UK Regulatory Radar

The FCA highlights in Market Watch 76 the continued presence of “flying” and “printing” behaviours which risk misleading the markets on a financial instrument's liquidity and / or price. The FCA outlines what firms can to do to reduce the risk of employees engaging in these behaviours. In Market Watch 77, the FCA observes how organised crime groups (OGCs) are committing market abuse in the equity spread bets and CFDs markets. The FCA highlights what firms should look out for and can do to guard against being used to facilitate insider trading by OGCs.

The FCA's Primary Market Bulletin 47 summarises changes that are being made to the short selling regulation. These include increasing the notification threshold for the reporting of net short positions in shares to the FCA from 0.1% to 0.2% of total issued share capital of an issuer (from 5 February 2024) and removing requirements around short positions in sovereign debt or sovereign CDS.

The UK government has deemed countries in the EEA (including EU) to be equivalent under the UK's Overseas Funds Regime (OFR). This important step means that EEA UCITS will be able to use a streamlined mechanism to market to UK retail customers. The OFR also provides a permanent replacement to the FCA's Temporary Marketing Permissions Regime for funds, which has been in place since Brexit. This decision ends uncertainty on how EEA funds would access the UK post-Brexit. Notably, the government stated it plans to consult on extending the FCA's Sustainability Disclosure Requirements regime to overseas funds in the OFR (these are currently out of scope of the SDR).

The BoE published its final Statement of Policy (SoP) on its approach to the power to temporarily prohibit or restrict discretionary payments to employees or shareholders of recognised UK central counterparties (CCPs) in severe circumstances. This power was granted to the BoE under FSMA 2023 as part of the provision of a special resolution regime for CCPs. The final SoP clarifies the types of factors the BoE may consider in assessing the statutory conditions for the use of the power, the types of circumstances that could lead to the statutory conditions being deemed to be met, and the process for giving any direction under this power. The BoE will use this power to support its objective to protect and enhance UK financial stability through ensuring the continuity of critical clearing services.

The FCA published a report highlighting the good practice and poor practice it has observed in the first six months since the Consumer Duty came into force. While there is evidence good progress is being made, some firms are 'lagging behind'. Alongside observations under the four outcomes, the FCA calls out findings in the areas of culture, governance and monitoring and the treatment of vulnerable customers. Unsurprisingly, some identified areas for improvement reflect issues where the FCA has recently taken action such as customers being charged for a service they are not benefiting from (see 'Ongoing advice services' section below). The FCA is taking action in areas where it has concerns under the Duty, however, this publication highlights that the FCA will be equally proactive in providing practical guidance to help firms 'recalibrate' their approach to meet FCA expectations on aspects of the Duty.

The FCA has published the findings of its September 2023 small firms survey, a follow-up to a spring 2023 survey. This survey targeted firms not previously involved to understand how the FCA's additional engagement had helped firms prepare for the implementation of the Duty. The findings indicate improvements including (i) a significant increase in the proportion of firms in some portfolios reporting completion of required implementation steps, (ii) improvements in the preparedness of retail finance and debt advice firms, sectors which in the previous survey scored consistently lower than others. Outcomes monitoring was identified as the most challenging aspect of the Duty to implement. Other notable findings include 38% of firms reporting they have made significant improvements to consumer contracts, and 30% reporting they have identified or made significant improvements to their marketing strategies.

The FCA has written to 20 financial adviser firms requesting information about their ongoing advice services, for which clients continue to be charged post advice. Firms are being asked whether they have assessed ongoing services in response to the Consumer Duty, and what, if any, changes have been made in response. This action is an example of how the FCA is following through on its promise to challenge firms on key areas of harm in the context of the Consumer Duty. Concerns of consumer harm surrounding ongoing advice services has been a recurrently theme, most recently with the FCA airing concerns that some consumers may be paying for services, such as an annual review, but not receiving it.

The FCA has announced that, as a result of its intervention, insurance firms constituting 80% of the GAP insurance market have agreed to suspend sales of the product. Last year, the FCA gave GAP manufacturers three months to take action to demonstrate fair value after the first full year of general insurance value measures data highlighted concerns that some insurers may be failing to provide fair value, particularly in relation to GAP products. The FCA's dissatisfaction with firms' responses, has resulted in the FCA now requiring firms to pause sales whilst they bring them in line with FCA rules. The FCA will engage with the rest of the market with the aim of improving the value of the product across all firms.

The FCA has published the findings of its multi-firm work on Claims Management Companies (CMCs) that carry out unregulated claims services. The review was to assess concerns about the risk to consumers from the `halo' effect of FCA authorisation. The review identified that some CMCs had (i) undertaken very little or no regulated activity, (ii) inadequate systems and controls, (iii) non-compliant financial promotions, and (iv) significantly higher fees for unregulated claims. Reminding firms of their Consumer Duty obligations, the FCA highlights the relevance of Consumer Understanding to its findings. Demonstrating its intention to be more assertive, the FCA, whilst acknowledging fees for unregulated service do not fall within the regulatory perimeter, "strongly urge CMCs to keep in mind the spirit of the Consumer Duty". The FCA will likely regard this work a success as contact with CMCs has resulted in 70% stopping unregulated activity whilst some others have applied to cancel FCA permissions.

The Pensions Regulator (TPR) has published its regulatory report on a cyber security incident at a large pension scheme administrator in 2023, detailing its actions, lessons learned, and the key steps trustees should take in the event of a cyber security incident. TPR's statement emphasises the importance of (i) robust cyber security and business continuity plans that are regularly reviewed and tested, (ii) open and transparent information sharing between schemes, administrators and TPR in order to understand the extent of impact and work to protect members. TPR sets out key steps for trustees including the importance of timely communication, immediate action to safeguard scheme members and restore key services, and the importance of monitoring transfer request volumes. The findings are relevant for all pension scheme trustees.

TPR has published new private markets (PM) guidance to support trustees in considering the role of private market assets in delivering improved outcomes for savers and highlighting the positive role PM investments can play in a diversified portfolio when accompanied by appropriate advice and effective governance. The guidance encompasses the legal duties of schemes, key investment considerations, opportunities, risks, and signposts to additional resources to aid trustees' decision making. TPR's guidance reflects the Government's Mansion House reforms, which are designed to enable the sector to unlock capital for UK industries and increase returns for savers.

HM Treasury has extended the UK Transition Plan Taskforce (TPT) mandate to July 2024, with the option of extending further to October 2024. The extension will allow the TPT to release its final outputs and support the work of the Transition Finance Market Review (TFMR). Output still expected for financial services comprises (i) final sector deep dive guidance, (ii) notes on adaptation, nature, the just transition, emerging markets and developing economies and (iii) a forward pathway on transition plans.

The FCA has launched a webpage that provides an overview of its Sustainability Disclosure Requirements (SDR) regime together with  suggested actions for firms and initial clarifications on aspects of the rules. The clarifications relate to topics such as the treatment of fund of funds under the labelling regime, the scope of the naming and marketing rules, and the robust, evidence-based standard of sustainability. The FCA will update the page over time to provide further clarifications on common queries.