UK Regulatory Developments: January 2020

The regular monthly update on UK regulation relating to securities laws, is provided by Emma Radmore, Legal Director, Womble Bond Dickinson (UK) LLP, and covers UK regulatory developments during January 2020.

Laws, Regulatory Requirements and Consultations

UK leaves EU: The UK left the EU on 31 January 2020, but the nature of the transitional arrangements agreed between the UK and EU means that (among other laws) financial services sector laws and requirements will continue until the end of 2020. This means, among other things, that reporting requirements to EU regulators remain, and firms will continue to be able to use their “passport” to do business between the UK and the rest of the EU.

OFSI updates sanctions guidance. The Office of Financial Sanctions Implementation (OFSI) has updated its general sanctions guidance in respect of its application to UK financial sanctions regimes under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). Separate guidance still applies to the EU regimes. The guidance contains explanations of how to identify matches that should be reported and the meanings of key terms and the licensing process.

PSR Call for Input (CP20/2) on Payments Architecture. The Payment Systems Regulator (PSR) published a call for input into competition and innovation in the UK’s new payments architecture (NPA). The document includes details of the potential competition issues that the PSR have identified in relation to the NPA which will be the new way firms will organise the clearing and settlement of most of the UK’s domestic interbank payments. The PSR is seeking views from interested parties in order to help it develop the regulatory framework for the NPA. They are especially looking for comment from:

• users of payment systems
• payment service providers
• participants in the NPA central infrastructure services (CIS) procurement

The call for input is structured around:

• some hypotheses about possible harms to competition and innovation
• possible mitigations to those harms
• key questions for stakeholders about those harms and mitigations

Comments are invited by 24 March 2020.

FCA: Overdraft Pricing Request. The Financial Conduct Authority (FCA) has written to firms requesting details about how they have reached their overdraft prices and the measures firms have put in place to protect consumers. In particular the FCA is asking all firms to provide:

• a detailed summary (including 6 specific areas) of the factors taken into consideration on calculating the new overdraft rate; and
• a summary of the customer treatment strategy for those customers who will be worse off following introduction of the new pricing.

All responses need to be with the FCA by 10 February 2020.

Government consults on TRS. Treasury and HMRC are consulting on the technical measures needed to extend the Trust Registration Service (TRS). The consultation includes draft legislation and proposals on the types of express trusts that will need to register, and provisions on data collection and sharing, and penalties.

Key elements of the consultation focus on:

• express trusts: Treasury notes that many trusts are created through the intention of the settlor, so are express trusts, but that many trusts are implied by law and in such cases beneficial owners may not know that a trust exists. Occasionally trusts also arise because of statute. The UK will expand the current TRS to cover what the Financial Action Task Force (FATF) considers to be express trusts – that is, those clearly created by the settlor – and will catch all UK express trusts and some non-EU resident ones (essentially where a trust is not required to register elsewhere in the EU but enters into a business relationship with a Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) “obliged entity” in the UK or acquires UK real estate). The Government plans to exercise its prerogative to keep outside scope trusts whose purpose and structure mean that payments to beneficiaries are predetermined and highly controlled, or where they are already supervised by HMRC or another regulator.
• out of scope trusts: in principle, none of the following will need to register:
  • statutory trusts,
  • joint ownership trusts that exist solely for the purpose of owning a home with a partner, relation or friend,
  • situations where two or more people co-own an asset with concurrent and not successive interests (like a bank account),
  • express trusts established in a form not mandated by legislation but in order to meet its conditions (such as approved share-option and profit-sharing schemes),
  • trusts which consist purely of a pure protection policy which does not pay out until death or terminal illness of the insured,
  • registered pension schemes held in trust,
  • charitable trusts (whether registered or not), or
  • trusts already registered in another EU Member State.

Other property-owning trusts will be required to register. The Government will keep under review bare trusts.

• information requirements: trusts currently registered will need to provide some additional information, while newly registered trusts will need to provide all relevant information. If a newly registered trust has no liability to tax, only information about the beneficial owners will be required.
• timeline: Trusts in existence at 10 March 2020 must register by 10 March 2022; those set up after 10 March 2020 must register on the later of 30 days after establishment or 10 March 2022; and trusts set up on or after 10 March 2022 will have 30 days to register. Trustees will have 30 days from becoming aware of any changes to update the register. Until 10 March 2022, trusts that incur a tax liability for the first time should register under the current process,
• penalties: for failing to register, trustees will be sent a “nudge” letter but there will be no financial penalty. For a first failure to update details within the time limit, there will again only be a “nudge” letter, but for subsequent offences there will be a penalty of £100 per offence. But there may be financial penalties for trustees found to have deliberately failed to register or update.
• data sharing: information will be given out only following a legitimate request, and, where the request is justified, information should be provided in a standardised format. Treasury also proposes to allow access in respect of third country entities where a trust holds a controlling interest in a non-EEA legal entity. Where information is provided, it will be on the name, month and year of birth, country of residence and nationality of the beneficial owner and the nature and extent of the beneficial interest held. Where the beneficial owner is a legal entity, the information will be its name, registered or principal office and nature of its role in relation to the trust.
• proof of registration: The government proposes that the onus will be on the trustee to provide proof of registration and an excerpt from the register to the Fifth Money Laundering Directive (MLD5) “obliged entities” that request it.

The draft legislation would amend the MLRs. Consultation closes on 21 February.

FCA’s Firm Details Confirmation Requirements. The FCA is now requiring firms subject to the Supervision Manual (SUP) 16.10 reporting requirements to update their firm details annually (within 60 days of their accounting reference date) even if there has been no changes. The confirmation should be done through Connect.

Financial Services AI public-private forum. On 23rd January, the FCA published the Terms of Reference for the Financial Services Artificial Intelligence Public-Private Forum (AIPPF), which it is establishing with the Bank of England to further constructive dialogue with the public and private sectors to better understand the use and impact of artificial intelligence and machine learning. The Forum seeks to:

• Share information and understand the practical challenges of using artificial intelligence (AI) and money laundering (ML) within financial services, as well as the barriers to deployment and potential risks.
• Gather views on potential areas where principles, guidance or good practice examples could be useful in supporting safe adoption of these technologies.
• Consider whether ongoing industry input could be useful and what form this could take.

Participation in the AIPPF is by invitation only.

PSR consults on COP exemption requests. The PSR is consulting on a potential variation to its Specific Direction 10 on Confirmation of Payee (COP). It had previously told the members of the UK’s 6 largest banking groups that they must fully implement COP by 31 March 2020, and that it would grant exemptions only under exceptional circumstances. It now thinks there may be circumstances in which an exemption could be justified but not really be exceptional. It wants to introduce an additional basis for requesting an exemption (for where it is not reasonable or proportionate to require compliance, such as in relation to specific types of account, where new products are planned and where accounts are transferring between platforms) and to exempt HSBC UK Bank plc from the obligations of the direction in respect of accounts within the Private Banking brand, given that the brand (which is now being transferred to HSBC UK Bank plc) was not within the original direction. PSR wants comments by 29 January.

SFO updates compliance programme guidance. The Serious Fraud Office (SFO) has published an updated version of its internal guidance on how it evaluates a compliance programme. The guidance is part of SFO’s Operational Handbook. When SFO is investigating an organisation, it will use its assessment of the organisation’s compliance programme to inform its decisions on key matters such as whether prosecution is in the public interest, whether to consider a deferred prosecution agreement (DPA), whether an “adequate procedures” defence may be arguable and whether the organisation’s policies and procedures may be a relevant factor in sentencing considerations. Key points the guidance makes include:

• organisations of any size should have at least some compliance arrangements, even if they are not large enough to have a compliance unit;
• a compliance programme must be effective and not just a paper exercise – it is critical the programme be proportionate, risk-based and regularly reviewed;

that a factor in a decision on whether it is in the public interest to prosecute is whether the offence was committed at a time when the company had an ineffective corporate compliance programme – similarly whether the organisation has since taken remedial action could be relevant in a charging decision;

• if an organisation has made some effort to put in place bribery prevention measures, this could still be a factor in sentencing even if not good enough to provide a defence to a s7 allegation;
• an important factor in considering whether a DPA would be appropriate is the existence of a genuinely proactive and effective corporate compliance programme – and, if the matter goes to court, the state of the compliance programme may be relevant to sentencing, including whether the level of fine will impact the ability to implement an effective programme; and
• SFO staff are advised to consider the compliance programme early in an investigation, looking at it on a case by case basis, with the Ministry of Justice (MoJ) principles in mind.

Regulators consult on FSCS levy. PRA and FCA are consulting on the Financial Services Compensation Scheme (FSCS) Management Expenses Levy Limit for 2020/2021. The proposed limit is £78.2m management expenses budget (a nearly 5% increase on the current year) and a £5m contingency reserve (unchanged from this year). Consultation closes on 20 February.

Companies House confirms beneficial ownership (BO) reporting requirements. Companies House has confirmed the new requirements under the MLRs for firms to report person with significant control (PSC) discrepancies to Companies House. Firms need to tell Companies House about any material differences between beneficial ownership information a client holds and the details on the Companies House PSC register. The guidance notes that the definition of beneficial owner is not the same as the definition of a PSC, and that the reporting requirement is based on the PSC. It also notes that reporting a discrepancy is not a substitute for making a subject access request (SAR), which should still be made where appropriate, and includes a link to the reporting arrangements.

Duty of Care Bill progresses in Lords. The Financial Services (Duty of Care) Bill, the Private Members’ Bill to require FCA to make rules requiring authorised firms to owe a duty of care to consumers in their regulated activities, and originally proposed before the general election, has started its parliamentary process again and has had its first reading in the House of Lords.

FCA confirms crypto-AML requirements. FCA has formally confirmed that it has, as of 10 January, become the anti-money laundering/counter terrorist financing (AML/CTF) supervisor of businesses carrying on certain crypto-asset activities that now fall under the MLRs. It reminds market participants that no new business can start relevant activities before it is registered, and says that existing business, which must be registered by January 2021 essentially have until June 2020 to make their applications to be sure to meet the deadline. It has also published a guide on the information it will require from registrants.

Up next from FCA. FCA plans a number of important publications during Q1 2020 including:

• consultation on exit fees in investment platforms and comparable firms
• potential policy statement on general insurance value reporting measures and
• policy statement on changes to mortgage advice and selling standards

FCA outlines plan to simplify cash savings market. The FCA’s 2015 Cash Savings Market Study found that the cash savings market is not operating effectively for many consumers, especially those with easy access cash savings accounts or easy access cash ISAs. The current market setup also leads to a lack of competition for longstanding customers, who tend to receive lower interest rates on their savings than new customers. Following that study, the FCA published a Discussion Paper (DP18/6) which outlined potential solutions to tackle those issues, including the introduction of a Basic Savings Rate (BSR). Against this backdrop, the FCA has today launched a consultation on its proposals to simplify and improve competition in the cash savings market; the FCA intends to make it easier for consumers to understand the cash savings market and to get a good deal. The proposed rules build on the proposals put forward in DP18/6, save that the BSR has been renamed Single Easy Access Rate (SEAR). The FCA aims to maintain competition on new savings accounts by affording firms the flexibility to offer customers a range of introductory rates for up to 12 months of opening a new account, following which firms would apply one SEAR for their easy access cash savings accounts, and one rate for their easy access cash ISAs. The FCA also hopes that this will ensure equal benefits for their longer-standing customers, who would have the SEAR applied to their savings accounts or ISAs when the new rules come into force. The FCA will also require firms to publish clear data on their SEARs to enable third parties, e.g. intermediaries and media organisations, to more easily highlight the rates between products and providers. The regulator hopes that this ‘sunlight remedy’ will drive competition and transparency by making it easier for consumers to navigate the market. Responses are invited by 9 April. The FCA intends to publish next steps, and if it decides to make new rules, its final instrument, in the second half of 2020.

UK regulators announce data reforms. The FCA has released its new Data Strategy which outlines plans to develop its data capabilities through a renewed focus on the use of advanced analytics and automation techniques. The FCA hopes this strategy, an update of its 2013 version, will enable it to broaden its understanding of how markets operate and allow it to better predict, monitor and respond to firm and market issues. The FCA also proposes to invest in new ways of working to improve its understanding and use of new technologies. Plans include establishing data science units in certain parts of the FCA’s business and drawing on new opportunities arising from its migration to a cloud-based IT service. The BoE has published a Discussion Paper aimed at improving the effectiveness of data collection from firms across the financial sector. The paper identifies the issues with the current data collection system, outlines a framework for assessing the issues and sets out several initial possible solutions. Responses to the paper are invited by 7 April 2020. Alongside the paper, the BoE intends to carry out a range of direct stakeholder engagement during the first six months of 2020, which will include some events run in conjunction with the FCA. Anyone interested in participating in such events must complete the BoE’s nomination form by 6 March 2020. The FCA and the BoE, together with seven regulated firms, have also jointly published a report assessing the viability of the latest Digital Regulatory Reporting (DRR) pilot. DRR aims to explore how technology could allow firms to meet their regulatory reporting requirements more easily and improve the quality of data they provide to the regulator, and transform how the industry understands, interprets and reports regulatory information. Following the report, the FCA and the BoE have agreed to continue working together to:

• carry out joint work on common data standards;
• commission a joint review of the legal implications of writing reporting instructions as code;
• commission a joint independent review of some of the technical solutions explored as part of the DRR pilot; and
• jointly engage with industry to plan future phases.

Regulatory Speeches, Reviews and Enforcement Action

Newsletters, speeches and reviews

Government writes to UK Finance on mortgage prisoners. John Glen has written to UK Finance setting out the possibilities for mortgage prisoners to switch deals. FCA data shows that 170,000 borrowers whose mortgages are in closed books or owned by unregulated firms are eligible to switch, of whom around 14,000 are mortgage prisoners who are up to date with payments and are likely to meet commercial lending criteria. The Government and FCA agree that these borrowers should have the opportunity to access better deals with new lenders and hope UK Finance members will now move quickly to offer those deals. There are also a group of borrowers who may be in problem debt, and the Government and FCA are working to support this, and to give these borrowers some breathing space to get back on track. Given the importance of the issue, the letter says industry collaboration is key, and that it is open to considering an extension of the regulatory perimeter if benefits to consumers and markets are clear, but it is equally important not to give false hope to consumers if a change will not in fact be helpful to them.

FCA and IBA write to ISDA on LIBOR. In December 2019, the International Swaps and Derivatives Association (ISDA) wrote to the Financial Stability Board (FSB) and recommended that the FCA and the ICE Benchmark Administration (IBA) provide further clarity about the length of any “reasonable period” in which a non-representative London Inter-bank Offered Rate (LIBOR) might be published prior to LIBOR being discontinued. The FCA has now responded to ISDA’s recommendation and comments that market participants should not assume that any period of non-representative LIBOR based on a reduced panel bank submissions would last for more than a short period (i.e. months not years). In its letter, the regulator acknowledges that a non-representative panel bank LIBOR would be an uncomfortable position for LIBOR users as the behaviour of the rate would be difficult to predict and it would be likely to be more volatile given the smaller number of panel banks. The FCA notes that the law governing critical benchmarks, such as LIBOR, is set out in the UK Benchmarks Regulation (BMR) which will come into force at the end of the Brexit transition period (31 December 2020), assuming the UK leaves the EU as planned on 31 January. Under Article 21(1) BMR, IBA must give notice to the FCA when it intends to cease providing LIBOR and Article 21(3) gives FCA the power to compel IBA to continue production until the benchmark “can be ceased in an orderly fashion”. The FCA has confirmed that it does not expect to compel IBA to continue to produce a non-representative panel bank LIBOR beyond end-2021 for the benefit of ‘tough legacy’ contracts. The IBA has separately written to ISDA, outlining the procedure it will follow should it suspect that certain or all LIBOR settings will become unrepresentative. The IBA notes that the period of time to effect a cessation of LIBOR will be dependent on the facts and circumstances at the time but that its preference would be that any cessation of LIBOR would be pre-announced a reasonable time in advance of the benchmark becoming potentially unrepresentative, to avoid any requirement to publish a non-representative benchmark. The IBA has confirmed that it would not be comfortable with publishing an unrepresentative benchmark and highlighted that the continuing publication of such is not contemplated by the BMR.

Progress update on PSR’s work. Chris Hemsley, Managing Director of the Payment Systems Regulator delivered a speech at last week’s Westminster Business Forum: Payments, policy and regulation – infrastructure, innovation and end-user priorities. Following feedback from stakeholders on the PSR’s role, Mr Hemsley spoke about the progress the regulator is making in a number of key areas:

• Collaboration across regulators: the PSR is working closely with the FCA, BoE and the government to improve the regulators’ coordination in effecting change in the financial sector.
• PSR strategy: in response to stakeholder feedback, PSR is developing a clearer strategy and intends to publish a draft strategy statement later in 2020.
• Access to cash: in addition to supporting LINK’s commitment to protect the 2016 geographic footprint of ATMs, PSR is working to develop practical and long term sustainable cash access models to better facilitate the cash transition in a way that works for consumers and the UK economy. The PSR also intends to collaborate with the BoE in its work on wholesale cash distribution.
• New Payments Architecture (NPA): the PSR intends to publish a Policy Statement to explain what bidders, participants and other users can expect from the PSR as the NPA becomes a reality. The PSR intends to publish a Call for Inputs in the coming days on how some of its competition and innovation concerns could be addressed.
• Preventing fraud and protecting those who fall victim: on authorised push payment (APP) scams, whilst the PSR welcomed the Contingent Reimbursement Model Code, it is looking at whether this voluntary code is effective in protecting people who fall victim to this type of fraud. The PSR also wants to see more banks and building societies signed up to the code and acknowledges that more work needs to be done in order to achieve this. In terms of the PSR’s position, Mr Hemsley confirmed that (1) he supports the principle of using a rule change in the payment systems to introduce protection for consumers; (2) he supports the concept that a bank or building society should be able to recover this cost from another firm, where that firm has failed to take reasonable steps to prevent the fraud from happening in the first place and (3) he does not agree that a mandatory fund to reimburse victims is the right direction of travel. Mr Hemsley concluded by emphasising the principle that “prevention is better than the cure” and highlighted the introduction of Confirmation of Payee by the end of March 2020. From this date, banks will have to check the name on the account that someone is paying into, as well as the account number and sort code.

Christopher Woolard new FCA Interim Chief. Christopher Woolard has been appointed as Interim Chief Executive of the FCA once Andrew Bailey leaves to become Governor of the BoE.

Treasury responds on MLD5. Hot on the heels of Parliamentary criticism, Treasury has now published its response to the consultation on MLD5 implementation. The response confirms the Treasury’s position in:

• expanding the definition of “tax advisor” in line with MLD5;
• confirming that it will not bring private landlords who do not involve agents within the scope of the letting agency provisions, and that merely publishing advertisements or information or providing a communication channel will not constitute letting agency activity. On the €10,000 monthly rental threshold, some respondents thought it should be lower, or that there should be no threshold, but most agreed with it, so it has been retained. There was strong agreement that customer due diligence (CDD) should apply to both landlord and tenant in affected contracts – and HMRC’s guidance will provide further clarity on this. Treasury also confirmed that HMRC will be the appropriate supervisor, and that estate agents already registered with it will be required to indicate their letting agency work when they renew their registrations;
• on crypto-assets, responses were divided. Some respondents thought that as the market is currently small, the response should not be disproportionate. Others said the market, and the risks, were increasing. The Government also thinks the risks have evolved since MLD5 was adopted, and has, with the agreement of most respondents, amended the MLD5 definition of crypto-asset to capture the Cryptoasset Taskforce definitions. Treasury also confirmed the extension of scope to custodian wallet providers and fiat/crypto exchange providers, as well as bringing crypto-ATMs within scope, with no value threshold (to prevent smurfing). Treasury has also brought those issuing crypto-assets within scope and noted that a UK exchange dealing in privacy coins would be regulated, but has, for the moment, not included firms that facilitate peer-to-peer (P2P) exchange services. It is also clear that publishers of open-source software and non-custodian wallet providers are outside scope. Treasury is also sympathetic to the difficulties of complying with the FATF standards on beneficiary information, and will allow a delay to allow firms to develop compliance solutions. FCA is the crypto-supervisor, and the Joint Money Laundering Steering Group (JMLSG) has produced Treasury-approved guidance for the sector;
• art intermediaries are covered as proposed, and Treasury noted the need to clarity and proportionality in CDD requirements. HMRC will supervise the sector, and the British Art Market Federation has developed guidance for the sector, which Treasury has approved;
• on e-money, respondents agreed with the lowering of the thresholds, but did not agree that payments using anonymous pre-paid cards should be banned. The Government has legislated for UK entities to accept payment from such cards with overseas issuers only where the issuer is from an “equivalent” jurisdiction;
• on CDD, respondents asked for more clarity on acceptable electronic identity providers, but Treasury notes it would be overly restrictive for the MLRs to go into detail on specific technologies or processes;
• respondents agreed with the requirement for verifying the identity of senior managing officials and were happy for there to be an explicit requirement for relevant persons to understand the ownership and control structure of customers, but following responses, Treasury has not proceeded with its proposal to remove the words “reasonable measures” from Regulation 28(3)B) and 4 (c);

respondents agreed that relevant persons should check relevant registers and that the customer should provide information when requested;

• on enhanced due diligence (EDD) requirements, respondents supported the definition of what “involving high-risk third countries” meant, and agreed the FCA guidance on politically exposed persons (PEPs) was appropriate;
• most respondents were happy with the approach to meeting the requirements on discrepancies in Beneficial Ownership information, but there was no clear view on whether there should be a public warning mechanism – so that has not been carried forward because of the risk of tipping off;
• on trusts, respondents called for specific and proportionate definition of “express trust”, and expressed concerns that many lay trustees would not be aware of their obligation to register. The majority of respondents agreed that a deadline of 31 March 2021 should be acceptable, provided the process is fully operational and guidance is in place. The Government also notes the need to get the right balance between providing access to beneficial ownership information (which can largely be done by self-declaration) and the need to protect individuals’ data;
• responses on the central bank account register raised some technical issues but there was no preference for any particular model. Although some respondents thought it disproportionate to include low-risk accounts on the register, the Government has included all retail and wholesale accounts, as well as many building society and some credit union accounts, to maintain a level playing field. The response also notes the entities to which the Government intends information will be available;
• on miscellaneous matters, Treasury will support updating of guidance to ensure firms that operate pooled client accounts are considered low-risk and can perform simplified due diligence (DD);
• on enforcement, Treasury is considering further its proposal to make individual action possible against “managers” as well as controlling officers, as responses indicated this could lead junior managers to be unfairly blamed for senior leadership failings; and
• on training, Treasury noted responses from the money services business (MSB) sector on training of agents, and noted that these agents are within scope of the training requirements, and that the relevant entity must ensure, partly through training, that its agents are fit and proper.

Dear CEO letter re FSA047/048 returns. Given the progress of the UK Withdrawal Bill, the PRA has confirmed through a Dear CEO letter that relevant financial institutions no longer need to submit FSA047/048 returns after 22 January 2020. This return had been used to monitor the liquidity positions of the largest and most systemically important banks and investment firms pending a no deal Brexit.

FCA writes supervisory priorities letter to financial advisers. FCA’s Dear CEO letter to financial advisers identifies the following key harm risks on which it will focus its supervisory strategy:

• consumers receiving advice that is not suitable for their needs and objectives: FCA plans a further review on Assessing Suitability, to focus on initial and ongoing advice to consumers on taking an income in retirement. FCA wants to assess consumer outcomes in the light of the pension freedom reforms. It will also focus on defined benefit transfer advice;
• pensions and investment scams harming consumers;
• firms holding appropriate and adequate financial resources and professional indemnity insurance (PII) cover;
• redress not being paid where the Financial Ombudsman Service (FOS) awards are not honoured or firms are unable to pay compensation; and excessive fees and charges.

It also notes firms should review past approvals of financial promotions for mini-bonds in the light of the new restrictions on their marketing, and take appropriate action if the approval would no longer be compliant. Finally, it urges firms to ensure its senior managers understand what the Senior Managers and Certification Regime (SMCR) requires of them, and to understand the impact of Brexit on their business.

FCA updates on asset management supervisory strategies. FCA has:

• written a Dear CEO letter about its asset management supervision strategy. The letter outlines FCA’s view of the key causes of harm asset managers can post to their customers or the markets in which they operate, and highlights FCA’s supervisory priorities – ensuring effective liquidity management in funds, effective governance, the remedies identified in the Asset Management Market Study report, product governance, the LIBOR transition, operational resilience and Brexit;
• written a Dear CEO letter about its alternative supervision strategy. FCA views the key causes of harm that alternative investment firms (AIFs) (essentially those involved with AIFs) can cause. It notes its supervisory priorities for these firms as reducing the risk of investor exposure to inappropriate products or levels of risk, Client Assets Sourcebook (CASS) controls, market abuse, market integrity and disruption, AML and anti-bribery and corruption (ABC), and, again, Brexit.

CMA publishes update on loyalty penalty progress. Following the Citizens Advice super-complaint to the Competition and Markets Authority (CMA) about the loyalty penalty (when companies charge longstanding customers more than new customers or those who renegotiate their deal), the CMA identified a significant loyalty penalty affecting millions of customers across five key markets: mobile, broadband, household insurance, cash savings and mortgages. In its Response to the complaint, the CMA made specific recommendations to regulators in an attempt to tackle the loyalty penalty. 12 months on from those recommendations, the CMA has published an update setting out the progress that has been made so far. On Financial Services, the CMA has noted that the FCA has been undertaking further work in insurance, cash savings and mortgages. The CMA has also been working to enforce consumer protection law in an attempt to tackle harmful business practices that make it more difficult for customers to avoid a loyalty penalty. It has launched enforcement cases in two sectors: anti-virus software and online console video gaming and is examining whether some of these business practices, and the terms and conditions of the businesses involved, are fair in relation to auto-renewal, cancellations and refunds. The CMA intends to publish a further update on these cases in Q1 2020. In terms of next steps, the CMA intends to publish a further update on progress to tackle the loyalty penalty in July 2020.

FCA and BoE outline initial expectations for firms transitioning from LIBOR to SONIA. The Bank of England’s Financial Policy Committee (FPC) has published a letter to Senior Manager Function (SMF) holders in regulated firms on the future of LIBOR. In the letter it considers further potential supervisory tools that authorities can use to encourage the reduction in the stock of legacy LIBOR contracts to an absolute minimum before end-2021. 2020 will therefore be a key year for LIBOR transition. To that end the regulators have published a set of targets that they considers all firms should aim to meet in 2020:

• enable a further shift of volumes from LIBOR to Sterling Overnight Index Average (SONIA) in derivative markets from 2 March 2020;
• cease issuance of cash products linked to sterling LIBOR by the end of Q3 2020; and
• significantly reduce the stock of LIBOR referencing contracts by Q1 2021.

FCA and PRA plan to step up engagement with firms on LIBOR transition to help meet these targets, and will take an active role in reviewing management information and other data to monitor progress. As a guide, the regulators have said they see action in the following areas as key to delivery, and should feature in firms’ planning from Q1:

• product development;
• reviewing infrastructure, including updating loan system capabilities;
• client communications and awareness; and
• updating documentation.

FCA has published a Statement encouraging market makers to change the market convention for sterling interest rate swaps from LIBOR to SONIA on 2 March 2020.

FCA updates on RDR and FAMR review. FCA has provided an update on its work on the Retail Distribution Review (RDR) and Financial Advice Market Review (FAMR), on which it expects to fully report later this year. Its most recent work involved surveying around 400 firms for information on their advice services – including business models and strategies, target customers, charging structures, future plans, use of technology and recent innovations. It is now analysing the responses. It has also commissioned qualitative research on how consumers interact with the markets, and is working to understand the impact of technology on the market and how it can meet current and future consumer needs. Finally, FCA reminds us that the review is part of a broader package of work on retail investment and pensions/long term savings, and wants to hear firm’s views on open finance.

FSCS announces Plan and Budget. FSCS has published its full Plan and Budget for 2020/2021. As well as the indicative levy of £635m (£87m more than the current year, mainly because of a rise in self-invested personal pensions (SIPP) operator claims) and management expenses budget of £78.2m, it proposes a supplementary levy of £50m from the Life Distribution, Pensions and Investment Intermediation class because of increased claims volumes and defaults. But it will also refund £30m to firms in the Deposits class.

HMRC updates on MLRs. HMRC has updated its website to reflect the changes the MLRs have brought and, in particular, the new classes of entities that fall within the regulated sector. It will issue further guidance shortly, but has confirmed that:

• MSBs and trust or company service providers who apply to register from 10 January onwards cannot carry out relevant activity until HMRC has approved their registration;
• letting agencies will be able to register with HMRC from May 2020 (but must be compliant with the MLRs from 10 January); and
• art intermediaries can apply to register already.

All relevant firms must be registered by 10 January 2021. HMRC also says it will take account of the short lead-in time to the MLR changes when assessing non-compliance with new requirements.

FCA updates AML pages. FCA has updated its pages on AML to take account of the coming into force of the changes to the MLRs implementing MLD5 and the regime for registration of those in the cryptoasset sector. It also confirmed the registration fees for businesses with revenue up to and including £250,000 as £2,000, and a fee of £10,000 for businesses with revenue exceeding £250,000.

FCA publishes portfolio management tool review. FCA has published a report from its review of how a sample of 10 asset management firms selected and used risk modelling and other portfolio management tools. Key conclusions were:

• firms found it hard to assess whether to use a single provider for most of their needs or different ones. There are advantages and disadvantages to either approach;
• firms that used in-house tools found the flexibility useful in terms of functionality and maintenance over third party providers;
• vendor management approaches took the form of either a centralised function with a largely standardised approach, a decentralised approach with first-line users “owning” the relationship with little central input and a hybrid of the two;
• firms took different approaches to model governance;
• most contracts had break clauses of between 2 and 5 years but change programmes often suffered delay and overrun;
• firms should give more consideration to managing different lengths of outages;
• firms had problems balancing the need to implement technological changes quickly against the desire to test them fully; and
• firms should work harder to ensure customer expectations are taken into account.

FCA expects firms to act on any recommendations it has made, and will continue to look more widely at operational resilience in firms.

Enforcement

FCA takes action against illegal deposit taker. FCA has started civil proceedings against Briths Managment (sic) Solution Limited, Soccer League International Limited, Soccer League UK Limited and various individuals, for alleged unauthorised deposit-taking. It alleges the companies accepted money from the public for different projects, including forex trading and crypto-assets and that 4 senior individuals within the companies were knowingly concerned in the contraventions. FCA has already succeeded in freezing a significant amount of assets and stopped the activities from continuing under an interim injunction and now seeks a declaration from the Court that the actions of the companies constitute illegal deposit taking.