Perhaps the most striking thing about the world of finance a decade and a half since the banking crisis is that the industry has not quite managed to regain the allure and self-confidence of earlier times, even though there have been successful years in between. Continue reading
Tag: APP scams
In its June 2023 Policy Statement on authorised push payment (APP) fraud (PS23/3), the Payment Systems Regulator (PSR) said that payment service providers (PSPs) would not be required to reimburse customers who had failed to exercise the ‘customer standard of caution’ (on which guidance is awaited) for APP fraud claims. This makes sense and is consistent with the regulatory principle that ‘consumers should take responsibility for their decisions‘.
In a speech delivered at Mansion House on 19 July 2022, the Chancellor of the Exchequer, The Rt Hon Nadhim Zahawi MP, sets out the government’s vision for the future of UK financial service and discusses proposals which aim to keep the UK “the most open, inclusive, welcoming, competitive, safe, and transparent place to do financial services business, in the world”. The government’s vision for a “more open, competitive, green, and technologically enabled” financial sector is being delivered in the form of the Financial Services and Markets Bill (Bill) which was introduced in Parliament today. Second reading of the Bill is expected to take place in the autumn, after Parliament returns from summer recess.
An overview of some of the areas covered by the Bill is set out below:
FRF: The Bill implements the outcome of the Future Regulatory Framework Review (FRF) which includes:
- revoking onshored EU financial services regulation (in the Chancellor’s words, repealing “hundreds of pieces of retained EU law”);
- delegating further rule-making powers to the UK regulators;
- giving the FCA and PRA a new, secondary objective to facilitate growth and competitiveness;
- introducing a Designated Activities Regime which will sit alongside the “Regulated Activities Order” regime and will provide for the proportionate regulation of retained EU law activities that are not FSMA regulated (e.g. short selling); and
- introducing measures to increase the regulators’ accountability and relationships with government and stakeholders.
There has been speculation as to whether the Bill would include proposals to give the government further powers to intervene in financial regulation in the public interest. The Chancellor has said the government will keep an open mind and consider all the arguments before making a decision.
Cryptoassets: The Bill contains provisions to amend the regulatory framework to support the adoption of cryptoassets including bringing stablecoins, where used as a means of payment, into the regulatory perimeter. The Bill gives power to HM Treasury (HMT) to make provisions in connection with the regulation of payments that include “digital settlement assets” (DSAs) as well as the regulation of payment systems that include arrangements using DSA, DSA service providers and service providers connected with, or in relation to, these systems and providers. DSA is defined as:
“a digital representation of value or rights, whether or not cryptographically secured, that (a) can be used for the settlement of payment obligations, (b) can be transferred, stored or traded electronically, and (c) uses technology supporting the recording or storage of data (which may include distributed ledger technology)”
Critical third parties (CTPs): The Bill gives HMT and the regulators powers to make rules to mitigate risks from critical third parties to the finance sector. The proposals are aimed at addressing the risks posed by a concentration in the provision of critical services by one third party to multiple firms. The proposed regime will allow the financial services regulators to oversee material services that CTPs provide to firms. In particular, the FCA, PRA and the Bank of England (the financial regulators) will be able to make rules relating to the provision of material services by CTPs; gather relevant information directly from CTPs; and have a suite of statutory powers over CTPs (including the power to direct CTPs from taking or refraining from taking specific actions).
HMT may designate a person as a CTP only if in its opinion a failure in, or disruption to, the provision of those services (either individually or, where more than one service is provided, taken together) could threaten the stability of, or confidence in, the UK financial system. HMT must have regard to the following factors when considering a designation:
- the materiality of the services provided to the delivery, by any person, of essential activities, services or operations;
- the number and type of authorised persons, relevant service providers or financial market infrastructure entities to which the person provides services.
The financial regulators will publish a discussion paper to set out details of how any powers granted to them in the Bill might be exercised.
Financial Promotion: The Bill amends section 21 of the Financial Services and Markets Act 2000 (FSMA) to implement the new regulatory framework for the approval of financial promotions. Only authorised persons who have applied for, and been given, permission by the FCA to do so will be able to approve financial promotions for unauthorised persons for the purposes of section 21.
Wholesale Markets Review: The Bill implements the changes proposed following the Wholesale Markets Review (WMR), as confirmed in the government’s response in March, including amendments to the trading venues and systematic internaliser regimes, removal of the double volume cap (DVC) and the share trading obligation (STO) in equity markets, as well as other proposals in the fixed income and derivatives markets and commodity derivatives markets, market data and reporting requirements.
Solvency II: The Bill includes provisions to take forward proposals included in the Solvency II review.
Prospectus Regime: As confirmed by the government in its paper setting out the outcome of the UK Prospectus Regime Review in March, the Bill contains provisions revoking the current EU Retained Law Prospectus Regulation. The result will be returning powers to the FCA to make the detailed rules in this area, making them more agile and effective, as well as facilitate wider participation in the ownership of public companies and improve the quality of information investors receive. See our post on the government’s response on the UK Prospectus Review here.
Access to cash: Following a HMT consultation in 2021 and confirmation from the government in May 2022, the FCA will be granted new powers over the UK’s largest banks and building societies, to ensure that cash withdrawal and deposit facilities are available in communities across the country. To support the FCA, the government will in due course set out its expectations for a reasonable distance for people to travel when depositing and withdrawing cash to reflect the existing spread of cash withdrawal and deposit facilities in the UK.
APP scams: As confirmed by the government in May, the Bill clarifies that the Payment Service Regulator (PSR) may use its existing regulatory powers to require firms to reimburse victims of authorised push payment (APP) scams in designated payment systems, including Faster Payments. The PSR consulted on APP scams in 2021 and will consult on its preferred approach to APP scam reimbursement in autumn 2022.
Other aspects of the government’s financial and professional services agenda not covered by the Bill: In his speech, the Chancellor referred to the Bill as being only part of the government’s financial and professional services agenda. He referred to the Economic Crime Bill which will be published later this year, reforms to attract green finance to the UK, work on how distributed ledger technology could be applied to sovereign debt instruments and the anti-fraud responsibilities for tech companies in the Online Safety Bill. The Chancellor also referred to the conclusions to the Secondary Capital Raising Review – published on 19 July and which the government accepts in full – as well as the launch a new report on the State of the Sector published jointly by HM Treasury and the City of London Corporation.
In this blog post, we round-up forthcoming developments in the UK and at EU and International levels in financial services regulation which are expected for September 2021.