UK: JMLSG Proposes Changes to Guidance (Investment Management Brief: 18 May 2017)

Updates from the Financial Regulation team at Pinsent Masons.
Last Updated: 18 May 2017
Article by David Heffron, Elizabeth Budd, Michael Lewis and Ian Warner

Originally published 18th May 2017


JMLSG proposes changes to guidance

The Joint Money Laundering Steering Group [09.05.17] proposed changes to Parts II and III of its guidance for comment by 26 May 2017. Changes mirror the proposed requirements of HM Treasury's draft Money Laundering Regulations 2017 (published for consultation on 15 March 2017) and the Risk Factor Guidelines proposed by the European Supervisory Authorities (ESAs) in their October 2015 Consultation, although the final text of the ESA's Guidelines is not yet available.  In Part II: Sectoral Guidance, proposed amendments include in relation to the Wealth management, Financial advisers and Discretionary and advisory investment management sectors.

Senior managers' duty of responsibility

The FCA issued guidance (PS 17/9) [03.05.17] on enforcing the 'duty of responsibility' under the Senior Managers Regime (SMR).  The duty has been in force since 10 May 2016 for persons performing senior management functions at UK banks, building societies, credit unions, Prudential Regulation Authority (PRA)-designated investment firms, and incoming branches of overseas firms.  Once the SMR extends to all FSMA-authorised persons, the duty applies also to their senior managers. Because of the duty of responsibility the FCA and PRA can take action against senior managers of such firms if their firm's activities for which they are responsible breach a regulatory requirement and they fail to take "such steps as a person in their position could reasonably be expected to take to avoid the contravention occurring (or continuing)." The regulators must prove both that the firm was in breach of a regulatory requirement; the senior manager was responsible for managing the firm's activities in relation to which the breach arose and failed to take the expected steps to avoid the contravention.  The FCA can take disciplinary action against senior managers for:

  • breaching the Conduct Rules;
  • being knowingly concerned in the firm's contravention of a regulatory requirement;
  • breaching the duty of responsibility; or
  • a mix of  these. 

The PS contains guidance, now added to the FCA's Decision Procedure and Penalties Manual (DEPP), to clarify how the FCA will enforce the duty of responsibility from 3 May 2017.

FCA seeks feedback on new features in COBS

The FCA has launched [11.05.17] a new search feature for searching by key topic in COBS. The new topic tree means users can browse all the COBS provisions on a range of topics including:

  • clients;
  • compliance and obligations;
  • regulated activities;
  • regulatory acronyms and regimes (MiFID, MiFID II and  non-MiFID); and
  • regulatory processes (such as authorisation, complaints and disputes, enforcement – and more).

The FCA also introduced an icon to click on to open a pop-up box showing the other COBS provisions related to the one being read.  The FCA is asking for feedback on the changes which it plans to incorporate into the rest of the Handbook.  

Review of appropriate qualification exam standards - new rules in force

The FCA published policy statement PS17/11* [09.05.17] containing its final, updated appropriate exam standards (AES) for the appropriate qualifications listed in its Training and Competence Sourcebook.  PS17/11 also contains guidance on using the appropriate qualification table and the FCA's feedback to responses to its proposals in CP16/24. The new training and competence rules came into force on 9 May 2017. 

FCA's Handbook Notice No.  43

The FCA has published [28.04.17] its Handbook Notice no. 43 of changes the FCA's Board made on 27 April 2017.  These include:

  • changes to COBS 6 in respect of Adviser Charging for Vertically Integrated Firms which took effect on 1 May 2017; and
  • Senior Management Arrangements, Systems and Controls (Remuneration Codes) (No. 7) Instrument 2017 which took effect on 3 May 2017.

FCA publishes Freedom of Information Act request response regarding investigations into Senior Managers and Certified Persons

The FCA published its response dated 27 February 2017 to a Freedom of Information Act request (reference FOI4965) [28.04.17] on the number of enforcement investigations it opened on Senior Managers since 7th March 2016 at banks, building societies, credit unions and the largest investment banks regulated by the PRA and at branches of foreign banks operating in the UK. The FCA investigated two Senior Managers at such firms, since the Senior Managers' and Certification Regime took effect.  In respect of persons formerly Approved Persons and now likely to be within the Certification Regime, the FCA confirmed it had started eleven investigations since 7 March 2016. Banks and other firms to which the Senior Managers and Certification Regime applies identify which of their staff should be designated as Certified Persons - the FCA does not keep a list of them. So this figure includes those holding controlled functions before and until 7 March 2016 and under FCA investigation because of conduct prior to then, who the FCA expects are now Certified Persons.  However the FCA has not confirmed that they all have certified status.  

FCA publishes the number of skilled persons reports it commissioned in Q4 2016/17

The FCA commissioned eight skilled persons reports in Q4 2016/17 [03.05.17] Of these, three related to Personal Investment and one to Investment Management. Although the FCA can contract directly with the skilled person it did not do so for any of the eight reports.  The FCA's Skilled Person Panel is in ten categories ("Lots") which include client assets, governance and individual accountability, controls and risk management, business conduct, financial crime and a range of prudential categories.  Of the eight reports: five were for business conduct, two for governance, controls and risk management frameworks and one for financial crime.

FCA's conduct rules to apply to NEDs

The FCA's PS17/8*** [03.05.17] contains final rules amending the Code of Conduct Sourcebook (COCON) to include standard non-executive directors of banks, building societies, credit unions, dual-regulated investment firms, and insurance firms. The FCA's Handbook defines 'Standard NEDs' as those not holding Senior Management Functions and who are therefore outside regulatory pre-approval requirements under the SM&CR for the banking sector; the PRA's Senior Insurance Managers Regime (SIMR); and the FCA's revised Approved Persons Regime for insurance firms.  The new rules come into force on 3 July 2017 and affect firms subject to the PRA's SIMR, FCA's revised Approved Persons Regime and standard NEDs at those firms. Affected firms must train standard NEDs on COCON and how it affects them; and are to report COCON breaches by standard NEDs that lead to disciplinary action to the FCA.

FCA updates its PRIIPs page

The FCA has updated its PRIIPs page [12.015.17]. The page includes:

  • information on the scope and requirements of the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation;
  • information on the PRIIPs definition;
  • an indicative list of retail products which may come within the PRIIPs definition;
  • a list of products which, in the FCA's view, are not PRIIPs.

Because of various exemptions, although UCITS schemes and EEA UCITS schemes are PRIIPs, they fall outside the PRIIPs regulation until 31 December 2019, so the key investor information document (KIID) requirements continue to apply to them.  The FCA is to consult on its approach to personalised projections in the final half of the year.

EU Regulatory

PRIIPS corrigendum published in the Official Journal

The Corrigendum on the PRIIPs Delegated Regulation (EU) 2017/653 supplementing the PRIIPs Regulation (EU) 1286/2014 on key information documents (KIDs) for PRIIPs by laying down regulatory technical standards for the presentation, content, review and revision of KIDs and the conditions for fulfilling the requirement to provide such documents has been published in the Official Journal [11.05.17]. The Corrigendum contains replacements for formulae in Annex II (Methodology for the Presentation of Risk) and Annex IV (Performance Scenarios).

MEP's reject Commission's blacklist of states at risk of money laundering and progress of proposed draft delegated regulation

The Commission, under the EU's Anti-Money Laundering Directive, lists countries thought to be a risk of money laundering, tax evasion and financing terrorism.  MEPs [03.05.17] rejected and again [17.05.17] the Commission's blacklist. People and entities from blacklisted countries must pass more stringent checks to do business in the EU than those from elsewhere.  MEPs want the Commission's process to be more "autonomous", and for the Commission to be less dependent on FATF standards in compiling its list.  The Commission says it does not have sufficient resources for this.  Currently the Commission lists eleven countries which include Afghanistan, Iraq, Bosnia and Herzegovina and Syria. The Commission is proposing to drop Guyana from the list and to include Ethiopia.  The European Parliament objected to the Commission delegated regulation and calls upon the Commission to submit a new delegated act addressing its concerns and its recommendation that the Commission develops a roadmap for an autonomous evaluation process [10.05.2017].

Proposed Regulation on Money Market Funds is adopted

The European Council [16.05.17] adopted the proposed regulation on money market funds. The European Parliament had already approved the text [05.04.17] (see here for more information) and most provisions will apply 12 months after entering into force. The General Affairs Council decision was passed by a qualified majority, Luxembourg voted against. In its Statement although Luxembourg agrees with the regulatory goal of making MMFs safer and more robust it:

  • considers that the position of MMFs exclusively distributed to investors outside the EU and those structured as master-feeders was not properly addressed by the regulation;
  • queries the quota of EU-debt for public debt CNAV MMFs referenced in the review clause; and
  • considers that the regulation could jeopardize some MMF categories in future and so may risk their disappearance.

Proposed prospectus requirements adopted

The European Council [16.05.17] has adopted the proposed new prospectus rules which will replace the existing directive 2003/71/EC with a view to simplifying the administrative obligations for prospectus publication while retaining good levels of investor information.  The European Parliament had already approved the text  [05.04.17] see here for further information. The majority of the provisions will apply 24 months after the regulation enters into force.


FCA signs co-operation agreement in respect of Fintech with the Hong Kong Securities and Futures Commission

The FCA and the Hong Kong SFC signed a Fintech co-operation agreement [12.05.17] as a framework for their future co-operation and to facilitate referrals between their respective 'Innovation Functions'. The agreement includes provision for sharing information about financial services innovations, as appropriate, and on regulatory issues. It also contains a referral mechanism for 'Innovator Businesses' wishing to enter the other's market. The agreement is a statement of intent and not legally binding. The FCA has signed a similar agreement with the Hong Kong Monetary Authority (December 2016).

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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