FCA Updates & Developments

The FCA has published its quarterly consultation (CP18/14) proposing changes to the FCA Handbook as follows:

  • Chapter 2
    • Changes to disapply rules to authorised professional firms who carry out non-mainstream regulated activities
    • Changes to the appointed representative appointment form
  • Chapter 3
    • Changes to FEE relating to the tariff data used to calculated fees for newly authorised firms
  • Chapter 4
    • Changes to BCOBS to achieve the outcome set out in PS17/26

Deadline for comments was by 30 June 2018 for chapters 2 and 4, and 31 July 2018 for chapter 3.

The FCA has published a list of third-country supervisory authorities with which it has cooperation agreements meeting the requirements set out in Article 32(2) of the Markets in Financial Instruments Directive (MiFID) Org Regulation.

The list can be used by firms to assess compliance with Article 32(1) whilst also considering outsourcing requirements set out in Articles 30 and 31 and in SYSC 8 of the Handbook.

The FCA has published a checklist and application form for Money Market Funds (MMFs) as well as updating its application for fund authorisation to include a reference to the Packaged Retail and Insurance-based Investment Products (PRIIPs) Key Information Document (KID) as an acceptable illustration of the proposal for a fund as part of the authorisation application.

If you would like advice or support with any licensing applications or modifications, please click here to contact us.

PRA Updates & Developments

The PRA has published a policy statement (PS12/18) regarding algorithmic trading which contains the final feedback from its consultation paper on the Supervisory Statement (SS5/18). The SS is contained within the PS.

From the consideration of responses, the PRA has made the following changes to the SS:

  • Algorithm approval process
  • Testing and deployment
  • Inventories and documentation

The SS5/18 will take effect from 30 June 2018.

The PS is relevant to firms which engage in algorithmic trading and are subject to the rules in the algorithmic trading part of the PRA Rulebook. The SS applies to all algorithmic trading activities of a firm, including unregulated financial instruments.

EU Regulatory Updates

The European and Securities Markets Authority (ESMA) has adopted new measures on Contract for Differences (CFDs) and binary options to retail investors. The measures have been published in the Official Journal of the European Union (OJ). The following will apply from 2 July 2018 for binary options and 1 August 2018 for CFDs:

  • Binary Options – a prohibition on the marketing, distribution or sale of binary options to retail investors
  • CFDs – a restriction on the marketing, distribution or sale of CFDs to retail investors

These measures will remain in force for a period of three months from the date of application. Before the end of the three months, ESMA will review the intervention measures and consider the need for an extension.

The impact of the measures will see firms not only restructuring its marketing and incentives to trade CFDs, but also will force firms to close CFDs once losses have halved the investor’s margin and to guarantee a limit on client losses. Industry experts have also stated that the restrictions may push retail clients to providers based outside the EU which will have a significant impact on the market in the EU.

ESMA has further published its Questions and Answers (Q&A) to provide answers to practical questions relating to:

  • Existing contracts
  • Payments
  • Margin close-out protection
  • Aggregate liability
  • Monetary benefits
  • Binary options
  • CFDs referencing futures
  • Guaranteed stop loss orders

ESMA has published a statement on the temporary period for a smooth introduction of the use of Legal Entity Identifiers (LEIs). The statement communicates that the period will not be further extended and will cease in July, shifting the National Competent Authorities (NCAs) activities from monitoring to ongoing supervisory actions.

The period will last until the 2nd July 2018.

The European Banking Authority (EBA) has updated its online interactive single rulebook and Q&A tool in order to include the Payment Services Directive (PSD2). Users will be able to review technical standards and guidelines associated with the PSD2 with the EBA’s online tool and will also be able to submit questions on the application of the Directive.

ESMA has published a letter clarifying the application of the ancillary activity test in Article 2(1)(j) of MiFID II. Article 2(l)(j) applies the ancillary activity test by comparing the MiFID activities that a person is engaged in, with the commercial activities of the person or group of which the person forms part. The section accommodates varying structures whereby groups divide their business activities into separate legal entities.

In reference to ‘persons within a group’, the ancillary activities test must be calculated as many times as necessary for each separate person who trades in commodity derivatives within a group. The approach in the Delegated Regulation 2017/592 reflects the fact that an authorisation pursuant to MiFID II cannot be obtained by a group of entities which, taken together, do not have a single legal personality.

The Council of the European Union has published proposals for:

  • A directive amending Directives 2009/65/EC and 2011/61/EU with regard to cross-border distribution of collective investment funds
  • A regulation on facilitating cross-border distribution of collective investment funds and amending Regulations (EU) No 345/2013 and (EU) No 346/2013

The Council has invited the Permanent Representatives Committee to agree to the proposed directive and regulation and authorised the Austrian Presidency to enter into negotiations with the European Parliament to reach an agreement at first reading.

Financial Crime

The fifth Money Laundering Directive (MLD5) has been published in the OJ. Member states have until the 10 January 2020 to transpose the Directive into national law.

The Council of the EU has confirmed the agreement reached between the Bulgarian presidency and the Parliament on new rules in using criminal law to counter money laundering. The directive aims to disrupt and block criminal access to financial resources. The final compromise agreed establishes that:

  • Money laundering activities will be punishable by a maximum term of imprisonment of 4 years
  • Additional sanctions and measures may be imposed
  • Legal entities will also be held liable

The text will undergo linguistic revision before formal adoption by the Council and Parliament. Member states will then have up to 24 months to transpose the provisions into national law.

The Office of Financial Sanctions Implementation of HM Treasury has published a financial sanction notice regarding the amendment of financial sanctions in relation to Iran. Seven entries have been amended on the consolidated list.

Enforcement Action

The FCA has fined Canara Bank £896,100 and imposed a restriction to prevent it from accepting deposits from new customers for 147 days.

The FCA found that between 26 November 2012 and 29 January 2016, Canara Bank failed to maintain adequate Anti-money Laundering (AML) systems and failed to take sufficient steps to remedy identified weaknesses despite having knowledge of its shortcomings in its AML systems and controls.

The failures affect almost all levels of its business including:

  • Senior Management
  • Governance/Oversight
  • Three lines of defence
  • Money laundering reporting function
  • AML systems and controls

Canara Bank agreed to resolve the case and qualified for a 30% discount. The FCA notes that the senior management at Canara Bank fully co-operated and the firm’s AML deficiencies have now been rectified.

After investigation, the FCA found that Mr Darren Colvin Cummings of DCC Financial Limited, had acted dishonestly whilst being approved as a controlled function (CF1) director. It was found that Mr Cummings had fabricated - or caused the fabrication of -  two documents, provided the documents with an intention to mislead the regulator, and knowingly made false and misleading statements to the regulator.

The FCA’s final notice imposes on Mr Cummings a penalty of £29,300, the withdrawal of the CF1 and an order to prohibit Mr Cummings from performing any function in relation to any regulated activity.

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