CUBE RegNews: 12th July

Eva Dauberton

Eva Dauberton

News Editor

FCA publishes Primary Market Bulletin on sponsor regime 

The Financial Conduct Authority (FCA) has published the Primary Market Bulletin 50 alongside policy statement (PS) 24/6 which includes the final UK listing regime rules. 

This edition of the bulletin focuses on the sponsor regime and responds to feedback received during consultations as part of the primary market review. The bulletin also includes guidance consultation (GC) 24/3, which discusses the introduction and amendment of technical notes in the Knowledge Base. 

Some context 

During the Primary Markets Effectiveness Review consultations, the FCA engaged with sponsor firms and identified several areas of concern, including: 

  • The sponsor’s role in coordinating a due diligence package. 
  • Differences between the FCA’s expectations and market practices regarding recordkeeping. 
  • The level of understanding of the sponsor role by companies seeking to IPO. 
  • Potential misunderstandings within firms regarding the FCA’s supervisory approach and follow-up communications. 
  • The nature and extent of due diligence expected for the transfer of ex-standard listed issuers to the commercial companies category. 

The bulletin provides an update on the FCA’s ongoing work related to the sponsor regime and responds to the feedback received during the consultations. 

Key takeaways 

Response to feedback 

The FCA has not materially changed the requirements relating to the nature of the sponsor role or other expectations when a firm performs sponsor services (aside from changes to the sponsor competence requirements). However, the wider set of changes included in (PS) 24/6 will have the effect of completely removing a number of sponsor services or simplifying some of the considerations sponsors make when performing sponsor services.

In response to feedback, the bulletin provides clarifications to assist firms in the following areas: 

  • Specialist due diligence 
  • Record keeping 
  • Issuer understanding of the sponsor’s role and obligations 
  • FCA supervisory reviews of sponsor services 
  • Modified transfers 

Guidance consultation 

As part of the package of measures to support sponsors, the FCA proposes changes to the Knowledge Base, including: 

  • Amending UKLA/TN/717.1 Sponsors: Recordkeeping Requirements to include a practical Q&A section in an appendix 
  • A new technical note: FCA/TN/723.1 FCA reviews of sponsor services. This note aims to explain how and why the FCA performs reviews of sponsor services and to clarify how the FCA provides feedback and what it expects in response. 
  • A new technical note: FCA/TN/722.1 Responsibilities of a sponsor: Specialist due diligence. This note aims to clarify the FCA’s reasonable expectations of sponsors in relation to the work they undertake to support their assurances and confirmations to the FCA, especially in areas of technical specialism. 

Next steps 

The deadline for feedback on the guidance proposal is 5 September 2024. 


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Banking sector complaints reach decade high, says the FSCS 


The Financial Services Compensation Scheme (FSCS) has released an article indicating a significant surge in complaints within the banking sector, reaching the highest levels in over a decade. The article also highlights an increase in claims brought by claims management companies (CMCs) and professional representatives. 


Current accounts, credit cards, and fraud drive the surge in customer complaints 

In the 2023/24 financial year, there were: 

  • 80,137 cases raised about banking and payment products, representing a substantial increase from the 61,995 complaints in the previous year (2022/23). 
  • 198,798 new complaints in 2023/24 across various sectors, compared to 165,149 in the previous year, suggesting a continuing trend into the new financial year. 

According to the article, key drivers behind this surge in complaints include concerns about current accounts, credit cards, and potential fraud and scams. The most common complaints included administration and customer service, as well as perceived unaffordable or irresponsible lending by financial firms. 


Claims brought by CMCs and professional representatives account for 25% of cases 

The article also highlights a rise in claims brought by CMCs and professional representatives, accounting for 25% of cases in 2023/24, up from 18% in the prior financial year. 

On that point, the FSCS notes that it has been considering a proposed case fee for professional representatives where they would face a fee of up to £250 to bring a case, reduced to £75 if the case outcome favours the consumer. Additionally, the FSCS has simplified the process to submit clients’ complaints by introducing a new online form facilitating quicker allocation and investigation of cases. 


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Banks must lead in consumer fraud prevention: Acting Comptroller Hsu 

In a speech at the Financial Literacy and Education Commission’s public meeting, Michael J Hsu, Acting Comptroller of the Currency, highlighted the pivotal role banks play in combating consumer fraud. With fraud schemes causing more than $150 billion in losses across the Americas in 2023, Hsu stressed the urgency of robust anti-fraud measures within financial institutions. 

The expanding fraud landscape 

Hsu pointed out that fraudsters are exploiting both advanced technologies and traditional scams to deceive consumers. Artificial intelligence (AI), for example, is being used to create sophisticated frauds like voice replication and deepfakes, while tried-and-true methods such as fake business or bank representative scams continue to thrive. With bank accounts and payment systems being major targets, financial institutions must be vigilant and proactive in fraud detection and prevention. 

Strengthening internal controls 

Hsu emphasised the importance of effective customer identification and verification processes throughout a customer’s banking relationship. Strong controls and fraud monitoring capabilities are crucial, he argued, particularly in preventing fraudulent wire transfers and unusual transactions. He noted that verifying transaction accuracy with known parties has successfully thwarted many fraud attempts. 

Banks should implement comprehensive fraud prevention strategies, including: 

  • Enhanced authentication: Using strong, multi-factor authentication methods beyond basic texting to reduce vulnerability to scams. 
  • Staff training: Equipping staff to recognise and respond to signs of fraud, such as large or unusual transactions. 
  • Consumer education: Providing customers with information on trending scams and effective prevention measures. 
  • Technological solutions: Leveraging AI and other technologies to flag suspicious activities and block dubious transactions. 


Interdepartmental coordination 

Effective fraud prevention requires seamless communication between different departments within banks, such as compliance, fraud prevention, consumer protection, and fair lending. This coordination ensures timely identification and reporting of suspicious activities, aiding in the protection of both consumers and the financial institution. 

Hsu also underscored the necessity for banks to comply with relevant regulations, such as the Expedited Funds Availability Act (Regulation CC), the Electronic Fund Transfer Act (Regulation E), and the Truth in Lending Act (Regulation Z). Adherence to these laws is vital in ensuring prompt investigation and resolution of fraud concerns. 

Building consumer trust 

A critical aspect of fraud prevention is maintaining consumer trust in the banking system. Hsu highlighted that consumers must have confidence that their banks are taking proactive steps to protect them from fraud. This involves not only preventing fraud but also providing swift and effective assistance to victims of scams. 

Banks can enhance consumer trust by engaging in personal interactions with customers who suspect fraud, offering timely and accurate support through well-trained staff. Initiatives like the Independent Community Bankers Association’s check fraud task force and the American Bankers Association’s Check Fraud Claim Directory demonstrate the industry's commitment to tackling fraud collectively. 

Hsu’s comments underline the crucial role banks must play in addressing consumer fraud. By adopting robust anti-fraud measures, leveraging technology, and fostering interdepartmental cooperation, banks can effectively protect consumers and uphold the integrity of the financial system. As fraudsters become increasingly sophisticated, the financial sector must remain vigilant and innovative in its approach to combating fraud, ensuring that consumer trust is maintained and strengthened. 

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New York DFS adopts guidance for insurers using artificial intelligence 

The New York Department of Financial Services (DFS) Superintendent Adrienne A Harris has adopted guidance to protect consumers from unfair or unlawful discrimination by insurers using artificial intelligence. 

Some context 

On 17 January 12024, the DFS released a proposed insurance circular letter regarding the use of Artificial Intelligence Systems (AIS) and External Consumer Data and Information Sources (ECDIS) in Insurance Underwriting and Pricing. The circular letter aimed to outline the Department’s expectations for all insurers authorized to underwrite insurance in New York State, including Article 43 corporations, health maintenance organizations, licensed fraternal benefit societies, and the New York State Insurance Fund (collectively referred to as “insurers”). 

Key takeaways 

Pursuant to the final DFS’s guidance, insurers are expected to: 

  • Analyse ECDIS and AIS for unfair and unlawful discrimination as per state and federal laws. 
  • Demonstrate the actuarial validity of ECDIS and AIS. 
  • Maintain a corporate governance framework that ensures appropriate oversight of the insurer’s overall use of ECDIS and AIS. 
  • Maintain suitable transparency, risk management, and internal controls, including those related to third-party vendors and consumer disclosures. 


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CBI releases findings of independent review of F&P regime 

The Central Bank of Ireland (CBI) has released a report that includes an independent review of its Fitness and Probity (F&P) regime, conducted by Andrea Enria, former Chair of the European Central Bank (ECB) Supervisory Board. 

Some context 

The F&P regime aims to ensure the suitability of individuals in key roles within regulated entities in the financial sector. The regime has been in place for over a decade and is designed to oversee the fitness and propriety of those in key financial roles. However, following concerns raised by the Irish Financial Services Appeals Tribunal regarding the CBI’s handling of an individual application within the F&P regime, Gabriel Makhlouf, the Governor of the CBI, determined that it was appropriate and timely to review the regime to ensure its ongoing effectiveness. 

Key takeaways 

According to the review, the F&P regime at the Central Bank is broadly in line with peer regulators in various jurisdictions. The review found that: 

  • The standards are comparable, and the supervisory judgement is robust. 
  • The statistics on outcomes, including approvals, withdrawals, and refusals, are consistent with other supervisory authorities and do not signal a particular stringency or leniency of the process. 
  • The timelines are in line with target service standards and generally faster than in other countries. 

However, the review did identify the need for targeted improvements in process consistency across firms of different sizes and operating in different financial sectors, and it provided several recommendations that were focused on: 

  • Clarity of supervisory expectations 
  • Governance of the process 
  • Fairness, efficiency, and transparency of the process. 

One specific recommendation is to create a new unit to consolidate all F&P work. 

Next steps 

The review recommendations will be implemented over the coming months and should be in place by the end of the year. 


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ASIC reminds firms of their obligations in light of DBFO Act royal assent 

The Australian Securities and Investments Commission (ASIC) has issued a notice regarding the obligations of firms in light of the royal assent of the Treasury Laws Amendments (Delivering Better Financial Outcomes and Other Measures) Act 2024 (DBFO Act). 

The notice emphasises that firms should have already updated or be in the process of updating their systems and processes to comply with the changes. 

Additionally, ASIC has: 

  • Registered ASIC Corporations (Amendment) Instrument 2024/554, which includes consequential amendments to ASIC instruments to align with the changes to Financial Services Guide (FSG) requirements. 
  • Modified condition 52 of Pro Forma 209 Australian financial services licence conditions (PF 209) to ensure that FSG record-keeping requirements are technologically neutral. It’s important to note that changes to PF 209 will only apply to entities applying for an Australian financial services licence in the future. 


In the coming months, ASIC will update the regulatory guidance impacted by the DBFO Act. 


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ESMA publishes 2024 ESEF Reporting Manual 


The European Securities and Markets Authority (ESMA) has updated its Reporting Manual on the European Single Electronic Format (ESEF) to provide technical improvements and guidance aimed at facilitating the analysis and comparison of data in annual financial reports. 

The update includes recommendations for tagging empty fields or dash symbols, clarifications regarding extension elements, advice on improving information readability, and encouragement for the use of unique identifiers for tagged facts. 


ESMA has also issued a correction to the Final Report proposing amendments to the Regulatory Technical Standards (RTS) on ESEF due to an error in the Table “Mandatory elements of the core taxonomy to be marked up for financial years beginning on or after 1 January 2025”, where three taxonomy elements/labels related to dividends were omitted from the list of mandatory mark-ups. This error has now been rectified, with the updated document replacing the previous version on ESMA’s website and being submitted to the European Commission. 


Issuers are expected to adhere to the updated guidance when preparing their 2024 annual financial reports, while software firms are similarly expected to incorporate this guidance into the development of software for the preparation of reports in Inline XBRL. 


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