On 16 March 2021, the Hong Kong Monetary Authority (HKMA) announced (via a circular) that it will conduct a focused review of the incentive systems of retail banks’ front offices in the sale and distribution of banking, investment and insurance products.
The PRA has published a consultation paper (CP2/21) setting out proposals for its updated approach to supervising the UK activities of banks and PRA authorised investment firms that are headquartered outside of the UK or part of a non-UK group. The consultation paper includes a draft supervisory statement to supersede the existing PRA Supervisory Statement 1/18 (the PRA’s current supervisory statement on its approach to supervising international banks).
We are excited to launch the 2020 edition of our Global Bank Review, #disruption.
While the banks sector has faced significant challenges before, the depth and breadth of Covid-19’s disruption has left banks in the position of having to brace for impact to their own businesses, whilst simultaneously demonstrating a change in culture, providing support to vulnerable customers, and supplying vital credit for regrowing our economies. Continue reading
In this article, which first appeared in the September issue of Butterworths Journal of International Banking and Financial Law, Jon Ford considers how industry codes present risks to firms and how these risks can be mitigated.
The sections on financial services in the UK’s approach document are set out below:
Chapter 16: Financial Services
- The Agreement should promote financial stability, market integrity, and investor and consumer protection for financial services, providing a predictable, transparent, and business-friendly environment for cross-border financial services business.
- The Agreement should include legally binding obligations on market access and fair competition, in line with recent CETA precedent.
- The Agreement should also build on recent precedent, such as the EU-Japan EPA and international best practice, by establishing regulatory cooperation arrangements that maintain trust and understanding between our autonomous systems of regulation as they evolve. This could include appropriate consultation and structured processes for the withdrawal of equivalence findings, to facilitate the enduring confidence which underpins trade in financial services.
Equivalence in Financial Services
- The UK and the EU have committed to carrying out unilateral equivalence assessments for financial services, distinct from the CFTA. The fact that the UK leaves the EU with the same rules provides a strong basis for concluding comprehensive equivalence assessments before the end of June 2020.
Unsurprisingly, these are brief and outcomes-focused in nature, reflecting the Government’s approach more generally and the desire for “autonomous systems of regulation” (as preserved under the EU-Japan Economic Partnership Agreement) rather than close alignment. The comments on equivalence do serve as a reminder to the EU that the UK will nonetheless be starting from a position of close alignment, but as ever, there are no guarantees that this challenging deadline for completing assessments will be achieved.
On the same date, the European Commission has also published a speech delivered by Michel Barnier, the EU’s chief negotiator on its future relationship with the UK, addressing the potential for UK/EU co-operation post-Brexit. The tone of the speech is characteristically challenging of the UK’s perceived desire to preserve sovereignty and regulatory autonomy while maintaining access to EU markets. Mr. Barnier’s discussion of equivalence indicates the lack of appetite from the EU to develop a more extensive and durable form of equivalence for cross-border market access, as explained in the following extract:
[Equivalence in financial services]
“… The EU will have the possibility to grant equivalences. We will do so when it is in the interest of the EU; our financial stability; our investors and our consumers. But these equivalences will never be global nor permanent. Nor will they be subject to joint management with the UK. They are, and will remain, unilateral decisions.
I read in the Financial Times recently that London must retain its primacy as a hub for wholesale financial markets without becoming a rule-taker of European regulation. As a former Commissioner in charge of financial services, allow me to question that. Why should we accept that the profits stay in London while the EU carries the risks?
The UK may not want to be a rule-taker. But we do not want to be the risk-taker. When the next financial crisis strikes, who will foot the bill? I doubt the UK will foot it for the EU. That is why the EU must take the responsibility for its financial regulation, supervision and stability.”
As investment services go digital, Hong Kong regulators have found it necessary to issue tailored guidance to protect investors.
From 6 April and 23 August 2019 respectively, new guidelines from the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority will increase the regulatory requirements for financial institutions offering investment products via online platforms. Continue reading
The Financial Dispute Resolution Centre (FDRC) in Hong Kong has issued its conclusions to its consultation on proposals to significantly expand the jurisdiction of the Financial Dispute Resolution Scheme (FDRS), its alternative dispute resolution scheme for conflicts between financial institutions and their individual customers. The FDRC’s consultation met with mixed responses, with respondents from the banking and securities sectors opposing the proposed changes while other respondents, including the Department of Justice and consumer rights groups, supported the suggested reforms. Given this, the FDRC has chosen to implement a more moderate package of reforms than those it originally contemplated (as outlined in our October e-bulletin).
The key changes from the consultation paper include:
- raising the maximum claimable amount to HK$1,000,000. This is an increase from the current limit of HK$500,000, but significantly lower than the proposed increase to HK$3,000,000;
- extending the limitation period for lodging claims from 12 months to 24 months from the date of purchase of the financial instrument or date of first knowledge of loss, whichever is later, rather than the 36 months previously suggested; and
- that the FDRC will cease its current practice of providing case information such as application forms, mediated settlement agreements or arbitral awards, to the Securities and Futures Commission and Hong Kong Monetary Authority. However, it will continue to provide monthly reports regarding the number and type of disputes handled by the FDRC and information regarding systemic issues and suspected serious misconduct.
The FDRC also announced that it will enact a range of other reforms in a form largely unchanged from that proposed in its consultation paper. These include:
- expanding the scope of eligible claimants by allowing “small enterprises” to bring complaints against financial institutions (FIs);
- accepting applications for claims which are under current court proceedings without requiring the claimant to withdraw the case from court; and
- introducing a voluntary referral system.
These reforms amount to a sizeable expansion of the FDRC’s jurisdiction. As foreshadowed in our previous bulletin, FIs are likely to see an increase in claims being accepted by the FDRC once these reforms are enacted, though this increase is likely to be smaller than that which would have resulted from the enactment of the FDRC’s original proposals. The amended terms of reference for the FDRS are expected to take effect on 1 January 2018, with the exception of the reforms allowing small enterprises to bring claims, which will take effect on 1 July 2018.
Our recent e-bulletin sets out the reforms in more detail. If you wish to discuss these further, please do not hesitate to contact our Hong Kong team featured on the e-bulletin or your usual Herbert Smith Freehills contact.
The Financial Services (Banking Reform) Bill (the Bill) was introduced to Parliament on 4 February 2013. On the same day, the Government published its response to the report which the Parliamentary Commission on Banking Standards (PCBS) published at the end of last year and which formed part of the pre-legislative scrutiny of the Bill. Continue reading