The post The Coronavirus (COVID-19) Pandemic: A Summary of FCA Guidance & Regulatory Developments in the EU’s Investment Services and Capital Markets Sectors first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
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The FCA guidance on responding to the Coronavirus (COVID-19) pandemic is summarised below.
The FCA does not require firms to have a single senior manager responsible for their Coronavirus response. Firms should allocate these responsibilities in the way which best enables them to manage the risks they face. There are existing responsibilities specified in the Senior Managers Regime (SMR), for example SMF24 for operational resilience and SMF2 for financial resilience.
The FCA emphasises that firms should pay particular attention to its statement on Key Workers in Financial Services of 20 March 2020 and recommends that the SMF1 (or another most relevant member of the senior management team), should be responsible for the firm’s approach to their key workers.
The FCA is reviewing its work plans so that it can delay or postpone activity which is not critical to protecting consumers and market integrity in the short-term. This will allow firms to focus on supporting their customers during this difficult period.
The FCA has delayed several regulatory initiatives and also scaled back its programme of routine business interactions, so that it will only contact firms on business-critical requests and responses to the current situation.
It will continue with a small number of regulatory changes which support consumers, particularly the most vulnerable, or where major long-term programmes would be disrupted.
The FCA rules already provide flexibility to firms in several areas and the FCA expect this flexibility to be used to support consumers, bearing in mind each consumers’ individual circumstances.
The FCA stated it welcomes firms taking initiatives and going beyond usual business practices to support their customers, especially relating to access to cash. When doing so, firms should notify the FCA so that it can consider the impacts and offer support as appropriate.
The FCA still expects firms to deal with complaints promptly. However, where the pandemic prevents this firms should contact the FCA. The FCA has reminded firms that they should aim to resolve any complaint within 8 weeks (15 days for payments firms). If they cannot, they should write to the customer explaining why they have not met the deadline.
On 19 March 2020, the FCA published an update on expectations for general insurance firms during the pandemic. This sets out the expectations on insurers, brokers and others involved in the service supply chain.
The FCA supports firms making consumers aware of the scope of their cover and what exemptions there may be. Consumers should also be able to find this information on firms’ websites in a clear, concise way and have access to call centres.
The FCA also expects firms to make clear any time period restrictions when consumers take out a new policy, for example if a policy will not pay out from 12 or 18 months of taking out a new policy.
On 20 March 2020, the FCA published new guidance for mortgage lenders, mortgage administrators, home purchase providers and home purchase administrators. Mortgages represent many consumers’ major financial commitment. FCA is encouraging and facilitating the granting of flexibility on mortgage payments as a way of protecting consumers.
The FCA has stated its rules give firms the flexibility to act in the best interests of the customer. The FCA welcomes the steps firms have taken to offer support to customers and to encourage them to contact their bank or lender if they are experiencing financial difficulties.
The FCA wants firms to show greater flexibility to customers in persistent credit card debt. The FCA has indicated that the normal procedure for dealing with low repayments of persistent debt should be relaxed and consumers should be given until 1 October 2020 to respond to firm’s communications regarding resolution. This means that firms would not be obliged by to suspend the cards of non-responders before then.
The FCA is working with the Bank of England and the Payment Systems Regulator to understand problems consumers may have accessing cash, and ensure the UK learns the lessons from other countries’ experience of Coronavirus.
UK banks have taken steps to help ensure consumers have access to cash, including the raising of cash machine withdrawal limits and the raising of the limit for contactless card payments.
Firms should continue to help vulnerable consumers access their banking services – online or over the phone. Firms should also remind consumers to be aware of fraud and protect their personal data.
The FCA stated it expects all firms to have contingency plans to deal with major events and that the plans have been tested. The Bank of England, Prudential Regulatory Authority and the FCA are actively reviewing the contingency plans of a wide range of firms. This will focus on assessment of operational risks, the ability of firms to continue to operate effectively and the steps firms are taking to ensure continuation of service to customers.
The FCA expects all firms to have read, taken account of and acted upon the issues raised in its Consultation Paper on Operational Resilience (CP19-32) issued in December 2019. The Consultation Paper can be downloaded from the following link – https://www.fca.org.uk/publication/consultation/cp19-32.pdf.
The FCA has indicated that firms must consider the broader control environment as they relocate people and functions to new locations/sites or work from home.
Where normally required to do so, firms should continue to record calls, where possible. They should make the FCA aware if they are unable to meet these requirements. Firms are required to consider what steps they could take to mitigate such outstanding risks if they are unable to comply with their obligations to record voice communications.
Firms may experience difficulties in submitting their regulatory data, in which case the FCA expect them to maintain appropriate records during this period and submit the data as soon as possible.
Firms should continue to take all steps to prevent market abuse risks. This could include enhanced monitoring, or retrospective reviews.
The FCA is supportive of the recent ESMA statement regarding upcoming changes to the tick size regime for certain firms, required by the EU Investment Firms Regulation. The FCA will not prioritise supervision of the new requirements at this time. It expects firms to focus on minimising the potential for operational disruption.
Guidance issued by the FCA can be accessed or downloaded from the following link: https://www.fca.org.uk/coronavirus
The FCA has decided to extend the closure dates for the following published consultation papers and calls for input until 1 October 2020.
| Delayed consultation papers | Date |
| CP20/4: Quarterly Consultation No 27 | 1 October 2020 |
| CP19/32: Building operational resilience: Impact tolerances for important business services | 1 October 2020 |
| CP20/1: Introducing a Single Easy Access Rate for cash savings | 1 October 2020 |
| CP20/3: Proposals to enhance climate-related disclosures by listed issuers and clarification of existing disclosure obligations | 1 October 2020 |
| CP20/5: Consultation paper on ETF Listing: Premium to Standard Listing | 1 October 2020 |
| Delayed calls for input | Date |
| Open Finance | 1 October 2020 |
| Accessing and using wholesale data | 1 October 2020 |
The FCA has decided to delay the following publications due before end June. The FCA will provide updates at an appropriate point.
| Other delayed publications | Date |
| Joint PRA-FCA work with the Climate Financial Risk Forum (CFRF) to develop industry led guidance on how to integrate climate related risks into business decision making across the financial services sector | TBC |
| Motor Finance Policy Statement | TBC |
| Consultation Paper on mortgage switching | TBC |
| Vulnerability Guidance and Vulnerability Research | TBC |
| Options to change our regulatory framework following Duty of Care Feedback Statement | TBC |
| Consumer Credit Act (CCA) review | TBC |
| Credit Information Market Study – Interim Report | TBC |
| GI Pricing Final report and Consultation Paper on remedies | TBC |
Ever since the escalation of the COVID-19 outbreak in Europe, the status quo in the EU’s investment services sector and capital markets has dramatically changed. New developments emerge on an almost daily basis, while the industry is experiencing a major turmoil. Below we summarise the most important EU regulatory developments that have occurred in response to this pandemic in March.
Extreme adverse circumstances that constitute a serious threat to market confidence and financial stability have prompted a number of national competent authorities in the EU to ban net short positions for any shares or debt instruments listed on Trading Venues for which they are the designated regulator. Such bans were issued by the competent authorities of Austria, Belgium, France, Greece, Italy and Spain.
The net short position prohibits both short selling and any transaction that creates or relates to a financial instrument, and the effect or one of the effects of that transaction is to confer a financial advantage on the natural or legal person in the event of a decrease in the price or value of another financial instrument (meaning, among others, options, CFDs, spread bets). The ban applies irrespective of whether the transactions occur on Exchange or OTC. The only entities exempted from the net short position ban are authorised primary dealers and market makers who have applied for the exemption afforded under Article 17 of the Short Selling Regulation.
ESMA has also issued a decision temporarily requiring the holders of net short positions in shares traded on an EU regulated market to notify their relevant competent authorities if the net short position reaches or exceeds 0.1% of the issued share capital after the entry into force of said decision. ESMA considers that lowering the reporting threshold is a precautionary action, taken so that the relevant authorities can carefully monitor market developments following the coronavirus fallout.
In an effort to mitigate COVID-19’s impact, ESMA issued a public statement clarifying that it expects competent authorities not to prioritise their supervisory actions towards entities subject to Securities Finance Transactions (SFT) reporting obligations from 13 April 2020 to 13 July 2020. Moreover, ESMA has clarified in an updated public statement that SFTs concluded between 13 April 2020 and 13 July 2020 and SFTs subject to backloading under SFTR are also not to be prioritised as part of the competent authorities’ supervisory actions.
ESMA issued a public statement clarifying that, considering the exceptional circumstances created by the COVID-19 outbreak, some scenarios may emerge where the recording of relevant conversations required by MiFID II may not be practicable. If firms, under these exceptional scenarios, are unable to record voice communications, ESMA expects them to consider the alternative steps they could take to mitigate the risks related to the lack of recordings.
Firms are expected to deploy all possible efforts to ensure that the above measures remain temporary and that the recording of telephone conversations is restored as soon as possible.
ESMA issued a public statement to promote the consistent application of IFRS in the EU and avoid divergence in practice on the application of IFRS 9 given the COVID-19 outbreak. The statement addresses the accounting implications of the measures taken or proposed by the national governments and EU bodies (for example, the moratoria on the repayment of loans) to address the adverse systemic economic impact of COVID-19.
In its statement, ESMA provides guidance to issuers and auditors, specifically regarding the calculation of expected credit losses and related disclosure requirements.
The EBA has also issued a related statement on the prudential framework and accounting implications of COVID-19. The two statements are consistent as with regards to financial reporting.
In light of the difficulties encountered by issuers in preparing financial reports and the challenges faced by auditors in carrying out timely audits of accounts due to the COVID-19 pandemic, ESMA issued a public statement recommending that national competent authorities apply forbearance powers towards issuers who need to delay the publication of financial reports beyond the statutory deadline. At the same time, the statement underlines that issuers should keep their investors informed of the expected publication delay and that the requirements under the Market Abuse Regulation still apply.
ESMA also highlighted that financial reporting is an important anchor for the economic decisions of users of financial information, as well as for exercising their rights to vote or otherwise influence management actions. The preparation of periodic information must continue to be carried out in accordance with the applicable financial reporting framework to ensure investor protection and to preserve the integrity and proper functioning of the EU’s financial markets.
The EBA announced that it has decided to postpone the EU-wide stress test to 2021 as a way of alleviating the immediate operational burden for banks during this challenging juncture. The final timeline for the EU-wide stress test will be communicated by the EBA in due course.
In another recent public statement, ESMA urged financial market participants to apply their contingency plans, including the deployment of business continuity measures, to ensure operational continuity in line with the regulatory obligations.
Similarly, several national competent authorities urged their regulated entities to do the same, alongside reviewing their business continuity and disaster recovery systems and making the necessary amendments based on each entity’s size, complexity and nature of business.
ESMA has announced that it has decided to extend by four weeks the response date for all ongoing consultations with a closing date on or after 16 March.
The COVID-19 outbreak significantly impacted the activities of all market stakeholders, pushing them to reprioritise their efforts to address the crisis. To mitigate the impact of COVID-19, several national regulators have extended, where possible, several local reporting deadlines and other obligations. In an effort to limit the spread of the virus, some national regulators have announced working from home plans as well as suspended relevant activities such as examinations and training courses.
Furthermore, regulators are alarmed over COVID-19’s effect on the industry and are constantly gathering data across the market to understand and assess the extent of its impact with the aim of taking appropriate actions where necessary.
In another recent public statement, ESMA acknowledges the difficulties encountered by execution venues and firms in preparing the general best execution reports required under RTS 27 and 28 of MiFID II. In this respect, ESMA recommends that national competent authorities take into account these circumstances by considering the possibility that:
Furthermore, ESMA encourages national competent authorities not to prioritise supervisory action against execution venues and firms in respect of the deadlines of the general best execution reports for the periods referred to above.
The application date of the new tick-size regime for systematic internalisers under the Markets in Financial Instruments Regulation (MiFIR) and the Investment Firms Regulation (IFR) was set at 26 March 2020. In response to developments related to the COVID-19 pandemic, ESMA issued a public statement clarifying that it expects competent authorities not to prioritise their supervisory actions in relation to the new tick-size regime until 26 June 2020, and to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner.
Our team of experts can offer you the following services:
Complyport is a regulatory compliance consulting firm supporting the UK financial services industry for around 20 years. They specialise in providing Governance, Risk and Compliance services to firms in the financial services industry in the UK and overseas. Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. They have successfully assisted over 300 firms to become authorised with the FCA and have been providing regulatory support to over 500 regulated firms on an ongoing basis at a Group level. With presence in the UK, EU and Hong Kong, Complyport can assist firms across multiple jurisdictions.
Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers. The team assists firms on issues relating to corporate governance, risk management, business controls, compliance and business improvement. They conduct audits and reviews of a firm’s products, processes, policies and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Complyport offers full support with financial reporting, capital adequacy assessments and compliance training as well as a suite of online RegTech applications to enable a firm to demonstrate continued compliance with the regulatory obligations.
For more information on our services, please visit our website at 185.183.35.69/~complyport or contact our team at +44 20 7399 4980 or via email at info@complyport.co.uk.
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]]>The post ESMA Guidelines on aspects of MiFID II suitability requirements first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>The assessment of MiFID II suitability is one of the most important requirements for investor protection in the MiFID framework. It applies to the provision of any type of investment advice, whether independent or not, and portfolio management.
Investment firms providing investment advice or portfolio management must, under Article 25(2) of MiFID II and Articles 54 and 55 of the MiFID II Delegated Regulation, provide suitable personal recommendations to their clients or make suitable investment decisions on behalf of their clients.
The Guidelines in the Final Report build on the text of ESMA’s 2012 MiFID I Guidelines on suitability (“2012 Guidelines”), which have been largely confirmed and broadened in order to:
The Guidelines support a consistent and harmonised application of MiFID II suitability requirements.
The European Commission have stated that “[…] firms should ask about their clients’ preferences (such as environmental, social and governance factors) and take them into account when assessing the range of financial instruments and insurance products to be recommended, i.e. in the product selection process and suitability assessment.”
Accordingly, ESMA has included, pending changes to the legal framework, a good practice for firms addressing this issue. The good practice will contribute to raise firms’ and supervisors’ attention and awareness of this issue. ESMA will monitor the European Commission legislative proposals and will consider making focused amendments to the Guidelines to reflect changes to the MIFID II delegated acts on the topic of sustainability.
Publication of the English version of these ESMA Guidelines on 28 May 2018 triggered a two-month period for the FCA to notify ESMA whether they comply or intend to comply with the Guidelines with effect from the end of October 2018 at the latest.
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]]>The post ESMA provides one-stop company portal first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>Investors seeking information on whether a financial service provider is authorised within the European Union (“EU”) will now be able to do so on the new companies’ portal provided by the European Securities and Markets Authority (“ESMA”).
The ESMA portal provides investors with a one-stop-shop register, including information for:
The ESMA portal also provides reference to sanctions applied by the competent authorities in the Member States under several European legislations.
The ESMA Registers system offers machine-to-machine services, including certain queries accessible via predefined URLs. These can be used to retrieve public data maintained in the Registers’ repositories. Examples of these predefined queries are lists of:
We await clarification as to how this will operate in relation to UK operations after the Brexit transitional period ends on 31 December 2020.
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]]>The post CFD Sector: FCA ‘Dear CEO’ Letter and ESMA Press Release and Call for Evidence first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>On 10 January the FCA issued a ‘Dear CEO’ letter to firms either providing or distributing Contracts for Difference (“CFD”) to retail investors. The letter was issued off the back of the FCA’s recent work in this sector and, in particular, as a result of a thematic review carried out with a number of firms last year. The FCA review uncovered a number of areas of concern at a time when the CFD sector was already being subjected to additional criticism and scrutiny as well as the possibility of enhanced conduct rules introduced by CP16/40.
This is not the first time that the CFD sector has been issued with a ‘Dear CEO’ letter; the last one being in February 2016, with a follow up statement by the FCA in June 2017 relating to appropriateness and client take-on concerns raised following the thematic review.
The letter summarises the FCA’s findings from the recent review into both providers and distributors of CFD products and highlights particular concerns, with a familiar nod to appropriateness, with reference to the undertaking of adequate assessments of experience and knowledge; a sign that potentially firms had largely ignored the previous FCA guidance and statements in February 2016 and June 2017. The letter does however highlight new areas of concern.
The concerns expressed by the FCA relate to:
The FCA believes that the significant weakness found in the relatively small sample gave a good indication that firms throughout the sector were not paying heed to or meeting the FCA’s rules or expectations when providing or distributing CFDs to retail clients. The FCA concludes the identified poor practices indicate there is serious risk of harm to consumers.
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]]>The post ESMA Q&As on the Market Abuse Regulation (MAR) first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>| Of relevance to: | Any firm or individual who directly or indirectly deals in, or any firm who issues, any financial instrument (FI) that is:
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| Last updated: | 21 November 2017 – New Q7.8 and Q7.9 |
ESMA issues these Q&As to promote consistency in the application of the Market Abuse Regulation (“MAR”) framework within Europe, applicable in the UK from 3 July 2016.
Whilst the Q&As are not legally binding, their application will be rigorously scrutinised by ESMA and national competent authorities such as the FCA.
That said, the intention is to help issuers, investors and other market participants by providing clarity on the content of the market abuse rules, rather than creating an extra layer of requirements.
Questions and Answers are included on:
5. Disclosure of inside information
6. Prevention and detection of market abuse
7. Managers’ transactions
8. Investment recommendation and information recommending or suggesting an investment strategy
9. Market soundings
10. Insider lists
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]]>The post MiFID II Position Limits first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>| Of relevance to: | Any firm with positions in commodity derivative contracts |
| Key date: | Applicable from 3 January 2018 |
The European Securities and Markets Authority (ESMA) has published nine opinions agreeing MiFID II position limits proposed by the FCA for the net position that can be held in commodity derivatives contracts involving London Cocoa, Robusta Coffee, White Sugar, Aluminium, Copper, Lead, Nickel, Tin, and Zinc.
ESMA has also published a list of liquid contracts with bespoke position limits.
The proposed position limits are consistent with the methodology established in RTS 21 and the objectives of preventing market abuse and supporting orderly pricing and settlement conditions.
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]]>The post Draft Guidelines for Non-Significant Benchmarks first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>| Of relevance to: | Users, administrators and contributors to benchmarks and any market participant |
| Key date: | Applicable from 30 September 2017 |
Earlier this year, the European Securities and Markets Authority (“ESMA”) submitted to the European Commission its draft regulatory and implementing technical standards applicable to critical and significant benchmarks, in relation to the Benchmarks Regulation (“BMR”) which will become fully applicable on 1 January 2018.
Any market participant could be affected, although the BMR will be of particular interest to administrators of benchmarks, contributors to benchmarks and users of benchmarks.
ESMA is now proposing draft guidelines for non-significant benchmarks in the following areas:
ESMA invites responses to their Consultation Paper by 30 November 2017.
Investment managers need to consider their use of benchmarks and any resulting new client disclosure requirements, which may include amendments to terms and conditions and updates to prospectuses and annual client reports.
Whilst formal applications cannot be submitted to the FCA before 1 January 2018, benchmark administrators may now submit a draft application.
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]]>The post Firm Change in Control first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>| Of relevance to: | Any firm proposing a change in any shareholder holding 10% or more |
| Key date: | Applicable from 1 October 2017 |
Guidelines issued by the Joint European Supervisory Authorities (“ESA”), including the European Securities and Markets Authority (“ESMA”), should be borne in mind should your firm have a prospective change in control.
The Guidelines relate to the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector; the FCA and PRA will comply with the Guidelines except for provisions relating to the identification of acquirers of indirect qualifying holdings.
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]]>The post CFDs: FCA Statement first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>Firms offering CFD products
Last December the FCA published Consultation Paper CP16/40 “Enhancing conduct of business rules for firms providing contract for difference products to retail clients” proposing a package of measures to improve investor protection for retail investors tempted to invest in CFDs – details can be found in Regulatory Roundup 83. Last December the FCA published Consultation Paper CP16/40 “Enhancing conduct of business rules for firms providing contract for difference products to retail clients” proposing a package of measures to improve investor protection for retail investors tempted to invest in CFDs – details can be found in Regulatory Roundup 83.
The intention was to issue a Policy Statement with final rules re CFDs (and possibly a further Consultation Paper on binaries) in “spring 2017”.
A statement by the FCA advises that it will delay making final rules re CFDs in the light of an announcement by ESMA on its consideration of product intervention measures (MiFIR Article 40 permits ESMA to temporarily prohibit or restrict the marketing, distribution or sale of certain instruments – and for good measure similar powers are given to the EBA (Article 41) and to competent authorities (Article 42)).
Before the industry breathes a sigh of relief, the FCA statement reminds us that it will continue to focus on the sector and directs the reader to another FCA statement on CFD firms failing to meet expectations regarding appropriateness assessments.
It may be recalled that the FCA issued a ‘Dear CEO’ in February 2016 concerning CFD products (see Regulatory Roundup 73) which highlighted various concerns including the approach that firms took towards completing the appropriateness assessment “… most of which were not in line with COBS 10”.
A follow-up review to this ‘Dear CEO’ letter sampled 23 firms and key areas of concern remain:
The statement concludes by explaining that the FCA continues to have serious concerns about the distribution of CFDs to retail clients and “will consider enforcement investigations or other actions as appropriate”.
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]]>The post Investment Firms: New Prudential Regime Update first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>As we know, ESMA and the EBA published a Discussion Paper (‘Designing a new prudential regime for investment firms’) last November on the suitability, or otherwise, of the prudential regime for investment firms – see Regulatory Roundup 82 (and 72) for further details.
The EBA has announced that it will hold a public hearing this coming 3 July to provide an update on progress made, including a presentation of the preliminary results of its data collection and the calibration of the underlying methodology.
It is expected that the EBA will submit its final advice in September 2017.
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