Regulatory Outlook: Financial Services - November 2016
Published on 29th Nov 2016
Brexit: Although much of the UK’s financial services regulation derives from EU legislation, the referendum vote has not had any immediate impact on the regulatory regime. The FCA has confirmed that such regulation “will remain applicable until any changes are made, which will be a matter for Government and Parliament”. From a practical standpoint, firms must “continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.” Firms should therefore continue to prepare for directives such as MiFID II, the second Payment Services Directive and the Fourth Money Laundering Directive (4MLD), which will be implemented before Brexit takes place, likely to be March 2019 at the earliest.
The Payment Accounts Directive (PAD): The PAD was implemented in the UK through the Payment Accounts Regulations 2015. The Regulations expand access to bank accounts and make it easier for consumers to compare fees or switch bank accounts. Provisions on packaged accounts, switching and basic bank accounts came into effect on 18 September 2016. Provisions on transparency and fee information comparability will come into force at a later date, likely in 2018, dependent on the timing of a European Commission delegated act.
Fourth Money Laundering Directive: While 4MLD is not due to be implemented into national law until June 2017, the European Commission has called on Member States to bring this date forward to January 2017. Whether HM Treasury does this remains to be seen.
MiFID II: The FCA will publish rules in the first half of 2017 on conduct of business issues and materials not covered in the previous two consultation papers. This will include issues such as product governance and additional perimeter guidance.
Capital Requirements Directive (CRD IV): There are currently inconsistencies between remuneration codes in the FCA Handbook and the EBA’s Guidelines on remuneration under CRD IV. The FCA is consulting on changes to the FCA Handbook to remove these inconsistencies and simplify FCA guidance on remuneration, in the Handbook, and general guidance on proportionality.
In Focus: Enforcement
The Financial Conduct Authority which took over from the Financial Services Authority in April 2013, is responsible for regulating the conduct of more than 56,000 authorised financial services firms, as well as the retail and wholesale financial markets in the UK. The FCA also acts as the prudential regulator of more than 24,000 of these businesses that are not otherwise regulated by the Prudential Regulation Authority. The FCA’s stated purpose is to protect both consumers and financial markets while promoting competition.
The Financial Services and Markets Act 2000 (FSMA) gives the FCA powers to obtain information and to conduct or order investigations, as well as to take enforcement action against firms. While these powers extend principally to authorised firms and the staff of authorised firms, the FCA may in certain cases exercise its powers against individuals who fall outside the regulated sector. For example, the FCA may investigate and take action against individuals for insider dealing and money laundering.
The FCA’s enforcement powers include criminal, civil and regulatory powers. The FSMA envisions two principal enforcement powers for the FCA, public censure and financial penalties. The FCA is not, however, limited to these and in practice makes use of a wide range of tools when it chooses to take enforcement action, ranging from withdrawing a firm’s authorisation to issuing private warnings. The FCA may also apply to the courts for civil orders or commence criminal prosecutions for certain types of offences. The FCA will also work with other authorities, such as the Serious Fraud Office in relation to financial crime (the SFO having taken the lead, for example, in the prosecution of individuals relating to alleged LIBOR manipulation).
Central to the FCA’s approach to enforcement is its policy of credible deterrence, prioritising and targeting FCA activity where it can be most effective.
In keeping with the FCA’s approach of deploying its resources where it thinks these will achieve the most good, the FCA’s Business Plan for 2016/17 has identified seven priority themes for its work. These are: pensions; financial crime and anti-money laundering; wholesale financial markets; advice; innovation and technology; firms’ culture and governance; and treatment of existing customers.
On the theme of firm culture and governance, the FCA is likely to increase its enforcement action against individuals. While FCA enforcement against individuals has been generally low in recent years, a recent uptake in the number of fines against individuals as well as the introduction of the Senior Managers Regime (SMR) and the Market Abuse Regulation (MAR) suggest that enforcement action against individuals is likely to increase.
The SMR focuses on individuals performing senior management functions, who may be held to account for misconduct falling within their area of responsibility. The SMR will also hold individuals in relevant firms to appropriate standards of conduct.
The FCA is also likely to be taking a hard look at market abuse offences and at firms’ market abuse controls. In February 2016, for example, the FCA fined WH Ireland Limited £1.2m for failing to have systems and controls in place to prevent market abuse from occurring or being detected. The coming into effect of the MAR on 3 July 2016 has increased the obligations on individuals, and the FCA is likely to be bringing more enforcement cases in the future.
From the perspective of firms, the FCA is likely to be focusing on preventing financial crime, which it has highlighted as one of the key areas of focus. In November 2015, the FCA imposed a fine of £72.1m against Barclays Bank plc for failure to implement appropriate levels of client due diligence in a situation where the risk of financial crime was heightened. The FCA did not find that the clients or the transaction did, in fact, involve financial crime; rather, the FCA fined Barclays for failure to follow the procedures designed to safeguard against financial crime.
Dates for the diary
31 October 2016
31 October 2016 was the deadline for compliance with the Single Euro Payments Area Regulation by Payment Service Providers located in non-eurozone Member States.
26 December 2016
The Joint Committee of the European Supervisory Authorities will issue its first opinion on the money laundering/ terrorist risks affecting the EU financial sector and will submit draft Regulatory Technical Standards (RTS) on group-wide policies/procedures on 26 December 2016.
The FCA is expected to issue rules and guidance on PPI complaints by the end of 2016, following a consultation.
The European Commission has proposed the early implementation by Member States of 4MLD and the Wire Transfer Regulation, which it is looking for by January 2017 (the original deadline for implementation being 26 June 2017).
12 January 2017
By 12 January 2017 the European Banking Authority (EBA) will issue a draft RTS on authentication and communication; and determining whether a central point of contact is appropriate.
The FCA is expected to issue a policy statement in Q2 2017 on changes to FCA Handbook arising from MiFID II.
The RTS and Implementing Technical Standards (ITS) relating to PAD will enter into force during 2017.
The FCA conduct rules will apply from March 2017 to staff at relevant firms who are not senior managers or within the certification regime.
13 July 2017
Applications by Account Information Services and Payment Service Providers for authorisations or registrations can be made from 13 July 2017.
13 July 2017
By 13 July 2017 the EBA will issue:
- draft ITS on the information to be provided by the competent authorities to the EBA for compiling the EBA’s register;
- guidelines on the information to be in the application for the authorisation of payment institutions; and
- guidelines on the establishment, implementation and monitoring of the security measures.
3 January 2018
MiFID II takes effect.
1 January 2018
PRIIPs Regulation applies from 1 January 2018. This requires firms to provide a new key information document to retail consumers that are buying a range of investment products.
For more information and details of all of the other areas covered by the Regulatory Outlook click here.