Bank of England and HMT announce CBDC Taskforce amid new plans to accelerate digitalisation of UK financial services

Yesterday the Bank of England (BoE) and HM Treasury (HMT) released a statement announcing the joint creation of a Central Bank Digital Currency (CBDC) Taskforce. The Chancellor has also announced ambitious and complementary plans to encourage growth of UK fintechs and “cement the UK’s position as the world’s pre-eminent financial centre.

Continue reading

HMT consultations on financial promotions: approving promotions and promoting cryptoassets

HM Treasury has announced two consultations on possible changes to the UK financial promotions regime:

  • a consultation on limiting the scope of firms that can approve financial promotions of unauthorised persons; and
  • a consultation on extending the financial promotions regime to include unregulated cryptoassets.

The deadline for responses to both consultations is 25 October 2020.

These consultations reflect the continued focus by the Financial Conduct Authority (FCA) on marketing and the related risks to consumers, particularly following the mini-bond scandal, as well as the continued focus on the regulation of fintechs and cryptoasset technologies. Continue reading

FCA finalised guidance for payments firms: safeguarding customer funds and Covid-19

The FCA recently issued its finalised guidance for payments and e-money firms on safeguarding customer funds and Covid-19. The guidance is designed to mitigate, in the short-term, concerns that some firms are not complying with the Payment Services Regulations 2017 (PSRs) and Electronic Money Regulations 2011 (EMRs) safeguarding rules in the way the FCA expects. It is also designed to help prevent potential harm to customers in the event of insolvencies caused by Covid-19.

Continue reading

IOSCO proposes updated Outsourcing Principles as Covid-19 drives operational resilience to the top of the agenda

Having initially delayed its planned consultation exercise to allow the financial services sector to focus on responding to Covid-19, the International Organization of Securities Commissions (IOSCO) subsequently found the pandemic a catalyst to proceed. Therefore, at the end of May, IOSCO launched its consultation on proposed updates to the 2005 Outsourcing Principles for Market Intermediaries and the 2009 Outsourcing Principles for Markets; feedback on the proposed new Outsourcing Principles (OPs) is requested on or before 1 October 2020. The decision to proceed reflects the acknowledgement that outsourcing is a key element for consideration when assessing operational resilience across the sector.

This post gives a high level summary of the consultation, with a link to our briefing that focuses in more detail on: the scope of application; IOSCO’s definition of outsourcing; intragroup arrangements; concentration risk; and access and audit rights. To provide additional context to IOSCO’s proposals, the associated briefing also catalogues relevant proposals and initiatives which are running concurrent to the consultation exercise.

Continue reading

FCA consultation on proposed guidance for payments firms: COVID-19 and safeguarding customer funds

After highlighting payment services as a priority in its 2020/21 business plan and following “evidence that some firms have not implemented the Electronic Money Regulations 2011 or Payment Services Regulations 2017 as [the FCA] expects”, the FCA has published a short consultation proposing further guidance for Payment Services Providers (PSPs), including Payment Institutions (PIs) and E-Money Institutions (EMIs).

The FCA gives the following as examples of areas where some firms are not fully complying with the safeguarding rules:

  • co-mingling of customer and firm funds;
  • failure to keep accurate records and accounts; and
  • insufficiently effective risk management procedures.

Following the consultation, the FCA plans to publish a “Dear CEO” letter incorporating the guidance (as amended). That guidance is intended to take effect temporarily, until the Approach Document is updated following a full consultation “later in the year”, which will likely include a proposal to incorporate the temporary guidance. The proposed guidance will also outline how firms can put in place more robust wind-down plans.

The FCA notes that payment services is an area that continues to undergo rapid development and that, while innovation is to be welcomed, many new entrants to the market are unprofitable at an early stage. The FCA is concerned, in particular, that these firms will face additional financial pressure as a result of the COVID-19 pandemic, which potentially threatens both customer revenues and the ability to seek external funding where required.

Next steps

Firms are asked to consider the proposed guidance and send any comments to the FCA by 12 June 2020.

Background and context

The proposed guidance follows an FCA review in H1 2019 of the compliance of 11 non-bank PSPs with the requirements for safeguarding service users’ funds under the Payment Services Regulations (PSRs) 2017 and Electronic Money Regulations (EMRs) 2011. This in turn led to the FCA’s issuance of a “Dear CEO” letter outlining the shortcomings found by the review and requesting non-bank PSPs to review their safeguarding arrangements, promptly remedy any inadequacies and attest to certain matters.

The rapid growth of both the payment services market and some firms in it, is both acknowledged by the FCA in its guidance and clearly reflected in the evolution of the surrounding regulatory landscape, marked by the revised Payment Services Directive (PSD2) which came into force in January 2018, four successive versions of the FCA’s Approach Document since September 2017 and a number of consultation papers by both the FCA and PRA.

Firms should continue to expect this to be an area of increasing regulatory focus, particularly amidst the current COVID-19 crisis. As with the client money regime for investment firms, it is likely that the FCA will view ongoing failures to comply with the safeguarding rules as a particularly serious matter.

 

Clive Cunningham
Clive Cunningham
Partner, London
+44 20 7466 2278

Mark Staley
Mark Staley
Senior Associate, London
+44 20 7466 7621

Harry Millerchip
Harry Millerchip
Associate, London
+44 20 7466 6447

FCA publishes its Business Plan for 2020/21

On 7 April 2020, the FCA released its Business Plan for 2020/21. The FCA had planned to focus on the areas identified in its Sector Views published on 18 February 2020 (see our blog post here), but recognises that its work will be fundamentally reshaped by the impact of COVID-19.

Aware that the current circumstances create the need for it to both respond to change and initiate it, the FCA outlined plans for transforming fundamentally the way the FCA works and regulates, with a view to becoming a more efficient and effective regulator.

Continue reading