Regulatory Round Up - October 2021

Here is our regulation round up for October 2021 covering all the major compliance and regulatory updates you should be aware of for financial services.

MoU between the Financial Conduct Authority and the Gambling Commission

A new, strengthened, Memorandum of Understanding between the Gambling Commission and the FCA has been published. The MoU has been updated in light of an independent report that found that the betting watchdog and the FCA failed to cooperate effectively or to act quickly enough when the Football Index – a platform for investors to bet on the success of footballers – hit difficulties and went into administration in March 2021. Over a quarter of a million customers were affected.

The updated MoU includes a clearer path for information sharing and cooperation, including how to resolve regulatory bottlenecks through proactive notification of the other Body of any significant developments in which it is likely to have an interest, and with a deadline of 10 days for a response – this should ensure that one of the issues found in the report, that the FCA took too long to respond to requests from the Commission, does not happen in future. The FCA has also nominated an executive director to oversee the relationship with the Gambling Commission.

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Treating Customers Fairly Course

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Handbook Notice 91

Two changes are published in the latest Handbook Notice. Updates to CONC 6.7 as a result of the Consumer Credit (Fixed Instalment Plan Repayment Allocation) (Amendment) Instrument 2021 mean that firms will be able to offer a greater variety of fixed instalment plans as a feature of their credit card products – the FCA say this should support innovation and competition in the credit card market.

The rule 6.7.4R in the Consumer Credit Sourcebook required firms to allocate repayments received to the highest rate of interest first, and so on. However, a number of firms have been granted a modification when they offer an instalment plan within a credit card facility which allows customers to pay off eligible purchases over a fixed term with fixed monthly payments. The effect is that customers are able to spread payments and budget for larger purchases.

The modifications the FCA have granted allow monthly repayments to be allocated to sums due under the instalment plan even where the interest rate for the plan is lower than other types of transactions on the credit card.

The FCA previously consulted on a proposal to make it unnecessary for firms to apply for modifications to the rule, and the resulting new rule will continue to ensure that customers are protected by only being offered a fixed instalment plan option when it is in their best interests.

Handbook Administration (No 57) Instrument 2021 makes minor changes including amendments to the Glossary definition of ‘execution-only transaction’ to insert a reference to COBS 10A that was omitted during MiFID II implementation, and an amendment to the Glossary definition of ‘higher paid material risk taker’ to remain consistent with the PRA.

Dear CRO letter – Wealth Management and Stockbroking Supervision Strategy

In mid-September the FCA published a letter to firms active in the wealth management and stockbroking sector, to make clear their expectations and their view of key harms. In summary, the Regulator’s objectives for firms are to ensure:

• They are not facilitating scams, fraud or market abuse

• In the event of failure, they can wind down in an orderly manner with mitigations on the potential loss of client assets

• Their consumers are fully aware of the overall cost of their investment

In order to meet these objectives effectively, the FCA say they expect to see firms using high-quality data, maintained through robust systems and controls, and that firms work to foster healthy cultures. The letter states that many firms will need to work at a ‘significant shift in culture and behaviour’ to reach a consistent focus on consumer outcomes. Similarly, the FCA notes that the sector has taken some steps forward on diversity and inclusion but that there is much more that needs to be done.

The letter sets out a range of clear expectations on the issues of fraud and scams, firm failure and costs and charges.

Further arrangements for the orderly wind-down of LIBOR

The FCA has published further arrangements for the wind-down of LIBOR, with sterling, yen, franc and euro LIBOR panels ceasing on 31 December 2021. To avoid disruption to legacy contracts that reference 1, 3 and 6 month sterling and yen LIBOR settings, the ICE Benchmark Administration will continue to publish settings based on a synthetic methodology for 2022. These settings are not for use in new business.

Benchmarks Regulation: The FCA’s new powers, policy and decision making

Over the course of the previous year, the FCA has issued several consultations on proposals for their use of powers under Articles 21A, 23A, 23C, and 23D of the Benchmarks Regulation, given the amendments made by the Financial Services Act 2021, which give the FCA enhanced powers – in this case to manage the orderly wind down of critical benchmarks which are no longer representative. A list of documents summarising the outcomes and next steps of the decisions made on these proposals is available on a dedicated webpage and a summary document explains the background, details of the powers provided by the Act and links to further documentation.

Consumer Credit Information Sheets

The updated arrears and default notice information sheets will be in force from 25 October 2021. The new information sheets – for arrears, default, high-cost short-term loan, HCST loan P2P, and arrears P2P – are all available on the FCA’s dedicated page. The information sheets must be included when notifying a customer that they are in arrears or default. The changes are to clarify some aspects of the information and be more targeted and useful for customers with mental wellbeing issues.