intends on sharing its findings by the end of 2024.
On 5 March 2024, the FCA published its response to a super-complaint submitted by the Federation of Small Businesses (FSB) on 8 December 2023. The FSB raised concerns that a growing demand for personal guarantees by lenders has negative consequences for small businesses (particularly small limited companies), which in turn discourages them from borrowing funds to grow.
The FCA stated, as acknowledged in the super-complaint, that lending to limited companies does not fall within its regulatory perimeter. However, with respect to lending that does fall within its remit, the FCA will:
The FCA will share any relevant information, including any issues identified outside of its remit, with the appropriate Government departments, particularly HM Treasury as it considers reforming the Consumer Credit Act 1974.
On 14 March 2024, HM Treasury published a near-final draft of the Payment Services (Contract Terminations Amendment) Regulations 2024, alongside a policy note.
The draft statutory instrument sets out requirements that will apply to providers of payment services within the scope of regulation 51 of the Payment Services Regulations 2017. The core reforms to the draft statutory instrument apply to provider-initiated terminations of framework contracts concluded for an indefinite period and entered into on or after the day the instrument would come into force. The key changes are summarised as follows:
The government intends to lay the draft statutory instrument before Parliament in summer 2024, such that the instrument will commence as soon as practical thereafter. Technical comments on the draft instrument will be considered by the HM Treasury and can be submitted to contractterminationstechnicalcomments@hmtreasury.gov.uk.
On 12 March 2024, HM Treasury published a policy note on the near-final version of the Payment Services (Amendment) Regulations 2024, which will enable payment service providers (PSPs) to slow down payments processing in situations where there are reasonable grounds for them to suspect fraud.
The legislation is specifically intended to tackle rising levels of Authorised Push Payment (APP) fraud, which relates to circumstances where payers are tricked into authorising payments to criminals. Once enacted, the instrument would allow PSPs to delay the execution of certain payment orders in order that the PSP can decide whether the order should be executed.
Further, where the PSP chooses to delay, the legislation also makes provisions as to how and when the payer should be notified of the delay, as well as with respect to liability for any charges or interest incurred by the payer as a consequence.
The Government has invited technical comments on the draft statutory instrument by 12 April 2024 to Jamie.Slater@hmtreasury.gov.uk, and intends to lay the legislation before parliament in summer 2024.
On 8 March 2024, the European Banking Authority (EBA) published a consultation paper on the Guidelines for the plans to orderly redeem asset-referenced tokens (ARTs) or e-money tokens in the event an issuer fails to fulfil their obligations under the Markets in Crypto Assets Regulation (MiCAR).
The draft Guidelines lay down the framework for issuers of ARTs when drawing up their redemption plan, as well as for competent authorities when assessing such plans. The draft Guidelines also:
The deadline for feedback is 10 June 2024, and the Guidelines will come into force two months after the publication of the translations in all official languages.
No new entries.
On 8 March 2024, the Treasury Committee (the Committee) published a report on its Sexism in the City inquiry, which was launched following a 2018 report by the Committee's predecessor to determine how much had changed to improve gender diversity within the financial services industry and reduce barriers faced by women in the workplace that contribute to gender inequity (including poor workplace cultures and unconscious bias).
The Committee concluded that predominantly as a result of a lack of cultural change in the sector, many of the barriers previously identified remain stubbornly in place, with sexual harassment and bullying still prevalent in the industry.
The Committee has stated that responsibility for tackling these issues and driving cultural change sits with the senior leadership and boards of firms, with firms needing to embed a "zero-tolerance culture" towards harassment and bullying in the workplace. Based on the evidence submitted to the Committee, including through the oral evidence session, the Committee has made a number of recommendations which it considers will assist with addressing these issues, including:
The FCA separately published a statement confirming that they will prioritise its diversity and inclusion proposals (as set out in its consultation CP 23/20), including amendments to its rules to tighten expectations on firms' approaches to tackling misconduct, and consider the Committee's recommendation in respect of how the FCA engages with boards and other senior leaders on their firms' culture.
For more information, please see our Ashurst thought-piece here.
On 6 March 2024, HM Treasury published the Spring Budget for 2024, announcing the following key financial regulatory updates:
The summary also details how the Finance (No 2) Bill 2024 will define a RIF, which will be classed as an unauthorised contractual scheme and therefore will not be subject to FCA authorisation under section 261D of the Financial Services and Markets Act 2000. Notwithstanding this, managers of RIFs will need to be FCA authorised as RIFs will still be classed as collective investment schemes and as AIFs (as defined by regulation 3 of the Alternative Investment Fund Managers Regulations 2013). RIFs will also be subject to the FCA's marketing rules for non-mass market investments.
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.