Financial Services News October 2016
Current Issues | Financial services | 7th October 2016
FCA Cloud Guidance
The FCA have issued guidance on the use of cloud computing services. This is important as many firms are using “the cloud” more and more for their business activities. FCA firms will need to understand how this interacts with their regulatory requirements and Finalised guidance FG 16/15 gives some assistance.
To summarise the FCA have said that where a firm uses the cloud for software this is considered ‘outsourcing’ and firms must undertake appropriate checks and due diligence and manage the risks associated with this arrangement. Firms cannot delegate any of the regulatory responsibilities to a third party and remain fully accountable. When considering outsourcing, firms must rank services according to whether they are critical or important, and firms must have a good business case for outsourcing.
Data residency is a hot topic so it is important to understand where your data is being held and the rules which apply in that jurisdiction with regards to data protection to ensure you’re in compliance. Firms should also ensure that data is being held in jurisdictions which do not hinder access to the data for the firm, or the regulator.
Fees and levies
The 2017 fees and levies have been finalised and released by the FCA. To cover some key sectors, broker dealers’ fees are still based on turnover but there will be a drop on the prior year from £3.15 per £1,000 of turnover to £2.83/£1,000. Fund managers will also see a drop where their fees are based on funds under management. This falls from £7.63/£1m to £7.08/£1m. EMI firms will see an increase of around 6.9% as their fees are based on £m of outstanding electronic money. See Policy Statement PS16/16 for the full details.
ESMA MiFID Register
The European Securities and Markets Authority (ESMA) has released a register of firms which are covered by MiFID (Markets in Financial Instruments Directive) regulation. This is useful as until now, it has not been possible to easily tell from a firm’s FCA permissions whether they are within the scope of MiFID or not. MiFID firms are generally those which have the ability to trade within Europe as well as the UK and have greater reporting requirements, specifically reports used by the European Banking Authority (EBA).
The FCA have undertaken a review of the regular reporting firms are required to make on their profit and loss (P&L). They have reminded firms that the P&L should be completed on a cumulative year to date basis, and also note that many firms are reporting £nil for their turnover. This suggests they are not using all of their permissions, and the FCA will be removing permissions if they consider it is unlikely a firm will use them going forward.
This is still due to apply from 3 January 2018 and the FCA have issued another consultation paper on how the implantation is planned. This is the second of three consultation papers in total, so if interested in the detail see Consultation paper CP 16/19. Ares specifically examined are remuneration, whistle blowing, client assets and complaints handling. The main changes proposed by MiFID II have been covered in previous newsletters, and by now most firms will now how it is likely to impact them.
We have yet to see the enactment of Article 50 which will begin the process of the UK leaving the EU and the Government has said it will not happen this year. Some commentators are saying it may not be until 2019. The process will be a long one, but until this is enacted the plans from a financial services regulatory perspective are still largely guesswork.
The FCA’s position on Brexit continues to be for all regulated firms to continue just as they were doing before, and continue to push ahead with any planned changes to adopt European legislation (MiFID II for example).
The general consensus seems to be that the FCA is likely to voluntarily adopt any European Legislation going forward. So if we do leave the EU, we will likely retain all the passporting rights we preciously had, although of course this time without the ability to vote on the laws we are adopting!
In the news
Something to keep an eye on will be what happens with Deutsche Bank, as the press are reporting investor concerns over its financial stability. This is partly on the back of a $14bn fine in the US for mis-selling mortgage-backed bonds before 2008. If the bank requires a bailout or fails, the repercussions will be far reaching both in the EU and across global markets.
Specific advice should be obtained before taking action, or refraining from taking action, on the basis of this information.