Regulatory Round-up - Q4 2019
In this edition we cover:
- Senior Managers and Certification Regime Goes Live
- Annual Standing Data Affirmation
- FCA Business Plan 2019/20
- New FCA Form - Management Body changes for Non SMF Directors
- Cryptoasset Firms FCA Registration
- FCA and Bank of England Review of Open-Ended Funds
Senior Managers and Certification Regime Goes Live +
The SM&CR went live on the 9th December 2019 and now applies to all FCA and PRA authorised firms such as banks, building societies, asset managers, insurers, mortgage providers and Consumer Credit firms. All solo regulated firms are now required to implement and adhere to the Financial Conduct Authority’s (FCA) rules on individual accountability.
The SM&CR establishes a new regulatory framework to:
• Hold all employees of authorised firms accountable for their actions;
• Incorporate within the framework accountability of a firm’s most senior individuals; and
• Encourage individuals to take greater responsibility for their conduct.
Firms have a transitional year (9 December 2020) to assess all certified staff as fit and proper, issue certificates once certified as well as train all conduct rule staff. In addition, by 9 December 2020 FCA solo regulated firms must also upload certified staff to the new “FCA Directory” once it has been implemented.
Annual Standing Data Affirmation +
Firms that have not registered with the FCA “Connect” platform will need to do so in preparation for a new mandatory update from 2020. From January 2020 firms will be required to review and confirm the accuracy of their firm details annually, in line with their Accounting Reference Date. This will need to be completed via Connect.
The FCA will be emailing, calling and writing to firms that are not Connect users to encourage them to register as soon as possible.
Firms can register via the FCA website or by calling the FCA during business hours on 0300 500 0597.
The Connect platform is also used for the submission of applications such as approved persons, variation of permissions and MiFID II notifications.
FCA Business Plan 2019/20 +
As we move into 2020 the FCA continues to implement its business plan released on 17th April 2019. Shortly after its release on the 23rd April the FCA Chief Executive, Andrew Bailey, gave an important speech on the future of Financial Conduct Regulation in a post Brexit era. For Wholesale firms the FCA noted the following areas of priority:
The FCA will focus on building relationships with key national and international bodies and post Brexit ensuring it becomes a major third party regulator outside of the EU.
Culture and Governance:
The FCA will place emphasis on promoting healthy cultures and individual responsibility for client and market outcomes. The FCA has also noted they will undertake a review of remuneration and recognition practices in firms as harmful behaviour is a risk to their objectives.
The FCA will look to improve anti-money laundering capabilities including more intrusive reviews of the effectiveness of firms’ systems and controls ahead of the 5th Money Laundering Directive in January 2020.
The FCA is working towards developing policy proposals for consultation on “operational resilience” and will undertake thematic work on third party service providers being used for critical services.
Innovation / Market Development:
The FCA wants to influence innovation and market development by looking to build on existing initiatives such as their regulatory sandbox and developing guidance on new trends such as cryptocurrency trading.
New FCA Form – Management Body changes for Non SMF Directors +
From 9 December 2019 MiFID investment firms are required to use a new form to submit information to the FCA when appointing Non SMF Directors to, or withdrawing them from, the firm’s management body.
If a firm’s management body changes, they will need to download the form, complete it and email it to the FCA at NonSMFNotification@fca.org.uk (From Q1 2020 the submission must be made via Connect).
Cryptoasset Firms FCA Registration +
From 10 January 2020 all UK cryptoasset businesses carrying on activities that fall within the scope of the Anti Money Laundering (“ Terrorist Financing and Transfer of Funds Regulations 2017 need to register with the FCA.
Firms undertaking the following activities should assume they are within scope and therefore required to register until HM Treasury publishes a response on the 5th Money Laundering Directive at which time they may reduce or extend the activities.
• Peer to peer providers
• Crypto asset exchange providers
• Custodian wallet providers
• Crypto asset ATM machine providers
• Issuers of new crypto assets
The FCA’s remit under the regime will be limited to AML registration, supervision and enforcement only.
New cryptoasset businesses that intend to carry out the above activities after 10 January 2020 must be registered prior to the activity commencing Existing cryptoasset business need to register by January 2021 or cease all related activity.
FCA and Bank of England Review of Open-Ended Funds +
The Bank of England’s Financial Policy Committee published a Financial Stability Report on the 16th December setting out initial findings of a joint review by the FCA and the Bank of England on open ended investment funds and the risks posed by their liquidity mismatch .
The FCA provided a statement covering the main Findings:
• Liquidity of funds’ assets should be assessed by reference to the price discount needed for a quick sale of a representative sample (or vertical slice) of those assets or the time period needed for a sale which avoids a material price discount. In the US, the Securities and Exchange Commission has recently adopted measures of liquidity based on this concept.
• Redeeming investors should receive a price for their units in the fund that reflects the discount needed to sell the required portion of a fund’s assets in the specified redemption notice period, ensuring fair outcomes for redeeming and remaining investors.
• Redemption notice periods should reflect the time needed to sell the required portion of a fund’s assets without discounts beyond those captured in the price received by redeeming investors.
The FCA will use the conclusions of the review which will be released in 2020 to inform the development of the FCA’s rules for open ended funds.