FCA Updates & Developments

The FCA has published a statement on its website regarding Covid-19 (coronavirus). The FCA notes it is currently working with the Bank of England, HM Treasury and the financial services sector to ensure it is responding effectively to the situation.

The regulator expects all firms to have contingency plans to deal with major events including assessments of operational risks, the ability for firms to operate effectively and steps taken to serve   and support their customers. The FCA expects firms to take all reasonable steps to meet their regulatory obligations, such as being able to enter orders and transactions promptly, use recorded lines when trading and give staff access to the compliance they need.

If firms are able to meet the standards set out, the FCA has no objections to individuals from working at backup sites or at home.

The FCA continues to discuss with firms and trade associations on any particular issues they may have and works with them to resolve any arising issues.  It will continue dialogue with firms to ensure it understands the issues and pressures they are facing and keep its guidance under review as necessary.

This update was published as of 04 March 2020 and may be subject to change.

The FCA has published a webpage to keep firms informed of its response to the coronavirus. The page will be continually updated with information and it is expected that firms will adapt to the FCA’s guidance and ensure customers are protected and markets function effectively.

Some areas are summarised below:

SM&CR Responsibilities

The FCA does not expect firms to have a single senior manager responsible for its coronavirus response. Firms should allocate its responsibilities according to the best way to manage the risks they face. Firms should have regard to the statement published on 20 March 2020 ‘Key workers in financial services’ and the FCA’s recommendation that the SMF1, or most relevant member of its senior management, be responsible for the firm’s approach to key workers.

Impact on Consumers

It is expected that firms utilise the flexibility provided by the rules to support consumers, bearing in mind the individual’s circumstances. The FCA has noted an example with a number of firms having taken steps to enable customers’ access to cash, such as waiving fees for individual savings accounts (ISAs) and allowing them to end their term deposits early.

The FCA welcomes firms taking initiatives to support customers but where firms are doing so, they should notify the FCA so it may consider the impacts and offer appropriate support.

Operational Resilience

Firms are expected to have – and to have tested - contingency plans to deal with major events.  The FCA is actively reviewing the plans for a wide range of firms such as including a firm’s assessment of its operational risks, the ability for the firm to continue to operate effectively, and the steps firms are taking to serve and support their customers.

Firms should establish appropriate systems and controls where relevant, if staff are to work from home or other locations.

Market Trading and Reporting

Firms should be reminded to continue to record calls where relevant, but the FCA accepts that in certain circumstances it may emerge that this is not possible. Where firms are unable to do so, it must notify the FCA. Firms are expected to consider any steps that would mitigate outstanding risks if they are unable to comply with the obligation. This could include enhanced monitoring or retrospective review once the situation has been resolved.

Where difficulties have been experienced in submitting their regulatory data, it is expected that firms will maintain appropriate records and submit the data as soon as possible but should not necessarily delay such submissions.

The FCA will continue to monitor for market abuse and take action where necessary. Firms should therefore continue to take all steps to prevent market abuse risks -this could include enhanced monitoring, or retrospective reviews.

The webpage considers additional areas such as client assets, access to cash debt products, pensions etc. The information provided is as of 06 March 2020 and is subject to change.

CCL can help your business adjust to the lockdown and ongoing uncertainty arising from COVID-19. To find out how our RegTech solution, CCL C.O.R.E can help, please click here for a demo.

The FCA has published a webpage to make clear to firms on how to prioritise who should need to travel to the office and the responsibilities of senior managers in doing so. This statement applies to all FCA regulated entities across the UK including Scotland, Wales and Northern Ireland.

Each firm’s designated senior manager or equivalent person is responsible for identifying which of their employees are unable to perform their jobs from home and therefore have to travel to the office or business continuity site. The FCA expects the number of roles requiring an ongoing physical presence to be far fewer than the number of workers needed to ensure all of the firm’s business activities to continue on a ‘business as usual’ basis.

The FCA would not expect the following to go into work or face to face:

  • financial advisers, as they can offer their services online or by phone
  • staff who can safely and securely trade shares and financial instruments from home
  • business support staff, such as those in IT where they can triage issues from home, unless they are looking after specific equipment or technology
  • claims management companies and those selling non-essential goods and credit

The FCA notes that firms should continue to follow the Government’s guidance closely and take the recommended steps.

This information is accurate as of 06 March 2020 and may be subject to change.

CCL can help your business adjust to the lockdown and ongoing uncertainty arising from COVID-19. To find out how our RegTech solution, CCL C.O.R.E can help please click here for a demo.

The FCA’s Director in Consumer and Retail Policy, Nisha Arora, has provided a speech on the regulator’s approach to ensuring firms treat vulnerable customers fairly. The speech references the FCA’s consultation for a guidance on the fair treatment of vulnerable customers which is currently undergoing its second consultation. The proposed guidance is aimed at firms of different sizes, sectors and customer bases. The guidance focuses on the following key areas:

  • Understanding vulnerability
  • Skills and capability of staff
  • Practical action
  • Monitoring and evaluation

The speech further elaborates on the four areas with a view of the FCA to finalise the guidance by the end of 2020.  

The FCA’s Director of Retail and Regulatory Investigations, Therese Chambers, has delivered a speech regarding cryptoassets and the financial regulations surrounding digital assets. In summary, the speech highlights the following:

  • Cryptoassets such as Bitcoin, present different financial crime risks when compared to traditional FinTech apps as they enable digital transfer without a financial intermediary
  • Money laundering is a prevalent danger, but the application of robust controls can help reduce the risk
  • Robust regulation to prevent financial crime supports financial innovation in new markets
  • The FCA’s AML regime for cryptoassets presents the regulator with unique powers tailored to meet international standards

To understand more about the FCA’s approach to supervising Cryptoassets, please contact us

The FCA has announced via its website a temporary prohibition on short selling from a decision made by another EU Competent Authority in the following instruments under Article 23(1) and 26(4) of Regulation (EU) No 236/2012.

The details of the financial instruments concerned can be found here.

This measure was effective immediately on 13 March 2020 until the end of the trading day on 13 March 2020.

The Treasury Committee has provided comments on the Government and regulator’s responses to the reports on IT failures and made the following conclusions:

  • Current level of IT failures in financial services is unacceptable
  • Regulators must act to improve operation resilience
  • Regulators must use enforcement powers to ensure failures do not go unpunished
  • Strong case of cloud services sector to be regulated
  • Firms must resolve customer complaints and award compensation quickly

The FCA has updated its webpage on the directory of certified and assessment persons and concerns a delay in publishing the directory due to the COVID-19 outbreak.  It was originally due to be published by the end of March 2020 but has been delayed for at least a month. The timing of the launch is now under review and awaiting updates.

Until the FCA starts publishing the data, dual regulated firms can either regularly update the personal data as changes occur or wait and provide a bulk update once the new launch date is confirmed.

This delay in publication is in regard to banks, building societies, credit unions and insurance companies.

PRA Updates & Developments

The PRA has published a statement outlining its approach to regulatory reporting of UK insurers in light of COVID-19. The statement sets out a number of reports where a delay is accepted. For PRA-owned regulatory reporting, it will accept the following delays:

Annual Reporting (31 December 2019 year-end or a year-end after that date but before 1 April 2020)

  • National Specific Templates - Up to 8 weeks’ delay
  • Internal model outputs - Up to 8 weeks’ delay
  • Standard formula reporting for firms with an approved internal model (SF.01) - Up to 8 weeks’ delay
  • Market Risk Sensitivities - Up to 4 weeks’ delay
EU Regulatory Updates

The European Banking Authority (EBA) has published a report assessing institutions’ Pillar 3 disclosures. The aim of the report is to provide and identify best practices and areas for improvement. The assessment covers 12 credit institutions based on a 2018 disclosure reference date.

Whilst the EBA found progress in the prudential disclosures, it has identified some practices may still impair the proper communication of a firm’s risk profile. In particular, the EBA notes the following may hamper the ability of users to access, understand and compare information:

  • Omission of information without reason
  • Unclear identification and location of Pillar 3 disclosures
  • Lack of consistency in the structure of the report
  • Oversimplification of interim reports
  • Lack of reconciliation of quantitative information or inconsistent ways of calculating quantitative information

ESMA, together with the National Competent Authority (NCA), is monitoring the situation of the impact of COVID-19 on financial markets in the European Union and on 11th March 2020, released a public statement setting out recommendations to financial market participants as a result of its Board of Supervisors’ meeting. The recommendations are set out as below (ESMA Public Statement, 11 March 2020):

  • Business Continuity Planning – Financial market participants should be ready to apply their contingency plans to ensure operational continuity in line with regulatory obligations
  • Market disclosure – issuers should disclose as soon as possible any relevant significant information concerning the impacts of COVID-19 on their fundamentals’ prospects or financial situation in accordance with their transparency obligations under the Market Abuse Regulation
  • Financial Reporting – issuers should provide transparency on the actual and potential impacts of COVID-19, to the extent possible based on both a qualitative and quantitative assessment on their business activities, financial situation and economic performance in their 2019 year-end financial report if these have not yet been finalised, or otherwise in their interim financial reporting disclosures
  • Fund Management – asset managers should continue to apply the requirements on risk management, and react accordingly

CCL can help your business adjust to the lockdown and ongoing uncertainty arising from COVID-19. To find out how our RegTech solution, CCL C.O.R.E can help please click here for a demo.

ESMA has published a statement to clarify its position regarding the application by firms of the Market in Financial Instruments II (MiFID II) requirement of recording  their  telephone conversations. This comes in light of the COVID-19 global outbreak.

Firms are expected to follow previous clarification in Q&As and where the arrangement cannot be put in place, they are required to adopt any alternative arrangements to ensure full compliance of the existing obligation. ESMA has recognised in the current circumstances created by COVID-19, the recording of relevant conversations may not be practicable (due to a sudden remote working by a significant number of staff for example).

Under these unique circumstances, where firms are unable to record telephone conversations, ESMA expects firms to consider alternative steps to mitigate the risks. This could include the use of written minutes or notes of conversations subject to prior information being provided to the client. In such cases firms should also ensure enhanced monitoring and ex-post review of relevant orders and transactions.

ESMA expects in such circumstances, for firms to deploy all possible efforts to ensure measures remain temporary and that recording of conversations is restored as soon as possible.

Financial Crime

The Financial Action Task Force (FATF) has published guidance on how digital ID systems can be used to conduct elements of customer due diligence under FATF recommendation 10 ‘Customer Due Diligence and Record Keeping’. The guidance will help governments, financial institutions and other regulated entities to determine whether a digital ID is appropriate for customer due diligence.

Reliable digital ID offers many benefits to customer due diligence. The process can save costs and provide more security to identify individuals within the financial sector and can also contribute to transaction monitoring and minimise any human error risks.

To determine whether a digital ID is suitable, governments, financial institutions and other stakeholders should:

  • Understand the assurance levels of the technology, architecture and governance
  • Given its assurance levels, determine whether it is appropriately reliable, independent in light of potential risks that it is used to facilitate illicit finance

To discuss any matters relating to AML and CDD, please contact us.

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