European Union: FCA to Consult on Making Information "Available on a Wider Range of Individuals at Authorised Firms" (Investment Management Brief: 8 March 2018)

Last Updated: 8 March 2018
Article by David Heffron, Elizabeth Budd and Ian Warner

UK Regulatory

FCA to consult on making information "available on a wider range of individuals at authorised firms"

The FCA issued a statement [26.02.18] that they intend to consult in 2018 on proposals to make information available on a wider range of individuals at authorised firms.

Under the proposals for extending the Senior Managers & Certification Regime (SM&CR) to almost all FCA regulated firms, the FCA would approve only the most senior staff and only such Senior Managers would be included on the Financial Services Register (Register). Firms themselves would "certify" certain staff who are not a Senior Managers but who, given the nature of their role, could cause significant harm to customers, firms or the market.

The FCA received "substantial feedback" on "maintaining a central public record of certification employees and other important individuals in firms" it regulates who, under current proposals, would cease to be listed in the Register. Examples of such persons include: non-executive directors, financial advisors, traders and portfolio managers.

The FCA also plans to release "shortly" an update on improvements to the "usability" of the Register.

FCA publishes policy statement on perimeter guidance on personal recommendations on retail investments

The FCA published PS18/3 [23.02.18] containing made text and responses to feedback on its proposals in CP17/28 for Perimeter Guidance on personal recommendations, to implement various Financial Advice Market Review (FAMR) recommendations. Read more on the consultation here. The FCA's aim "is to give firms greater confidence that they can, among other things, inform a customer that they have not increased their pension contributions over a long period of time, warn a customer about any adverse consequences of a transaction they propose to make or offer products designed to meet a particular investment objective without necessarily making a personal recommendation." The FCA says their approach is broadly as they set out in their consultation, with some new examples and clarifications. The FCA will review the advice market in 2019 – both as part of their review of implementing FAMR and as the next stage in the post-implementation review of the Retail Distribution Review (RDR). The FCA will publish its findings from its review in 2020.

FCA publishes consumer guide on 'advice' and 'guidance'

The FCA published a consumer guide on Understanding 'advice' and 'guidance' on investments [23.02.18]. It illustrates some of the differences between advice and guidance to help consumers who are considering purchasing financial products, including funds. It is not guidance on the requirements FCA-regulated firms must meet.

FCA updates its LEI webpage

The FCA has updated their website [02.03.2018] in relation to firms' transaction reporting obligations under MiFID II concerning the LEI. In December 2017 ESMA issued a statement about temporary arrangements for legal persons and issuers where a LEI was not available. The FCA had reported this statement on its website saying that the amendment it was required to make to the LEI validation rule in its Market Data Processor (MDP) would not be in place before 3 January 2018. Read more here. The FCA now confirms that the amendment will be implemented on 10 March 2018. Accordingly, the FCA alerts firms to "(re)submit from 12 March any outstanding transaction reports where the trade date precedes the LEI registration date."

FCA's policy development update

The FCA's latest policy development update [02.03.2018] includes the following:

  • Perimeter guidance on personal recommendations on retail investments PS 18/3 [23.02.2018] – see above;
  • EU Benchmarks Regulation Implementation CP 18/5 [05.02.2018] – see our earlier update here;
  • Call for Input: Using technology to achieve smarter regulatory reporting [20.02.2018] – see our earlier update here;
  • Handbook notice 52 [02.2018] – see above.

FCA consults on IFPRU and changes to regulatory reporting about appointed representatives

The FCA has published its Quarterly Consultation No 20 (CP18/6*) [02.03.18].This consults on, among other things, a number of changes to IFPRU: namely deleting rules in IFPRU 3.2.8R and 3.2.9R as they were replaced by IFPRU 11.6 on contractual recognition of bail-in; amending guidance on Intra-group financial support at IFPRU 11.5.3G; and proposing a new transitional provision in IFPRU TP9 (Large Exposures Limits). The FCA asks for responses on these matters by 3 April 2018.

The FCA is also consulting on removing the requirement to inform the FCA annually of changes to Appointed Representatives (SUP 16.9) and asks for responses on doing so by 3 May 2018.

FCA Handbook Notice No. 52

The FCA published Handbook Notice No. 52 [23.02.2018], which includes changes to the following parts of the FCA Handbook:

  • SUP 16 (change in force since 23 February 2018) – changes align the Financial Crime Annual Return (REP-CRIM) to the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations (MLRs) which came into force on 26 June 2017 (featured here) and the politically exposed persons (PEPs) Guidance (FG 17/6 featured here). These changes were proposed in Chapter 7 of Quarterly Consultation Paper No. 19 (CP 17/39) [01.12.2017] which included consultation on:

    • PEPs: to require information only on high-risk PEPs, family members or known close associates, identified as such in accordance with the guidance in FG 17/6;
    • non-EEA correspondent banks: to require information only on high-risk correspondent banking (and not trading) relationships as defined under Regulation 34(4)(a)(i) of the MLRs; and
    • other parts of the guidance in SUP 16 Annex 42BG and to add guidance on submission of nil responses to questions, as applicable.

Among other points the FCA notes in its response that to avoid the changes being unnecessarily burdensome, firms with an Accounting Reference Date of 31 December 2017 may submit their REP-CRIM based on the previous guidance, if they cannot generate figures using the definitions in the new guidance in time. There is no need for firms to inform the FCA which guidance they have used. The FCA also clarified existing guidance about UK PEPs.

  • COBS 6, SUP 12, PERG 2, 5, 7, 8 and 13 (changes in force since 23 February 2018) –amount to new guidance on personal recommendations. These changes follow consultation in CP 17/28 on the implementation of the Financial Advice Market Review (FAMR) and the resulting policy statement PS 17/25 (read more about CP 17/28 here and on PS 17/25 here).

House of Commons Select Committee considers European Commission's proposal for prudential framework for investment firms

The House of Commons European Scrutiny Committee reported [28.02.2018] on the European Commission's proposals for new prudential requirements for investment firms in a proposed Directive on the prudential supervision of investment firms and a proposed Regulation on prudential requirements for investment firms [20.12.2017]. The committee reports that the proposals included "a new classification system" for investment firms governed by MiFID II and MiFIR, comprised of class 1 (systemically-important investment banks), class 2 (important but non-systemic firms) and class 3 (small firms), whereby class 2 and class 3 firms would be governed by "a new prudential framework calibrated specifically to the risks of the investment industry." The committee agrees that "it makes sense to rationalise the prudential regime for investment firms in view of their specific business models and the risks they pose to their customers and the wider market." Additionally the proposed framework proposes that systemically important (class 1) investment firms located in the Eurozone are to be supervised by the European Central Bank's Single Supervisory Mechanism (SSM) and, as is currently the case, subject to the same capital requirements as large banks. The committee notes the link here with the proposed amendment of the Capital Requirements Directive (CRD) "under which UK investment firms which fall into class1 (as well as large non-EU banks) could be required to establish an independently-capitalised and authorised intermediate parent undertaking (IPU) within the EU after Brexit if they had significant operations with the EU-27." The committee sees Brexit as the "driving force" for the proposal to "increase the threshold for "equivalence" decisions under MiFIR. This section of the Investment Management Brief contains Parliamentary information licensed under the Open Parliament Licence v3.0.

Government Responds to the Commission on Dormant Assets' Report

The Government published [16.02.2018] its Response to the Commission on Dormant Assets' Report released in March 2017 (featured in our earlier update here). Banks and building societies currently participate in the existing dormant assets scheme established under the Dormant Bank and Building Society Accounts Act 2008. The Government agrees with the Commission on Dormant Assets that "there is potential to broaden the scheme to include more assets across the insurance and pensions, investment and wealth management, and securities sectors." Senior industry champions representing those sectors will report to the Government on: "the potential scope of an expanded scheme in their sector"; "appropriate definitions" for dormancy including for products frequently used as long-term savings; and "other technical and practical considerations" - such as tax, regulatory, data protection and the process for transferring assets to the Reclaim Fund Ltd. Among the assets the Commission recommends remain out of scope are mutual insurance funds and, at least initially, Child Trust Funds and Junior ISAs.

The Government also agrees with the Commission that "there is significant potential to expand the dormant assets scheme to a wider range of asset classes". However, non-cash assets "which can be subject to significant market movements in value", and assets held in trust or collective structures are considered difficult to include. Accordingly, the initial focus will be on widening the "range of cash assets and other assets whose value does not vary significantly because of market forces" within the scheme.

The Government agrees that "the core principles of the current scheme be maintained". Namely:

  • transferring assets into the scheme only after "appropriate reunification efforts" have been made by the firm to find the relevant customer;
  • voluntary participation by firms;
  • a right for customers to reclaim assets from the scheme in perpetuity; and
  • the principle of full restitution.

Contains public sector information licensed under the Open Government Licence v3.0.


Financial Crime

Home Office circular on criminal finances information sharing within the regulated sector

The Home Office has released Circular 007/2018 on sharing information on money laundering and terrorist financing within the regulated sector and between the regulated sector and the National Crime Agency (NCA) [01.02.2018]. The guidance relates to new sections 339ZB - 339ZG of the Proceeds of Crime Act 2002 (POCA) and 21CA - 21CF of the Terrorism Act 2000 that the Criminal Finances Act 2017 introduced. The new provisions "allow banks and other businesses in the regulated sector to share information with each other on a voluntary basis in relation to a suspicion that a person is engaged in money laundering, suspicion that a person is involved in the commission of a terrorist financing offence, or in relation to the identification of terrorist property or its movement or use." Unlike filing Suspicious Activity Reports (SARs), information sharing under these provisions is voluntary. The legislation will be applied in stages, applying first to credit institutions and certain branches (both as defined in the Capital Requirements Regulation) and to financial institutions as defined in Schedule 9 of POCA. Firms using these provisions will still need to comply with the Data Protection Act 1998 and with the General Data Protection Regulation when it is in force. The tipping-off offences under POCA and the Terrorism Act 2000 do not apply if information is shared in good faith in accordance with the new provisions in the respective act. The guidance contains information on types of information sharing (including regulated sector initiated and constable or NCA initiated); the roles and responsibilities of those involved in sharing information; and the processes and procedures for submitting notifications. It also explains how the new provisions interact with the SARs regime.

This section of the Investment Management Brief contains public sector information licensed under the Open Government Licence v3.0. 

HM Treasury publishes updated Advisory Notice on money laundering and terrorist financing controls in in higher risk jurisdictions

HM Treasury has updated its money laundering and terrorist financing Advisory Notice [27.02.18] in response to the latest Financial Action Task Force (FATF) statements on higher risk jurisdictions. Under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017) the regulated sector is required to carry out enhanced customer due diligence in respect of high-risk countries. The updated Advisory Notice contains the FATF's statements [23.02.18] identifying jurisdictions with "strategic deficiencies in their AML/CTF regimes".


EU Regulatory 

ESMA updates its tables of Guidelines and Technical Standards

ESMA's Guidelines and Technical Standards page contains links to tables showing the Guidelines and Technical Standards available on its website. These tables have been recently updated: Guidelines [05.03.18] and Technical Standards [12.02.18]. The tables contain process information and links to documents related to the Guidelines and Technical Standards which are themselves grouped according to the relevant overarching Directive or Regulation.


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