Greg Kilminster
Head of Product - Content
FCA publishes DP24/2 on transaction reporting
The FCA has released Discussion Paper (DP24/2) seeking input on improving the UK transaction reporting regime. This initiative is part of a broader effort to modernise regulatory frameworks, enhance market integrity, and support the competitiveness of UK financial markets.
Some context
The current transaction reporting regime, introduced under MiFID II in 2018, plays a critical role in maintaining market cleanliness and resilience. The FCA receives more than seven billion transaction reports annually, which are used to monitor market activities and detect abuses. However, evolving market dynamics and technological advancements necessitate updates to improve data quality and reduce compliance burdens.
This review aligns with the UK’s post-Brexit regulatory reforms, transitioning from EU frameworks to UK-specific rules. The FCA aims to balance the benefits of alignment with international standards against the advantages of a tailored regime that supports UK market participants.
Objectives
The discussion paper identifies two primary objectives:
- Improving data quality: Enhancing the completeness and accuracy of transaction reports to facilitate better regulatory decision-making and reduce error correction costs for firms.
- Reducing burdens: Streamlining requirements to lower costs for market participants while maintaining high regulatory standards.
Key proposals
- Simplifying the reporting framework: The FCA is exploring ways to reduce duplication and harmonise transaction reporting with other wholesale market reporting regimes, such as the UK European Market Infrastructure Regulation.
- Revising the scope of reporting: The paper invites feedback on the scope of firms and instruments subject to reporting, including the treatment of over-the-counter (OTC) derivatives.
- Adopting new technologies: Proposals include leveraging standards like the ISO 20022 XML messaging standard and exploring alternative identifiers for OTC derivatives, such as the Unique Product Identifier (UPI).
- Enhancing instrument reference data reporting: Suggestions include defining clearer triggers for when trading venues must submit data and considering changes to simplify requirements for systematic internalisers (SIs).
Challenges highlighted
The DP notes firms face difficulties in determining whether financial instruments are reportable, particularly for OTC derivatives, and in sourcing high-quality data. The FCA seeks views on alleviating these challenges, including potential adjustments to the "traded on a trading venue" (TOTV) concept.
Next steps
The FCA encourages feedback from a broad range of stakeholders, including firms, trading venues, and professional advisers. A formal consultation will follow, incorporating insights from the discussion. This engagement represents a significant opportunity to shape a more efficient and future-ready transaction reporting regime for the UK. Stakeholders are invited to respond by 14 February 2025.
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SEC’s enforcement director calls for strong enforcement to bolster confidence
In a speech at a Practising Law Institute 56th Annual Institute on Securities Regulation event, Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, emphasised the crucial role of robust enforcement in fostering trust and compliance within financial markets. Reflecting on his tenure in the enforcement division since 2021, Wadhwa also outlined the Division’s achievements and his vision for strengthening regulatory oversight.
A track record of decisive action
Wadhwa and his predecessor, Gurbir Grewal, have, he said, focused on restoring investor confidence by empowering enforcement staff and fostering a culture of compliance. He praised the staff’s judgement, stating: “Enforcement staff… are in the best position to know the ins-and-outs of their investigations, the quality of their evidence, and the tenor and substance of interactions with defence counsel.”
Under this leadership, the Division has pursued cases addressing corporate misstatements, conflicts of interest, and large-scale fraud. These actions, Wadhwa noted, have not only restricted misconduct but also acted as a deterrent to potential violators.
Balancing enforcement with cooperation
Wadhwa stressed the importance of a measured approach that rewards proactive compliance while maintaining strong deterrents. He explained: “We… agreed to recommend resolutions… that imposed reduced penalties or even zero penalties” for organisations that self-reported, remediated issues, or cooperated fully with investigations.
However, this collaborative approach does not replace enforcement. Wadhwa argued that penalties remain essential, noting: “We achieve compliance… by imposing penalties and other remedies that make it clear… complying with the securities laws is cheaper than violating those laws.”
The limits of self-regulation
While recognising the value of in-house compliance, Wadhwa warned against relying solely on self-regulation. He remarked: “No matter how much we promote a culture of compliance… there will always be those who cut corners.” To ensure market integrity, the Division must remain vigilant, ready to address risks arising from negligence or deliberate non-compliance.
Looking ahead
Wadhwa highlighted the need for continued collaboration between regulators and market participants to maintain trust in US capital markets. He urged stakeholders to respect the investigative process and the role of enforcement staff, stating: “The marketplace… needs an Enforcement Division that is strong and that brings meaningful enforcement actions.”
In closing, Wadhwa reaffirmed the Division’s commitment to its mission, concluding: “The stakes are just too high… The continued success of our capital markets… depends on it.”
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Ex-investment manager jailed for fraudulent reporting
A former investment manager, has been sentenced to three years' imprisonment for forging performance reports to deceive investors. The Australian Securities and Investments Commission (ASIC) welcomed the sentencing, highlighting the regulator’s commitment to combating financial misconduct.
While managing investments at AlphaThorn Pty Ltd, Brett Paul Trevillian fabricated performance reports for two investment products, the Secured Service and the Enhanced Service. These forged documents falsely claimed successful investment returns and verified trading through a specific brokerage firm.
ASIC's investigation revealed that Trevillian had forged the signature of an accountant to lend credibility to the fraudulent reports. The regulator emphasised the seriousness of Trevillian's actions, which involved breaching investor trust and undermining market integrity.
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Call for input to modernise redress in UK
The Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) have issued a joint Call for Input (CfI) aimed at modernising the redress system for UK financial services. Stakeholders are invited to contribute their views on improving the framework for resolving consumer complaints, with an emphasis on addressing mass redress events and facilitating greater alignment between regulatory bodies.
Some context
The CfI acknowledges that the current redress system functions effectively for individual disputes but encounters challenges with mass redress events—instances where numerous complaints arise from a single issue. Such cases can overburden firms and the FOS, leading to delays and inefficiencies. Recent shifts towards outcomes-focused regulation, such as the Consumer Duty, stress the need for a more adaptable system that promotes timely and fair resolutions.
Mass redress events, often triggered by disputes over regulatory interpretation or actions by claims management companies, can impose significant financial and operational pressures on firms. These events may also increase costs for consumers and industry through levies, as seen with the Financial Services Compensation Scheme (FSCS).
Objectives of the CfI
The CfI outlines several key goals:
- Ensuring swift and appropriate consumer redress.
- Encouraging firms to identify and mitigate harm proactively.
- Enhancing collaboration between the FCA and FOS to improve regulatory clarity and consistency.
Addressing mass redress events
The CfI seeks feedback on defining mass redress events to enable earlier identification and management. Options include introducing numerical thresholds or market-specific criteria to streamline responses.
Professional representatives and case management
Concerns about the role of claims management companies (PRs) in mass complaints have prompted proposals for new rules, including case dismissal mechanisms for poorly substantiated claims and differential treatment for PR-represented complaints.
Proposed changes
Short- and medium-term reforms suggested include:
- Strengthening the FCA’s Dispute Resolution rules to encourage firms to resolve harm proactively.
- Reassessing the time limits for referring complaints to the FOS.
- Exploring a two-stage complaints process to reduce escalation to the FOS.
Longer-term considerations include legislative changes to enhance co-operation between the FCA and FOS, such as allowing temporary suspension of complaint handling timelines during regulatory investigations.
Improving stakeholder engagement
The CfI highlights the need for better data collection on emerging redress events and enhanced collaboration under the Wider Implications Framework (WIF). Proposed updates to the WIF aim to improve transparency and early identification of systemic issues.
Next steps
Stakeholders, including consumers, firms, industry bodies, and professional representatives, are encouraged to respond by 30 January 2025. The FCA and FOS will analyse feedback and outline subsequent actions in the first half of 2025.
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Australia confirms plans to phase out cheques
Following a December 2023 consultation, the Australian government has announced plans to wind down the use of cheques. The decision, driven by the declining popularity of cheques and the increasing prevalence of digital payments, aims to streamline financial transactions and reduce costs for both consumers and businesses.
The use of cheques in Australia has been steadily declining over the past decade. As consumers and businesses increasingly adopt digital payment methods such as online banking, debit cards, and real-time payments, the need for cheques has diminished. This trend is mirrored globally, with many countries moving away from cheque-based systems.
Key takeaways
The Australian government's plan involves a phased approach to the wind-down of the cheque system. The first phase will see the cessation of cheque issuance by 30 June 2028. The second phase, scheduled for completion by 30 September 2029, will involve the discontinuation of cheque acceptance.
To ensure a smooth transition, the government will work closely with the financial services industry to provide support to consumers and businesses. This support may include educational resources, assistance with switching to digital payment methods, and extended grace periods for cheque clearing.
Next steps
A dedicated taskforce will be established to oversee the transition and address any challenges that may arise. The taskforce will comprise representatives from the government, the financial services industry, and consumer groups.
The government will also launch a public awareness campaign to inform Australians about the upcoming changes and encourage them to adopt digital payment methods. This campaign will highlight the benefits of digital payments, such as increased convenience, security, and efficiency.
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ESAs confirm timeline for critical ICT providers
The European Supervisory Authorities (ESAs) – comprising the EBA, EIOPA, and ESMA – have issued a joint decision detailing the process for collecting information from competent authorities to identify and designate critical ICT third-party service providers (CTPPs). This initiative aligns with Regulation (EU) 2022/2554 and aims to bolster the oversight of ICT risks in the financial sector.
Some context
Under Regulation (EU) 2022/2554, the ESAs must assess ICT third-party service providers based on specific criticality criteria. This decision builds on existing regulatory frameworks, utilising data from financial entities’ ICT contractual arrangements and information on systemically important entities. Competent authorities will facilitate this by providing annual reports to the ESAs via the European Centralised Infrastructure of Data (EUCLID), consolidating data at the highest possible level.
Key takeaways
- Annual reporting requirements: Competent authorities must submit detailed registers of ICT-related contractual arrangements and lists of systemic financial entities, adhering to strict deadlines.
- Consolidation and data integrity: The ESAs emphasise minimising reporting burdens by focusing on consolidated data. The first submissions in 2025 will be less detailed, allowing for adjustments post-dry run exercises.
- Technical infrastructure: EUCLID will handle all data submissions, ensuring consistency, security, and accessibility. The ESAs will conduct data quality checks, with revisions required for incomplete or inaccurate submissions.
- Confidentiality and access: The collected data will remain confidential and accessible only to relevant authorities and entities as per the ESAs' oversight functions.
Next steps
Firms who would like to learn more are invited to take part in an information workshop on 18 December 2024. Competent authorities must prepare to meet reporting deadlines, starting with initial submissions in 2025. The ESAs will release further technical guidance to refine submission processes and master data specifications.
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PRA finalises Solvency II restatement, setting the stage for Solvency UK
The Prudential Regulation Authority (PRA) has published its final policy statement (PS) concluding the Solvency II review, a critical step in reshaping the UK’s prudential framework for insurers post-Brexit. This comprehensive package of rules, templates, and supervisory statements will replace the Solvency II assimilated law, which is set to be revoked on 31 December 2024.
Completing the transition
The PRA’s policy statement responds to feedback on its consultation paper CP5/24, which outlined plans to replace EU-derived Solvency II law with UK-specific rules under the Financial Services and Markets Act 2023. The reforms aim to adapt the inherited Solvency II framework to better suit the UK insurance market while maintaining prudential standards.
The finalised materials integrate proposals from earlier consultations, including PS2/24 on adapting Solvency II, PS3/24 on reporting and disclosure reforms, and PS10/24 on revising the matching adjustment. Collectively, they address all aspects of the existing Solvency II framework, incorporating changes to:
- Reporting and disclosure templates.
- Insurance Special Purpose Vehicle (ISPV) instructions.
- Standard Formula annexes and permission application forms.
Updated cross-references
One key element of the policy is the replacement of references to Solvency II assimilated law and EU Directives with UK-specific equivalents. These updates ensure that cross-references in the PRA’s rules and policies point to finalised UK rules rather than now-defunct EU laws.
The PS includes a complete set of mapping tables, detailing how provisions from Solvency II assimilated law have been restated into PRA rules. This expands on earlier mapping tables and includes changes introduced across all previous policy statements related to the Solvency II review.
A broad impact
The reforms affect a wide range of entities, including:
- Solvency II firms and third-country branch undertakings.
- The Society of Lloyd’s and its managing agents.
- Insurance and reinsurance groups and holding companies.
- Non-Directive firms and prospective insurers entering the UK market.
The policy statement also finalises thresholds for Solvency II compliance and introduces a mobilisation regime for new market entrants, as outlined in earlier consultations.
Towards Solvency UK
While the new prudential regime will eventually be branded as "Solvency UK," the PRA will continue to use the Solvency II terminology for consistency until all relevant materials are updated.
The reforms mark a major milestone in the UK’s regulatory independence from the EU. Firms now have clarity on the PRA’s expectations and the tools needed to comply with the updated regime by the 31 December 2024 deadline.
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FINRA October fines summary
The US Financial Industry Regulatory Authority (FINRA) has published its latest disciplinary summary for October2024 covering a range of enforcement actions. Amongst the firms that have been fined for violations are J.P. Morgan Securities LLC; Wells Fargo Clearing Services, LLC; Pershing LLC; and Newbridge Securities Corporation. The briefing also details the numerous individuals fined or barred by the regulator.
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ASIC doubles down on enforcement
In a speech at the ASIC Annual Forum, Deputy Chair Sarah Court outlined the regulator's aggressive enforcement agenda for 2025.
ASIC's 2024 has been a year of significant action, marked by a surge in investigations and enforcement cases. Court highlighted the regulator's increasing confidence and ambition in pursuing misconduct, particularly in areas like greenwashing, design and distribution obligations, and high-cost credit.
Key takeaways
- Greenwashing crackdown: ASIC has imposed substantial penalties on major financial institutions for misleading investors about the sustainability of their investment products. The regulator will continue its focus on greenwashing and inaccurate ESG claims.
- Design and distribution obligations: ASIC has been proactive in enforcing the new design and distribution obligations, with several high-profile cases demonstrating the breadth of their application, including in the crypto industry.
- High-cost credit and predatory lending: ASIC is targeting business models designed to circumvent consumer credit protections, particularly those that exploit vulnerable consumers.
- Gatekeeper and market operator misconduct: ASIC has taken action against major market operators for misleading statements and failures to prevent market abuse.
- Insurance and superannuation: ASIC is concerned about insurance affordability and accessibility, as well as potential misconduct in the superannuation sector, including mis-selling and the erosion of retirement savings.
Emerging areas of focus for 2025:
- Auditors: ASIC will intensify its oversight of auditors to ensure they are acting with independence and integrity.
- Unscrupulous property investment schemes: The regulator will target misconduct in property investment schemes, particularly those that exploit superannuation savings.
- Insider trading: ASIC will use advanced surveillance technology to strengthen its investigation and prosecution of insider trading cases.
- Debt management and debt collection misconduct: ASIC will focus on ensuring that debt collectors comply with consumer protection laws, particularly in challenging economic conditions.
- Cyber security: ASIC will scrutinise financial institutions' cyber security practices and their response to data breaches.
Elsewhere, Court emphasised that self-reporting misconduct is not a free pass, and ASIC will continue to conduct thorough investigations to ensure appropriate penalties are imposed.
Click here to read the full RegInsight on CUBE's RegPlatform.