Regulatory perimeter: The FCA sets out its views

The FCA has updated its webpage on its perimeter report. The report outlines areas concerning the regulatory perimeter and any action that the FCA is adopting in response. The FCA has not added any new areas of focus/concern but has made some changes to sections since the report was last updated in July 2023. We highlight key themes below.

• Critical Third Parties (CTPs): The FCA published a joint consultation paper with the PRA and the BoE (CP23/30) on potential rules and guidance relating to providers of CTP services that will be subject to future designation by HMT (see briefings here and here). This future designation will be carried out using new powers in the Financial Services and Markets Act 2023. HM Treasury published a consultation on its approach to designation of CTPs in March 2024, while the FCA published a quarterly consultation on FCA enforcement powers in relation to CTPs in March 2024.
• Consumer Credit: The FCA has been active in this area and is awaiting the second consultation from HMT in relation to consumer credit reform in the UK (see briefing here), which is expected to be published in 2024. The FCA stated that it is committed to the fair treatment of SME lenders. In December 2023, the Federation of Small Businesses issued a super-complaint, urging the FCA to expand the regulatory perimeter to capture lending to incorporated entities. Additionally, they urged the FCA to create rules for lenders concerning the use of personal guarantees in lending to companies. The webpage refers to this debate and notes that the LSB published the outcomes of its review of the Standards of Lending Practice for business customers in February 2024.
• Unregulated Collective Investment Schemes (UCIS): The FCA has taken action, including successful prosecutions, against firms and individuals involved in promoting and selling UCIS to the general public.
• Financial Promotions: The new regulatory gateway for firms who approve financial promotions for unauthorised persons is up and running (see briefing here). The FCA has also been monitoring the changes to the criteria for financial promotions exemptions, which were introduced in January 2024 (see briefing here) only to be scrapped in March 2024 (see briefing here). In relation to the high-net-worth investor exemption, the FCA notes that the reversal results in the UK threshold being considerably lower than the threshold in other comparable jurisdictions. The FCA states that its research and behavioural testing throws into question the wisdom of these reversals. The FCA considers that self-certification should be removed entirely, and that the threshold to be considered "high-net worth" should be raised. The FCA confirms that it will alert HMT in relation to any consumer harms it sees.
• Marketing of CFDs: The FCA will continue to focus on firms' financial promotions and marketing activities in its supervision work. The FCA is aware that some CFD providers are using comparison tables to encourage retail clients to trade with firms in third country jurisdictions (i.e. by highlighting possibility of higher leverage via third country group entities).
• Online Safety Act 2023: The FCA will continue to work closely with Ofcom to create shared understanding of the obligations of platforms under the Online Safety Act 2023 (see briefing here) and financial promotions legislation. The FCA looks forward to the development of the Online Advertising Programme (see briefing here).
• Financial Promotions and Social Media (including influencers):  This has been an area of continued concern for the FCA since it was publicly raised in October 2021. The FCA is working with other regulators, such as ASA, on educating "finfluencers" about the risks involved and their legal obligations when seeking to promote financial products or services. The FCA published a feedback statement and finalised guidance in relation to financial promotions and social media in March 2024.
• Open Banking, Open Finance and Smart Data: There has been considerable activity undertaken by the Joint Regulatory Oversight Committee (the Body comprising the FCA, PSR, HMT and CMA, charged with designing and overseeing the next phase for open banking). The legislation for the long-term regulatory framework for open banking, as well as its accompanying principles, are to be delivered via a smart data scheme (using powers to be provided in the Data Protection and Digital Information (No.2) Bill).
• Access to Cash: February 2024 was the closing date for the FCA consultation on the new requirement for certain firms to ensure reasonable provision of cash deposit and withdrawal services for personal and business current accounts across the UK. The FCA expects to finalise rules and issue a Policy Statement in Q3 2024. The Consumer Duty introduces a higher standard of protection for banking customers, including where they are impacted by branch closures and ATM conversions. Firms are expected to anticipate the foreseeable harm to their customers arising from closures of branches and closures/conversions of ATMs, as well as to adopt measures to minimise the impact of any potential harm.
• ESG Data and Rating Providers: The EU finalised its proposals for their ESG Ratings regime in February 2024 (see briefing here) and India introduced its regulatory framework with effect from July 2023. The FCA will, as a result, continue to work with international financial authorities both bilaterally and via IOSCO to promote regulatory alignment.
• Cryptoassets: The regime for the promotions of cryptoassets was introduced by the Financial Promotion (Amendment) Order 2023 (see briefing here). The Government decided not to bring NFTs within scope of the financial promotions regime; but, the FCA has seen cases where NFTs have been used as speculative investments and so can have the same risks as other types of cryptoassets. There needs to be careful alignment between the financial promotions regime and the future regulated activities regime in order to prevent regulatory arbitrage. The FCA intends to work with HMT as these regimes develop.
• SM&CR: There have been a number of consultations and papers issued. FSMA 2023 provides for the extension of this regime to some other entities. The FCA sees merit in extending the regime to payments, e-money and crypto firms (which are not currently subject to the SM&CR) to strengthen individual accountability and governance. Although FSMA 2023 does not provide a framework for extension to these types of firms, the FCA will continue exploring possible options with HMT and sees value in extending the SM&CR to these firms. The FCA plans to issue a consultation paper (to follow up its June 2023 discussion paper) on potential changes to the SM&CR regime in Q2 2024.