UK: Weekly Financial Services Regulatory Update Week To 07.03.14

This weekly update from Clyde & Co's Financial Services Regulatory Team summarises new developments as reported by the FCA, the PRA, the UKLA, the Upper Tribunal, the Financial Ombudsman Service and the London Stock Exchange over the past week, with links to the full documents where these are available.

We hope that you will find this update useful. If you have any queries about any of the information in this update or financial services regulatory matters generally, please contact one of the individuals listed in the 'Contacts' section of this publication.

If you have any comments on the content or format of the update or if you no longer wish to receive it, or have a colleague who would like to receive it, please email

Consultation papers:

7 March 2014: FCA CP14/5: Changes to regulatory reporting: Adviser and consultancy charging, Authorised Professional Firms (APFs) and Product Sales Data (PSD). The FCA has published Consultation Paper CP14/5 proposing changes to regulatory reporting relating to adviser and consultancy charging, APFs and PSD. Based on feedback from firms, the FCA is looking to:

  • Provide greater clarity around the adviser charging data that firms should report through Section K of the Retail Mediation Activities Return (RMAR)
  • Introduce changes to how it collects this data with the aim of reducing the reporting obligation for firms
  • Retire Section L of the RMAR, which relates to consultancy charging

Comments should be sent to the FCA by 7 April 2014 in relation to questions 6, 7, 8, 11 and 12, and by 6 June 2014 in relation to questions 1, 2, 3, 4, 5, 9, 10 and 13. changes-to-regulatory-reporting

7 March 2014: FCA CP14/4: Quarterly Consultation Paper No. 4. The FCA has published Consultation Paper CP14/4 on proposed miscellaneous amendments to the Handbook. The FCA is proposing to:

  • Make minor changes impacting investment fund managers (AIFMs), undertakings for collective investment in transferable securities (UCITS) managers and certain alternative investment fund (AIF) depositaries
  • Make minor changes to the complaints data reporting form and update guidance
  • Clarify the scope of mortgage Product Sales Data performance data reporting for firms who own regulated mortgage contracts but who do not have the 'entering into' permission
  • Amend the Handbook to implement the Financial Policy Committee's recommendation on interest rate stress tests for mortgages

Comments should be sent to the FCA by 4 April 2014 for Chapter 5, and by 6 May 2014 for all other chapters.

5 March 2014: FCA Call for Inputs: Payment Systems Regulation. The FCA has issued a call for inputs on Payment Systems Regulation in relation to a new regulator to oversee UK payment systems which will be introduced by April 2015. The new regulator's objectives will be promoting competition and innovation, and ensuring that payment systems operate in the interests of their users. Every year these payment systems process over 7 billion transactions, worth over GBP 75 trillion. The FCA's call for inputs will help shape the focus of the new regulator's work. Competition will be high on the agenda of the new regulator, as the largest payment systems are owned and managed by the big banks, but concerns have been raised that the sector lacks transparency and innovation. Responses should be sent by 15 April 2014.

Press release:

Call for inputs: payment-systems-regulation-call-for-inputs

4 March 2014: PRA CP5/14: Occasional Consultation Paper. The PRA has published Consultation Paper CP5/14 proposing miscellaneous and minor amendments to PRA rules, guidance and a supervisory statement. The consultation concerns:

  • Financial Conglomerates Capital Adequacy
  • Shari'ah-compliant liquid assets
  • Risk management of asset encumbrance
  • A Supervisory statement on the internal capital adequacy assessment process (ICAAP) and the supervisory review and evaluation process (SREP)

This consultation closes on 15 April 2014. ocp514.aspx

Policy statements:

6 March 2014: FCA PS14/4: The FCA's regulatory approach to crowd-funding over the internet and the promotion of non-readily realisable securities by other media. The FCA has published Policy Statement PS14/4 outlining the new regime that will apply to firms operating loan based crowd-funding platforms (including peer-to-peer lending platforms). The FCA has also updated the regime applying to firms that either operate investment based crowd-funding platforms or carry on similar regulated activities. By boosting consumer protection, the rules (which come into force on 1 April 2014) will help ensure that consumers have access to fair, clear information that is not misleading, when using loan based, or securities based crowd-funding platforms. The FCA consulted on its proposed rules in October 2013. The majority of feedback was positive and supported the FCA's consumer-oriented approach.

Press release:

Policy statement: 04-crowdfunding

Press releases:

3 March 2014: Review of implementation of platform rules. The FCA has published a press release announcing the results of its thematic review of how firms are preparing for the implementation of the new platforms rules that come into force in April 2014, including a video and the presentation slides used in the video and at its platform workshops. The FCA's findings are that, overall, platforms seem well prepared for the introduction of the rules. One area the review focused on was whether or not platforms had given enough consideration to the impact of the changes on their consumers. It found that firms have put significant effort into trying to understand what the changes will mean for their consumers, while still considering the impact on their own business models.


5 March 2014: FCA speech: Ethics and Economics. The FCA has published the text of a speech given by Martin Wheatley, Chief Executive to the FCA, to the Worshipful Company of International Bankers on 4 March 2014. Mr Wheatley discussed the historic link between ethics and economic success and the issues of culture and sustainability during economic recovery. Mr Wheatley also discussed the FCA and firms' responsibilities in ensuring cultural change sticks before memories of the financial crisis fade.

Final notices:

No new developments this week.

Application refusals:

No new developments this week.

Approved person refusals:

No new developments this week.

Research publications:

4 March 2014: FCA TR14/4: Risks to customers from financial incentives - an update. The FCA has published Thematic Review TR14/4 summarising the findings of its follow-up thematic work into financial incentives which assessed whether firms are now managing the risks to consumers. The FCA found that although there have been considerable improvements, around one in ten firms has sales teams with higher-risk incentive scheme features where it appeared they were not managing the risk properly. In addition, there are a number of areas that are common across the industry where further improvements can be made, including:

  • Closer monitoring of poor behaviour in face-to-face conversations
  • Monitoring non-advised sales to ensure staff who are incentivised to sell do not give personal recommendations
  • Improving oversight of incentives used by appointed representatives

Almost all of the large and medium-sized firms involved in the thematic review have confirmed that they will, or will have, completed improvements by the end of March 2014 or shortly thereafter. Given the progress that has been made, the FCA is therefore not proposing any rule changes at this time. However, during 2014 the FCA's supervision teams will maintain their focus on this issue. The FCA will also undertake further thematic work on firms' approaches to performance management in respect of their sales staff.

Press release:

Thematic review:

Consumer research:

No new developments this week.

Other FCA and PRA publications:

7 March 2014: PRA reminds insurers of its expectations regarding issuing and amending of capital instruments ahead of Solvency II. The PRA updated its supervisory activities webpage with a reminder to insurers of its expectations regarding the issuing and amending of capital instruments ahead of the Solvency II Directive coming into force. The PRA expects firms to be focusing on improving the quality of their capital in the manner contemplated by Solvency II and associated draft delegated legislation and guidelines. The PRA acknowledges that there is uncertainty around the detail of Solvency II, and it is likely that there will be transitional provisions to avoid dislocation. However, firms are expected to take note of the specific classification criteria that have been widely discussed to date, which show the direction of Solvency II. activities/capitalinstruments.aspx

5 March 2014: FCA March 2014 update on banks' reviews of sales of interest rate hedging products (IRHPs). The FCA has updated its webpage on banks' reviews of sales of IRHPs. According to the FCA, the latest figures (as at 28 February 2014) show that the pace of the banks' review is continuing to increase, with banks remaining on track to provide redress determination to all customers within 12 months of starting their reviews.

5 March 2014: FCA responds to European Commission consultation on consumer protection in personal pension schemes. The European Commission published a summary of responses (including a response from the FCA) to its April 2013 consultation on consumer protection in third-pillar retirement products (TPRPs) (broadly, personal pension schemes). The summary reports on feedback relating to issues and includes the following:

  • The definition of TPRPs
  • The risks and benefits for consumers of TPRPs
  • Voluntary codes
  • An EU certification scheme
  • Information asymmetry
  • Specific consumers' needs when purchasing TPRPs

The consultation follows a commitment made by the Commission in February 2012 to produce an initiative by 2013 on improving the quality of TPRPs. consultations/ca/protection_third_pillar_2013_replies_ en.htm

3 March 2014: New FCA webpage on payment systems regulator and payment systems regulation timeline. The FCA has published a new webpage about the new payment systems regulator that it is setting up and a payment systems regulation timeline. Among other things, the new webpage states that:

  • The new payment systems regulator will be established in April 2014, with an operational launch in April 2015
  • The payment systems regulator will be incorporated as a subsidiary of the FCA, it will be based at the FCA's offices, and the FCA will provide staff and services to it
  • The FCA plans to publish a call for inputs on payment systems in March 2014, before the new regulator is formed, inviting responses to the regulator once it is incorporated in April 2014
  • There will be further opportunities for firms to make their views known through consultations as the FCA's plans develop

3 March 2014: FCA announces CRD IV reporting test environment. The FCA has updated its webpage on CRD IV harmonised reporting to announce that a CRD IV reporting test environment is available. The FCA states that all firms affected by CRD IV can register with the FCA through to take advantage of the test environment for their reports. The purpose of the test environment is to ensure that the technical construction and the software used by firms are compatible with the FCA's systems.

UKLA publications:

No new developments this week.

Upper Tribunal (Tax and Chancery Chamber):

No new developments this week.

Financial Ombudsman Service (FOS):

4 March 2014: FOS releases business-specific complaints data for July to December 2013. The FOS has published its latest set of six-monthly complaints data relating to individual financial businesses for the period of 1 July 2013 to 31 December 2013. The data shows that the FOS took on a record 575,836 new cases in total during 2013, an increase of 38% on the number of cases taken on during 2012. Of the new cases taken on, 76% concerned payment protection insurance (PPI) and five financial services groups accounted for 68% of those PPI cases. For complaints concerning financial products other than PPI, the total number of cases referred to the FOS was 8% lower than during the previous year. The number of banking complaints was reduced by 11% and insurance complaints by 7%. The average rate of upheld complaints (where the FOS found in favour of the consumer) was 51%.

Press release: news/updates/complaints-data-1july-31dec-2013.html

Complaints data:

London Stock Exchange (LSE):

No new developments this week.

Legislative updates:

7 March 2014: Financial Services and Markets Act 2000 (Consumer Credit) (Miscellaneous Provisions) (No 2) Order 2014 published. The Financial Services and Markets Act 2000 (Consumer Credit) (Miscellaneous Provisions) (No 2) Order 2014 has been published on, together with an explanatory memorandum. The Order makes miscellaneous provisions relating to the transfer of consumer credit regulation from the OFT to the FCA, including amendments to:

  • The Financial Services and Markets Act 2000 (Exemption) Order 2001 to exempt a charity from the need for authorisation under the Financial Services and Markets Act 2000 (FSMA) where it operates an electronic system in relation to lending and the lender receives no income or return other than the repayment of the capital, and persons who have rights under a regulated credit agreement or a regulated consumer hire agreement, provided that the agreement is administered by an authorised person
  • The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 concerning local authorities and insolvency practitioners to align the application of the FSMA financial promotion restriction with exclusions from the requirement for authorisation under FSMA to carry on a regulated activity
  • The Money Laundering Regulations 2007 (MLRs) to align the application of the MLRs to local authorities with the exclusions for local authorities from the requirement for authorisation under FSMA to carry on a regulated activity
  • The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No 2) Order 2013 (RAO No 2 Order) to impose the requirements of Article 21 of the Consumer Credit Directive (CCD) on certain persons who undertake credit broking that are excluded from the requirement for authorisation under FSMA
  • The Consumer Credit Act 1974 (CCA) through the RAO No 2 Order to preserve the application of section 126 of the CCA to residential and buy-to-let mortgages

The Order was made on 5 March 2014 and comes into force on 30 March 2014 (articles 5 and 6) and 1 April 2014 (articles 2, 3, 4 and 7).

Order: uksi_20140506_en.pdf

Explanatory memorandum: uksi/2014/506/pdfs/uksiem_20140506_en.pdf

6 March 2014: HM Treasury consults on legislating for cheque imaging. HM Treasury has published a consultation paper setting out its proposals to introduce legislation to allow for the introduction of cheque imaging. The consultation paper outlines the steps the government expects the industry to take to address issues such as security and fraud (including the question of where liability lies for undetected fraud). The proposals extend beyond cheques to other paper instruments such as bankers' drafts, postal orders, government payable orders, warrants travellers' cheques and bank giros. This innovation is expected to enable a faster cheque clearing cycle (from 6 days to two), reduce the cost of cheque clearing and enable innovations that will deliver wider benefits for consumers.

The deadline for responses to the consultation paper is 7 April 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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