Greg Kilminster
Head of Product - Content
FCA review shows mixed results for banking firms’ adherence to Consumer Duty
The Financial Conduct Authority (FCA) has released the results from a review of banking firms’ adherence to the Consumer Duty. In July 2023, the FCA conducted a desk-based review of 70 product journeys across 47 firms to examine how they were handling customers in financial difficulty, deceased or incapacitated account holders, fraud and security breaches, business current accounts, and mortgages for debt consolidation. The review aimed to evaluate how firms were conducting the review process, the information they used to inform their gap analysis and the actions they had taken or needed to take to deliver good outcomes for customers.
The FCA found that some firms had implemented good practices, such as outlining the end-to-end customer journey across products and services and using a range of data points when assessing products against the higher standards of the Duty. Firms also had clear plans in place to identify areas of customer harm and risk, along with remediation strategies.
However, the FCA also identified some poor practices, such as insufficiently detailed analysis, particularly for certain products like business current accounts and mortgages used for debt consolidation.
To ensure compliance with the Consumer Duty, the FCA expects firms to act in good faith towards customers, avoid causing foreseeable harm, and support customers in achieving their financial objectives. Firms must also have appropriate management information to demonstrate that they are delivering good outcomes for their customers and must annually review and approve an assessment of their compliance with the Duty. The FCA will also continue to monitor firms’ adherence to the Duty’s higher standards.
Click here to read the full RegInsight on CUBE’s RegPlatform
ESMA updates – and postpones – its ESG fund names guidance
The European Securities Markets Association (ESMA) has issued an update to its Guidelines on funds’ names using ESG terms, which were first consulted on in November 2022.
The consultation closed in February 2023 and since then ESMA has been considering the feedback and has now decided to introduce some amendments to the guidelines and postpone adoption of them until the Alternative Investment Fund Managers Regulations and the Undertakings for the Collective Investment in Transferable Securities reviews have progressed.
The revised guidelines maintain the existing scope but introduce changes based on feedback from the consultation paper. Notably, the proposed 50% threshold for sustainable investments in fund names has been removed. Instead, ESMA suggests that sustainability-related terms should align with criteria such as a minimum 80% proportion of investments meeting sustainability characteristics, Paris-aligned Benchmark (PAB) exclusions, and significant investments in sustainable assets as defined in Article 2(17) SFDR.
In response to concerns about fossil fuel exclusions affecting funds with non-environmental focuses, ESMA proposes a new category for “transition” terms. For funds using such terms, an 80% threshold and Climate Transition Benchmark (CTB) exclusions are recommended to support strategies transitioning towards a greener economy.
Additionally, ESMA recommends separating “E” (environmental) terms from “S” (social) and “G” (governance) terms in fund names. While PAB exclusions are deemed appropriate for environmental terms, social and governance-focused funds may face restrictions. Cumulative application of guidelines is suggested for combined terms, with specific CTB exclusions for environmental and transition terms. However, ESMA notes that this does not apply to “sustainable” terms, as they inherently convey sustainability.
Finally, funds using “transition” or “impact” terms should ensure that investments under the minimum proportion contribute to a measurable social or environmental impact alongside financial returns or demonstrate a clear and measurable path to such transition.
Click here to read the full RegInsight on CUBE’s RegPlatform
SEC charges Titanium Capital and its founder with operating Ponzi scheme
The Securities and Exchange Commission (SEC) has taken legal action against Titanium Capital LLC, and its founder, Henry Abdo. The charges include operating a Ponzi scheme that illicitly gained $5.3 million from more than 160 retail investors in the US and abroad. The SEC has also implicated a Titanium representative for her role in soliciting investors.
The SEC’s complaint alleges that since 2014, Abdo and Titanium falsely represented that investor funds were placed in a “multi currency investment fund” supported by a proprietary currency exchange. The scheme promised consistent returns, including a purported 102 percent compounded interest for a five-year investment. Furthermore, Titanium and Abdo allegedly claimed SEC registration and oversight, misleading potential investors.
However the SEC investigation revealed that neither Titanium nor the sale of its securities was registered with the SEC and no evidence existed to support the claimed proprietary currency exchange. The complaint outlines that Abdo and Titanium diverted the majority of investor funds to make Ponzi-style payments, pay related parties, and fund Abdo’s personal expenses, including luxury items and casino visits.
The SEC also contends that Barsh, without proper registration or exemption, actively promoted and sold Titanium’s securities to investors.
Click here to read the full RegInsight on CUBE’s RegPlatform
Basel Committee proposes tighter regulations for stablecoins
The Basel Committee has released a consultation paper (CP) regarding an updated standard that tightens the criteria for stablecoins to receive preferential regulatory treatment from banks. The proposals:
- Establish criteria for stablecoins eligible for inclusion in the Group 1b category of cryptoassets.
- Require banks to conduct due diligence to ensure that they understand the stabilisation mechanisms of stablecoins to which they are exposed.
- Suggest technical amendments and a set of answers to frequently asked questions to help promote a consistent understanding of the cryptoasset standard.
The Basel Committee is seeking feedback on the proposed amendments until 28 March 2024.
Click here to read the full RegInsight on CUBE’s RegPlatform
Commodities merchant fined $91m for fraudulent scheme
The Commodity Futures Trading Commission (CFTC) has imposed a civil penalty of $91 million on Freepoint Commodities LLC, a commodities merchant, for engaging in a fraudulent scheme to obtain material non-public information from a South American state-owned enterprise (SOE) to gain an unfair advantage in the oil market.
The order found that Freepoint, through one or more traders, committed fraud by paying bribes to employees and agents of the SOE to obtain information about oil production, shipping plans, and bids submitted by competitors. The company then used this information to purchase fuel oil at lower prices and sell it at higher prices, generating improper gains of over $30 million.
In a parallel matter, the Department of Justice (DoJ) announced that it has entered into a deferred prosecution agreement (DPA) with Freepoint, deferring criminal prosecution on a charge of conspiracy to violate the Foreign Corrupt Practices Act. Under the terms of the DPA, Freepoint agreed to pay a criminal penalty and forfeit assets.
The CFTC’s order recognizes and offsets a portion of any criminal penalty or forfeiture made to the DOJ.
Click here to read the full RegInsight on CUBE’s RegPlatform
ESMA issues digitalisation discussion paper
The European Securities Markets Association (ESMA) has issued a new discussion (DP) paper on MiFID II investor protection topics linked to digitalisation.
The DP covers the main trends in digitalisation that are linked to the Markets in Financial Instruments Directive (Directive 2014/65/EU), or ‘MiFID II’ investor protection topics and reflecting the trend amongst investors to use applications, websites and digital tools when managing their finances. These digital tools can also be used to seek recommendations or advice prior to purchasing or selling financial instruments.
Hence the DP covers issues such as digital engagement practices that are or can be used by firms, such as nudging techniques and design of choice architecture, the use of gamification techniques, push notifications and possible dark patterns to be aware of.
The DP also covers online disclosures, more specifically exploring ways in which this information can be improved by making use of techniques available to create more bespoke and interactive information to investors. The DP also covers sections on marketing communications and practices used by firms, for instance on social media and through the use of third parties such as affiliates and influencers.
The deadline for responding to the DP is 14 March 2024.
Click here to read the full RegInsight on CUBE’s RegPlatform