MONTHLY REGULATORY UPDATE MAY 2019 - RSM UK
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MONTHLY REGULATORY UPDATE MAY 2019
CONTENTS
Contents ............................................................................................................................................................................ 1
Financial Conduct Authority (FCA) .................................................................................................................................... 2
Consultation Paper (CP) .............................................................................................................................................. 2
CP19/17 ..................................................................................................................................................................... 2
Policy Statement (PS) .................................................................................................................................................. 3
PS19/12...................................................................................................................................................................... 3
Discussion Paper (DP) ................................................................................................................................................. 4
DP19/2 ....................................................................................................................................................................... 4
Calls for Input ............................................................................................................................................................... 4
Press Releases ............................................................................................................................................................ 5
Statements ................................................................................................................................................................... 5
Multi-Firms Review ....................................................................................................................................................... 6
Research Note ............................................................................................................................................................. 7
Market Studies ............................................................................................................................................................. 7
Prudential Regulation Authority (PRA) .............................................................................................................................. 8
Consultation Paper (CP) .............................................................................................................................................. 8
CP11/19 ..................................................................................................................................................................... 8
Bank Overground ......................................................................................................................................................... 8
Market Studies ............................................................................................................................................................. 9
Speech ......................................................................................................................................................................... 9
Report ......................................................................................................................................................................... 10
Financial Ombudsman Service ....................................................................................................................................... 11
Annual Review ........................................................................................................................................................... 11
Building Societies Association (BSA) .............................................................................................................................. 12
Report ......................................................................................................................................................................... 12
Information Commissioner’s office (ICO) ........................................................................................................................ 12
Report ......................................................................................................................................................................... 12
Payment Services Regulator (PSR) ................................................................................................................................ 12
Consultation ............................................................................................................................................................... 12
For Further Information Contact ...................................................................................................................................... 13
Monthly Regulatory Update May 2019 | 1FINANCIAL CONDUCT AUTHORITY (FCA)
Consultation Paper (CP)
CP19/17 Consultation on mortgage advice and selling standards
Date Published – 7 May 2019
Overview:
This CP contains proposals for changes to the FCA's mortgage advice and selling standards to address the harms
identified through the Mortgages Market Study.
The proposals in this CP are one part of a package of remedies arising from the Mortgages Market Study. These
remedies aim to work together to support the FCA's objectives to ensure consumers have the information and
support they need to make informed choices about how they buy a mortgage, and to help ensure they get good
value from advice.
The expectation is that it will be easier for firms to present options to consumers without giving regulated advice,
enabling firms to make their execution-only sales channels easier to use and by requiring advisers to take account
of price when choosing between suitable mortgages.
Applicable to:
This CP should be read by:
• mortgage firms;
• trade bodies representing these firms; and
• consumer bodies.
Next Steps:
Firms can submit feedback on these proposals to cp19-17@fca.org.uk by 7 July 2019.
Monthly Regulatory Update May 2019 | 2Policy Statement (PS)
PS19/12 Changes to align the FCA Handbook with the EU Prospectus Regulation: feedback to
CP19/6
Date Published – 31 May 2019
Overview:
This policy statement sets out the near-final rules on the changes planned to be made to the Handbook to align it
with the Prospectus Regulation. It also summarises the feedback received by the FCA to Consultation Paper
CP19/6 and their response.
The Prospectus Regulation specifies the information companies need to disclose to investors and potential
investors through a ‘prospectus’ when they are raising capital. The changes in the Regulation keep the EU
prospectus regime up-to-date and ensure that investors have the information they need to make informed
investment decisions.
After consulting on aligning the Handbook with the Regulation and taking the responses received into account, this
PS contains near-final rules implementing the changes. The FCA are making near-final rules, pending anticipated
changes to the Financial Services and Markets Act 2000 (FSMA) and the relevant EU legislation that are
referenced in the rules.
Applicable to:
This policy statement will be of particular interest to:
- UK and overseas issuers with UK-listed securities or those considering a UK listing of their securities;
- issuers and other persons who make public offers of transferrable securities or seek admission and other
persons who make public offers of transferable securities to regulated markets in the UK;
- firms advising issuers on the issuance of UK-listed securities;
- firms and market participants who provide advice on prospectuses;
- firms and persons who invest or deal in transferable securities through public offers or regulated markets
in the UK; and
- firms advising persons investing in or dealing in listed securities or transferable securities.
Next Steps:
Any issuer seeking approval of a draft prospectus on or after 21 July 2019 must do so under the Regulation and in
line with the Prospectus Regulation Rules sourcebook.
The FCA’s website includes sections on Submitting a prospectus or circular and Forms and Checklists, which
highlight the different disclosure requirements under the current and future regimes.
Monthly Regulatory Update May 2019 | 3Discussion Paper (DP)
DP19/2 Intergenerational differences
Date Published – 2 May 2019
Overview:
To ensure financial markets work well, the FCA needs to understand how socio-economic changes impact both
markets and individuals.
The FCA want to publicly outline their understanding of the issues different generations face, bring together
stakeholders to pin point issues that need a response and identify specific action they can take to help the market
meet these changing consumer needs. This Discussion Paper presents data, demographic and socio-economic
trends to look at the financial needs of three generations of consumers: Baby Boomers, Generation X and
Millennials.
Applicable to:
This paper is relevant to FCA-regulated firms, particularly banks, insurers, mortgage lenders, and consumer credit
and pension providers. It may be of interest to a wider range of stakeholders, including industry groups or trade
bodies, policy-makers and regulatory bodies, consumers, charities and civil society groups, industry experts,
academics and think tanks.
Next Steps:
Send any comments to the FCA by 1 August 2019 via online response form or an email to dp19-02@fca.org.uk
Calls for Input
• Cross Sector Sandbox - The FCA are publishing a call for input to expand and deepen the discussions on
whether a cross-sectoral sandbox or similar mechanism is needed to ensure a consistent and efficient
approach to emerging technologies.
The FCA received support from the Regulators' Pioneer Fund (a fund launched by the Department for
Business, Energy and Industrial Strategy and administered by Innovate UK) to explore the need for a cross-
sector regulatory sandbox. This would be a single-point-of-entry sandbox for firms to test innovative
propositions with multiple UK regulators, in a controlled environment.
Given the cross-sectorial nature of this proposal, this Call for Input will be of interest to a very wide range of
firms, regulators and consumers, including:
- FCA regulated firms that (intend to) use emerging technologies to facilitate business models spanning at
least one other regulator;
- any firms that are subject to a UK regulatory authority and consider diversifying their business model
into the financial services sector;
- governmental bodies, policy makers and Think Tanks;
- regulators and other authoritative bodies; and
- consumers and consumer organisations.
Monthly Regulatory Update May 2019 | 4The FCA are inviting responses. Please respond to the questions in the Call for Input and send your
responses to crosssectorsandbox@fca.org.uk by 30th August 2019.
• Evaluation of the Retail Distribution Review and the Financial Advice Market Review - The Retail
Distribution Review (RDR) and the Financial Advice Market Review (FAMR) aim to improve consumer
outcomes from financial advice and guidance. The FCA are reviewing their impact on the market to date and
assessing how the market may develop in the future in this Call for Input.
Their focus will be on how consumers engage in the market and whether the industry delivers what
consumers want and need. They also want to assess future trends that may have an impact on the future
need and availability of services to consumers.
Press Releases
• FCA publishes Decision Notes against three firms and five individuals for acting without integrity in
relation to their pension advice business and misleading the FCA - The Financial Conduct Authority
(FCA) has today published Decision Notices in respect of three firms (Financial Page Ltd, Henderson Carter
Associates Limited and Bank House Investment Management Limited) and five individuals (Andrew Page,
Thomas Ward, Aiden Henderson, Robert Ward and Tristan Freer).
Andrew Page, Thomas Ward, Aiden Henderson, Robert Ward, Tristan Freer and BHIM have referred their
Decision Notices to the Upper Tribunal where the parties will present their respective cases. Any findings in
the Decision Notices are therefore provisional and reflect the FCA’s belief as to what occurred and how it
considers their behaviour should be characterised.
The Upper Tribunal will determine what, if any, is the appropriate action for the FCA to take, and will remit the
matter to the FCA with such directions as the Upper Tribunal considers appropriate to give effect to its
determination. The Upper Tribunal's decision will be made public on its website. Accordingly, the proposed
action outlined in the Decision Notices will have no effect pending the determination of the case by the
Tribunal.
• Over £27m reported lost to crypto and forex investment scams - The FCA and Action Fraud are warning
the public to be wary of investment scams carried out via bogus online trading platforms. This warning comes
as cryptoassets (crypto) and forex investment scam reports more than tripled last year to over 1,800.
Fraudsters promise high returns from investments in crypto and forex, with victims losing over £27 million in
total in 2018/19.
Statements
• FCA Update on Share Trading Obligations - ESMA has today published a statement on the revised scope
of the EU’s share trading obligation (STO) under a no-deal scenario, following their initial announcement on 19
March 2019.
The FCA is encouraged that ESMA has taken steps to reduce the disruption that would be caused by the
previously announced scope of the EU STO. According to ESMA, the revised approach proposed today would
mean that EU banks and investment firms will be able to trade all UK shares in the UK, where for most the
primary centre of liquidity exists.
Monthly Regulatory Update May 2019 | 5However, applying the EU STO to all shares issued by firms incorporated in the EU (EU ISINs) would still
cause disruption to investors, some issuers and other market participants, leading to fragmentation of markets
and liquidity in both the EU and UK. A number of shares with EU-27 ISINs have both a listing, as well as their
main or only significant centre of market liquidity, on UK markets. In the FCA’s view, the ISIN that a share
carries does not and should not determine the scope of the STO. Some shares have their main or only centre
of market liquidity outside the country in which the issuer is incorporated. This approach would place
restrictions on a company’s access to investors and freedom to choose where they seek a listing on a public
stock market.
The FCA consider that the risk of disruption from potentially conflicting EU27 and UK STOs is not mitigated by
the revised ESMA approach given that article 23 of the onshored MIFIR implies overlapping obligations for
firms. Consistent with the FCA’s objectives and the principle of best execution, the FCA would want to ensure
that markets in these shares currently available to both UK and EU investors in London would not be
damaged.
The FCA believes in open markets and competition between trading venues and that reciprocal equivalence -
which reflects the reality - remains the best way of dealing with overlapping share trading obligations. The UK
has onshored the same regime, making it one of the most equivalent countries in the world.
In the absence of reciprocal equivalence, applying both UK and EU STOs in a way that maintains the status
quo for a limited period of time after exit remains an alternative way of mitigating disruption whilst longer term
solutions are found. The FCA stands ready to use the extra time available due to the delay to the UK’s
withdrawal to engage constructively with ESMA and other European authorities to achieve either of these
outcomes.
In addition, absent a determination of equivalence, the FCA will engage with market participants and trading
venues about the steps that may be needed to protect the integrity of markets in the UK and to ensure that
participants in the UK can continue to achieve high standards of execution for their clients, including when
trading EU-27 shares, and that the MiFID II calibrations, which were designed for a pan European market of
28 countries, remain appropriate in a fragmented market.
The FCA will continue to consider its approach to the implementation of any STO that is needed in a hard exit.
The FCA will set out their approach if it is clear that there will be a no-deal exit, including the FCA’s
expectations of how firms can comply with applicable requirements.
Multi-Firms Review
• Review of principal firms in the investment management sector – The FCA have set out their findings
from their supervisory work looking at how principal firms in the investment management sector understood
and complied with their regulatory responsibilities in respect of their appointed representatives (ARs). The
FCA's review identified significant shortcomings in principal firms’ understanding of their regulatory
responsibilities for their ARs.
Most principal firms the FCA reviewed had weak or under-developed governance arrangements in place,
including a lack of effective risk frameworks, internal controls and resources. Though principals are
responsible for the activities of their ARs, most principals were not assessing the risks these activities posed
to their firms. Consequently, some principals may not be holding adequate financial resources for both liquidity
and capital. Many principals did not identify conflicts of interest inherent in this business model or make
attempts to manage them.
The FCA have concluded there is a significant risk of harm to consumers and to the market arising from the
activities of ARs operating in this sector.
Monthly Regulatory Update May 2019 | 6Research Note
• Further evidence on choices of dominated mortgage products – The FCA Occasional Paper No. 33 found
that there was a surprising prevalence of 'dominated' choices in the UK mortgage market. Almost 30 per cent
of customers chose mortgage products that were strictly worse on all price dimensions than another available
alternative which had comparable features and for which they satisfied the eligibility criteria. This situation is
known as 'dominated' choices.
This research note explores two further dimensions of these dominated choices. The first is the supply of
dominated products and the alternatives that dominate them:
o whether they are concentrated within a small range of lenders;
o whether the superior products are only offered by niche lenders or in small supply; and
o whether it is common for lenders to be persistently dominated for all consumers that choose their
mortgage products.
The second is whether dominated choices could be explained by preferences for non-product characteristics
of the chosen lender, such as branch proximity or service quality rankings.
Market Studies
• 5 Conduct Questions: Industry Feedback for 2018/19 - Culture and governance is one of the FCA's cross-
sector priorities where they have a permanent and continuing focus. The FCA introduced the 5 Conduct
Question (5CQ) programme for wholesale banks in 2015 to help firms improve their conduct risk
management and, ultimately, drive cultural change. Many firms have made significant strides in improving
their policies, processes, training and identification of conduct risk. However, overall progress or embedding
in some cases has been patchy or in danger of stalling.
Monthly Regulatory Update May 2019 | 7PRUDENTIAL REGULATION AUTHORITY (PRA)
Consultation Paper (CP)
CP11/19 Solvency II: Maintenance of the transitional measure on technical provisions
Date Published – 22 May 2019
Overview:
This CP sets out the PRA's proposals to update Supervisory Statement SS6/16 ‘Maintenance of the ‘transitional
measure on technical provisions’ under Solvency II’.
The proposals are aimed at:
• providing additional guidance for firms proposing to use a proportionate approach to the transitional
measure on technical provisions (TMTP) recalculation methodology; and
• providing further clarity on the consistency of Solvency I and Solvency II methodologies.
Applicable to:
The CP is relevant to:
• UK insurance and reinsurance firms within the scope of Solvency II that have been granted approval to
use the TMTP;
• the Society of Lloyds; and
• firms that are considering applying to use this transitional measure.
Next Steps:
This consultation closes on Wednesday 21 August 2019, all feedback on the proposals set out in this consultation
should be addressed to CP11_19@bankofengland.co.uk
Bank Overground
• How is stock building affecting UK growth? - Survey evidence suggests that businesses built stocks as
part of their Brexit contingency planning. Stock building is likely to have accounted for some of the unexpected
strength in output growth in Q1, but this boost to growth is expected to be temporary.
This analysis was presented to the MPC as part of its May 2019 round. In February, the MPC noted that
shifting expectations about Brexit could mean that data in early 2019 would be volatile and might not provide a
clear signal about underlying output growth. One factor that could cause such volatility is stock building.
Stock building occurs when a business puts finished goods or raw materials to one side to hold in reserve, or
when the volume of work in progress increases. A range of survey evidence suggests that uncertainty about
Brexit caused companies to increase their holdings of stocks in Q1 (Chart A).
Monthly Regulatory Update May 2019 | 8The MPC had flagged in February that stock building was likely to increase in Q1, but the latest data suggest
that there has been more stock building than had been expected at that time. That may account for some of
the recent strength in UK output growth relative to expectations in February.
UK imports and exports of goods from and to the EU rose markedly in Q1 (Chart B) with historically strong
growth, probably reflecting stockpiling by both UK and EU firms. Stock building by UK firms appears to have
boosted domestic manufacturing output, as well as perhaps some components of services output such as
warehousing.
The boost to growth from Brexit-related stock building is likely to be temporary. Stock building only increases
growth if the rise in stock levels is larger than in the previous period. If companies stock build at a slower pace
in Q2, maintain their stock levels or de-stock, it will drag on growth.
In the May Inflation Report projection, the MPC judged that stock building had boosted GDP growth in Q1, but
that it would drag on growth by a similar amount in Q2.
Market Studies
• Systemic Risk Buffer rates for ring-fenced banks and large building societies - The PRA is required by
the Capital Requirements Regulations 2014 as amended by Capital Requirements Regulations 2015 to set
Systemic Risk Buffer (SRB) rates for ring-fenced banks (RFBs) and large building societies from 1 January
2019 by applying the Financial Policy Committee's framework for the SRB. The PRA has set out its approach
to the implementation of the SRB in 'The PRA’s approach to the implementation of the systemic risk buffer'
(December 2018).
This market study document sets out the Systemic Risk Buffer rates applicable from 1 August 2019.
Speech
• Operational resilience – a progress report - In this speech, Nick Strange looks at one of the Bank of
England’s strategic priorities – improving the operational resilience of the UK financial sector. Operational
resilience is the ability to prevent, respond and recover from operational disruptions.
Nick highlights the Financial Policy Committee’s (FPC) upcoming cyber stress testing pilot on payment
systems. He discusses how the Bank of England works internationally to ensure consistency across regulatory
boundaries and talks about the Bank’s direct engagement with the financial sector to help firms build
resilience.
• Stylish Regulation - In this speech, Sam Woods discusses what our system of financial regulation might look
like after the UK leaves the EU.
Sam talks about the ‘style’ of regulation we should aim for and explores the differences between EU and UK
approaches to implementing regulatory rules.
He also sets out the six principles of an effective framework of regulation and argues that using an existing
British approach – the model of legislation which has been used to introduce the Senior Managers and
Certification Regime (SMCR) – is the best way to deliver these principles in the future.
• Scanning the horizon – In this speech, Sam Woods stresses the importance of ‘scanning the horizon’ to
identify problems in the financial system. There could be other financial crashes, so it’s vital to remain vigilant.
Monthly Regulatory Update May 2019 | 9Sam gives examples of issues the Prudential Regulation Authority pays particularly close attention to. And he
warns that, unless we continue to question firms and ourselves about developments in the markets, the work
that has been done to make the financial system safer could be reversed.
Report
• A framework for assessing financial impacts of physical climate change: A practitioner’s aide for the
general insurance sector – Climate change poses increasing risks and challenges to the financial services
industry (PRA, 2018). Many regulatory and industry initiatives are already raising public awareness of these
risks on different parts of the financial system (PRA, 2019). Key initiatives include the creation of the Financial
Stability Board (FSB) Task Force on Climate-related Financial Disclosures (TCFD) and the joint PRA/FCA
Climate Financial Risk Forum.
Climate change presents a particular threat to the insurance industry, which in turn creates a further risk to
society, given the role of the insurance industry in helping to mitigate the aftermath of natural disasters.
Consequently, equipping the insurance industry with practical and analytical approaches to assess financial
impacts from climate change can help:
o (re)insurance companies to proactively manage the related increasing financial risks; and
o broader society to increase resilience by better assessment and management of its impact.
Monthly Regulatory Update May 2019 | 10FINANCIAL OMBUDSMAN SERVICE
Annual Review
• Annual Review 2018/2019 – The Financial Ombudsman Service have published their annual review for
2018/19. This gives an overview of the kinds of complaints that they have seen in the last financial year – how
they have helped and what the Financial Ombudsman Service have learned.
Headline data includes:
o 388,392 new complaints received;
o 21% of complaints about PPI were upheld;
o 38% of other complaints were upheld;
o 89% rise in complaints about consumer credit products and services; and
o 63% of people surveyed were satisfied with the service.
Monthly Regulatory Update May 2019 | 11BUILDING SOCIETIES ASSOCIATION (BSA)
Report
• Building societies' social purpose in action – This report demonstrates why building societies and credit
unions put such an onus on their role in their communities. This includes providing valued services and skilled
employment, working with and supporting local institutions and infrastructure such as town centres, and
looking after the world around us.
The aim of this report is to help building societies and credit unions to learn from each other, to demonstrate to
other potential partners how they could work together to strengthen the communities in which they operate,
and to motivate all to act to strengthen and invigorate their local communities.
INFORMATION COMMISSIONER’S OFFICE (ICO)
Report
• GDPR - one year on – Last May marked a seismic shift in privacy and information rights with the
implementation of the General Data Protection Regulation (GDPR) and the Data Protection Act 2018.
The ICO has published an update to share their experience from the past twelve months. The report describes
the changes in the regulatory landscape as well as explaining some of the work they have undertaken,
including supporting the public to use their new rights.
PAYMENT SERVICES REGULATOR (PSR)
Consultation
• Payment Systems Regulator opens follow-up consultation on Confirmation of Payee – The PSR has
published its follow-up consultation for Confirmation of Payee (CoP) – an important tool to further protect
people from Authorised Push Payment scams and prevent payments being accidentally sent to the wrong
account.
The PSR proposes giving a specific direction to members of the six largest banking groups in the UK, who are
involved in around 90 per cent of bank transfers, to fully implement CoP by 31 March 2020. The regulator
expects the remaining payment service providers to bring in this important protection at the earliest
opportunity and will keep this under review.
The PSR’s latest consultation closes on 5 June 2019 and welcomes feedback from everyone.
Monthly Regulatory Update May 2019 | 12FOR FURTHER INFORMATION CONTACT Jonathan Pepper RSM Risk Assurance Services LLP Fifth Floor, Central Square, 29 Wellington Street, Leeds, LS1 4DL Jonathan.Pepper@rsmuk.com Tel: +44 (0)113 285 5000 Mob: +44 (0)7940 050221 rsmuk.com The UK group of companies and LLPs trading as RSM is a member of the RSM network. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm each of which practises in its own right. The RSM network is not itself a separate legal entity of any description in any jurisdiction. The RSM network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered office is at 50 Cannon Street, London EC4N 6JJ. The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International Association, an association governed by article 60 et seq of the Civil Code of Switzerland whose seat is in Zug. RSM Corporate Finance LLP, RSM Restructuring Advisory LLP, RSM Risk Assurance Services LLP, RSM Tax and Advisory Services LLP, RSM UK Audit LLP, RSM UK Consulting LLP, RSM Employer Services Limited, RSM Northern Ireland (UK) Limited and RSM UK Tax and Accounting Limited are not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services because we are members of the Institute of Chartered Accountants in England and Wales. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide. RSM Legal LLP is authorised and regulated by the Solicitors Regulation Authority, reference number 626317, to undertake reserved and non-reserved legal activities. It is not authorised under the Financial Services and Markets Act 2000 but is able in certain circumstances to offer a limited range of investment services because it is authorised and regulated by the Solicitors Regulation Authority and may provide investment services if they are an incidental part of the professional services that it has been engaged to provide. Baker Tilly Creditor Services LLP is authorised and regulated by the Financial Conduct Authority for credit-related regulated activities. RSM & Co (UK) Limited is authorised and regulated by the Financial Conduct Authority to conduct a range of investment business activities. Whilst every effort has been made to ensure accuracy, information contained in this communication may not be comprehensive and recipients should not act upon it without seeking professional advice. © 2019 RSM UK Group LLP, all rights reserved.
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