Protiviti UK Regulatory & Compliance News Round-up

Compliance insights may 19

Protiviti UK Regulatory & Compliance News Round-up


This month's key development has been the FCA and PRA annual business plans for 2019/20. Operational resilience continues to be one of the key areas of focus. The FCA’s business plan is summarised in a Protiviti blog post here. The opportunities and risks that technology and digital innovation present are ever and arguably increasingly present and supported by a recent survey finding that over 71% of all banking interactions are now digital or online, compared to 6% in branch. It is therefore not surprising that the European supervisory agencies (“ESAS”) have published joint advice technology risk management and cybersecurity – even if they are not yet ready to propose rules and requirements.

Given that technology risks traditionally have not been a core area of focus for Compliance professionals, this may present a people challenge in terms of skills and experience. In addition to the business plan, the FCA continues attention on customers especially in the general insurance market that revolves around conduct and culture with a focus on preventing harm to consumers. The FCA’s interest in leadership in the context of developing a healthy culture is a clear sign of how they are evolving their approach to the Senior Managers Certification Regime.


What We Are Reading

ESAS publish joint advice on information and communication technology risk management and cybersecurity

The European Supervisory Authorities (ESAs) published two pieces of Joint Advice in response to the European Commission FinTech Action Plan:

  • Joint Advice on the need for legislative improvements relating to Information and Communication Technology (ICT) risk management requirements in the European Union (EU) financial sector.
  • Joint Advice on the costs and benefits of a coherent cyber resilience testing framework for significant market participants and infrastructures within the EU financial sector.

Summary of discussions at EIOPA’s InsurTech Roundtable on cloud computing

EIOPA published a summary of discussions on the use of cloud computing by insurers and reinsurers, which was held on 11 April 2019. The roundtable continued the work outlined in EIOPA's March 2019 report on outsourcing to cloud service providers. Fausto Parente, EIOPA Executive Director, stressed the importance of bearing in mind that the adoption of cloud solutions is one of the enablers to foster innovation in the sector.

FCA warns firms in general insurance distribution chains to put customers at the heart of the business models

The FCA has published a number of materials relating to its work on the general insurance (GI) sector:

  • A thematic review report (TR19/2), which sets out the key findings from the FCA's thematic work on the GI distribution chain, its expectations and next steps.
  • A guidance consultation (GC19/2) on proposed non-Handbook guidance on expectations of firms involved in GI distribution chains.
  • A Dear CEO letter, in which the FCA shares its findings and expectations with GI firms and calls on them to act immediately to identify and mitigate any shortcomings.

In the FCA's view, some GI firms have not responded appropriately to previous FCA work in this area. This means that these firms are insufficiently focused on customer outcomes, including the value of the products and services their customers receive.

FCA Market Watch issue 59

The newsletter on market conduct and transaction reporting issues covers:

  • Transaction reporting observations.
  • Telephone recording and retention.
  • Use of client codes.

ESMA updates its Q&As on MiFID II and MiFIR transparency topics

On 2 April 2019, the European Securities and Markets Authority (ESMA) updated it’s Q&As clarifying determination of the turnover to be used for the average value of transactions calculation; money market instruments; impact for systematic internalisers (SIs) of an instrument changing liquidity status in between the SI determination dates; reporting of prime brokerage transactions; quoting obligation for SIs in non-equity financial instruments; branches of third country firms operating as SI in the EU; and third-country trading venues’ access to an EU central counterparty (CCP).

Where the UK fails on anti-money laundering

Corruption Watch reports billions of pounds’ worth of criminal funds are laundered through the U.K. each year despite a backdrop of “parking penalty” level fines. While an intergovernmental body that develops policies to combat financial crime, recognises the U.K. for its stance on some types of money laundering, it questions high-end money laundering investigations; current criminal laws which hamper AML and inability to fine banks or corporations for accepting laundered funds.

The UK’s anti-money laundering framework is on the cusp of a facelift

Transparency International estimates that £48 billion is laundered through the UK each year. The UK Government is reforming its criminal corporate liability framework. The UK Treasury Committee has described the UK’s approach to AML supervision as “fragmented”. The committee recommended a new Office of Professional Body Anti-Money Laundering Supervisors (OPBAS-launched in January 2018 as a unit in the FCA) as the “supervisor of supervisors” to ensure consistency of supervision across all AML supervisors. and called on the UK Government to outline plans to rectify the lacunae in the AML framework caused by Companies House.

ESG: UK fund management body proposes standard definitions

The Investment Association (IA) is seeking UK asset manager members’ views on proposals for industry-agreed definitions and a product labelling system for UK retail investors. It also asks managers about their disclosure practices.

According to the trade body, asset managers had been practising responsible investment “for many years” with the intention of delivering better long-term returns for clients, but expectations had evolved.

Libor fallback rates in derivative contracts to get public consults this month

The International Swaps and Derivatives Association plans to issue two consultations this month on introducing fallback benchmarks in derivative contracts that reference Libor rates at risk of discontinuation, part of a push to announce a market protocol by year-end.

The UK regulators set out their key focus areas for year ahead

In addition to responding to the UK’s exit from Europe, the FCA’s Business Plan provides cross-sector and sector specific themes with continuing emphasis on the risks and opportunities arising from technology and digital innovation whereas the PRA’s Business Plan emphases financial and operational resilience including stress testing, recovery and resolution for banks and insurers. Both regulators also cover their approach to dealing with the UK's exit from the European Union.

EBA goes live with its central register of payment and electronic money institutions under PSD2

The European Banking Authority launched its central electronic register under the Payments Services Directive (PSD2). The register will provide information on several thousand payment and electronic money institutions and 150,000 agents within the EU. Its objective is to increase transparency and ensure a high level of consumer protection within the European Single Market.

Rise of digital banks in the UK is gaining momentum, finds FIS survey

According to a research done by FIS, 71% of all banking interactions in the country are now digital or online, compared to just 6% happening in a branch. The engagement with mobile banks among UK customers is on the rise with digital channels now the most favoured method of personal finance management.

FCA Complaints data for second half of 2018

On 18 April 2019, the FCA published a its complaints data relating to the second half of 2018 (1 July to 31 December 2018) - a 5% decrease compared with the first half of 2018. This is the first time the number of complaints has fallen since 2016, when complaints reporting was amended.

FCA Highlights Complaints-handling failures by general insurance firms

The FCA has identified a number of areas for improvement and reminds general insurance firms that they must handle complaints in line with its rules and principles, in particular the requirements set out in Dispute Resolution: Complaints (DISP). It states that its supervisory work has revealed that some general insurance firms are failing to consistently deliver fair outcomes for their customers when handling complaints and provides five areas for improvement.

FCA Dear CEO letter reminds firms of obligations when approving financial promotions

On 11 April 2019, the FCA published a Dear CEO letter sent to all regulated firms reminding them of their regulatory obligations when approving financial promotions for communication by unauthorised persons.

The FCA is writing to firms again to underline how seriously it treats this issue. Before approving a financial promotion, firms must confirm that the promotion complies with the FCA's financial promotion rules. This includes ensuring that any financial promotions approved are fair, clear and not misleading.

Despite the January 2019 letter, the FCA has identified a number of examples where it appears the due diligence carried out on a financial promotion may have fallen well short of the standards it expects.

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Bernadine Reese
Bernadine Reese
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Stuart Campbell
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