Eva Dauberton
News Editor
FCA issues call for input on retail conduct rules
The Financial Conduct Authority (FCA) has issued a call for input (CfI) to gather feedback on potential refinements to retail conduct rules after the introduction of the Consumer Duty (Duty). The FCA is, however, not seeking input on suggested changes to the Duty, as a post-implementation review is already planned. This CfI aims to ensure that our regulations remain effective, clear, and efficient, maximising the benefits of the Duty.
Key takeaways
The FCA aims to identify opportunities to simplify retail conduct rules and guidance, specifically addressing areas of complexity, duplication, confusion, or unnecessary regulatory costs that do not benefit consumers. Additionally, the FCA aims to introduce flexibility into the rules to adapt to future changes and innovations.
The FCA is specifically requesting input on:
- Rules or guidance that could be simplified or clarified by relying on high-level rules or by clarifying interactions with other rules.
- The impact of any steps to simplify rules and guidance on the FCA’s statutory objectives.
- The appropriate balance between high-level and more detailed rules.
- The potential benefits and costs of simplifying the rules.
- How changes to the FCA’s approach may affect different types of firms.
Next steps
The deadline for feedback is 31 October 2024.
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FCA issues DP24/1 on the regulation of commercial and bespoke insurance business
The Financial Conduct Authority (FCA) has issued Discussion Paper (DP) 24/1 to discuss the regulation of commercial and bespoke insurance business. This DP seeks feedback on potential changes that can be implemented to ensure appropriate protection for customers in the commercial insurance market without imposing unnecessary regulatory costs on firms or hindering innovation.
Some context
Under its rules—ICOBS, PROD, and PRIN—the FCA acknowledges the varying protection needs of retail customers, small and medium-sized enterprises (SMEs), and larger commercial customers.
Stakeholders have, however, raised several issues in applying the rules, including:
- The lack of a consistent definition to distinguish between SMEs and larger commercial customers.
- Issues with the application of PROD rules for co-manufacturing arrangements.
- The underutilisation of the exclusion provided in PROD for bespoke contracts.
Key takeaways
In the DP, the FCA presents an overview of the identified issues and requests feedback and data on these matters. The FCA also proposes several options to address the concerns raised, specifically:
- Determining which rules apply to commercial insurance: The FCA is considering changing the application of the rules by adjusting the criteria for classifying a commercial customer as an SME (i.e., a customer to which regulatory protection will apply) or not.
- Co-manufacturers of insurance products: The FCA is considering clarifying which firm is responsible for ensuring good customer outcomes and preventing a situation where each firm believes another is taking responsibility, particularly in cases of customer harm.
- Bespoke insurance products: The FCA is considering potential rule changes and/or guidance to expand the scope of the bespoke contract exclusion and provide clearer criteria for identifying bespoke products.
Next steps
The deadline for feedback is 16 September 2024.
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BoE issues DP on approach to innovation in money and payments
The Bank of England (the Bank) has released a discussion paper (DP) on innovation in money and payments. The paper outlines the BoE’s proposed approach and seeks views on related issues.
Some context
The Bank has undertaken several initiatives in response to recent innovations in payments and settlements. However, due to the rapid pace of change, the Bank deems necessary to reevaluate and further develop its response to these innovations. The DP sets out an approach for how the Bank plans to engage with these changes to meet its objectives.
Proposed approach
The Bank has considered the overall payments landscape, including retail and wholesale payments, central bank and privately issued money, and domestic and international contexts. The proposed approach consists of four steps:
- Setting out the Bank’s financial stability risk appetite for wholesale settlement in central bank money
- Exploring innovations in wholesale central bank money
- Outlining the desired outcomes in the retail payments landscape to maintain trust and confidence in money
- Engaging with international partners to consider interoperability of payments landscapes and reduce frictions in cross-border payments while managing potential risks to international monetary and financial stability as we move forward domestically.
Call for views
The Bank is seeking feedback on the overall approach proposed in this discussion paper and specific areas, including:
- The potential benefits and risks of programmable platforms, including those enabled by Distributed Ledger Technology (DLT), in payments and settlement.
- The likelihood of wholesale financial markets adopting programmable platforms, including those enabled by DLT, at scale
- The pace of innovation in private money, particularly commercial bank money, used in retail payments.
- The wholesale infrastructure to support retail payments innovations and maintain singleness of money across stablecoins and tokenised deposits.
- The risks and benefits of tokenised deposits and stablecoins for wholesale transactions.
- Innovations that could support central bank money to ensure safe settlement in light of technological advances.
- Potential functionalities of a wholesale central bank digital currency (wCBDC) and how they might inform wCBDC design.
- Assessment of potential functionalities for central bank money through the proposed programme of experiments.
- Desired outcomes that the Bank seeks in retail payments and how they can be reflected in practical questions facing policymakers and industry.
Next steps
The deadline for feedback is 31 October 2024.
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PSR issues second SD12 review conclusion
The Payment Systems Regulator (PSR) has concluded its annual review of Specific Direction 12 (SD12).
SD12 aims to ensure that LINK, the UK’s largest ATM network, maintains a wide geographic spread of the UK’s free-to-use (FTU) cash machine network and meets service user needs by having appropriate and effective policies and measures in place.
This review evaluated how SD12 would interact with the changes in the cash access regulatory landscape introduced by the Financial Services and Markets Act (FSMA) 2023 and the Financial Conduct Authority (FCA) new cash access rules.
The PSR has concluded that while SD12 has been effective, it should be retired when it expires in January 2025, as the FCA regulations provide more comprehensive protection for cash access across all channels. With limited time remaining for SD12, the PSR has detailed long-term expectations for LINK to continue advancing the progress achieved to date.
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PRA issues PS 14/24 on leverage ratio treatment of omnibus account reserves
The Prudential Regulation Authority (PRA) released policy statement (PS) 14/24, which addresses the leverage ratio treatment of omnibus account reserves and makes minor amendments to the leverage ratio framework.
Some context
PRA rules mandate firms to exclude from the leverage ratio any claims on central banks matched by liabilities in the same currency and of identical or longer maturity.
A new model of reserves holding has emerged where the reserves of several firms are co-mingled in a single account held at the central bank – known as an ‘omnibus’ account. This raised the question of whether the reserves held on such accounts (‘omnibus account reserves’) should be excluded from the leverage ratio as traditional individually-held reserves currently are.
Key takeaways
In consultation paper (CP) 28/23, the PRA proposed to:
- Introduce new rules to apply the exclusion consistently across reserves held on omnibus accounts as well as traditionally-held reserves, with the exclusion of the former subject to specific additional conditions and add related material to Supervisory Statement (SS) 45/15 – The UK Leverage Ratio Framework.
- Make minor amendments to SS45/15 and the leverage ratio disclosure and reporting instructions to clarify the PRA’s expectations and ensure consistency with PRA rules.
The PS is broadly aligned with the CP, with only minor changes from the proposals consulted upon. The changes outlined in this PS are reflected through amendments to the PRA Rulebook, SS45/15, and the disclosure and reporting instructions.
Next steps
All the proposed changes in this policy statement will take effect on 5 August 2024.
The PRA expects firms within the scope of the leverage ratio minimum requirement to notify the PRA of existing or planned participation in an omnibus account. Firms should also inform the PRA whether, in respect of reserves held on the account, they fulfil or expect to fulfil the conditions outlined in Article 429a(A2).
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FCA publishes report on compliance with new secondary objective
The Financial Conduct Authority (FCA) has published its first report on the Secondary International Competitiveness and Growth Objective (SICGO) for 2023/24, as mandated by the Financial Services and Markets Act 2023.
The report details how the FCA complies with the new secondary objective - promoting the international competitiveness of the UK economy, particularly the financial services sector, and its medium to long-term growth.
This objective applies to both the FCA and the Prudential Regulation Authority (PRA).
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