European Commission
Distance Marketing Directive - European Commission publishes inception impact assessment - 28 May 2021
The European Commission has published an inception impact assessment on its review of the Distance Marketing Directive (2002/65/EC) (DMD). The Commission published an evaluation of the DMD in November 2020, which highlighted several issues, including the effectiveness of the DMD in protecting consumers and its reduced relevance in light of the introduction of other product-specific legislation.
In light of the Commission’s findings, and the expected growth in digital innovation, the DMD is being reviewed. The review aims to ensure a framework for the distance marketing of financial services that is future proof, protects consumers in a digital environment, delivers a level playing field and reduces unnecessary compliance burdens for financial services providers. The Commission is addressing the following policy options:
- No policy change: current efforts to raise providers’ and consumers’ awareness of their duties and rights would be maintained, combined with co-ordinated enforcement through the Consumer Protection Co-operation Network;
- Repeal the DMD: since 2002, product-specific, as well as horizontal, legislation has been introduced, which has reduced the importance and relevance of the DMD;
- Repeal the DMD but move the relevant parts to other legislation: articles on information and the right of withdrawal are still partially effective and relevant, and these could be modernised and introduced in other horizontal legislation; and
- A comprehensive revision of the DMD: the DMD may still be relevant due to its potential use as a safety net where current product-specific legislation does not cover, or does not cover in sufficient detail, some of its provisions.
A full impact assessment is expected to be prepared to support the initiative, which will rely on the information and evidence gathered for the 2020 evaluation and a previous behavioural study, carried out in 2019, on the digitalisation of distance selling and marketing of retail financial services.
The deadline for comments on the inception impact assessment is 25 June 2021 and the Commission aims to publish the next stage of its review in Q1 2022.
Inception impact assessment: Review of the Directive on Distance Marketing of Consumer Financial Services (2002/65/EC)
Prudential Regulation Authority and Financial Conduct Authority
Counterparty credit exposure - PRA and FCA publish letter to chief risk officers - 2 June 2021
The PRA and FCA have published a joint letter to chief risk officers (CROs) of regulated firms on counterparty exposure management and controls for ‘delivery versus payment’ (DvP) clients. The letter shares the regulators’ observations on good practices related to monitoring and mitigating pre-settlement counterparty credit risks in relation to DvP clients, which they encourage firms to incorporate within their control framework. Examples of good practices contained in the letter include:
- On-boarding of new accounts: a risk-based policy framework should be developed and overseen by a credit function independent of the front office and implemented to ensure that the basic credit profile of every client is within the firm’s risk appetite. More extensive credit analysis is required for higher risk accounts;
- Credit risk framework: every client account, regardless of whether it intends to transact on a DvP-only settlement basis, should be subject to a pre-settlement credit exposure limit;
- On-going oversight of clients: there should be clear internal ownership of the client account to enable consistent oversight, with on-going client monitoring covering financial crime and money-laundering risks;
- Client exposure monitoring: an automated monitoring system should be established to reconcile pre-settlement exposures to risk limits for each client account, with appropriate escalation procedures; and
- Escalation procedure: there should be a robust trade fail management process with systematic and pre-defined escalation trigger points for individual client accounts, ensuring the rapid escalation of trade fails to both the front office and independent control functions.
While implementing the measures above, the regulators also encourage firms to consider any associated conduct risk issues. They intend to request updates from firms by the end of 2021 on the steps they have taken to implement the measures. The regulators will continue to maintain a strong focus on significant loss events in the market and expect firms to conduct risk management reviews within their own organisations as such events occur.
PRA/FCA Dear Chief Risk Officer letter: Pre-settlement counterparty credit exposure management and controls for DvP Clients
FCA press release
Bank of England webpage
Prudential Regulation Authority
SMCR - PRA publishes policy statement on SMF temporary absences - 1 June 2021
The PRA has published a policy statement (PS11/21), together with updated Supervisory Statements SS28/15 and SS35/15, which confirm its final policy in relation to temporary absences by senior managers under the Senior Managers and Certification Regime (SMCR). This follows a joint PRA and FCA consultation, in Chapter 2 of the FCA consultation paper CP20/23 published in December 2020.
The regulators proposed, in CP20/23, that they would clarify their expectations on firms’ notification requirements when a person performing a Senior Management Function (SMF) takes ‘long-term leave’, namely temporary leave for more than 12 weeks.
The PRA’s final rules confirm that where a firm is keeping the SMF’s role open while they are on long-term leave:
- the PRA expects the firm to notify it that the SMF is on long-term leave (through Form D). The firm will also need to submit Form J as there will be a significant change in the SMF’s responsibilities and, therefore, their Statement of Responsibilities. The firm will then need to resubmit both forms on the SMF’s return;
- the PRA does not expect the firm to seek re-approval for the SMF to perform their role on their return, but the obligation on the firm to carry out a fitness and propriety assessment still applies; and
- another individual can perform the SMF’s role for the duration of their leave and this will be necessary where the SMF has been carrying out a PRA-required function (such as Chief Risk Officer, Head of Internal Audit, Senior Independent Director or committee chair). The interim SMF will need to be approved, which can be time-limited to cover only the period of absence.
Where the firm is not keeping the SMF’s role open, it will need to notify the PRA that the individual is no longer performing an SMF (using Form C). If the SMF returns to the role, they will need to be re-approved.
The PRA clarifies that it does not expect firms to notify it where the SMF is on leave of less than 12 weeks, on holiday or has a short illness.
The PRA rules took effect from 2 June 2021. The FCA confirmed its final rules and guidance in its Handbook Notice 88, published on 28 May 2021, which also came into force on 2 June 2021.
Policy Statement: Strengthening accountability – temporary, long-term absences (PS11/21)
Appendix 1: PRA Rulebook: CRR Firms, Non-CRR Firms, Solvency II Firms, Non-Solvency II Firms: Senior Managers Regime Applications and Notifications - Temporary Absence Instrument 2021 (PRA 2021/7)
Appendix 2: Updated supervisory statement: Strengthening individual accountability in banking (SS28/15)
Appendix 3: Updated supervisory statement: Strengthening individual accountability in insurance (SS35/15)
Appendix 4: Updated Form D: Changes to personal information/application details and conduct breaches/disciplinary action related to conduct
Webpage
Consultation paper: Quarterly Consultation No 30 (CP20/23)
FCA Handbook Notice 88
International Regulatory Strategy Group
UK’s G7 presidency - IRSG publishes paper on financial services priorities - 3 June 2021
The International Regulatory Strategy Group (IRSG) has published a paper setting out recommendations for the UK’s G7 presidency to consider in relation to financial services.
In the paper, the IRSG makes a number of suggestions on priorities for financial services including in relation to: the global regulatory landscape; climate change and sustainable finance; and the digital agenda. The paper highlights issues that restrict global trade and recovery, including regulatory fragmentation, emerging protectionism, divergent international standards and cybercrime.
The IRSG considers that the UK’s G7 presidency could tackle the most important challenges for the global economy by focusing on:
- global regulatory coherence for pandemic recovery;
- leadership on sustainable finance ahead of COP26;
- digital policy continuity, including on digital taxation; and
- alignment with G20 global policy priorities.
Report: Financial services priorities for the UK’s G7 presidency
Webpage
