UK PARLIAMENT
Civil Liability Act 2018 (Financial Conduct Authority) (Whiplash) Regulations 2021 published – 20 May 2021
The Civil Liability Act 2018 (Financial Conduct Authority) (Whiplash) Regulations 2021 (SI 2021/594) have been published, along with an explanatory memorandum. The Regulations were made under section 8 of the Civil Liability Act 2018 on 19 May 2021 and come into force on 31 May 2021.
The Regulations, which apply in England and Wales only, enable the FCA to use its supervisory and enforcement powers under the Financial Services and Markets Act 2000 (FSMA) to monitor and enforce compliance with the requirements of section 6 of the Civil Liability Act 2018. This restricts the settlement of road traffic accident whiplash-related injury claims without a medical report. The FCA’s powers will apply to all authorised persons dealing with these claims, as set out in the Civil Liability (Specification of Authorised Persons) Regulations 2021 (SI 2021/326).
In addition, the FCA will be able to impose financial penalties and charge fees in connection with fulfilling its functions under the Civil Liability Act 2018.
The Civil Liability Act 2018 (Financial Conduct Authority) (Whiplash) Regulations 2021 (SI 2021/594)
Explanatory memorandum
Webpage
BANK OF ENGLAND
Net Zero economy – Bank of England publishes speech considering steps for UK financial services firms – 18 May 2021
The Bank of England (BoE) has published a speech by the Executive Director for UK Deposit Takers Supervision, Sarah Breeden, which considers steps UK financial services firms can take to help the UK move to a ‘net zero’ economy. Ms Breeden emphasised the supervisory expectation that banks and insurers act strategically and pre-emptively before the consequences of inaction become clear, and further explained that climate scenario analysis provides an appropriate toolkit for meeting this requirement. Points of interest include:
- the BoE expects firms to run climate scenarios as part of risk management and embed climate risk management within day-to-day decision-making;
- firms should consider the scenarios published by the Network for Greening the Financial System (NGFS), of which the BoE is part. In June 2021 the NGFS will release an update to its scenarios, which will include bespoke scenarios, detailed macroeconomic modelling and a new online portal that can be used to explore physical risks; and
- Ms Breeden acknowledged that applying the scenarios in practice is not straightforward, and outlined advice to users of the scenarios.
To help firms, the BoE intends to launch its climate biennial exploratory scenario exercise in June 2021, which aims to put emphasis on the qualitative questionnaire and an assessment of business model changes, rather than the traditional capital adequacy metrics. Ms Breeden recommends that firms:
- look at both physical and transition risks coherently as part of their analysis and in determining their strategic response;
- run credible, independent and standardised scenarios; and
- share lessons by disclosing key assumptions and limitations in their analyses and, where possible, work together to improve understanding.
Speech: Climate change – plotting our course to Net Zero
FINANCIAL CONDUCT AUTHORITY
New consumer duty – FCA publishes consultation paper – 14 May 2021
The FCA has published a consultation paper (CP21/13) on a new consumer duty which aims to set a higher level of consumer protection in retail financial markets for firms to adhere to. The consumer duty is intended to set a standard of care and expectation beyond the FCA’s current set of principles and rules, and the FCA is specifically not branding this as a ‘duty of care’.
The proposals in CP21/13 apply to firms in relation to their regulated activities, and relate to products and services sold to retail clients. The proposals extend to firms that are involved in the manufacture or supply of products and services to retail clients, even if they do not have a direct relationship with the end customer.
The proposed consumer duty would have three elements:
- a new consumer principle, which will either require firms to act to deliver good outcomes for retail clients, or require firms to act in the best interests of retail clients;
- cross-cutting rules which will clarify and amplify the meaning of this principle; and
- a suite of other rules and guidance linked to four outcomes that represent the key elements of the firm-consumer relationship: communications, products and services, customer service and price and value.
In the consultation paper, the FCA also sets out the potential benefits of attaching a private right of action to the new duty and what any unintended consequences of this might be.
Comments can be made on CP21/13 until 31 July 2021, and the FCA intends to hold a webinar on the proposals on 10 June 2021.
After considering responses, the FCA intends to set out the proposed text for any new rules or guidance to implement its proposals in a second consultation by 31 December 2021, and make any new rules by 31 July 2022.
Consultation paper: A new Consumer Duty (CP21/13)
Press Release
Webpage
Webinar
Response form
Preventing claims management phoenixing – FCA publishes consultation paper – 17 May 2021
The FCA has published a consultation paper (CP21/14) containing proposals to stop the practice of ‘claims management phoenixing’ by banning Claims Management Companies (CMCs) from managing Financial Services Compensation Scheme (FSCS) claims where they have a relevant connection to the claim.
The FCA explains that claims management phoenixing occurs when individuals from financial services firms later reappear in connection with CMCs and charge consumers for seeking compensation against their former firm’s poor conduct by bringing claims to the FSCS. The consultation applies to current and former financial services firms who carry on activities that are protected by the FSCS, and current and prospective CMC firms carrying on claims management activity for claims about financial products and services that are protected by the FSCS.
To stop claims management phoenixing, the FCA proposes to:
- prohibit CMCs from carrying on any regulated claims management activity in respect of a claim or potential claim to the FSCS in circumstances where the CMC has a relevant connection with the claim; and
- require CMCs to notify it of any connections that they have or had with financial services activity and with persons involved in financial services activity, and to attest annually to the accuracy of these notifications.
By stopping CMCs from managing FSCS claims with which they have a relevant connection, the FCA will ensure CMCs are not seeking to profit from past misconduct of individuals connected with the CMC.
The FCA proposes that both requirements will take effect one month from the date the proposed rules are made. It considers this will provide a reasonable balance between allowing firms to prepare and adjust, and mitigating harm caused by phoenixing activity that is already occurring. The consultation closes on 21 June 2021.
Consultation paper: Preventing claims management phoenixing by financial services firms (CP21/14)
Webpage
Press Release
Response form
Legacy outsourcing arrangements – FCA clarifies its expectations regarding firms’ obligations – 6 May 2021
The FCA has updated its webpage on outsourcing and operational resilience to clarify its expectations regarding firms’ obligations to review their legacy outstanding arrangements for the purposes of complying with the European Banking Authority’s (EBA) outsourcing guidelines.
The EBA’s guidelines require firms to review their existing critical outsourcing arrangements entered into before 30 September 2019 (the date the guidelines entered into force) to ensure they are compliant with the guidelines. Where firms have not finalised this review by 31 December 2021, the guidelines require them to inform their competent authority of this fact, including the measures planned to complete the review or the possible exit strategy.
The FCA has noted that while it expects firms to continue to comply with the guidelines following Brexit, it does not expect them to report to the FCA on their progress towards meeting the 31 December 2021 timeline in the guidelines regarding their legacy outsourcing arrangements. The FCA states that:
- firms should aim to review any outstanding critical outsourcing arrangement at the first appropriate contract renewal following the first renewal date of each existing outsourcing arrangement or revision point; and
- where critical or important outsourcing arrangements have not been finalised by 31 March 2022, firms should inform the FCA of this.
The FCA notes that this timeframe is aligned with its own final policy statement on operational resilience (PS21/3) and that its approach to the EBA guidelines is aligned with that of the PRA, as set out in the PRA’s final policy statement on outsourcing and third party risk management (PS7/21).
Update webpage: Outsourcing and operational resilience
Firms changing legal status – FCA updates webpage setting out improved process – 20 May 2021
The FCA has updated its webpage setting out information for firms applying to change their legal status. In so doing, the FCA announces its intention to improve the process for firms changing their legal status, minimising any delays to the assessment process.
On the updated webpage the FCA explains that from 1 June 2021 it will no longer be accepting change of legal status applications. Instead, a firm wishing to change its legal status must submit either a new authorisation application or a SUP 15 notification, depending on the legal structure of the previous entity and the new entity. The updated webpage includes guidance on when a new authorisation application is required to be submitted, and when a SUP 15 notification will suffice. The firm must also cancel the previous entity’s permissions under Part 4A of the Financial Services and Markets Act 2000.
The FCA further notes that:
- when submitting an application for the new legal entity, the firm must sign a deed poll declaration which requires the firm to deal with any complaints from existing customers; and
- a firm that has any ongoing contractual agreements with their customers must contact them and agree either to amend their existing contracts or to agree new contracts to take into account the change in the firm’s legal entity. Where this is not the case, the firm should inform customers about the change in the legal entity when it next deals with them.
Updated webpage: Change of legal status
Form
Strong Customer Authentication – FCA publishes statement on deadline extension – 20 May 2021
The FCA has published a statement announcing it has extended the deadline for implementing Strong Customer Authentication (SCA) for e-commerce transactions until 14 March 2022. According to the FCA, the 6 month extension is to ensure minimal disruption to merchants and consumers and recognises ongoing challenges facing the industry to be ready by the previous 14 September 2021 deadline. The new deadline is the latest the FCA expects full SCA compliance for e-commerce transactions.
The FCA previously agreed to give firms extra time to implement SCA for card-based e-commerce transactions in response to concerns about industry readiness and to limit the impact on merchants and consumers as well as in response to COVID-19. The FCA still expects firms to continue to take robust action to reduce the risk of fraud to consumers.
Statement: Deadline extension for Strong Customer Authentication
