UK Regulatory Radar

The PRA has published Policy Statement (PS) 5/24, following last year's consultation (CP10/23). The PS, which is accompanied by Supervisory Statement (SS) 2/24, does not make any major changes to the original proposals as a result of the feedback received. Firms are expected to comply with the requirements around Solvent Exit Analysis (SEA) and Solvent Exit Execution Plans (SEEP) by 1 October 2025.  

HM Treasury (HMT) is consulting on a proposal for a new type of trading venue. PISCES (previously known as the intermittent trading venue) will provide a platform to allow private companies to trade their securities in a regulated environment and on an intermittent basis. It will incorporate elements from public markets, such as multilateral trading, and elements from private markets, such as greater discretion on what company disclosures should be made public. It will be developed using a `financial markets infrastructure sandbox', as established under FSMA 2023.

The FCA has published the final report of its wholesale market data study which examined competition in the markets for credit ratings data, benchmarks and market data vendor services. The FCA has ruled out a significant intervention because of potential unintended consequences, such as on the availability and quality of data, in a market that is relied upon by investors worldwide. However, across all three markets, the FCA has identified areas where competition does not work well and will look at whether regulations could be improved so that wholesale data is provided on a transparent, fair and reasonable basis. 

The Bank of England (BoE) and FCA are consulting on guidance, in the form of draft Q&As, to support the implementation of the UK EMIR Refit reporting requirements which will be applicable from 30 September 2024. The Q&As have been informed by discussions with trade associations, reporting counterparties, trade repositories and CCPs via the UK EMIR Reporting Industry Engagement Group. The consultation covers five topics: (i) Transitional Arrangements, (ii) Reconciliations, (iii) Errors and Omissions, (iv) Derivative Identifiers and (v) Action and Events. Further topics will be subject to consultation later in spring 2024.

The Financial Reporting Council (FRC) has provided an update on its plans to review the UK Stewardship Code. The review aims to ensure that the Code continues to drive good outcomes for investors without unduly contributing to reporting burdens. It will be undertaken in three phases, culminating in the publication of a revised Stewardship Code in 2025.

The FCA has reminded market participants that the three month synthetic sterling LIBOR setting — the last remaining synthetic sterling LIBOR setting — ceases permanently on 28 March 2024. US dollar synthetic LIBOR is expected to cease in seven months' time at the end of September 2024. The FCA expects that parties to contracts still referencing LIBOR should be taking steps to transition to robust, appropriate reference rates, re-negotiating with counterparties where necessary.

The FCA has published an interim update (PDF 169KB) on its 2022 and 2023 portfolio letters for alternative and mainstream asset managers respectively. See more in the article above.

The FCA's Synthetic Data Expert Group (SDEG) has published a report (PDF 0.8MB) on the use of synthetic data, which can enable more advanced modelling techniques and more effective training of AI, in financial services. The report provides an overview of the opportunities and risks associated with synthetic data and outlines specific lessons learned to be considered when creating the data itself. The content of the report does not represent the views of the FCA itself and should not be taken as an indication of future policy.

The PRA has released a suite of materials to bring Solvency UK (SUK) closer to implementation. These cover reporting requirements, internal models (IM), capital add-ons, third country branch capital, mobilisation and the thresholds for entering the Solvency II regime. The final policies and SS provide helpful clarity on the PRA's approach and processes. All have an effective implementation date of 31 December 2024, as expected. They bring no major surprises and, overall, closely mirror what the PRA has already consulted on. This reinforces the PRA's message to firms that they should not expect material changes from the package consulted on and, given the timing of next supervisory statements, they need to continue to progress Solvency UK change programmes based on reliable working assumptions from the consultations.

The FCA has updated the government on the progress of its work on multi-occupancy buildings insurance (MOBI). The letter (PDF 113KB) recaps the FCA's new leasehold insurance rules, progress on industry data standards and reinsurance scheme initiatives, and the findings of the its pricing review. The pricing review found that five of six firms sampled had capped commission rates and there were no material fair value concerns. The FCA expects firms to improve the data they use to evidence compliance with the fair value rules, and will continue to scrutinise how they assess and evidence fair value.

HMT has published draft legislation to strengthen the requirements applicable to banks and other payments service providers (PSPs) when they intend to terminate a contract for payment services such as a current account. Under the proposals, PSPs would be required to give customers 90 days' notice of a planned account closure, an increase on the current two month notice period, and provide a sufficiently detailed explanation of the rationale for their actions. These changes follow several high-profile instances of alleged `de-banking' last year that prompted an FCA review of bank account access and closures. The legislation is expected to be laid before parliament in the summer.

In the Spring Budget, the government announced plans to introduce legislation to reinstate the previous eligibility criteria for qualification as a high net worth or sophisticated investor. The FCA implemented the changes by 31 January 2024 as required by law. The updates amended the eligibility thresholds for the high net worth individual exemption and the eligibility criteria for the self-certified sophisticated investor exemption. Further work is planned to review the scope of the exemptions.

The FOS's Q3 2023/2024 complaints data shows an overall increase in complaints volumes compared to Q3 2022/2023. Whilst current accounts continue to be the product most complained about, credit card complaints are at their highest quarterly level, driven largely by irresponsible or unaffordable lending complaints. Hire purchase (motor), car/motorcycle insurance and buildings insurance make up the rest of the top five, all of which show year-on-year increases. Data for the next quarter is expected to reflect the significant impact on motor complaints of the FCA's announcement of a review into historical motor finance commission arrangements. Read more about the FCA's action here.

HMT has published a proposed legislation to slow down the processing of APPs where there are reasonable grounds to suspect fraud. This is part of a package of legislative and regulatory measures to protect consumers from fraud and scams. The proposed changes will see payment service providers (PSPs) given four business days to contact customers, police and other relevant parties when they have reasonable grounds to suspect fraud before sending a payment. The changes are intended to come into effect on 7 October 2024 alongside the new mandatory reimbursement rules.

TPR has announced changes to its regulatory approach to reflect the evolving pensions landscape and ensure that pension savers continue to be protected and receive good outcomes. TPR is creating three core regulatory functions, operational from April: (i) Regulatory Compliance, (ii) Market Oversight, and (iii) Strategy, Policy and Analysis. Under the new structure, TPR hopes to be able to address compliance failures more rapidly, improve stakeholder engagement and better promote innovation.

TPR has published is consulting on proposals to support trustees of defined benefit (DB) schemes in meeting new requirements for submitting a statement of strategy (the "Statement"). TPR has created Statement templates aimed at minimising the administrative burden on trustees. The requirement for trustees to produce this Statement comes into force on 22 September as part of a package of measures introduced to improve the security and sustainability of DB pension schemes.

TPR has published is consulting on proposals to support trustees of defined benefit (DB) schemes in meeting new requirements for submitting a statement of strategy (the "Statement"). TPR has created Statement templates aimed at minimising the administrative burden on trustees. The requirement for trustees to produce this ATPR has announced the initial outcomes of its value for members assessment pilot, which found that 16% of pilot participants had wound up schemes after concluding they did not deliver value for members. TPR's action also resulted in a fine against a corporate trustee.  The assessment of value rules came into force in October 2021 and require trustees of schemes with less than £100 million in assets to undertake a more detailed assessment of value for members than larger schemes. Those failing to deliver value must set out a plan to improve or transfer members to a better value scheme. Following the initial pilot, TPR will scrutinise information from defined contribution scheme returns with the potential for fines to be issued for non-compliance.Statement comes into force on 22 September as part of a package of measures introduced to improve the security and sustainability of DB pension schemes.

The Spring Budget (PDF 1.1MB) included a number of pension-related announcements:

• Value for Money — The government confirmed its support for the FCA's upcoming value for money consultation that will include proposals to require the publication of contract-based DC default funds' historic net investment returns and a breakdown of their UK investments. The proposals will require schemes to compare their performance, costs and other metrics against those of at least two schemes managing over £10 billion in assets. This is an initial level that is expected to increase significantly over time. 
• Local Government Pension Scheme (LGPS) reporting — The introduction of revised annual reporting guidance for LGPS in England & Wales as early as April 2024. 
• Pensions lifetime provider —The government reiterated its intention to explore a lifetime provider model for DC pension schemes in the long-term. This will build on earlier work, including the findings of the DWP's November 2023 Call for Evidence which considered whether a lifetime provider model would improve outcomes for savers.

Following a 2022 review of the UK's AML/CFT supervisory regime, HMT is consulting on a number of technical changes to the Money Laundering Regulations 2017 (MLRs). The consultation covers four themes: making customer due diligence more proportionate & effective; strengthening system coordination; providing clarity on scope of the MLRs; and reforming registration requirements for the Trust Registration Service. The consultation closes on 9 June 2024. A range of businesses will be affected, including those outside financial services.

The FCA's Quarterly Consultation Paper (QCP) 43 (PDF 0.7MB) includes a proposed Statement of Policy (SoP) setting out the enforcement approach for the new regime for oversight of critical third parties (CTPs) introduced under FSMA 2023. The BoE and PRA area expected to consult on their own enforcement proposals in due course. The SoP sits alongside the joint BoE, PRA and FCA consultation CP26/23 -Operational Resilience: Critical third parties to the UK financial sector, published in December 2023, which did not cover enforcement provisions.

The FCA is consulting on increasing transparency around its enforcement investigations. Under the proposals, it would use a framework on a case-by-case basis to decide whether to publish more information about its enforcement investigations, potentially also including the identity of the subject of the investigation. The FCA also proposed changes to its Enforcement Guide to reduce duplication and make information about its processes more accessible. While the FCA hopes that the proposed changes could act as a greater deterrent to poor practice, the proposals are likely to be met with significant pushback from the industry.

The UK Parliamentary Treasury Committee's 'Sexism in the City' report (PDF 0.5MB) welcomed the PRA and FCA's focus on diversity and inclusion (D&I), but flagged concerns about some of the regulators' proposals. The Committee recommended that firms' boards and senior leadership take greater responsibility for improving D&I and that the regulators drop their plans for `extensive' data reporting and target setting. It also noted that firms with `some of the worst cultures and levels of diversity' were excluded from the existing proposals. The regulators are yet to publish their final requirements for firms.