Greg Kilminster
Head of Product - Content
UK’s Retail Disclosure Framework nears completion
The UK government has published a near-final statutory instrument (SI) of the Retail Disclosure Framework to replace the EU Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation.
First proposed as part of the Edinburgh Reforms in December 2022, the UK’s retail disclosure framework is intended to replace all firm-facing retail disclosure requirements and ensure the Financial Conduct Authority (FCA) can deliver a new UK retail disclosure framework for consumer composite investments which is tailored to the UK.
The new SI seeks to do the following:
- Defines key terms: It clarifies key terms used in legislation, aligning some with UK domestic law and restating EU definitions where necessary. Notably, it introduces the term “Consumer Composite Investments (CCIs)” to replace the EU term “PRIIP.”
- Establishes scope: The framework defines designated activities (manufacturing, advising, or offering CCIs to UK retail investors) under the Designated Activities Regime (DAR) in the Financial Services and Markets Act 2023 (FSMA 2023). Firms engaged in these activities, regardless of authorisation status, fall under FCA rules for retail disclosure.
- Grants FCA powers: The FCA is empowered to create and enforce rules for designated activities, allowing the FCA to regulate retail disclosure without necessitating full authorisation for all firms under the Regulated Activities Order.
- Addresses civil liability: Firms engaging in designated activities may face civil liability if they provide misleading or inaccurate disclosure or fail to meet FCA rule requirements, potentially resulting in losses for retail investors.
- Restates supervision and enforcement powers: The instrument reiterates the FCA’s existing supervision and enforcement powers, modified to suit the UK-specific context of the new framework. It includes powers related to product intervention and suspension for consumer protection.
- Maintains transition period: Funds currently providing the UCITS Key Investor Information Document (KIID) can continue to do so until 31 December 2026, or choose to transition to the new disclosure requirements when the FCA’s rules take effect. Starting 1 January 2027, all funds, including those under the Overseas Funds Regime, must adhere to FCA rules under the new UK retail disclosure framework for CCIs.
Whilst nearly final, the government welcomes any technical comments on the draft SI by 10 January 2024
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ESMA issues explanatory notes on key concepts of Sustainable Finance regulations
The European Securities and Markets Authority (ESMA) has recently issued a set of explanatory notes to guide stakeholders on the key concepts present in various Sustainable Finance (SF) regulations.
These notes cover the following concepts:
- The Do No Significant Harm (DNSH) principle.
- The use of ‘estimate’ and ‘equivalent information’.
- The concepts of ‘sustainable investments’ and ‘environmentally sustainable activities’.
These concepts are present in several pieces of SF regulations, including the Taxonomy regulation, the Sustainable Finance Disclosure regulation, and the Benchmark regulation.
In these explanatory notes, ESMA:
- Provides definitions of the concepts as outlined in each regulation.
- Clarifies which stakeholders are required to apply these concepts.
- Explains how and when the principle should be applied.
- Outlines the implications of the application of those concepts.
Additionally, ESMA has included a summary of all existing guidance in the annexes.
These notes serve as an invaluable resource for financial market participants as they navigate compliance with SF regulations.
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Mercer fined Aus$12 million for fee disclosure failings
The Australian Federal Court has fined Mercer Financial Advice (Australia) Pty Ltd Aus$12 million following a verdict that the company failed in its duty to fulfill fee disclosure obligations, charging fees to clients without entitlement.
The violations spanned a three-year period from July 1, 2016, to June 30, 2019, during which Mercer was found to have:
- Failed to invite more than 800 clients to attend annual review meetings, despite their entitlement.
- Neglected to provide fee disclosure statements to more than 500 clients.
- Issued over 3000 non-compliant fee disclosure statements to over 2000 clients.
- Charged 761 clients a combined total exceeding $4.7 million in fees for services they did not receive.
In the judgment, serious deficiencies in Mercer’s compliance systems were noted as well as the ‘alarming’ fact that: “Mercer’s systems and records have not allowed it to identify the root cause of the issue, or the circumstances in which the compliance deficiencies arose”.
In addition to breaches of the Corporations Act and ASIC Act, Mercer was also found to have violated its obligation to provide financial services efficiently, honestly, and fairly.
Justice McEvoy, in the judgment, underscored the seriousness of the contraventions, stating, “The contraventions in the present case were extremely serious. They were large in number, many clients were affected, large sums were involved, and they continued over a long period of time.”
Mercer admitted to the misconduct, further acknowledging the severity of the breaches. The case serves as a stark reminder to financial institutions about the critical importance of maintaining robust compliance systems to uphold the integrity of the financial services sector.
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European Commission fines Rabobank for bonds cartel
The European Commission has imposed a €26.6 million fine on Rabobank for participating in a cartel with Deutsche Bank related to the trading of Euro-denominated bonds. Deutsche Bank, however, was not fined as it disclosed the cartel under the leniency program. The cartel involved Euro-denominated Supra-Sovereign, Foreign Sovereign, Sub-Sovereign/Agency bonds (SSA bonds) and Government Guaranteed bonds in the European Economic Area (EEA).
The investigation found that between 2006 and 2016, traders from both banks, operating in Frankfurt and London, respectively, exchanged commercially sensitive information and coordinated trading and pricing strategies. Communication occurred through Bloomberg emails, instant messages, and online chatrooms, covering information such as prices, volumes, trading strategies, positions, counterparties’ identities, and buying/selling requirements. Traders adjusted their pricing and strategies based on these exchanges, including coordination on prices displayed on the Bloomberg AllQ electronic trading platform. This collaboration resulted in mutual warnings about the perceived adequacy of the other bank’s indicative prices on the platform.
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EBA issues final draft RTS on assessment methodology under the FRTB rules
The European Banking Authority (EBA) has published its final draft Regulatory Technical Standards (RTS) on the assessment methodology for internal models under the Fundamental Review of the Trading Book (FRTB) rules.
The RTS is part of the EBA roadmap on market risk and counterparty credit risk approaches and focuses on governance, internal risk-measurement model, stress scenario risk measure, and internal default risk model.
Additionally, the RTS:
- Provides clarity on the assessment performed by competent authorities when granting an internal model approval under the FRTB framework.
- Includes mandatory and optional assessment techniques for competent authorities.
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HKMA and ADGM deepen fintech partnership with new MoU
The Hong Kong Monetary Authority (HKMA) and the Financial Services Regulatory Authority of Abu Dhabi Global Market (ADGM) signed a Memorandum of Understanding (MoU) to deepen their partnership on fintech.
The MoU aims to promote inclusive and innovative financial services leveraging fintech and data in both markets.
Under the MoU, the two authorities will:
- Contemplate joint Proof-of-Concept projects to connect the HKMA’s Commercial Data Interchange to the ADGM’s SME Financing Platform.
- Explore use cases for cross-border data exchange with user consent to address potential pain points in cross-border banking services such as SME account opening and financing.
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ASIC Annual Forum 2023, regulator perspectives on navigating disruption
The ASIC Annual Forum was held on 21 and 22 November 2023 to discuss strategies for adapting and evolving in a time of geopolitical, economic, and technological change.
During the forum, the chairpersons of the Australian Securities and Investments Commission (ASIC), Australian Competition and Consumer Commission (ACCC), and Australian Prudential Regulation Authority (APRA) discussed the regulator responses to changes, the use of transformative technologies, and the challenges and benefits of AI for regulators.
Key takeaways:
- Regulators emphasised the significance of implementing strong regulatory measures to navigate disruptive times, embracing the opportunities presented by technologies to stay ahead of the curve and better protect consumers.
- Regulators are continually developing capabilities to become a leading digitally enabled and data-informed regulator, using new and sophisticated technologies to quickly identify threats in the regulatory environment and drive more efficient, informed, and targeted regulation.
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OCC report on enforcement actions for November 2023
The Office of the Comptroller of the Currency (OCC) has released a report on enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such institutions in November 2023.
Actions taken against supervised institutions for engaging in unsafe or unsound practices
- Formal agreement against Heritage Bank, National Association.
- Consent order against United Fidelity Bank, FSB and Vast Bank, National Association.
Actions taken against individuals
- Order of prohibition issued against Andrew Leseberg, a former Loan Processor at The Citizens National Bank, NA. The prohibition is for stealing, embezzling, or otherwise misappropriating funds at a loss or risk of loss to the Bank.
- Notice of charges for order of prohibition issued against Helen Caldwell, a former Financial Advisor at Citibank, NA. Caldwell solicited an elderly customer to invest more than $200,000 in a company that she co-owned, received at least $99,000 in direct payments from the company, and falsely represented that she was following, and would follow, policies prohibiting this conduct.
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