Financial Regulation Weekly Bulletin - 19 September 2024
19 September 2024
Financial Regulation Weekly Bulletin - 19 September 2024Welcome to the latest edition of the Financial Regulation Weekly Bulletin. Our latest Global Investigations Bulletin is also now available.
If you would like to discuss any of the above in more detail, please contact your relationship partner or email one of our Financial Regulation team.
GENERAL
Financial Conduct Authority
Consumer duty price and value outcome rules - FCA reviews implementation - 18 September 2024
The FCA has published its findings from a review of firms' implementation of the price and value outcome under the consumer duty. The fair value assessments review focused on three markets: cash savings accounts; guaranteed asset protection (GAP) insurance; and cash balances held by platforms. The FCA explains, however, that the findings will be relevant to all firms who need to demonstrate that their products provide fair value to retail customers.
Several lessons emerge from these findings. In short, firms are encouraged by the FCA to take a holistic approach to the consumer duty. The webpage refers to several firms’ complex pricing structures as an example of poor practice. Firms should consider the types of customers who, by virtue of their circumstances or behaviours, are likely to get value from the product (inside the target market) as well as the types who are less likely to get value (outside the target market). An analysis of cross-subsidies, where relevant in a firm's business model, can be helpful in identifying where different consumer groups may be at risk of not receiving fair value. Evidence is important in fair value assessments, says the FCA, but firms should be proportionate in their approach. Prompt action should be identified and taken if fair value assessments show that consumers are at risk of not receiving fair value.
The FCA states that it will act where it sees firms not making improvements in response to feedback, or if firms' products and services are clear poor value outliers when compared to the price and value of similar products and services. The FCA is aware of the need for specific engagement with small firms given their more limited resources. It separately highlights how small firms might take a reasonable approach to the requirements of the price and value outcome.
BANKING AND FINANCE
Financial Conduct Authority
Cash savings market - FCA publishes update - 18 September 2024
The FCA has published an update on the functioning of the cash savings market, including relevant data, following its previous update of December 2023. In particular, it considers progress on the issues identified in its July 2023 report on the state of competition in the cash savings market, as previously reported in this Bulletin.
The FCA refers to certain improvements in the market, including increases in average easy access rates and the movement of deposits into higher paying fixed-term and notice accounts. However, it found that many firms find fair value assessments challenging and that the largest firms generally continue to pay below the market average for standard easy access products. The FCA sets out examples of good and poor practice relating to benchmarking products against comparable products in the market and the treatment of vulnerable customers, among others.
The FCA also highlights practices that may be acceptable but tend to pose greater risk of not delivering good customer outcomes under the consumer duty. These include creating multiple tranches of a savings product that offer the same terms and conditions to pay higher interest rates to new customers and not to existing customers.
The FCA will continue to monitor firms' future savings rate changes and will expect a clear explanation if it identifies that a firm has changed its savings rates significantly more quickly and fully in response to interest rate reductions, compared to previous interest rate increases. It does not expect to publish further updates on progress in the cash savings market, unless it identifies further market-wide concerns.
Payment Systems Regulator
Cost benefit analysis framework - PSR launches consultation - 18 September 2024
The Payment Systems Regulator (PSR) has published a consultation paper (CP24/12) on a draft statement of policy on the PSR’s cost benefit analysis (CBA) framework. This builds on and replaces the PSR’s previous draft CBA framework, which was published in February 2024. Among other things, the draft framework sets out the circumstances in which the PSR will typically carry out a CBA.
The deadline for comments is 3 November 2024.
SECURITIES AND MARKETS
UK Finance
Innovation in payments - Regulated Liability Network Experimentation Phase announced by UK Finance - 17 September 2024
UK Finance has announced the successful outcome of its "regulated liability network (RLN) experimentation phase," a new type of financial market infrastructure that can deliver capabilities for payments and settlement, including tokenisation and programmability. Alongside the potential to help innovate the market and provide new functionality, UK Finance notes that “the UK’s legal and regulatory framework is sufficiently flexible to support the implementation of a ‘platform for innovation’”.
UK Finance and its members welcome further engagement with regulators and other public bodies toward innovation in payment markets.
ASSET MANAGEMENT
HM Treasury and Financial Conduct Authority
Retail disclosure reforms and forbearance on investment trust disclosures - HM Treasury and FCA publish statements - 19 September 2024
HM Treasury and the FCA have published statements on reforms to retail disclosure requirements and related FCA forbearance on investment trust disclosure requirements.
These statements follow the publication by HM Treasury, in November 2023, of a policy note on a new UK retail disclosure framework for consumer composite investments (CCIs) to replace the UK PRIIPs Regulation (EU) 1286/2014 (UK PRIIPs Regulation), together with a draft version of the Consumer Composite Investments (Designated Activities) Regulations 2024 (CCI Regulations). Separately, in May 2024, the FCA responded to concerns on the application of the current retail disclosure framework, particularly provisions in the UK PRIIPs Regulation and the UK Commission Delegated Regulation (EU) 2017/565 (MiFID Org Regulation) that require investment trusts to report costs in the same format as unlisted open-ended funds. The FCA had previously issued forbearance in November 2023, intending to give investment trusts greater ability to explain their costs and charges to consumers.
HM Treasury states that it will lay legislation as soon as possible to provide the FCA with appropriate powers to develop the new UK retail disclosure framework. It will also lay legislation to exempt listed investment trusts from the UK PRIIPs Regulation, as well as make other necessary amendments to other retained EU law. This will be an interim measure that will remain in effect until the start of the new framework, as HM Treasury intends for investment trusts to be within scope. The FCA statement notes that new regulatory forbearance will apply with immediate effect in respect of investment trusts. This means that, from 19 September 2024, closed-ended investment funds whose ordinary shares (of each class if there is more than one) are admitted to trading on a UK regulated market or a UK multilateral trading facility (MTF) may choose not to follow the requirements of the UK PRIIPs Regulation and associated technical standards. They may also choose not to follow the requirements of Article 50(2)(b) and Article 51 of the MiFID Org Regulation.
HM Treasury is expected to lay legislation on the additional powers required to deliver the new framework in the second half of 2024 and at the same time lay the legislation to exempt closed-ended UK-listed investment funds from the relevant requirements. The FCA's regulatory forbearance will end on the date that the legislation relating to the exemption takes effect. The new retail disclosure framework is expected to be in place in the first half of 2025, subject to Parliamentary approval and the FCA consultation process.
FINANCIAL CRIME
Financial Conduct Authority
Effective fraud prevention - FCA publishes speech - 17 September 2024
The FCA has published a speech given by Andrea Bowe, director of the specialist directorate, on frameworks for effective fraud prevention measures.
Among other things, Ms Bowe emphasises the importance of collaboration and a collective effort in tackling fraud. She refers to a three-day investment fraud tech sprint jointly hosted by the FCA and the National Crime Agency (NCA) in 2023. This saw regulatory, intelligence and law enforcement agencies get together to test tactical, cross-agency collaboration, and it led directly to the development of solutions that participants are continuing to explore. Ms Bowe also explains that firms must also adopt a collaborative approach to stopping the cash-out of the proceeds of fraud through money mule activity, prioritising not only the sharing of information on suspected mules, but also acting swiftly when such information is received, whether through internal or external channels.
The FCA is aware that technology is transforming cross-border fraud and money-laundering detection. While deepfake scams are still in their relative nascency, it is important that the FCA maintains an open dialogue with the government about the powers it needs to best protect consumers and market integrity.
This material is provided for general information only. It does not constitute legal or other professional advice.