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Regulatory update March 2024


Published: 25 Apr 2024 Update History

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The following is a list of some regulatory publications or announcements from March 2024 affecting UK financial services.

The summary includes consultation/policy papers and speeches published by the regulators and other bodies, as well as articles that may be of interest. It is not intended to be an exhaustive list of all matters relevant to financial services.  

Please refer to the relevant organisations’ website for a complete record of their publications and news releases.

HM Treasury

On 2 March the chancellor announced further pension fund reform proposals aimed at boosting UK investment and increasing returns to savers. The reforms include pension funds disclosing their investments in UK businesses, publicly comparing performance data against competitors, and that poorly performing schemes will not be allowed to take on new business. The FCA will consult on the reform proposals.

On 8 March a PRA speech provided an overview of the regulators' proposed regime for critical third parties. The speech highlighted that the regime complements rather than replaces firms’ existing obligations, and that the regime will focus on the particular third party services provided to the financial services sector rather than whole legal entity supervision as with existing firms. The regime will include some high-level obligations for third party providers, such as acting with integrity, due skill, care and diligence, and being open and cooperative with the regulators. There will also be more granular requirements applying to the provision of material services, including assigning a maximum tolerable level of disruption and undertaking regular scenario testing of the ability to continue providing services; developing and maintaining a financial sector incident management playbook; and proactively engaging with existing frameworks set up to coordinate responses to incidents that may adversely affect the UK’s financial sector.

On 11 March the Treasury launched a consultation aimed at improving the effectiveness of the Money Laundering Regulations. The consultation considers four themes: making customer due diligence more proportionate and effective; strengthening system coordination; providing clarity on scope of the MLRs; and reforming registration requirements for the Trust Registration Service. Alongside the consultation, the Treasury is conducting a survey on the costs of complying with the money laundering regime. The deadline for responses is 9 June 2024.

On 12 March the Treasury published a policy note and near final Statutory Instrument amending the Payment Services Regulations. The amendment will allow payment service providers to delay an outbound payment transaction by up to 4 days if there are reasonable grounds to suspect fraud (other than by the payer), and those grounds are established by the end of the next business day. The change is in response to the growth in Authorised Push Payment fraud. The deadline for comment was very short – by 12 April – with the government wanting to lay the instrument before Parliament in Summer 2024 (subject to available time).

On 21 March the Treasury outlined its approach to designating critical third parties. These parties provide services that the UK’s financial services sector relies upon, and which, if disrupted, could affect UK financial stability. Cloud service providers are typically given as an example of these third parties. The statutory framework giving the Treasury the power to designate a service provider as critical was set out in the Financial Services and Markets At 2023. The designation approach includes consideration of a recommendation by the regulators, engagement with the third party service provider and regulators, consideration of all evidence gathered, and the making of a legal instrument if it is concluded the service provider is critical.

On 21 March the Treasury published an update on its plan for building a smarter financial services regulatory framework. The Treasury’s policy and detailed plans for bringing EU law relating to financial services into UK law were set out as part of the Edinburgh reforms in December 2022 and in a policy statement in July 2023. In this update, the Treasury set out progress and plans for the next phase. 777 pieces of EU law have been identified with 344 so far removed. The update lists the various subject areas affected (eg Solvency II, prospectuses, payment services) and how the EU law has been transposed. The update identifies the next batch of subject areas that the government will review (eg, alternative investment fund mangers, UCITs, MiFID); and which it indicates will be changed incrementally in stages. A summary of the latest Treasury papers can be found using this link.

On 26 March the Technology Working Group published its second interim report considering fund tokenisation. The report, which builds upon the first report published in November 2023, sets out two use cases (tokenised funds investing in tokenised securities, and tokenised money market fund units being used as collateral) and invites industry participants to test them with support from the UK authorities (eg, via sandboxes). The report then considers developments that would allow on-chain settlement via digital money, enable funds to hold tokenised assets, and enable the use of public permissioned networks. The group’s next report will consider the effects of Artificial Intelligence.

On 28 March the Treasury announced the government had reduced its shareholding in NatWest to below 30%. This is down from a peak holding of 84%, and means the government is no longer a controlling shareholder.

Bank of England / Prudential Regulation Authority (PRA)  

On 12 March Bank Underground published an article on changes in the form of money in the late Seventeenth Century and discussed implications for the introduction of a digital pound. Five potential lessons were noted: that money shortages can stimulate new money (eg, existing money not be compatible with transactions using distributed ledgers); different variants of a new form money can operate simultaneously to appeal to different users; good design is needed to promote confidence; sophisticated users are likely to be early adopted; government promotion can be useful but not essential; new forms of money need to be credibly convertible into established forms of money at par.

On 12 March the PRA provided feedback on its consultation and final policy for solvent exit planning for non-systemic banks and building societies. The PRA’s proposed new rules for non-systemic firms to prepare for a solvent exit as part of their BAU activities and to produce a solvent exit execution plan if a solvent exit were to become a reasonable prospect. In its feedback, the PRA clarified some operational aspects of the proposals (eg, solvent exit indicators are informative rather than being automatic triggers) and confirmed that the firms in scope of the policy and the implementation date of Q3 2025 remain unchanged.

On 12 March a Bank speech highlighted the risks with non-bank financial institutions and the action the Bank is taking. Non-banks now account for around half of total UK financial assets and have grown in importance and significance to a range of markets. The 2020 ‘dash for cash’ and the 2022 Liability Driven Investment crisis illustrated the risks and dysfunction that can arise. In response, the Bank is developing a new liquidity tool, which will initially focus on the Gilt market but may be expanded to other markets in time.

On 19 March the PRA announced that the new website for the PRA Rulebook will go live on 10 April 2024. The aim is a more user-friendly website following feedback. While Rulebook content has been added to the website, other material (such as supervisory statements) will be added over the remainder of the year.

On 27 March the Bank published the FPC's summary and record of its 13 March meeting. The FPC considers that the overall environment remains challenging, as while the central outlook has improved, some risks have increased (eg, rates higher for longer than expected, geopolitical events). The FPC noted that UK borrowers have been broadly resilient, and that the UK banking system is well capitalised. The Bank also published the FPC’s macroprudential approach to operational stability.

On 28 March the Bank and FCA published an update to their data collection Transformation Plan. The update sets out various workstreams for the next eighteen months intended to deliver five outcomes (eg, data collections are proportionate, efficient processes).

Financial Conduct Authority (FCA)

On 5 March the FCA published a Dear CEO letter warning annex 1 financial institutions of the need to improve anti-money laundering frameworks. The Dear CEO letter was in a response to a review that found weaknesses in risk assessment, lack of clarity in policies and procedures, a lack of resources devoted to financial crime, and business models that differed to those disclosed to the FCA. The FCA also indicates that it has enhanced its monitoring of annex 1 financial institutions and will be more proactive. The list of activities that determine an Annex 1 financial institution can be found on the FCA website here.. Entities undertaking these activities need to be registered with the FCA but are not otherwise authorised firms.        

On 5 March the FCA committed to investigate the use of personal guarantees when lending to small businesses. The investigation comes after a complaint by the Federation of Small Businesses that requiring personal guarantees has a detrimental effect on small business access to finance. The FCA will share its findings with relevant bodies, including the Treasury, as its remit does not cover lending to companies.    

On 11 March the FCA announced it will not object to requests from Recognised Investment Exchanges to create a UK listed market segment for cryptoasset-backed Exchange Traded Notes. The products would, however, only be available for professional investors, as the FCA continues to believe they and crypto derivatives are ill-suited for retail consumers due to the harm they pose.  

On 13 March the FCA’s CEO highlighted various issues facing pensioners, and the FCA’s role in seeking to improve outcomes for pensioners.        

On 19 March the FCA published its Business Plan for 2024/25. The plan represents the third year of the FCA's current strategy. Overall, the FCA’s focus for the year ahead includes protecting consumers, ensuring market integrity, promoting effective competition, embedding the secondary competition objective. The FCA will continue to deliver its 13 public commitments, albeit with a focus on reducing financial crime, putting consumers first, and strengthening the UK’s position in global wholesale markets. The plan highlights the ongoing activities to deliver against the commitments, but also the new activities the FCA will start this year. The challenges to the plan that the FCA is monitoring include the effects of higher interest rates and persistent inflation, global financial risks (eg, high levels of public debt), and geopolitical risks.           

On 26 March the FCA published guidance for adverts across social media channels to be fair, clear and not misleading. The FCA has previously highlighted concerns with social media influencers and reminds them “that promoting a financial product without approval from an FCA-authorised person with the right permission could be a criminal offence”.  https://www.fca.org.uk/news/press-releases/fca-warns-firms-and-finfluencers-keep-their-social-media-ads-lawful  

On 27 March the FCA published a review of insurers’ valuations of written off or stolen vehicles. The review found evidence that some firms do not offer the full worth of the vehicle. The FCA has previously warned insurers not to undervalue insured items when settling claims. The FCA will engage with firms which it considers need to improve their practices and urges all firms to consider its findings and make changes if required.         

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