European Commission
Making financial services work for citizens – European Commission publishes speech – 20 April 2021
The European Commission has published a speech by the European Commissioner for Financial Services, Financial Stability and Capital Markets Union, Mairead McGuinness, in which she considered how to make financial services work for citizens. Points of interest in Ms McGuinness’ speech include:
- Availability of cash. As services become increasingly digital, it is important to ensure cash remains available and accepted - if necessary the Commission may decide to take action towards the end of 2021 to protect the availability of cash.
- International payments. The single euro payments area gives consumers and businesses the right to make payments from their account to another bank account regardless of whether the two accounts are located in the same member state. However, the Commission notes that consumers regularly complain that only domestic International Bank Account Number (IBAN) numbers are accepted for a credit transfer or direct debit. This has proven to be a big issue for the single market and citizens, but also for some FinTech companies as it undermines their business model. The Commission notes its concern on this topic and its intentions to step up efforts to ensure IBAN discrimination does not exist.
- Retail investment strategy. In early 2022, the Commission intends to publish its retail investment strategy which it aims to use as an opportunity to place retail investors at the heart of its policies and assess the entirety of the retail investor journey. To start, the Commission aims to launch a public consultation shortly to gather views on how the current rules work and what might need to change.
European Commission Speech: ‘Making finance work for citizens’
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Retail investors – European Commission consults on roadmap on strategy – 21 April 2021
The European Commission has published a roadmap on a retail investment strategy for the EU. The strategy will consider the entire retail investor journey, providing a coherent approach to enable consumers to benefit from the internal market and address low capital market participation rates.
Investor protection rules are currently set out in various sector-specific legislative instruments including the MiFID II Directive (2014/65/EU), the Insurance Distribution Directive ((EU) 2016/97), the PRIIPs Regulation (1286/2014) and the UCITS Directive (2009/65/EC). Among other things, the Commission has noted the following problems:
- the rules relating to investment and insurance advance and portfolio management can differ between pieces of legislation;
- owing to inducements, advice provided by intermediaries may be biased towards products with higher rewards for intermediaries; and
- as digital innovation becomes increasingly prevalent in the retail investment market, there needs to be an assessment of its impact.
Comments can be made on the roadmap until 18 May 2021.
European Commission roadmap on strategy for retail investors
Feedback form
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MiFID II – European Commission adopted Delegated Regulation – 21 April 2021
The European Commission has adopted a Delegated Regulation (Amending Delegated Regulation) correcting Delegated Regulation (EU) 2017/565 supplementing Directive 2014/65/EU (the MiFID II Delegated Regulation) as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of the MiFID II Directive (2014/65/EU).
The Amending Delegated Regulation will:
- correct Article 1 paragraph 1 of the MiFID II Delegated Regulation to clarify that it requires the application of Article 64(4), Article 65 and Chapter VIII of the MiFID II Delegated Regulation instead of Article 59(4), Article 60 and Chapter IV; and
- correct errors that appeared in several cross-reference in Annex I to the MiFID II Delegated Regulation relating to client assessment, order handling, client orders and transactions, reporting to clients, communication with clients and organisational requirements.
The Council of the EU and the European Parliament will next consider the draft Amending Delegated Regulation and, if neither object, it will be published in the Official Journal of the European Union and enter into force on the 20th day following its publication.
Amending Delegated Regulation
Annex
HM Treasury
UK Listing Review – HM Treasury publishes response – 19 April 2021
HM Treasury has published a written statement in which the Chancellor of the Exchequer, Rishi Sunak, has confirmed how the government will take forward the recommendations of the UK Listing Review chaired by Lord Hill, which were published in March 2021. In the statement, among other things, the Chancellor:
- agrees to present an annual report of the State of the City to Parliament, beginning in 2022;
- states that the Listing Review’s recommendation that HM Treasury consider an additional ‘growth’ or ‘competitiveness’ objective for the FCA will be carefully considered as part of the ongoing Future Regulatory Framework Review;
- strongly welcomes the recommendation for a review of the UK’s prospectus regime and notes that the government intends to consult on this topic later in the year;
- in the context of improving the efficiency of further capital raising by listed companies, agrees that bringing together expertise in this area will be helpful, and that a group will be convened for this purpose in the coming weeks; and
- confirms that the Department for Business, Energy & Industrial Strategy (BEIS) will be taking forward the recommendation on the use of technology to improve retail investor involvement in corporate actions and appropriate stewardship.
Statement by Chancellor of the Exchequer: UK Listings Review – Government response
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Non-transferable debt securities – HM Treasury publishes consultation paper – 19 April 2021
HM Treasury has published a consultation paper on proposals to bring the issuance of non-transferable debt securities (NTDS) (often referred to as mini-bonds) within the scope of financial services regulation. NTDS are unlisted bonds typically issued by companies to retail investors to raise finance but the issuance of these bonds is not currently a regulated activity under the Financial Services and Markets Act 2000. As an unregulated activity, investors benefit from few regulatory protections, such as the Financial Ombudsman Service and the Financial Services Compensation Scheme, when investing.
The consultation focuses two options for regulatory reform:
- making the direct-to-market issuance of certain NTDS, where the proceeds of the issue are used to on-invest or on-lend, a regulated activity; and
- extending the scope of the Prospectus Regulation (Regulation 2017/1129) to cover NTDS, so that public offers would require an FCA-approved prospectus – this would mean that the issuance of an NTDS would remain an unregulated activity.
The consultation closes on 21 July 2021.
Alongside the consultation, HM Treasury has published independent research into NTDS and their role in the economy and follows a review by HM Treasury in light of the administration of London Capital & Finance plc (LC&F), which issued NTDS in January 2019. An investigation into the FCA’s supervision of LC&F also made a specific recommendation that the government should consider regulating the issuance of NTDS.
Consultation paper: Regulation of non-transferable debt securities
Research into non-transferable debt securities
Webpage
Press Release
Bank of England
UK Money Markets Code – Bank of England publishes update – 21 April 2021
The Bank of England (BoE) has published an updated version of its UK Money Markets Code (the Code) which sets out best practice in the unsecured, repo and securities lending markets in the UK.
Although the core principles of the Code have not changed, there have been significant changes in a number of areas, including the following:
- Diversity and inclusion. The updated Code recognises and promotes the benefit of diverse and inclusive money market participants’ teams.
- Electronic trading. Trading in this way via platforms is becoming more widespread, especially in the repo market. The updated Code sets out how it applies to such trading and best practice for using electronic venues.
- Trade settlement discipline. The updated Code stresses the importance of high standards of settlement discipline, in response to concern that the level of non-settled trades has increased.
The updated Code has been recognised as an industry standard by the FCA.
Bank of England updated publication: The UK Money Markets Code
Press Release
Financial Conduct Authority
A new UK prudential regime for MiFID investment firms – FCA publishes second consultation paper – 19 April 2021
The FCA has published its second consultation paper on the implementation of the Investment Firms Prudential Regime (IFPR) (CP21/7). The IFPR is heavily based on the Investment Firms Regulation ((EU) 2019/2033) and the Investment Firms Directive ((EU) 2019/2034), and its rules aim to streamline and simplify prudential requirements for solo-regulated UK firms authorised under the MiFID II Directive (2014/65/EU). In November 2020 the FCA, together with HM Treasury and the PRA, published a joint statement announcing the IFPR would enter into force on 1 January 2022.
The FCA published its first consultation paper on the IFPR in December 2020 (CP20/24), where it focused on the categorisation of investment firms, prudential consolidation, own funds and own funds requirements, concentration risk monitoring and reporting requirements. The FCA will publish the policy statement and near-final rules on the first consultation in Q2 2021.
In the second of the three consultations the FCA is asking for views on, among other things:
- remaining aspects on own funds requirement (such as the fixed overheads requirement);
- the basic liquid assets requirement;
- remuneration requirements; and
- risk management, as the FCA intends to introduce an internal capital and risk assessment process for all FCA investment firms.
The consultation closes on 28 May 2021, and the FCA will issue a third consultation in Q3 2021.
FCA Consultation Paper: A new UK prudential regime for MiFID investment firms (CP21/7)
Webpage
Press Release
Online response form
Proposed templates for the new report to support the IFPR
Reporting forms for CP2
Guidance for completing the templates
Proposed forms for applications
Proposed notifications
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Financial innovation – FCA publishes speech – 20 April 2021
The FCA has published a speech by Nikhil Rathi, FCA Chief Executive, on the need to level the playing field in financial innovation in the service of consumers and the market. Mr Rathi credits the success in financial innovation to regulatory open-mindedness, referring in particular to the impact of the regulatory support provided by Project Innovate and the success of the regulatory sandbox.
To further support innovation, the FCA has announced it is taking the Kalifa FinTech Review’s recommendation for a ‘scalebox’ forward. This includes the creation of a regulatory ‘nursery’ by autumn 2021, which aims to provide a period of enhanced oversight for newly authorised firms as they grow used to their regulatory status. The FCA also intends, in partnership with the City of London Corporation, to refine the digital sandbox, focusing specifically on sustainability.
Mr Rathi reiterated his call for the government to take action to provide better financial protection for consumers online. Online platforms are not exempt from the financial promotions regime, and the FCA is evaluating how they are adapting to the new rules. Mr Rathi further stated that search engines and social media firms must take greater responsibility for their role in connecting consumers with investment offers.
The FCA is also reviewing how the FCA’s Regulatory Decisions Committee functions to ensure its internal processes allow for quick action. The review is considering whether decisions on authorisation or on supervisory interventions could be made in a more streamlined way to enable quick, decisive action, particularly to prevent entry or allow removal from UK markets of those who are unable or unwilling to meet the FCA’s standards.
FCA Speech by Nikhil Rathi: Levelling the playing field – innovation in the service of consumers and the market
