FCA Updates - June 2021

Temporary Registration Regime extended for cryptoasset businesses

Giles McClelland and Peter Ray

3 June 2021

The FCA is extending the Temporary Registrations Regime (TRR) for existing cryptoasset businesses from 9 July 2021 to 31 March 2022. The TRR was established last year to allow cryptoasset firms that applied for registration before 16 December 2020, and whose applications are still being assessed, to continue trading. A number of businesses are not meeting the required money laundering standards and are consequently withdrawing their applications. The FCA does not have consumer protection powers for the cryptoasset activities of firms, and it is unlikely that consumers will have access to the Financial Ombudsman Service or Financial Services Compensation Scheme, irrespective of whether a firm has temporary or full registration. The FCA press release can be viewed here.

The FCA has selected a new Chair of its independent Markets Practitioner Panel

Kristian Sotiriou and Matteo Basso
 
15 June 2021

The current Interim Chair of the FCA’s independent Markets Practitioner Panel, Tim Waddell, will be replaced by the Non-Executive Chair of the London Stock Exchange (LSE) plc, Michael Findlay, effective 1 July 2021.
 
The FCA’s Chair, Charles Randell, has welcomed the new appointment and indicated that Michael will bring strong experience of capital markets, which will be an important contribution in supporting the UK’s economic recover from the pandemic. 

Michael Findlay has expressed his eagerness to start working with the FCA and help achieve a balanced regulatory approach. 

The full press release can be found here. 

Switch to Secured Overnight Financing Rate (SOFR) in USD interest rate swap markets starting 26 July 2021

Amelie Snape and Darragh Finn

16 June 2021

Guidance previously issued by U.S. regulators has stated that U.S. banks are to stop entering into new contracts using USD LIBOR as a reference rate by the end of 2021 at the latest. This is in keeping with guidance issued to UK-regulated firms by the PRA and FCA in the form of a “Dear CEO” letter issued in March of this year, a stance that has been globally supported by the Financial Stability Board. The Commodity Futures Trading Commission’s Market Risk Advisory Committee’s Interest Rate Benchmark Reform Subcommittee has supported this and voted to switch interdealer trading conventions for USD linear interest rate swaps from USD LIBOR to SOFR starting 26 July 2021. 

Following a survey of market participants, the FCA and the Bank of England encouraged all participants in the interdealer USD interest rate swaps market to implement these changes from 26 July 2021 and to facilitate the movement of liquidity away from USD LIBOR to SOFR. 

The full publication can be found here.

FCA research reveals increase in cryptoasset ownership

Giles McClelland and Peter Ray

17 June 2021

The FCA has published its fourth consumer research publication on cryptoasset ownership, which is designed to better understand consumers’ attitudes and patterns of use. It estimates that 2.3 million adults now hold cryptoassets and that increasing numbers see them as either a complement or alternative to mainstream investments. 

The FCA’s press release can be viewed here.

Building a regulatory environment for the future

Tom Bevan and Alex Lander 

22 June 2021

Nikhil Rathi, CEO of the FCA, delivered a speech on the future of UK regulation.

The main points from the speech were as follows:

• Departing the EU will give the regulator an opportunity to tailor their rules to better suit UK markets while ensuring appropriate safeguards and upholding high standards.
• The FCA will continue to rigorously review all firms seeking UK authorization.
• The regulator’s partnerships are of the utmost importance, now more than ever, which is why the FCA is working to deepen their existing partnerships as well as forge new ones.
• The FCA is proposing to extend their climate-related financial disclosure requirements to issuers of standard-listed equity shares.
• The regulator wants views on selected ESG topics in UK capital markets and, additionally, they are proposing new disclosure requirements for asset managers, life insurers and FCA-regulated pension providers as mentioned in other articles.

The speech can be read in full here. 

FCA and PRA publish joint policy statement on margin requirements for non-centrally cleared derivatives

Kristian Sotiriou and Matteo Basso

30 June 2021

The PRA and the FCA published a policy statement (PS 14/21) setting out changes to technical standards on margin requirements for non-centrally cleared derivatives. The rule changes set out in the policy statement are as follows:

• Change the implementation dates and thresholds for the phase-in of initial margin requirements to align them with the amended standards published by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions,
• Require the exchange of variation margin for physically settled foreign exchange forwards and swaps for specified counterparties only, and
• Extend the temporary exemption from the margin requirements for single-stock equity options and index options until 4 January 2024. 

The policy statement can be found here.

FCA appeal for victims of illegal investment scheme to come forward

Peter Timson and Alex Lander

30 June 2021

The FCA is attempting to identify victims of an illegal investment scheme following the conviction of six individuals to a combined 28 years’ imprisonment in the FCA’s largest fraud prosecution. All but 20 individuals have been identified, so the FCA is making a final call for any remaining victims to come forward.

Compensation to the victims will come from a combined confiscation order against the convicted individuals totalling over £1.8 million. 

Further information can be found here and here.

FCA review finds weaknesses in some “host” Authorized Fund Management firms’ governance and operations

Laura Febbrari and Warren Radloff

30 June 2021

The FCA has published a review of host Authorized Fund Management firms (“the Review”). Every fund authorised by the FCA is required to have an operator who is responsible for the overall management of the scheme, which includes managing the investments made for and on behalf of the scheme. Scheme operators are collectively referred to as AFMs. Host AFMs are fund operators that delegate investment management to third-party investment managers outside of their corporate group. 

The FCA found that some host AFMs had the following issues: 

• Weaknesses in governance structures, conflicts of interest management and operational controls 
• A lack of focus on controlling the risk of harm from investors exposed to inappropriate or poor value products 
• Referring to funds as if they were solely operated by delegated third-party investment managers or fund sponsors rather than themselves
• Lack of resources
• A lack of oversight and due diligence of delegated third-party investment managers
• A lack of understanding of some of the strategies used by the delegated third-party investment managers

Firms that are not meeting the FCA standards (which were outlined in the Review) should look at the Review’s key findings and take action. The FCA will focus on this sector to ensure that the regulatory framework is working to provide value for investors balanced by appropriate protections. The FCA will provide feedback to all firms in the Review, and a few will have to undertake section 166 Skilled Person reports. Firms may also be asked to hold additional capital to mitigate their business risks. The FCA is considering whether rule changes are required to the regulatory framework that firms operate under. 

The full article can be found here. Read the review of host AFMs here.