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This week in regulation: fines, P2P platforms & CMCs

05/06/19

The Speed Read

  • New rules for P2P platforms announced
  • FCA sets out expectations for claims management companies operating on behalf of customers
  • FCA issues update on share trading obligations
  • FCA and PRA jointly fine bank for outsourcing failures
  • Decision notices published against a trading company and two of its directors
  • Feedback on proposals to promote greater shareholder engagement
  • FCA calls for inputs on cross-sector sandbox concept

New rules for P2P platforms announced

As part of its commitment to reviewing the P2P regulatory regime, the FCA is introducing new rules to increase consumer protection and enable firms and fundraisers to operate sustainably.

These changes include:

  • Restricting investors who are new to the sector from investing more than 10% of their investable assets into P2P agreements
  • Strengthening the requirements for wind-down plans in the event a P2P platform fails
  • Defining the minimum information that platforms must provide to investors
  • Applying the provisions of the Mortgage and Home Finance Conduct of Business (MCOB) sourcebook and other handbook requirements to those platforms which offer home finance products.

The application of MCOB will apply immediately, with all other provisions coming into force on 9th December 2019.

 

FCA sets out expectations of claims management companies operating on behalf of customers

The FCA has sent a Dear CEO letter to all claims management companies (CMCs) setting out its expectations when firms are acting on behalf of customers.

The letter comes after an increase in poor behaviour observed across the sector, including:

  • CMCs acting without appropriate consent or completed letters of authority
  • Submitting claims under false names
  • Claims where no relationship between the customer and the provider exists
  • Financial promotions which do not comply with FCA regulations.

CMCs are reminded that they are expected to comply with all relevant regulations when carrying out regulated claims management activities. The FCA will continue to monitor the industry and, if it finds evidence of continued failings, it may take further action. This could include removing a firm’s temporary permissions or refusing their application for authorisation.

 

FCA issues update on share trading obligations

In order to reduce potential disruption for EU banks and investment firms trading UK shares in the event of a no-deal Brexit, ESMA has revised the scope of its share trading obligation (STO), following concerns raised by the FCA.

Under the revised approach, EU banks and investment firms will be able to trade all UK shares in the UK. However, the FCA does not believe that the risk of conflicting STOs between the 27 EU member states and the UK has been addressed. The regulator believes that the way to tackle this would be to apply reciprocal equivalence to avoid duplication and maintain the integrity of the UK market.

 

FCA and PRA jointly fine bank for outsourcing failures

A retail bank has been fined a total of £1,887,252 for failing to appropriately oversee and manage its outsourcing arrangements. The bank’s payment services division provides prepaid card and charge card services to UK customers and relied on outsourced service providers to perform a number of critical functions. It failed to assess the business continuity and disaster recovery infrastructure of these outsourced providers, which resulted in significant risk of consumer harm during a disruptive technology incident in December 2015. During this incident 3,367 customers were unable to use their cards.

 

Decision notices published against a trading company and two of its directors

The regulator commenced enforcement action against a trading company after it failed to monitor the impact of operational failings on anticipated financial performance in comparison with market expectations.

These actions breached Listing Principle 1: firms must take reasonable steps to establish adequate procedures, systems and controls to enable it to comply with its obligations. It also recklessly failed to disclose to the market any material change to its actual and expected performance, a breach of DTR 2.2.1R. During the regulator’s investigation the company failed to deal with the FCA in an open, co-operative way, a breach of Principle 2. The company’s CEO was knowingly involved in these breaches and has been fined £214,300. Its Finance Director was also fined £40,200 for being knowingly concerned in one of the above breaches.

 

Feedback on proposals to promote greater shareholder engagement

Following CP19/7, the FCA has published its policy statement on new measures to promote greater levels of shareholder engagement under the new Shareholder Rights Directive II (SRD II) requirements. Generally, respondents agreed with the FCA’s approach to ‘copy-out’ the requirements.

From 10th June 2019, asset managers and asset owners will be required to disclose details of their engagement policies and investment strategies, including why such strategies have not been followed, if that is the case. Life insurers will also be obliged to disclose their relationships with asset managers.

 

FCA calls for inputs on cross-sector sandbox concept

The FCA is seeking industry input into a cross-sector sandbox to test new and emerging technologies such as artificial intelligence (AI) and distributed ledger technology (DLT) and enable firms looking to diversify into other regulated sectors to test new concepts.

The regulator believes there would be significant benefits to a cross sector, including:

  • Enabling regulators to share learnings
  • Identifying common themes that require a coherent UK-wide approach
  • Developing more efficient process for firms bringing innovative solutions to market
  • Removing the uncertainty around which regulators to engage at different points in the innovation process.

The call for inputs is looking for specific examples of instances where a cross-sector sandbox would have been useful for firms and industry views on the benefits and weaknesses of such a scheme.

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