Eva Dauberton
News Editor
FCA issues PS24/3 on PSD reporting
The Financial Conduct Authority (FCA) has released a policy statement (PS) 24/3 on Product Sales Data (PSD) reporting for consumer credit. The PS introduces three new PSD returns that will require lenders to provide detailed information on the initial sale and ongoing performance of individual agreements.
Some context
The PS follows consultation paper (CP) 23/21 issued in September 2023 on proposals to introduce three new PSD returns into Chapter 16 of the Supervision manual (SUP 16).
With this enhanced data, the FCA aims to:
- Better understand how firms operate and gain more insight into the market.
- Authorise and supervise them more effectively.
- Intervene more quickly and boldly where risk of harm is identified in the consumer credit market.
- Reduce their reliance on ad hoc requests for more information.
Key takeaways
The new PSD returns include Sales PSD, Performance PSD, and Back book PSD. Lenders will have to submit sales and performance data on a quarterly basis, and for agreements entered into prior to the firms' first reporting period, lenders will submit back book data as a one-off submission.
The FCA will collect the following data as part of the Sales and Performance PSD returns, including limited agreement and borrower data in the Back book collection:
- Core agreement data
- Borrower and affordability data
- Charges and fees
- Arrears and forbearance
Firms will also need to comply with the complete and accurate reporting provisions as set out in SUP 16.3.11R and SUP 16.3.12G.
Additionally, the FCA has created an Excel version of the data elements found in the Handbook and Instrument to aid the review of the required data.
Next steps
The implementation timeline is phased based on reporting thresholds as set out in the PS's Appendix 1 Handbook Text and highlighted in Chapter 3 Thresholds section.
The FCA will continue to engage with industry throughout the implementation period and provide additional supporting information where appropriate.
In addition to the implementation of the PSD returns, the FCA will also propose changes to the activity-based regulatory returns, looking at these activities in a phased approach. The FCA anticipates further consultations on the data collected on the consumer credit market over the next two years.
Click here to read the full RegInsight on CUBE’s RegPlatform
FCA updates implementation dates of pension dashboard rules
The Financial Conduct Authority (FCA) has provided an update on the implementation dates of pension dashboard rules for pension providers per policy statement (PS) 22/12.
Some context
As per the final rules in PS 22/12, FCA-regulated pension providers are required to:
- Complete connection to the digital architecture operated by the Pensions Dashboard Programme, which is a function of the Money and Pensions Service (MaPS),
- Be ready to receive requests to find pensions and search records for data matches.
- Be ready to return pensions information to the consumer’s chosen pensions dashboard.
Firms must implement the final rules by 31 October 2026
Key takeaways
On 25 March 2024, the Department for Work and Pensions (DWP) published Pensions dashboards: guidance on connection: the staged timetable, which sets out a staged timetable for connection to the digital architecture ahead of the October 2026 connection deadline. The dates in the guidance are not mandatory, but the rules require FCA-regulated pension providers to have regard to this guidance.
For FCA-regulated pension providers, the relevant connection dates in the DWP connection guidance are 30 April 2025 for firms with 5,000 or more relevant pension scheme members and 31 January 2026 for firms with fewer than 5,000 relevant pension scheme members.
Next steps
To better enable firms to connect by the dates specified in DWP’s guidance on connection, the FCA is making available a modification by consent for firms that are unable to comply with COBS 19.11 rules for 100% of their relevant pension scheme members by the dates in the guidance.
Click here to read the full RegInsight on CUBE’s RegPlatform
JMLSG proposes amendments to the Wholesale Markets section of its Guidance
The UK Joint Money Laundering Steering Group (JMLSG) has released, for consultation, proposed changes to Part II Sector 18 (Wholesale markets) of its anti-money laundering (AML) and counter-terrorist financing (CTF) guidance for the financial services industry. The guidance outlines the expected measures that firms and their staff should take in order to prevent money laundering and terrorist financing.
Some context
Sector 18 Part II is sector specific guidance, which deals with particular issues that apply to wholesale markets. This guidance is intended to help firms operating in wholesale markets better understand the risks involved and apply a risk-based approach to their business.
Key takeaways
The proposed amendments include some minor changes as well as more significant revisions to certain sections of the guidance, including:
In section B, which provides an overview of the money laundering risks in the wholesale markets sector, proposals include:
- The expansion of the scope of traded products to include products traded on Multilateral Trading Facilities (MTF) and Organised Trading Facilities (OTF).
- Additional clarifications regarding the risks that may arise during the placement stage of a transaction.
- The inclusion of a reference to the FCA’s Thematic Review on the money-laundering risks and vulnerabilities in the capital markets, which firms should consider.
- The addition of consideration of settlement cycle (T+1 and T+2) as operational challenges
In section D, which covers customer due diligence, including simplified and enhanced due diligence, proposals include:
- Additional clarifications on consumer identification.
- A new section on Authorised Personnel acting on behalf of the customer.
In section F, which provides guidance on specific products, proposals include:
- Additional clarification on bespoke cross-border transactions for structured products.
- Guidance on wholesale subscription finance in private capital funds.
Next steps
The deadline for comments on the proposed revisions is 1 July 2024.
Click here to read the full RegInsight on CUBE’s RegPlatform
ESMA agrees with investment restrictions on GBP LDI funds in Ireland and Luxembourg
The European Securities and Markets Authority (ESMA) issued its advice to the Central Bank of Ireland (CBI) and the Commission de Surveillance du Secteur Financier (CSSF) regarding the investment restrictions for GBP Liability-Driven Investment (LDI) funds to ensure their resilience.
Some context
In September 2022, GBP LDI funds faced significant stress due to a sharp increase in GBP yields in the UK. As a result, the CBI and CSSF outlined supervisory expectations for Alternative Investment Fund Managers (AIFMs) managing GBP LDI funds in their jurisdiction. The AIFMs were expected to maintain a level of resilience for GBP LDI funds, which was measured by the increase in yield the fund could withstand before its Net Asset Value (NAV) turned negative. The expected level of resilience was set at around 300-400 basis points (bps). ESMA supported this initiative.
In November 2023, CBI and CSSF published consultation reports to implement resilience requirements that GBP LDI funds would be required to comply with via Article 25 of AIFMD. The consultation papers set out resilience requirements and targeted guidance on portfolio liquidity. The resilience requirements outlined in the consultation papers differed slightly from the ones GBP LDI funds had been maintaining since September 2022. The differences mainly related to the level of resilience (at least 300bps in the consultation report compared with a range of 300-400bps previously) and to the liquidity requirements outlined in the consultation report (but not specified in the earlier communication by CBI and CSSF).
On 4 March 2024, the CBI and CSSF notified ESMA and the ERSB of their intention. According to Art. 25(3) of the AIFMD, ESMA must advise the NCAs, assessing whether the conditions for action appear to be met and whether the proposed measures are appropriate.
Key takeaways
ESMA’s analysis concludes that the conditions for taking action under the AIFMD are met, and the measures proposed by the CBI and CSSF are justified. The proposed measures should contribute to improving the resilience of EU GBP LDI.
Next steps
The proposed measures apply from 29 April 2024.
GBP LDI funds established on or after this date must comply with the measures immediately, and existing GBP LDI funds have a three-month transitional period to comply.
Additionally, ESMA also encourages both regulators to monitor the evolution of the GBP LDI funds and to assess the necessity of recalibrating the yield buffer. ESMA also invites other NCAs of AIFMs managing such funds to adopt similar measures.
Click here to read the full RegInsight on CUBE’s RegPlatform
EBA issues opinion outlining new types of payment fraud
The European Banking Authority (EBA) has released an opinion on new payment fraud types and patterns. This opinion aims to enhance the forthcoming legislative framework under the Third Payment Services Directive (PSD3) and Payment Services Regulation (PSR) by enshrining anti-fraud requirements for retail payments.
General comment
According to the EBA, while the mandatory implementation of Strong Customer Authentication (SCA) has been effective in preventing fraud that is based on the theft of customers’ credentials, fraudsters have managed to adapt their techniques, giving rise to more complex types of fraud, particularly those leveraging social engineering.
The opinion presents emerging fraud trends, new types of fraud, and specific recommendations for addressing them.
Emerging fraud trends
Emerging fraud trends include high levels of fraud in instant credit transfers, cross-border transactions, the distribution of liability for fraud losses, and the variation of fraud rates across different European Economic Area (EEA) countries. The opinion outlines potential related causes.
New types of fraud
The EBA has identified three new types of fraud: manipulation of the payer, mixed social engineering and technical scam, and enrolment process compromise.
- Manipulation of the payer: A fraudster manipulates the customer to make a payment to the fraudster through social engineering.
- Mixed social engineering and technical scam: Fraudsters combine phishing techniques (including vishing and smishing) to steal customers’ personal security credentials, gather account information, and issue payment orders with social engineering to manipulate the payment service users (PSUs) to authorise the payment orders.
- Enrolment process compromise: This is a complex scam geared towards enrolling fraudsters’ devices as the second factor of the SCA, to be used together with the customer’s personal security credentials stolen by the fraudster via phishing/smishing/vishing techniques.
Based on the insights gained, the EBA believes that additional security measures are necessary, in addition to those proposed in the EU Commission’s PSD3 and PSR and the recently adopted Instant Payments Regulation, to address the dynamic nature of fraud observed.
Click here to read the full RegInsight on CUBE’s RegPlatform
BIS issues report on SLAs used in cross-border payment arrangements
The Bank for International Settlements (BIS) has issued a report containing high-level recommendations, key features, and guiding questions on the content of service level agreements used in cross-border payment arrangements. The report aims to help payment service providers, correspondent banks, and payment system operators establish new agreements or review existing ones by providing practical considerations and identifying relevant aspects.
Some context
Service level agreements used in cross-border payment arrangements set minimum service levels for correspondent banking relationships, links between payment systems, and payment instrument rulebooks. In October 2020, the G20 leaders endorsed the roadmap for enhancing cross-border payments and
identified service level agreements as a priority to achieve its targets by the end of 2027.
The Committee on Payments and Market Infrastructures (CPMI), the Financial Stability Board (FSB) and other relevant international organisations and standard-setting bodies have largely laid the foundation for further developments through stocktakes and analysis. In February 2023, the FSB published the prioritised roadmap to enhance cross-border payments, and this report is one of the priority actions of the cross-border payments program implementation.
Key takeaways
The report provides a definition of payment arrangements, specifies the types of arrangements within the scope of the report, and discusses their relevance for meeting the G20 targets on cross-border payments on cost, speed, transparency, and access. It also discusses the elements of these arrangements and the outcomes they aim to achieve.
The report also contains seven high-level recommendations and key features, which provide practical considerations to illustrate the recommendations. It also includes guiding questions for each recommendation and its key features.
The seven recommendations identified are:
- The material aspects of the service level agreement are clear, transparent and enforceable in all relevant jurisdictions.
- The service level agreement has clear and transparent adherence criteria and performance indicators that promote the safety and efficiency of cross-border payments, seek to support the G20 cross-border payment targets and other relevant user community and public interest considerations.
- The multilateral payment arrangement has objective and risk-based criteria across the jurisdictions in which it operates, which enables participants to transact with each other in line with the agreed service levels.
- The service level agreement identifies, monitors, manages and mitigates the risks for cross-border payments through the use of appropriate tools, policies, procedures and controls.
- The service level agreement promotes internationally accepted technical standards for identification and information exchange to facilitate interoperability among participants and potentially with other payment arrangements.
- The service level agreement defines processing rules that clearly assign roles and responsibilities to facilitate the efficient execution of payments, ensure a high degree of security and operational reliability and are scalable across borders.
- The service level agreement includes legally validated provisions that ensure availability of funds for the payee and inter-PSP finality across jurisdictions within an adequate time frame (preferably intraday or in real time, at a minimum by the end of the value date).
Next steps
The report will inform the CPMI's ongoing work on the governance and oversight of interlinking arrangements, specifically between fast payment systems. The CPMI will also feed the findings of this report into its ongoing dialogue with industry stakeholders, such as the cross-border payments interoperability and extension task force.
Click here to read the full RegInsight on CUBE’s RegPlatform
FCA publishes H2 2023 complaints data
The UK’s Financial Conduct Authority has published its latest complaints data which reports complaints made about financial services firms in the UK from July to December 2023.
The key findings are as follows:
Total complaints:
- 1.87 million in 2023 H2 (1% decrease from 2023 H1)
- Complaints remained relatively constant, between 1.8 million and 2 million, since the peak of Payment Protection Insurance (PPI) complaints in 2020.
Product groups with increased complaint numbers:
- Banking and credit cards: 3.2% increase from 847,497 (2023 H1) to 874,568 (2023 H2)
- Home finance: 3.7% increase from 91,470 (2023 H1) to 94,822 (2023 H2)
- Investments: 3.4% increase from 59,417 (2023 H1) to 61,446 (2023 H2)
Product groups with decreased complaint numbers:
- Decumulation & pensions: 2.8% decrease from 88,058 (2023 H1) to 85,547 (2023 H2)
- Insurance and pure protection: 5.8% decrease from 800,253 (2023 H1) to 753,192 (2023 H2)
Increases in top three complained-about products:
- Current accounts: 1% increase from 509,923 (2023 H1) to 515,336 (2023 H2)
- Motor and transport: 1% increase from 278,148 (2023 H1) to 281,082 (2023 H2)
- Credit cards: 7.5% increase from 201,925 (2023 H1) to 217,032 (2023 H2)
Most other products saw a decrease in the number of complaints including the next two in the top five most complained about products:
- Other general insurance decreased from 150,740 (2023 H1) to 118,978 (2023 H2)
- Property decreased from 92,761 (2023 H1) to 91,893 (2023 H2).
57 % of complaints were upheld during 2023 H2, a decrease of 3.7% on the previous half year. £236,495,402 was paid out in redress during the H2 period.
Click here to read the full RegInsight on CUBE’s RegPlatform
FSB’s Chair speech on financial stability risks and the FSB work program
In a speech at the CFA Institute Systemic Risk Council Meeting, Klaas Knot, chair of the Financial Stability Board (FSB), considered several issues that the FSB has been addressing.
Current landscape
Knot began by reflecting on the financial landscape since the previous council meeting in December 2022. He noted the persistence of certain concerns such as elevated debt levels, the risks emanating from interconnectedness between banks and non-bank financial intermediaries, and uncertainties surrounding inflation and market valuations. He said that, despite some easing in inflation, market valuations remain high, raising questions about potential risks.
Market dynamics and risks
Knot highlighted the disconnect between market optimism and underlying risks, including the challenges of refinancing maturing debt and geopolitical tensions. Knot also cautioned against complacency, stressing the potential for market shocks and vulnerabilities in highly leveraged non-bank investors.
He also noted concerns over high debt levels among households, companies, and sovereigns, particularly in the context of declining growth rates and high interest rates. Knot pointed out vulnerabilities in commercial real estate, particularly downtown office space, and emphasised the importance of monitoring potential spillover effects into different sectors.
Lessons from March 2023 banking turmoil
Knot discussed the lessons learned from the banking turmoil in March 2023, noting the need to focus on:
- Maintaining momentum and advancing the work on bank resolvability
- Public-sector backstop funding mechanisms
- Better operationalising a range of resolution options, and
- The impact of social media and digital innovation on resolution and depositor runs.
Knot also highlighted ongoing efforts to strengthen the too-big-to-fail framework and the importance of effective resolution mechanisms.
Non-bank financial intermediation (NBFI)
Knot highlighted the FSB's focus on addressing vulnerabilities in the NBFI sector, including liquidity imbalances and excessive leverage. Knot outlined recent recommendations and policies aimed at enhancing NBFI resilience and filling data gaps in this sector.
Structural vulnerabilities
Knot also discussed structural vulnerabilities in the financial system, in light of the increasing digitalisation and the rise of artificial intelligence. He stressed the importance of timely information on cyber incidents and the need for global regulatory consistency, particularly in the regulation of cryptoassets. Additionally, he addressed the FSB's efforts to address climate-related financial risks and biodiversity loss, adding that “the FSB will continue work on these vulnerabilities and we will stay alert for new vulnerabilities that potentially emerge.”
Click here to read the full RegInsight on CUBE’s RegPlatform