Posted: 2024-10-08

FCA letter to PSPs

The Financial Conduct Authority (FCA) has written to firms to Payment Service Providers (PSPs) to outline the new expectations regarding the reimbursement of victims of authorised push payment (APP) fraud. As of 7 October 2024, all PSPs involved in Faster Payments System (FPS) and CHAPS transactions will be required to compensate customers affected by APP fraud, unless the customer was complicit in the fraud or acted with gross negligence. 

Some context 

This action follows the Payment Systems Regulator's (PSR) release of policies PS23/4 and PS24/5, mandating that PSPs reimburse APP fraud victims to enhance consumer protections across the banking sector. The updated measures apply to payments processed via FPS and CHAPS and aim to distribute liability between sending and receiving PSPs to encourage stronger fraud prevention measures. In parallel, the Treasury has introduced legislation allowing PSPs to delay transactions by up to four business days when fraud is suspected, enabling firms to adopt a risk-based approach to payment processing. 

Key takeaways 

The FCA expects PSPs to enhance anti-fraud systems and controls, including ongoing transaction monitoring and customer due diligence. Firms should ensure they have effective governance to detect and manage fraud risks, especially in relation to ‘on us’ payments within the same institution, which may offer lower protection levels compared to FPS or CHAPS. The letter also remins PSPs of their duties under the Consumer Duty to avoid foreseeable harm to consumers, particularly by providing clear and effective scam warnings and support throughout the customer journey. 

Next steps 

The FCA and PSR will actively monitor compliance through data analysis, focusing on transaction times and instances of payment delays due to fraud suspicions. The FCA will issue final guidance on the new requirements by the end of 2024, and PSPs are encouraged to communicate with the FCA if they intend to provide reduced protection for ‘on us’ APP fraud reimbursements. Firms should prepare to enhance their systems and ensure full compliance to avoid penalties and protect consumers from the growing threat of financial crime. 

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DFSA consults on prudential framework

The Dubai Financial Services Authority (DFSA) has launched consultation CP161, Enhancing Proportionality in Prudential Regulation to gather industry feedback on proposed adjustments to its prudential framework. The objective is to enhance proportionality in the application of capital and liquidity requirements for certain authorised firms operating within the Dubai International Financial Centre (DIFC). The DFSA aims to better align regulatory requirements with firms’ risk profiles and operational complexities as a result of the consultation. 

Some context 

The DFSA’s existing prudential regime was established more than a decade ago, as part of the Prudential – Investment, Insurance Intermediation, and Banking (PIB) module. Over time, the regulatory landscape and the DIFC's financial ecosystem have evolved, with a notable increase in the number of firms and the diversity of business models. This consultation seeks to address these changes by adopting a more tailored approach to regulatory oversight. 

The consultation primarily targets firms within Category 3 of the DFSA’s prudential classification, which includes investment firms, money transmission providers, crowdfunding operators, and others. Certain aspects of the proposed adjustments will also apply to firms within Categories 2 and 4, reflecting the DFSA’s commitment to enhancing proportionality across its regulatory framework. 

Key takeaways 

Revised capital requirements: The DFSA is proposing to remove the Expenditure Based Capital Minimum (EBCM) for firms that do not hold client assets, making capital requirements more relevant to firms’ actual business models. The paper also suggests recalibrating EBCM thresholds and introducing an activity-based capital requirement to more accurately reflect a firm’s specific operational risks. 

Broader scope for eligible assets: The consultation includes plans to widen the types of assets that firms can hold to meet liquidity requirements. This is intended to provide more flexibility while maintaining adequate liquidity safeguards. 

Targeted adjustments: Specific proposals include eliminating the Basel regime for firms acting as agents, adjusting the capital requirements for matched principal dealers, and revising prudential categories for particular types of firms such as asset managers and fund custodians. Additionally, the DFSA is reconsidering the role of professional indemnity insurance, aiming to establish minimum standards without imposing unnecessary burdens. 

Enhanced flexibility: For Category 4 firms, the DFSA is evaluating the possibility of modifying the EBCM calculation to allow for more tailored regulatory responses. This reflects the DFSA’s recognition of the varied business models within the category and the need for a regime that adequately reflects this diversity. 

Next steps 

Comments on CP161 are due by 10 January 2025. Following the consultation, the DFSA will review the responses, make any necessary revisions, and incorporate them into the DFSA Rulebook. Firms and other stakeholders are encouraged to review the consultation document and contribute to the discussion, as the proposed changes will shape the future regulatory landscape within the DIFC. 

The DFSA will issue a notice on its website upon completion of the consultation process and the adoption of the proposed changes. Firms should refrain from implementing any measures based on the consultation proposals until the formal rule changes are announced. 

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ESAs issue latest work programme

The Joint Committee of the European Supervisory Authorities (ESAs), which includes the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA), has released its 2025 work programme. For the next 12 month period, the ESAs will focus on enhancing cooperation and ensuring cross-sectoral regulatory consistency across the EU’s financial sector, while addressing critical issues such as digital resilience and sustainable finance. 

Some context 

The ESAs regularly collaborate through the Joint Committee to promote regulatory and supervisory coherence across Europe’s financial services. This cooperation is increasingly essential given persistent macroeconomic challenges, including inflation, economic stagnation, and geopolitical uncertainty. By coordinating their efforts, the ESAs aim to ensure a consistent regulatory approach across sectors, bolstering both consumer and investor protection. 

In the year ahead, the Joint Committee will provide updates on financial stability assessments to the Economic and Financial Committee, while addressing emerging risks that could affect the EU’s financial system. 

Key takeaways 

Focus on sustainable finance: A key priority for the Joint Committee in 2025 is sustainable finance. The ESAs will contribute to the EU Green Deal and Sustainable Finance Strategy by developing technical standards under the Sustainable Finance Disclosure Regulation (SFDR). This includes guidance on sustainability disclosures and reporting of adverse impacts, with potential new standards on ESG rating disclosures expected. 

Digital operational resilience: The Joint Committee will play a significant role in implementing the Digital Operational Resilience (DORA) Regulation, including the oversight of critical third-party providers. This work will involve finalising policy mandates, building the necessary IT infrastructure, and establishing an EU framework for coordinating responses to cyber incidents. 

Consumer protection and financial innovation: the Joint Committee will continue to prioritise consumer protection and financial innovation, with a focus on banking, insurance, pensions, and securities products. A key initiative will be the enhancement of the PRIIPs Key Information Document (KID) to provide clearer guidance for consumers on packaged retail and insurance-based investment products. The ESAs plan to draft Regulatory Technical Standards (RTS) as part of the proposed amendments to the PRIIPs Regulation, pending the outcome of legislative negotiations. They will also issue Q&As and other guidance to promote supervisory convergence across the EU and plan to report on sanctions imposed under PRIIPs throughout 2024. 

In addition to regulatory work, the ESAs will expand financial education initiatives aimed at reducing consumer risks associated with digitalisation and financial services. 

Support for financial conglomerates: The ESAs will continue to monitor financial conglomerates, with a focus on improving reporting templates and publishing an annual list of conglomerates. This work seeks to enhance oversight of firms operating across multiple financial sectors, ensuring they meet comprehensive prudential standards. 

Promoting innovation: In line with the EU Digital Finance Strategy, the Joint Committee will facilitate cooperation between national innovation facilitators through the European Forum for Innovation Facilitators. This initiative aims to support financial innovation while ensuring regulatory alignment across the EU. 

Next steps 

Throughout 2025, the Joint Committee will continue to issue updates on its progress and share insights on financial stability and cross-sectoral risks with EU policymakers. The ESAs are expected to engage closely with industry stakeholders to ensure that their initiatives on sustainable finance, digital resilience, and consumer protection are effectively implemented across the EU financial system. 

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CFTC publishes 2025 work plan

The Office of Inspector General (OIG) at the US Commodity Futures Trading Commission (CFTC) has unveiled its work plan for the 2025 fiscal year, detailing a structured approach to maintaining the integrity and efficiency of the agency. The plan, which serves as a roadmap for the year, includes audits, evaluations, and investigations, alongside tracking recommendations and internal administration activities. 

The OIG’s audit function remains a central pillar of its oversight activities. These audits will assess CFTC programmes and operations for compliance, efficiency, and effectiveness, following the Generally Accepted Government Auditing Standards. As part of its transparency efforts, the OIG releases final audit reports to the public, offering recommendations for improvements. 

In addition to audits, the OIG will conduct evaluations of CFTC programmes to measure their impact and sustainability. These evaluations follow the Council of the Inspectors General on Integrity and Efficiency’s (CIGIE) quality standards, known as the Blue Book. As with audits, evaluation reports will be publicly available. 

The investigative arm of the OIG will continue to analyse complaints related to CFTC personnel and programmes, focusing on preventing fraud, waste, and abuse. Investigations, which are carried out according to Department of Justice guidelines, can address administrative, civil, or criminal violations. Summaries of these investigations are also made public. 

Moreover, the OIG will undertake mandated projects, such as semiannual reports and management challenges, in response to directives from Congress and the President. Recommendation tracking remains a crucial aspect of the OIG’s work, as it follows up on previously issued reports to ensure recommendations are acted upon. Finally, the OIG will continue internal administrative efforts to address workforce needs and maintain professional certifications. 

As priorities may shift during the performance year, the OIG notes that the work plan is subject to change. 

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