Greg Kilminster
Head of Product - Content
FCA issues Dear CEO letter on supervisory strategy for asset management and alternative investment firms
The Financial Conduct Authority (FCA) has recently issued a letter to CEOs of asset management and alternative investment firms. The letter provides an update on the FCA’s Asset Management & Alternatives Supervisory Strategy, outlining its policy priorities for 2024.
The update focuses on areas such as assessments of value and Consumer Duty, the implementation of upcoming regulatory changes, valuation practices for private assets, and market integrity.
In the letter, the FCA also emphasises the CEO’s responsibility for ensuring that their firm meets FCA requirements, including relevant obligations and expectations. It notes that in any future supervisory engagement, the FCA will consider whether governing bodies and Senior Managers have taken appropriate action to ensure that consumers and markets are adequately protected from harms.
Policy priorities
The FCA has planned several regulatory enhancements over 2024. These include the implementation of the government’s Smarter Regulatory Framework (SRF) with a focus on MiFID, AIFMD, and UCITS.
The FCA will also ‘lift and drop’ significant parts of existing regulation, with additional changes to progress the three main priorities for reform:
- Making the regime for alternative fund managers more proportionate.
- Updating the regime for retail funds.
- Supporting technological innovation.
The FCA intends to consult about a replacement regime to PRIIPs and is seeking industry views on how support to consumers can be enhanced under the Advice Guidance Boundary Review.
Upcoming reviews
The FCA will undertake a joint multi-firm review with the life insurance portfolio to understand price and value across the value chain and what actions firms have taken under the Duty to improve outcomes.
It will also conduct a multi-firm review examining valuation practices for private assets, including examining the personal accountabilities for valuation practices in firms, governance of valuation committees, the information reported to boards about valuations, and the oversight by relevant boards of those practices.
Assessments and engagement with Industry
- Assessments of Value (AoV): The FCA will continue to engage with firms with significant Assessments of Value (AoV) deficiencies and follow-up, taking necessary action to ensure AoVs are conducted in line with their rules and expectations.
- Consumer Duty: Under the Consumer Duty, the FCA will assess how asset managers have considered the price and value of products and services provided to unit-linked funds.
- Change management: The FCA recognises that a considerable amount of current and planned regulatory change impacts this sector, presenting challenges for firms. Notably, requirements from policy statement (PS)21/3: Building operational resilience and the Sustainability Disclosure Requirements (SDR) and investment labels. The FCA will continue to work to establish firms’ preparedness by assessing how firms’ governance and resourcing of change programs have considered and mitigated this risk to ensure that potential harms to investors and markets are being appropriately addressed. The FCA will plan further proactive engagement throughout this year.
- Market integrity and disruption: The FCA will continue its work diagnosing and addressing elements of the system that have shown vulnerability to market stress.
This includes work with other domestic agencies and internationally to strengthen the resilience of money market funds, funds with significant liquidity mismatches, and transmission of risk from the non-bank financial sector to the wider market.
The FCA will also continue to work with the Bank of England on the ongoing System-Wide Exploratory Scenario.
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FCA releases draft Q&A on changes to UK EMIR reporting requirements
The Financial Conduct Authority (FCA) has released a consultation on a draft Q&A regarding the changes to UK EMIR reporting requirements, as described in the joint policy statement (PS) 23/2 with the Bank of England. Most of the new requirements will apply from 30 September 2024.
During the consultation process, the FCA received requests for supporting guidance on how the updated UK derivatives reporting framework will be implemented. In response, the FCA is providing guidance to support the implementation of reporting requirements through this draft.
The Q&As will be divided into 12 topics, with this consultation covering the first five topics, which include:
- Transitional Arrangements
- Reconciliations
- Errors and Omissions
- Derivative Identifiers
- Action and Events
The FCA will consult on the remaining topics in the spring of 2024. The deadline for providing feedback is 28 March 2024.
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CP 24/3: FCA issues quarterly consultation paper no 43
The Financial Conduct Authority (FCA) has published its quarterly consultation paper (CP) 24/3, which outlines a series of proposed amendments to the FCA handbook. These amendments also include introducing new enforcement powers to oversee critical third parties (CTPs).
Proposed changes to the FEES handbook
The FCA proposes minor changes to FEES 3 Annex 9R(2) to allow charging Special Project Fees for restructuring (SPFRs) to firms in the B fee-blocks in the circumstances set out by the rules.
New Statement of Policy (SoP) on enforcement powers for the oversight of critical third parties (CTPs)
The FCA also proposes a new Statement of Policy (SoP) on enforcement powers for the oversight of CTPs related to the regime created by FSMA 2023. Under this regime, the FCA will have the power to take enforcement action if a CTP contravenes applicable regulatory requirements. CP26/23 and CP23/30 set out the proposed CTP regime, including draft rules, while this consultation deals exclusively with matters relating to the FCA’s enforcement actions against CTPs. The SoP proposed in this consultation will form part of DEPP in the FCA Handbook.
Amendments to the Training and Competence (TC) sourcebook
The FCA proposes to implement an annual consultation cycle for updates to the qualification-related elements of the TC sourcebook.
The FCA also intends to consult on changes to qualification-related aspects later this year, providing qualification providers and accredited bodies with sufficient opportunity to inform the FCA of any necessary changes to the TC sourcebook. Then, subject to the outcome of this consultation, the FCA will move to consult annually starting in 2025.
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FCA issues Handbook Notice 116
The Financial Conduct Authority (FCA) has issued Handbook Notice 116, including amendments resulting from the quarterly consultation paper (CP) 23/25 released on 1 December 2023.
Background
Currently, references in the FCA Handbook to enactments (aside from references to the FCA Handbook, PRA Handbook, or specific provisions of retained EU law) are generally static and do not account for any subsequent changes to that law unless a later Handbook instrument updates the reference.
This can make the interpretation of the Handbook challenging, as users must examine amending instruments to determine which historical version of a law the Handbook refers to.
Amendments
The Handbook Notice modifies Chapter 2.2 of the General Provisions manual (GEN). It makes all references to laws in the Handbook rules (including Glossary terms where they are used by rules) changeable unless there is a contrary indication. The changes mean that updates to laws will automatically flow through to Handbook rules, making it easier to interpret the Handbook. This instrument takes effect on 1 March 2024.
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FCA issues guidance on wind-down plans for firms applying for authorisation
The Financial Conduct Authority (FCA) has issued guidance to firms regarding wind-down plans submitted when applying for authorisation.
For some firms seeking authorisation, a wind-down plan may be required as part of the information submitted. The FCA outlines several essential elements that firms must consider when developing such a plan, including planning considerations and scenarios, as well as the resources needed to execute these scenarios.
In the notice, the FCA also directs firms to its finalised guidance on assessing adequate financial resources to help them consider various scenarios that may lead to financial stress. This guidance encourages firms to explore recovery options and, as a last resort, wind down their business.
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ASIC releases Q4 2023 enforcement and regulatory update report
The Australian Securities and Investments Commission (ASIC) has released its enforcement and regulatory update report for the last quarter of 2023, providing a comprehensive overview of its activities during that period. The report primarily focuses on ASIC’s efforts in enforcing financial services regulations, protecting retail investors, and regulating the financial sector.
Enforcement
Enforcement was a top priority for ASIC during the quarter, with the courts ordering civil penalties worth $59.8 million for various types of misconduct, such as misleading and deceptive conduct related to investment products, governance and directors’ duties failures, and harm to vulnerable consumers.
ASIC also took action against misconduct in the superannuation sector, resulting in OnePath Custodians being penalised $5 million for fees-for-no-service misconduct and ASIC’s first civil penalty action under the Internal Dispute Resolution regime.
Furthermore, ASIC imposed infringement notices on Morningstar and Northern Trust Asset Management for misleading conduct in relation to sustainable finance.
Investor protection
ASIC also took additional actions to support and protect retail investors. For instance, ASIC oversaw eight retail over-the-counter (OTC) derivatives issuers, making combined compensation payments of more than $17.4 million to over 2,000 retail clients affected by breaches of financial services laws. ASIC also launched a new website takedown service and investor alert list to disrupt and deter investment scams.
Regulations
The report outlines ASIC and Australian Prudential Regulation Authority’s (APRA) work on the Financial Accountability Regime and life insurance industry practices in relation to premium increases. The report also provides a regulatory developments timetable.
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Hong Kong launches Green FinTech Map
The Green and Sustainable Finance Cross-Agency Steering Group, which includes the Hong Kong Monetary Authority (HKMA), the Securities and Futures Commission (SFC), the Insurance Authority (IA), the Financial Services and the Treasury Bureau (FSTB), and Hong Kong Exchanges and Clearing Limited has announced the launch the Prototype Hong Kong Green FinTech Map (Map).
The purpose of the Map is to help corporate and financial firms locate Green FinTech solutions that meet their business needs. It is a directory of over 50 Green FinTech firms operating in Hong Kong that offer various products, such as environmental, social and governance (ESG) data and analytics, ESG disclosures and regulatory reporting, climate risk modelling and assessment, green digital finance and investments, and carbon credit trading and analytics.
Christopher Hui, Secretary for FSTB, stated, “The Government attaches high importance to the advancements in green finance and FinTech. The introduction of this map symbolises the integration of green finance and FinTech, which will be conducive to accelerating the transition towards a green economy and fostering the development of the Green FinTech ecosystem.”
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