Greg Kilminster
Head of Product - Content
FCA seeks further views on enforcement transparency proposals
The Financial Conduct Authority (FCA) has launched a second consultation, CP24/2 Part 2, on its proposals to enhance transparency in enforcement investigations. This follows significant concerns raised during the initial consultation earlier this year. The regulator also aims to support parliamentary scrutiny of its enforcement reforms, which include input from the Treasury and Financial Services Regulation Committees.
Some context
The FCA has faced growing scrutiny over the pace and focus of its enforcement actions. New data highlights a recent acceleration in investigation timelines, with some cases concluding in as little as 16 months. The regulator’s proposals centre on a revised public interest test, offering greater clarity on how and when it might announce investigations. This marks a shift in approach aimed at balancing transparency with protecting market stability and firm reputations.
Feedback to the initial consultation, which closed in April, flagged concerns about the potential negative impact on firms and market confidence. In response, the FCA has introduced several key changes to its proposals, reflecting input from stakeholders including firms, trade associations, and consumer groups.
Key takeaways
The FCA’s revised proposals introduce four major changes:
- Public interest test refinements: The potential harm to firms and disruption to public confidence in financial markets are now explicit considerations in the public interest test.
- Advance notice period extended: Firms would receive 10 days’ notice of a potential announcement, up from the single day previously proposed. An additional 48 hours’ notice would follow if an announcement proceeds.
- Policy limits: Investigations begun before the policy change would not be subject to proactive disclosure, though the FCA may confirm existing cases if already public.
- Narrow scope of impact: The FCA anticipates the changes would lead to only a small number of proactive announcements in cases involving regulated firms.
Therese Chambers, joint executive director of enforcement and market oversight, highlighted the regulator’s responsiveness to feedback: “We have heard the strength of feedback to our original proposals, and we are making changes as a result.” Her counterpart, Steve Smart, noted the importance of balancing speed and deterrence, saying: “We want to hear further views on whether some increased transparency could work in practice.”
Next steps
The FCA is seeking further feedback on the revised public interest test and associated criteria by 17 February 2025. Engagement with industry stakeholders will continue into early 2025, with a final decision expected in the first quarter. If adopted, the policy changes will form part of the FCA’s broader reforms aimed at improving the pace and effectiveness of enforcement.
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Monzo accused of banking regulation breaches
The UK’s Competition and Markets Authority (CMA) has written to Monzo Bank to outline several breaches of the Retail Banking Market Investigation Order 2017. The violations, spanning customer service transparency and regulatory reporting requirements, have led to the CMA's decision to closely monitor Monzo’s compliance in future.
Some context
The Retail Banking Market Investigation Order 2017 was established to enhance transparency and competition in banking services. Key provisions include publishing accurate service quality data, disclosing charges for overdraft usage, and providing transparent lending rates for small and medium-sized enterprises (SMEs). Monzo's breaches relate to these obligations, alongside delays in notifying the CMA of non-compliance.
Key takeaways
The CMA highlighted breaches across four specific areas:
- Service quality information (Part 3): Monzo published outdated and incorrect service quality rankings for personal and business current accounts between February 2022 and August 2023.
- Disclosure of maximum charges (Part 7): Monzo failed to provide required information about Monthly Maximum Charges (MMC) for overdrafts in account terms, web pages, and app notifications, with some omissions dating back to 2017.
- Lending transparency (Part 8): The bank did not disclose representative rates for certain SME loans or include explanatory contextual information as required.
- Regulatory notifications (Part 12): Monzo delayed notifying the CMA of three separate breaches by up to nine months, surpassing the 14-day reporting requirement.
Next steps
Monzo has committed to implementing robust corrective measures, including enhanced compliance training, improved policy frameworks, and the use of external tools to ensure regulatory obligations are met. A single accountable executive will oversee compliance with the Order.
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Central Bank of Ireland publishes ETF trading arrangements review
The Central Bank of Ireland has published a review of the trading arrangements for Exchange Traded Funds (ETFs) domiciled in Ireland, highlighting critical gaps in governance, due diligence, and oversight by fund management companies. The findings note the need for stronger frameworks to ensure the stability and integrity of the Irish ETF ecosystem.
Some context
Ireland is a leading domicile for ETFs in the European Union, representing 32% of the country’s fund assets under management and 70% of the EU ETF sector. Key players, such as Authorised Participants (APs) and Market Makers (MMs), play vital roles in maintaining liquidity and market functioning. The review, prompted by international regulatory expectations, examined governance, monitoring, and risk management practices to ensure these entities operate effectively during normal and stressed market conditions.
Key takeaways
- Sector functioning and risks: While the Irish ETF ecosystem performs effectively overall, the review found significant governance shortcomings in due diligence, monitoring, and board oversight of APs and MMs.
- Inadequate due diligence: Most firms lack formal policies to evaluate APs and MMs, both at onboarding and ongoing stages. Minimal reporting to boards was noted, increasing the risk of unpreparedness for market disruptions.
- Limited monitoring: Few firms conduct adequate risk and stress testing on APs and MMs. Effective monitoring metrics, such as primary market activity or pricing data, were largely absent across firms.
- Weak board oversight: Boards receive limited reporting on the performance of APs and MMs, potentially impairing their ability to address risks and ensure ETF liquidity.
- Market concentration risks: A high level of activity is concentrated among a small number of APs and MMs, posing risks to liquidity and arbitrage mechanisms if disruptions occur.
Next steps
The Central Bank has mandated firms to address these shortcomings by Q2 2025 through the following actions:
- Conduct a gap analysis against IOSCO’s Good Practices and strengthen governance frameworks for AP and MM oversight.
- Enhance reporting mechanisms to ensure boards receive relevant, risk-focused updates.
- Mitigate concentration risks by diversifying AP and MM relationships and formalising contractual agreements.
- Develop contingency plans to address impairments in the ETF arbitrage mechanism.
The findings will guide future policy developments and supervision, with the Central Bank monitoring compliance through ongoing engagement. Firms failing to act may face additional regulatory scrutiny.
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Australian buy now pay later law passed
The Australian Government has passed laws first announced in June to regulate Buy Now Pay Later (BNPL) services, which aim to protect Australian consumers from financial risks while preserving the accessibility of these innovative products. The legislation marks a pivotal shift in the oversight of BNPL providers, introducing stronger regulatory obligations under the National Consumer Credit Protection Act 2009.
Some context
BNPL services, a low-cost payment innovation, have gained widespread adoption in Australia, with approximately seven million active accounts. Despite their popularity, concerns over financial harm have emerged. A 2022 report by the Australian Securities and Investments Commission (ASIC) revealed that 19% of
BNPL users exhibited financial stress indicators, including missing essential payments or cutting back on necessities. The new measures are designed to address these risks without stifling the sector’s growth.
Key takeaways
Enhanced consumer protections
- BNPL providers are now required to hold an Australian Credit Licence.
- They must comply with the National Consumer Credit Protection Act 2009, which includes obligations to ensure credit is affordable.
Improved dispute resolution
- BNPL providers must join the Australian Financial Complaints Authority, providing consumers with access to independent dispute resolution services.
Balance between innovation and protection
- The legislation retains the sector’s flexibility while reducing the risks of debt spirals.
- The Government affirms its commitment to enabling innovative financial products that are safe for consumers.
The new BNPL regulations align with global trends towards stronger consumer financial protections. Providers are expected to adapt to the licensing and compliance requirements promptly, with regulators likely to monitor implementation closely.
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MAS revises Code on Collective Investment Schemes
The Monetary Authority of Singapore (MAS) has updated its Code on Collective Investment Schemes (the Code), which was first issued in May 2002.
The Code is a non-statutory framework issued by MAS under the Securities and Futures Act 2001 (SFA). It outlines best practices for the management, operation, and marketing of schemes, applicable to managers, trustees, and directors or custodians of Variable Capital Companies (VCCs) and their sub-funds.
While non-compliance with the Code does not directly result in criminal liability, breaches may be considered by MAS when determining actions such as revoking or suspending authorisation of schemes, refusing to recognise new schemes, or restricting the involvement of trustees or custodians under the SFA.
The latest revisions are summarised below.
New leverage and interest coverage requirements
- Minimum Interest Coverage Ratio (ICR): Set at 1.5 times for all Real Estate Investment Trusts (REITs) (previously 2.5 times applied only to REITs increasing leverage beyond 45%).
- Aggregate leverage limit: Standardised at 50%, one of the strictest globally.
- Effective immediately.
Goals of the new measures
- To encourage prudent borrowing across all REITs.
- To provide operational flexibility while maintaining financial responsibility.
Enhanced financial disclosures (effective from financial periods ending on or after 31 March 2025)
- General disclosure of how REIT managers will manage leverage and ICR levels.
- Sensitivity analyses on the impact of:
- A 10% decrease in EBITDA.
- A 100-basis point increase in interest rates.
- If the ICR falls below 1.8 times, REIT managers must disclose plans to improve it.
Click here to read the full RegInsight on CUBE's RegPlatform.