UK: FIG Bulletin, 5 July 2019

Last Updated: 12 July 2019
Article by Hogan Lovells

GENERAL

FCA MS19/1: Credit Information Market Study 

The Financial Conduct Authority (FCA) has launched a Credit Information Market Study and published the Terms of Reference for the study. 

The market study will focus on the following themes:

  • the purpose, quality and accessibility of credit information;
  • market structure, business models and competition; and
  • consumers' engagement and understanding of credit information and how it impacts their behaviour.

In exploring these themes, the market study will assess how the sector is working now and how it may develop in the future. It will also look at how the markets for credit information work in some other countries and what the UK market might learn from them.

The FCA will report on its preliminary conclusions on these themes in Spring 2020 including, if appropriate, a discussion of potential remedies. The FCA is not formally consulting on the Terms of Reference, but welcomes views on them by the end of July.

Collateral referencing LIBOR: BoE risk management approach 

The Bank of England (BoE) has published a discussion paper on its approach to risk management of collateral that references the London Interbank Offered Rate (LIBOR) and is positioned at the BoE for use in its market operations. 

The BoE provides a brief background to both the LIBOR transition process and its collateral framework, and describes some of the potential implications for the BoE's balance sheet from LIBOR transition. It also outlines a number of possible risk management approaches  under consideration by the BoE to ensure that it remains well placed to provide liquidity insurance in support of financial stability. 

Views on these questions are sought, both from firms that are signed up (or expect to sign up) to the Sterling Monetary Framework (SMF) and from any other interested parties. Responses will be used to help frame the BoE's future risk management approach with regards to collateral referencing LIBOR, which it will publish in due course. 

Comments should be submitted to the BoE by 27 September 2019.

LIBOR: BoE speech 

The Bank of England (BoE) has published a speech on LIBOR by Andrew Hauser, Executive Director, Markets.

In his speech, Mr Hauser argues that there is a business, as well as a risk, imperative to the transition away from LIBOR. He suggests that a post-LIBOR world offers many new and better opportunities: to meet the borrowing needs of households and firms; to allocate and manage risk; to express views on, or hedge against, the future paths of interest rates and credit risk; and to exploit new technologies. Firms that grasp these opportunities early will have a real edge. Firms that miss these opportunities risk finding themselves behind the curve, with LIBOR-linked systems and obligations that are no longer fit for purpose. That risk is material and will only increase as 2021 approaches.

Mr Hauser provides a useful re-cap on the history of LIBOR and what opportunities a postLIBOR world will offer. He then concludes his speech with an update on how the BoE is adapting its own operations away from LIBOR to the use of the Sterling Overnight Average Index (SONIA).

EURIBOR: EMMI granted authorisation to administer 

The European Money Markets Institute (EMMI) has announced that it has been granted an authorisation by the Belgian Financial Services and Markets Authority under Article 34 (critical benchmark administrator) of the EU Benchmarks Regulation for the administration of the Euro Interbank Offer Rate (EURIBOR).

EMMI applied for authorisation following its project to reform EURIBOR by moving to a new hybrid calculation methodology. EMMI intends to transition panel banks from the current EURIBOR methodology to the new hybrid methodology by the end of 2019.

EMMI will publish the EURIBOR Benchmark Statement within two weeks of its inclusion in the ESMA register.

Green finance strategy: BEIS publication 

The Department for Business, Energy and Industrial Strategy (BEIS) has published the government's Green Finance Strategy. The government describes it as a comprehensive approach to greening financial systems, mobilising finance for clean and resilient growth, and capturing the resulting opportunities for UK firms.

The aims of the strategy are to:

  • align private sector financial flows with clean, environmentally sustainable and resilient growth, supported by government action; and
  • strengthen the competitiveness of the UK financial sector.

Diversity: BoE speech 

Given at a network event for women working in foreign exchange markets, by Andrew Hauser, Executive Director, Markets, BoE, sets out in a speech why promoting greater diversity in capital markets is important to the BoE, to the prosperity of financial markets, and to the economy as a whole. 

FCA service standards 2018/19 

The FCA has published its service standards analysis for 2018/19. The FCA measures its performance when carrying out its regulatory function using service standards. 

FCA Handbook Notice 67  

The FCA has published Handbook Notice 67 which describes certain changes to the Handbook, Binding Technical Standards and other material made by the FCA Board under its legislative and other statutory powers on 30 May and 27 June 2019. Additionally, this Notice contains information about other publications relating to the Handbook. 

Changes to the Handbook are set out in the instruments listed below:

  • Mortgages and Home Finance (Peer to Peer) Instrument 2019 (FCA 2019/75)
  • Operating an Electronic System in Relation to Lending (Peer-to-Peer Lending) Instrument 2019 (FCA 2019/69)
  • Enforcement (EU Securitisation Regulation) (No 2) Instrument 2019 (FCA 2019/74)
  • Personal Current Accounts and Overdrafts Instrument 2019 (FCA 2019/68)
  • Buy Now Pay Later Instrument 2019 (FCA 2019/72)
  • Listing and Disclosure Sourcebooks (Shareholder Rights Directive) Instrument 2019 (FCA 2019/73)
  • Shareholder Rights Directive (Asset Managers and Insurers) Instrument 2019 (FCA 2019/68)
  • Conduct of Business (Contracts for Difference) Instrument 2019 (FCA 2019/78)
  • Periodic Fees (2019/20) and Other Fees Instrument 2019 (FCA 2019/76)
  • Periodic Fees (2019/20) and Other Fees (EU Exit) Instrument 2019 (FCA 2019/77)
  • Payment Services and Buy Now Pay Later (Administrative Amendments) Instrument 2019 (FCA 2019/79)

FCA PS19/19: FCA regulated fees and levies 2019/20 

The FCA has published its latest fees and levies policy statement and "made rules", PS19/19.

Firms can use the online fees calculator to calculate their individual fees based on the final rates in this policy statement.

New Chairs of the FCA's Practitioner Panel and Markets Practitioner Panel 

The FCA has announced the appointments of new Chairs for the FCA's independent Practitioner Panel and Markets Practitioner Panel. 

Tulsi Naidu, Chief Executive of Zurich in the UK, becomes Chair of the FCA Practitioner Panel from 1 August 2019. 

Nikhil Rathi, Chief Executive Officer of London Stock Exchange plc, becomes Chair of the FCA Markets Practitioner Panel from 1 July 2019. 

FSCS annual report and accounts 2018/19 

The Financial Services Compensation Scheme (FSCS) has published its annual report for 2018/19 and its accounts. 

Growing a Culture of Social Impact Investing in the UK: report 

HM Treasury has published a report on social impact investing. This report, written by an independent Implementation Taskforce, highlights progress against 2017 recommendations on building a culture of social impact investing in the UK.

This final report by the Implementation Taskforce highlights the progress made over the year and the level of engagement across the private, public and social sectors.

In June 2019, the Implementation Taskforce announced that it had joined up with The UK National Advisory Board on Impact Investing to launch a new independent institute that will make it easier for people to invest their money to benefit communities and society. The new "Impact Investing Institute" will look for more effective ways to combine financial returns with a social purpose to help improve people's lives.

Regulating financial innovation: FCA speech 

The FCA has published a speech, "Regulating financial innovation – going behind the scenes", by Christopher Woolard, Executive Director of Strategy and Competition at the FCA, delivered at the Deloitte conduct risk roadshow. 

In his speech, Mr Woolard talks about Facebook's plan to launch the "stablecoin", Libra, in conjunction with a number of payment and tech firms. The FCA has been discussing these plans with Facebook, along with other regulators and central banks. If the plans come to fruition, Libra could be very significant, posing questions for the FCA and the BoE, and for their work with international partners. Its size and scale will pose questions for society and government about what is acceptable and desirable in this space.

Mr Woolard also noted that the FCA tends to avoid the term "cryptocurrency", as it generally does not meet the core economic criteria of money – as a unit of account, store of value and efficient means of exchange. The FCA prefers to say "cryptoasset", as a more neutral term which captures the broader range of tokens that are not just designed to act as a means of exchange.

FCA responds to Complaints Commissioner's Reports 

The FCA has published two responses to reports from the Complaints Commissioner in which it criticised the FCA.

The FCA responses relate to: 

  • a final report (FCA00502) (dated 14 June 2019) in relation to a complaint about the FCA's authorisation and regulation of three financial services firms and a financial adviser. The Commissioner agreed with the conclusions reached by the FCA Complaints Team not to uphold five allegations and to uphold one. However, in the Commissioner's view, the FCA "clearly needs to do further work" to reassure consumers and the public that they can have more confidence in it fulfilling its consumer protection mission. In response the FCA said: "We have outlined to the Commissioner the steps that have been taken in response to this recommendation. Over the past couple of years, we have made significant changes to the way we supervise firms, have strengthened our rules and guidance around the provision of financial advice and carried out extensive supervisory work in relation to financial advisors, such as the work we announced on 19 June relating to the pension transfer sector, which continues."
  • a final report (FCA00550) (dated 14 June 2019) regarding a complaint about the FCA's supervision of a financial adviser at an FCA-authorised firm. The Commissioner did not uphold the complaint as he was satisfied the FCA had conducted an appropriate investigation and provided a reasonable response. However, he:

    • recommended the FCA takes urgent steps to ensure it has proper arrangements in place for liaison with the Financial Services Compensation Scheme (FSCS). In response, the FCA has advised it has taken action and is confident it now has proper arrangements in place;
    • suggested the FCA seeks a response from the FSCS regarding why the complainant's loss was not covered when it appears customers of the firm with other unregulated products were compensated and such products have been covered following the collapse of another firm;
    • suggested the FCA explains to the complainant why he did not receive a client contact letter in October 2017, advising customers to contact the FSCS, and why this letter was sent to any customers if unregulated products were not covered.

    The Commissioner has previously raised with the FCA his concern that people may be under the false impression that their investment is protected because the firm is regulated by the FCA. He welcomes FCA initiatives in this regard, but considers it "clearly 8 Powered by RequirementONE.com needs to do further work" to reassure consumers and the public they can have more confidence it is fulfilling its consumer protection mission. The FCA has published a response, noting the Commissioner's suggestions and advising it is making enquiries and will respond shortly.

    FCA: Joint Declaration on climate change 

    The FCA has published a Joint Declaration with the Prudential Regulation Authority (PRA), The Pensions Regulator and the Financial Reporting Council, welcoming the publication of the Government's Green Finance Strategy and setting out the regulators' shared understanding of the financial risks and opportunities of climate change. 

    The FCA also issued a statement alongside the Joint Declaration outlining its progress on the issue of climate change.

    FCA: Policy development update 

    The FCA has published its latest policy development update which gives information on recent and upcoming publications.

    AI in financial services: UK Finance report 

    UK Finance has published a report, prepared in conjunction with Microsoft, on artificial intelligence (AI) in financial services. In the report, UK Finance explores what is meant by AI, noting it is clear AI will be a key feature in how financial services firms operate and deliver services. The aim of the report is to give a useful set of practical tools to help firms to begin to understand how they can begin to take advantage of what AI offers and introduce a number of issues to consider in seeking to benefit from AI. 

    FOS consults on future of its funding 

    The Financial Ombudsman Service (FOS) has published a consultation paper on the future of its funding. The FOS is preparing for a future when payment protection insurance (PPI) does not dominate its caseload. It expects the overall cost of the service to fall significantly after PPI reaches its conclusion (assuming it does not have to deal with another problem on that scale).

    The consultation ends on 13 August 2019. The FOS will consult on its plans and budget for 2020/21 in December 2019, with a proposed implementation date for any changes of 1 April 2020.

    PRIIPs Delegated Regulation: Commission adopts amendments 

    The European Commission has published the draft Delegated Regulation it has adopted to amend the Packaged Retail and Insurance-based Investment Products (PRIIPs) Delegated Regulation ((EU) 2017/653). The amending Delegated Regulation aligns the transitional arrangement for PRIIP manufacturers offering units of funds referred to in Article 32 of the PRIIPs Regulation ((EU) 1286/2014) as underlying investment options with the prolonged exemption period under that Article.

    The Delegated Regulation amends the transitional arrangements for certain firms and persons by two years, to 31 December 2021. 

    The draft Delegated Regulation will now be considered by the European Parliament and the Council of the EU.

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