The Financial Conduct Authority (FCA) has published several recent consultations and announcements regarding proposed regulatory changes and supervisory expectations across a range of sectors. These aim to enhance market integrity, financial stability, consumer protection outcomes, and industry resilience in the UK financial industry.
Firms should review the summary highlights of these developments contained in this bulletin and, if necessary, review the full consultation paper(s) to consider implications for their businesses. With open consultations on commodity derivatives, money market funds, and cash access, firms have opportunities to engage and help shape the final policy approaches on these issues. The FCA also sets out immediate expectations regarding investment platforms’ and SIPP operators’ retention of customer cash balance interest as set out in a recent “Dear CEO letter”.
We summarise the key points from the following FCA publications within this bulletin:
| Document | Primary Applicability |
| CP23/27 Reforming the commodity derivatives regulatory framework | UK trading venues and investment firms trading commodity derivatives. |
| CP23/28 Updating the regime for Money Market Funds | Money market funds mangers/users and participants in short-term funding market |
| CP23/29 Access to Cash | Providers of current accounts and businesses involved in the supply of cash |
| Dear CEO Letter: The retention of interest earned on customers’ cash balances | Investment platforms and SIPP operators |
CP23/27 Reforming the commodity derivatives regulatory framework
The FCA is proposing reforms to strengthen oversight and resilience of UK commodity derivatives markets, including transferring responsibility for setting position limits from the FCA to trading venues. Trading venues will be required to develop methodologies for setting limits on a narrower set of “critical” contracts where disorderly trading poses the greatest risk. Enhanced position management controls and reporting requirements are also proposed, including accountability thresholds and access to OTC position data to support surveillance.
Firms should review the proposals for new position limit exemptions, guidance on ancillary activity following regulatory perimeter changes effective January 2025, and provide feedback on implementation timelines, with the FCA proposing a transitional period of 1 year after finalised rules are published.
The reforms aim to ensure trading venues can effectively monitor for risks and take steps to maintain orderly markets. The FCA will supervise limit and threshold-setting methodologies and oversee information-sharing arrangements. Success will be measured through metrics like limit breach frequencies and actions taken, and whether reporting enables effective surveillance.
CP23/28 Updating the regime for Money Market Funds
The FCA is consulting on proposals to enhance the resilience of UK money market funds (MMFs), addressing vulnerabilities exposed during recent market stress events. The proposals aim to increase available MMF liquidity, requiring minimum daily and weekly liquid asset levels of 15% and 50% respectively, while removing links between liquidity and use of liquidity fees/gates for stable NAV MMFs.
The consultation also proposes enhanced know your customer, stress testing and operational resilience requirements. The changes form part of the Government’s Smarter Regulatory Framework, with legislation expected in early 2024 to enable corresponding Handbook rule changes.
The proposals follow the 2020 pandemic “dash for cash” and 2022 gilt yield volatility which strained MMFs, requiring central bank intervention. By increasing liquidity buffers and usable tools for managers to address stresses, the authorities aim to bolster MMF resilience and reduce reliance on extraordinary support. Success will be measured by MMFs’ ability to meet redemption demands in stressed markets without such intervention. Firms should engage on implementation practicalities to ensure maintained utility and growth in the UK MMF sector.
Firms should review the proposed rules on liquidity, fees/gates, and other MMF requirements, and provide feedback by the 8th of March 2024 consultation deadline.
CP23/29 Access to Cash
The FCA is consulting on proposals for a new regulatory regime to ensure reasonable provision of cash access services under powers granted in the Financial Services and Markets Act 2023. Rules would require designated banks and building societies to assess and address gaps in local cash provision that significantly impact consumers and businesses, including responding to cash access requests. Firms should review proposed requirements around cash assessments, delivery timeframes, coordination arrangements, and informational needs.
The proposals aim to strengthen accountability within the UK financial industry to accommodate evolving cash usage and maintain access, especially for vulnerable and cash-reliant groups. Success will be measured through data collection and stakeholder engagement on firms’ responsiveness to local needs. An initial transitional period is proposed to allow firms time to handle expected high volumes of cash access requests when rules commence.
Firms should provide feedback on implementation practicalities, so the final policy achieves the intended outcomes of reasonable nationwide cash access tailored to local requirements. Responses to the consultation are due by 8 February 2024, with finalised rules expected in Q3 2024 after a policy statement.
Dear CEO Letter: The retention of interest earned on customers’ cash balances
The FCA has written to investment platforms and SIPP operators expressing concerns that some firms’ retention of interest earned on customer cash balances may not align with Consumer Duty requirements. Firms are expected to review practices for interest retention, ensure fair value and improve disclosures. Specifically, firms must cease “double dipping” from account fees and interest retention and provide confirmations on changes made in response by 31 January 2024.
The letter states that interest retention levels appear excessive compared to cash management costs claimed by some firms, and disclosures are often unclear, failing to meet consumer understanding expectations. By the 29th of February 2024, firms must implement changes including to terms and conditions, communications and fair value assessments.
Failure to demonstrate Consumer Duty compliance will prompt FCA action. Firms should urgently review their interest retention approaches against the expectations outlined regarding fair value, transparency, avoidance of foreseeable harm to customers and preventing confusion.
How Complyport can help
The range of regulatory developments covered in this FCA bulletin reinforce that financial services firms face an increasingly complex and demanding compliance landscape.
With over 22 years of experience, Complyport is well positioned to support firms in understanding and responding to the latest FCA rules, supervisory priorities, and broader policy direction. navigating these changes and meeting heightened expectations in areas like consumer duty, market integrity, and operational resilience can be complex. Complyport’s expert team can aid firms seeking guidance on new FCA proposals and requirements, ensuring they take appropriate actions to comply with regulations and demonstrate commitment to positive consumer and market outcomes.
Contact us at thomas.salmon@complyport.co.uk for a free consultation.
About Complyport
Complyport is a market-leading consulting firm supporting the UK financial services industry for over 22 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Complyport can assist with the preparation of a GAP analysis and impact assessment on the investment firm’s capital adequacy and risk management framework of the Company under the regulatory framework.
We specialise in supporting the UK financial services industry with compliance guidance, advice and best practice.
- Prudential support, IFPR, ICARA and financial resilience advice
- Financial Crime support and Forensics
- Compliance managed services and resourcing compliance personnel
- Skilled Person Reviews and Regulatory Investigation
- Consumer Duty implementation advice
- Operational resilience & Cybersecurity advice
- Financial Promotions guidance, support, and management software solutions
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Contact Thomas Salmon in our Regulatory Solutions team via email at: thomas.salmon@complyport.co.uk to book a free consultation.
