Contents:
- ESG Funds
- Payment Service Providers and anti-fraud
- Cryptoasset financial promotions
- Principals of Appointed Representatives
- Overseas Funds Regime
- FCA Regulatory Fees
It has been an interesting year in the financial services sector and a challenging one for markets. To round up 2023, we have highlighted some notable topics for financial services businesses.
We hope 2024 brings opportunities and a brighter outlook, and wish you all a very Merry Christmas and Happy New Year.
ESG Funds
The FCA recently undertook and published research called ‘Financial Lives’. This showed that 80% of consumers said they cared about their investments being for good causes. It is no surprise then that more investors are opting for funds promoting ‘ESG’ credentials. Research has also shown, however, that investors are sceptical of claims that their investments are indeed sustainable.
In response, the FCA has published their Sustainable Disclosure Requirements (SDR) and Investment Labels Regime to help consumers navigate the sustainable products available.
This regime aims to ensure financial products marketed as sustainable are what they claim to be, and evidence supports it.
Payment Service Providers and anti-fraud
High Street banks have said that they expect customers in the UK to lose around £100m this Christmas alone to scams. The tactics of criminals are varied, but there are common methods which trick consumers out of their money.
The FCA has released a paper on their findings from a review of anti-fraud controls and complaint handling in a sample of payment service providers. This focused on Authorised Push Payment (APP) fraud. APP fraud involves criminals tricking someone into transferring money to them.
In the first half of 2023, over 116,000 people reported falling victim to APP fraud, while fraud overall accounted for an estimated 40% of all crimes in England and Wales in 2022.
The FCA report includes examples of good practices and common areas for improvement. The FCA expects firms to have effective governance arrangements, controls and management to reduce the chances of fraud happening and mitigate its effects. This guidance will be of interest to payment services and e-money providers in particular.
Cryptoasset financial promotions
The FCA has published its finalised guidance on new rules surrounding the promotion of cryptoassets. New rules were introduced in October 2023, and this guidance supports that further.
As a reminder, the FCA has classified cryptoassets as ‘Restricted Mass Market Investments’, allowing them to be mass-marketed to UK consumers subject to certain restrictions. This is in addition to the overarching requirement that financial promotions must be fair, clear and not misleading.
The restrictions proposed include clear risk warnings, banning incentives to invest, positive frictions, client categorisation requirements and appropriateness assessments.
The guidance also details how firms should apply the Consumer Duty when communicating or approving financial promotions of cryptoassets.
Principals of Appointed Representatives
There are new reporting requirements for principal firms which have appointed representatives. From 1 December 2023, there is a new form (REP205) on RegData, which will need to be completed by principal firms.
There is also a requirement for firms to attest the details of all Appointed Representatives, including if:
- they have more than one principal
- their details haven’t changed from last year or have been recently updated
This must be undertaken during the annual Firm Details Attestation (FDA) and completed within 60 days of the Annual Reference Date.
There are penalties for late filing, so firms within scope should be aware of the new requirements and contact the FCA if they believe the firms they need are not on RegData.
Overseas Funds Regime
The UK is recognised as a leader in asset management with over £10tn under management. Many of the funds offered to UK investors are from overseas. The Overseas Funds Regime (OFR) is a framework for non-UK funds to be marketed to UK retail investors post-Brexit.
The FCA proposes making new rules and guidance to operationalise the OFR so that overseas funds can apply to the FCA for recognition and know which FCA rules they must comply with.
They are also consulting on clarification on how they intend to use their powers, including proposals for data collection, pre-sale disclosure, the application process and fees.
The full consultation paper can be found here: CP23/26: Implementing the Overseas Funds Regime (fca.org.uk)
FCA Regulatory Fees
The FCA has released CP23/22: Regulatory fees and levies: policy proposals for 2024/25 which explains their costs in the current year and the effects of fines.
The FCA covers its annual costs by setting its Annual Funding Requirement (AFR). This is spread over fee blocks and paid by firms according to their size and activities. The AFR is £681.8m for 2023/24, although any regulatory fines reduce the amount charged to firms. These were £52m, which reduced the total collected from firms to £629m.
The funding requirement is increased by ‘Exceptional Projects’ (totalling £24m in 2023/24), which is related mainly to work undertaken to bring in new areas under regulation. This specifically covered Open Banking and Cryptoassets.
Going forward, more firms will be in scope, so the theory goes that the higher fees will be spread amongst more firms. A further consultation on fee rates will be released in April 2024.
CAN WE HELP?
If you would like to discuss any of these developments or have questions for our specialist Financial Services team, please do get in touch.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.
Copyright © Shipleys LLP 2023
Related Resources
Financial Services Update – September 2023
Financial Services Update – May 2023
Financial Services Update – January 2023
Financial Services Update – September 2022
