CUBE RegNews: 9th September

Greg Kilminster

Greg Kilminster

Head of Product - Content

UK capital markets on track for growth with listing reforms, says FCA 


In a speech at the Capital Markets Industry Taskforce conference, Sarah Pritchard, Executive Director of Markets and International at the Financial Conduct Authority (FCA), outlined a bold programme of reforms aimed at strengthening the UK’s capital markets and enhancing their global competitiveness.  


Using the metaphor of a long-distance race, Pritchard compared the resilience and collective effort needed to achieve success in both capital markets and major marathons, emphasising that the FCA’s ongoing reforms are essential to fostering growth. 


Listing reform – simplifying the race 

At the core of the reforms is a significant overhaul of the UK’s listing rules, the first in more than 30 years. Pritchard noted that the old rules had become overly complex and burdensome, discouraging companies from listing in the UK. The regime’s complexity had contributed to a long-term decline in listings, with many companies turning instead to private equity markets, especially during the low-interest rate environment of recent years. 


The new rules, operational since 29 July, introduce a simplified, disclosure-based framework. This move, Pritchard explained, allows investors to make more informed decisions based on transparent information, while reducing regulatory obstacles for companies looking to innovate and grow. The revised system retains high standards of corporate governance and investor protection but removes unnecessary barriers to listing, with the aim of making the UK a more attractive market for companies and investors alike. 


Pritchard said that the regulator had listened to all parts of the market and concluded that a one-size-fits-all approach would not be appropriate in today’s global, fast-evolving markets. The new rules are designed to support capital markets for decades to come. 


Global competition – UK capital markets must stay race fit 

Pritchard emphasised that today’s capital markets are increasingly international, with both investors and companies operating across borders. To keep pace, the UK must continue to evolve. She acknowledged that UK investors have been increasingly investing in companies listed abroad, attracted by competitive opportunities with fewer regulatory frictions. The FCA’s reforms aim to reverse this trend by making the UK a more viable option for raising capital. 


Further reforms – public offers and investment research 

Building on the listings overhaul, the FCA is also progressing reforms to public offers and admissions to trading, as well as investment research rules. Proposals published shortly after the listing reforms aim to make it cheaper and easier for companies to raise capital in the UK, by streamlining disclosure requirements and removing the need for a prospectus in many cases of further issuance. 


Pritchard noted the need for proportionate regulation, with an emphasis on transparency and adaptability to market conditions. The FCA’s approach, she said, has been informed by extensive market engagement, including innovative ‘Engagement Papers’ that solicited early input from stakeholders. 


Investment research, another key area of focus, has been shaped by concerns from asset managers, especially smaller firms, about the operational complexities of paying for research. The new rules aim to give asset managers greater flexibility while ensuring that investor protection and competition are maintained. 


Embracing innovation – digital securities and the growth escalator 

The FCA is also setting its sights on innovation in capital markets, particularly through the introduction of a Digital Securities Sandbox. This initiative will allow firms to test new technologies for trading and settling assets in a live regulatory environment. Pritchard highlighted the FCA’s commitment to working with the Bank of England, government, and industry to harness technology for growth while maintaining the integrity of UK markets. 


Additionally, the FCA is supporting the development of the world’s first private intermittent capital exchange system, PISCES. This new platform will enable growth companies to access capital while still remaining private, offering new opportunities for investors and helping companies to scale. 


The regulator’s reforms are part of a broader strategy to support companies at every stage of their journey, from private start-ups to publicly listed firms. “Growth companies need to meet their funding requirements to contribute to the overall growth of the economy,” Pritchard said, “...and the FCA has a role in ensuring that regulation doesn’t get in the way.” 


Value for money in pensions – the relay race to better returns 

The final leg of the FCA’s reform marathon focuses on pensions and ensuring that defined contribution schemes offer better value for savers. Pritchard noted that 16 million people in the UK are actively saving into such schemes, with most relying on default investment options. 


The FCA’s Value for Money Framework aims to shift the focus from cost to value, driving transparency and better outcomes for pension savers. This, Pritchard explained, is a relay race, with the FCA working closely with the Department for Work and Pensions and The Pensions Regulator to ensure a coordinated approach. 


“We are running the first leg,” she said, adding that this is a whole-system approach aiming to ensure that the savings of millions of people deliver the value they deserve. 


Conclusion – the long race to success 

Pritchard closed her speech with a reminder that the FCA’s reforms are part of a long-term strategy to enhance the UK’s capital markets. Success, she emphasised, will not be measured in weeks or months, but in years of sustained growth, with more companies choosing to list, grow, and compete in the UK. 


Noting that the industry has come a long way she added that it is a marathon, not a sprint. Regulation is only part of the answer, but with the support of government and industry, she expressed confidence that the industry can deliver long-term growth and maintain the UK’s position as a leading global capital market. 


With the FCA’s ambitious package of reforms well underway, the focus now shifts to delivery and ensuring that the UK’s capital markets remain fit for the future. 


Click here to read the full RegInsight on CUBE’s RegPlatform 

 

Oversight of ARs improving but more to do, says FCA 


The Financial Conduct Authority (FCA) has published findings from its review of how principal firms are embedding new rules for overseeing Appointed Representatives (ARs). The new rules, which took effect in December 2022, aim to ensure that principals have better control and oversight over their ARs. The review highlights good practices and areas for improvement in how firms are adapting to these regulatory changes. 


Some context 

Principal firms are responsible for overseeing their ARs, ensuring compliance with FCA regulations. These enhanced rules were introduced to address concerns that some principals were not adequately managing the risks posed by their ARs. The FCA tested approximately 270 firms, using questionnaires and in-depth assessments, to evaluate how they were implementing the new requirements, including annual AR reviews, self-assessments, and reporting on AR complaints and revenues. 


Key takeaways 

  • Mixed confidence in compliance : While 96% of principals expressed confidence in meeting the new rules, the FCA found signs of overconfidence. About 20% of firms had not completed required self-assessments or annual reviews, with many adopting a "tick-box" approach. In-depth assessments revealed that some firms struggled with documentation, and many used inadequate templates that did not cover all regulatory requirements. 
  • Annual reviews and self-assessments need improvement: Annual reviews and self-assessments are critical components of effective AR oversight. Although 80% of principals claimed to have completed self-assessments, only 52% were of good quality. Similarly, while 90% of principals reported completing annual reviews, just 43% of these were considered comprehensive. Common shortcomings included poor audit trails, insufficient record-keeping, and reliance on limited information about AR activities. 
  • Monitoring and oversight gaps: The FCA’s review revealed significant variations in how firms monitored their ARs. While two-thirds of firms claimed to use data and management information to ensure ARs stayed within the scope of their activities, fewer than a third checked consumer-facing materials such as websites or social media. This gap in oversight raises concerns about potential risks of consumer harm or non-compliant marketing. 
  • Onboarding and termination practices: Many firms had not updated their AR onboarding and termination procedures in light of the new rules. Those that had made changes focused on improving due diligence, particularly in reviewing ARs’ financial stability and business models. On termination, some firms took additional steps to ensure orderly wind-downs, but others lacked clear policies for terminating AR agreements where issues were identified. 


Next steps 

Firms that operate or plan to operate with ARs should closely review the FCA’s findings and consider adopting the examples of good practice outlined in the report. The FCA expects all principal firms to have completed their annual reviews and self-assessments by now and to ensure these processes are well-documented and fully compliant with the new rules. 


The FCA will continue to monitor compliance and take enforcement action where necessary. Principals are encouraged to reassess their oversight frameworks, particularly in areas such as monitoring AR activities, onboarding procedures, and ensuring robust annual reviews and self-assessments. 


In the coming months, firms should prepare for regulatory scrutiny, particularly on how they document and implement their compliance processes. 


Click here to read the full RegInsight on CUBE’s RegPlatform 

 

PS24/5: PSR issues policy statement on CHAPS APP scams reimbursement 


The Payment Systems Regulator (PSR) has published Policy Statement (PS) 24/5 directing banks and other payment firms participating in CHAPS to reimburse their customers who have been victims of authorized push payment (APP) scams. The specific direction (SD) 21 supports the Bank of England’s new CHAPS reimbursement rules. 


Key takeaways 

  • SD21 applies to all payment service providers (PSPs) participating in CHAPS that provide relevant accounts. Relevant accounts are those provided to a service user, held in the UK, and can send or receive payments using CHAPS. Excluded accounts are those provided by credit unions, municipal banks, financial market infrastructures, and national savings banks. There are no exemptions from this obligation based on business or firm type. 
  • All in-scope PSPs must register in line with the requirements set out in the CHAPS reimbursement rules as soon as practicable and no later than 7 October 2024, by providing the information set out in the CHAPS reimbursement rules. This requirement only applies to PSPs who are not already required to register (or who are not already registered) with Pay.UK as required by SD20, which applies to directed PSPs in relation to Faster Payments. This is to ensure that in-scope PSPs are only required to register once. 
  • PSPs will need to report compliance and monitoring metrics to the Bank on a monthly basis. This information may also be shared with the PSR to monitor compliance with SD21. These metrics align with the established metrics for Faster Payments, with one key difference: PSPs are not required to submit nil returns to the Bank when they have not received any APP scam claims during the relevant reporting period. 


Next steps 

The policy start date is 7 October 2024, in line the Bank’s CHAPS reimbursement rules and the Faster Payments reimbursement policy. 


Click here to read the full RegInsight on CUBE’s RegPlatform 

 

FCA takes action against advisers and partners over risky pension transfers 


The Financial Conduct Authority (FCA) has published its decisions to impose a total fine of £590,544 and ban two financial advisers and two partners at St Martin’s Partners LLP (SMP), an Essex-based firm. The FCA believes that these four individuals were responsible for a pension transfer advice model that put people’s guaranteed retirement benefits at risk. 


Therese Chambers, Joint Executive Director of Enforcement and Market Oversight, said: “There was a reckless disregard for customers’ financial situation, their needs through retirement and how their existing benefits compared to the proposed alternative. It is right the FCA takes steps to prevent these people from working in the financial industry and impose penalties.” 


Some context 

Between October 2015 and July 2016, SMP’s advice model exposed 547 clients to significant risk by recommending transfers from secure defined benefit pensions into unsuitable investments. 

The FCA has determined that Adrian Douglas and Liam Martin, both qualified pension advisers, played vital roles in designing and operating the transfer advice model used at SMP. 

The partners of SMP, Mr Oxberry and Mr Cuthbert, were responsible for overseeing the firm and its advisers but failed to ensure proper due diligence was carried out. 


The FCA has decided to fine Oxberry £241,869, Martin £128,356, and Douglas £128,356 and ban them from working in the financial services industry. These individuals have referred the FCA’s decisions to the Tribunal. 

Cuthbert has been fined £91,963 and also banned from working in financial services. He has agreed to settle his case and has not referred the FCA’s decision to the Tribunal. SMP is now in liquidation. 

To date, the Financial Services Compensation Scheme (FSCS) has paid over £13.4m in compensation to SMP’s clients who suffered losses as a result of the advice they received. 


Click here to read the full RegInsight on CUBE’s RegPlatform 

 

AFCA consults on new approach document for insurance contracts complaints 

 

The Australian Financial Complaints Authority (AFCA) is seeking feedback on a new Approach document related to complaints involving non-disclosure and misrepresentation under the Insurance Contracts Act and minor amendments to the delayed insurance claims in superannuation approach document. 

AFCA’s Approach documents clarify how the authority approaches common issues and complaint types and how it reaches decisions. 

 

Key takeaways  

The documents under consultation are: 

  • AFCA’s Approach to sections 29(6) and 29(7) of the Insurance Contracts Act 1984 (superannuation): AFCA’s new Approach document clarifies how the authority handles complaints related to non-disclosure and misrepresentation under sections 29(6) and 29(7) of the Insurance Contracts Act within the context of superannuation. It provides clear guidance on the remedies available to insurers under these provisions and outlines how AFCA will address these issues in complaint resolution. 
  • AFCA’s Approach to Delayed Insurance Claims in Superannuation (amended): The amended Approach to Delayed Insurance Claims in Superannuation includes minor clarifications to ensure the guidelines remain clear and effective. These updates aim to enhance understanding and predictability in how delayed insurance claims are handled without changing the substance of AFCA’s existing Approach. 

 

Next steps  

The deadline for feedback is 30 September 2024. 

 

Click here to read the full RegInsight on CUBE’s RegPlatform 

 

ECB Frank Elderson discusses nature degradation as a material financial risk 


During the European Central Bank (ECB) Legal Conference 2024 in Frankfurt, Frank Elderson, Member of the Executive Board and Vice-Chair of the Supervisory Board, spoke about nature degradation. Specifically, he covered: 

  • The significance of nature degradation as a material financial risk. 
  • The implications for supervision. 
  • The increasing trend of nature-related litigation. 

 

Key points 


Nature degradation as a material financial risk: Elderson described the impact of nature degradation on the broader economy and financial sector and cited research being conducted by the ECB and international organisations. ECB research indicates that several sectors of the European economy are heavily reliant on nature and are thus exposed to associated risks. The Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS) have also recognised the relevance of nature-related risks for the financial sector. 


The implications for supervision: Elderson emphasised the necessity for central banks and supervisors to consider the nature crisis as a source of risk to the economy, financial system, and individual banks under their supervision. He mentioned that nature degradation is already integrated into ECB supervisory work and is considered a risk driver that banks are expected to manage rather than a standalone category of risk. Nature-related risks are also seen as drivers for traditional types of risk reflected in the Capital Requirements Directive, including credit risk, reputational and operational risk (including legal risk), and market and liquidity risk. Elderson also discussed the consideration of nature-related risk in the context of the monetary policy mandate. 


Growing trend of nature-related litigation: Elderson discussed the growing trend of nature-related litigation and its effects on financial institutions, both directly and indirectly. He specifically used the findings of an NGFS report published in July 2024, which identifies two key categories of nature-related litigation and two key drivers. Expanding on the drivers, he mentioned the improved understanding of the climate-nature relationship among scientists and litigants, and the courts' acceptance of the findings of climate and environmental science as technical expertise. 


 He concluded: "Time is running out to prepare for the materialisation of nature-related risks. We need to be ready for the impact of these risks, just like we are for climate-related risks – or indeed for any other risk driver." 


Click here to read the full RegInsight on CUBE’s RegPlatform 


Hong Kong reinforces global insurance position with regulatory advances 


Stephen Yiu, Chairman of the Insurance Authority (IA), has written an article noting Hong Kong’s position as a leading international insurance hub from its high rankings in Swiss Re’s Sigma Report on World Insurance 2023. The report highlighted the city's top-tier performance, including the highest insurance penetration rate globally, the second-highest insurance density, and total premiums of HK$550 billion, securing its place as the 16th largest insurance market in the world. This recognition reflects the success of Hong Kong’s financial ecosystem, especially given its compact size and relatively small population of 7.5 million. 


Yiu emphasised the regulatory body’s role in sustaining this achievement. The IA’s core responsibilities—prudential supervision, market stability, policyholder protection, and fostering the global competitiveness of the local insurance market—have contributed to this outcome. 


A key regulatory advancement is the introduction of the Risk-based Capital (RBC) regime implemented in July 2024. This framework aligns Hong Kong’s capital requirements with international standards, making regulatory assessments more responsive to individual insurers’ risk profiles. Yiu expressed appreciation for the insurance industry’s collaborative engagement during the RBC regime’s development and voiced optimism about completing the final phase of the regime, focused on public disclosures. 


Prudential regulation aside, Yiu also stressed the need to balance robust oversight with a conducive business environment. The IA is actively exploring how the RBC framework can incentivise insurers to increase their operations in Hong Kong, with an invitation for industry stakeholders to suggest ways to refine this balance between regulation and growth. 


Hong Kong’s broader appeal as an insurance hub is reinforced by its strategic position in the Asia-Pacific region, bolstered by the “One Country, Two Systems” framework and its role in China’s “dual circulation” strategy. Yiu noted that despite already hosting three of the nine Internationally Active Insurance Groups (IAIGs) in the region, Hong Kong must remain proactive in enhancing its attractiveness. Part of this effort involves refining the group-wide supervision framework and creating pathways for foreign insurers to re-domicile in Hong Kong, a move supported by the government’s broader “headquarters economy” policy. 


Despite its achievements, Yiu acknowledged that Hong Kong still faces challenges in attracting inward investment, partly due to misconceptions about the city. To counter these, the IA has hosted significant international events, such as meetings of the Capital, Solvency, and Field Testing Working Group and the Macroprudential Monitoring Working Group, aimed at showcasing Hong Kong’s resilience and recovery post-pandemic. 


Looking ahead, Yiu highlighted the need to address emerging risks that could disrupt Hong Kong’s progress, including geopolitical instability, climate change, cybersecurity threats, and supply chain disruptions. The IA will continue to work closely with industry stakeholders to address these issues, ensuring the city’s insurance sector remains robust and globally competitive. 


Click here to read the full RegInsight on CUBE’s RegPlatform