FCA Proposes Stronger Requirements on Oversight of Appointed Representatives

Laura Febbrari and Ian Manson

On 3 December 2021 the FCA launched a consultation on improving the appointed representatives (AR) regime. The proposed changes aim to address the harm arising in this market while retaining the cost, competition and innovation benefits of the AR model. The FCA considers that the proposals would improve principals’ initial due diligence and oversight of ARs and require principals to provide the FCA with more information on their ARs, allowing the FCA to spot risks more quickly. The FCA will also expect ARs to be more effectively overseen by their principals.

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Drivers of Change in the Financial Services Industry and How We Are Responding

Sascha Cordonnier and Peter Ray

Jessica Rusu, the Chief Data, Information and Intelligence Officer of the FCA gave a speech on data driven changes in the FCA, the challenges and threats brought about by new technologies and how the FCA is responding.

Over the past few years, there has been transformation and new challenges in the threats to consumers with the development of new technologies. These include the rising use of social media which has opened new investors to new markets and products, such as cryptocurrencies. The risks with those new technologies and investments are not always adequately understood by investors.

With the landscape for financial services becoming more data driven and digital, this has led the FCA to take a data driven approach to regulation that can allow the FCA to identify paths of potential harm to consumers and intervene quickly. 

The aim of the FCA is to use this data driven landscape to create an environment in which firms, especially fintech firms, can flourish and be supported notably through the FCA’s Innovate service and the Regulatory Sandbox. The FCA aims to be at the forefront of technological developments, while being more assertive in the protection of consumers.

Going forward, the FCA will aim to be a leading and innovative regulator, and to use this data analytic strategy to protect consumers and improve intervention.

The full speech can be found here.

The FCA Commits to Helping Investors Consider ESG as Part of Investment Decisions

Vishan Singh and Matteo Basso

Data from the most recent Financial Lives Survey suggests that 80% of respondents want their money ‘to do some good’ and that 71% want to ‘invest in a way that is protecting the environment.’ To encourage positive change across the economy, the FCA believes consumers need high quality information and clear standards in the environmental, social and governance (ESG) space.

Considering this, the FCA released a press release announcing the publication of discussion paper( DP) 21/4 which invites views on criteria to classify and label investment products to help consumers navigate sustainability characteristics. The FCA intends to leverage existing initiatives to remain in line with market practice and other regulation. Within the DP, the FCA suggests ways in which products already classified under the EU’s Sustainable Finance Disclosure Regulation (SFDR) could be mapped against the UK framework. DP21/4 will guide the FCA’s policy design ahead of a consultation on new proposals in Spring 2022. We encourage firms to respond to this discussion paper.

Nikhil Rathi, CEO of the FCA, mentions that DP21/4 forms part of the FCA’s new ESG Strategy. The strategy outlines the FCA’s role in supporting the transition to a more sustainable economy. Central components of the strategy include transparency as well as building trust and integrity in the market for ESG products. 

In the press release, the FCA suggests it remains committed to embedding ESG considerations and expanding its resources in the area. The FCA will also confirm final rules, which align to TCFD standards, on disclosures for a wider scope of listed issuers, asset managers, life insurers and FCA-regulated pension providers, by the end of 2021. 

The full press release can be found here

A Strategy for Positive Sustainable Change

Sam Smith and Warren Radloff

The Chief Executive of the FCA Nikhil Rathi, has delivered a speech at COP 26 on the FCA’s new strategy for positive sustainable change.

The key points covered by Mr Rathi’s speech were as follows:

  • The themes at the core of the FCA’s strategy, including trust and transparency
  • The program of work which will be implemented to support a market-led transition to a more sustainable economy
  • How the FCA will work with the International Organization of Securities Commissions and other organizations to promote adoption of the International Sustainability Standards Board’s global baseline sustainability reporting standards
  • How the FCA will seek to build a trusted market and internationally consistent framework to assist in mobilizing the capital needed to keep emissions in check.

The full speech can be found here.

Digital Regulation Cooperation Forum (DRCF)

Vishan Singh and Peter Ray

The FCA, along with the Information Commissioner’s Office (“ICO”), the Competition and Markets Authority and the Office of Communications (“Ofcom”) gave evidence to the Lords Communication and Digital Committee inquiry into Digital Regulation. They highlighted how cooperation across regulators is vital for improved clarity and transparency, improving speed and ease for people and businesses to engage with digital regulation. 

The statement explained some of the progress made by the regulators, who together form the Digital Regulation Cooperation Forum (DRCF).

Some progress of the DRCF mentioned in the statement includes: 

1) Responding strategically to industry and technological developments

  • The DRCF is committed to establishing joint strategic projects where cooperation will promote regulatory coherence. Joint project teams across the regulators have made significant progress with critical digital issues in service design, algorithmic processing and end-to-end encryption.

2) Joined-up regulatory approaches

  • The DRCF has developed approaches for delivering coherent regulatory outcomes where different regulations overlap. The work also considers how planned new regimes for online regulation may interact with existing regulation. 

3) Building clarity through collective engagement

  • Alongside engagement with stakeholders, DRCF have developed a joint communication strategy which leverages the individual reach of each organization to maximize their collective impact, generate thought leadership and highlight DRCF outputs.

There are additional details of progress made and issues discussed such as the consideration of a new Digital Authority, which the DRCF does not believe is the most appropriate course of action. However, they accept that this is a decision for Government and Parliament. 

The full statement can be found here

The FCA and the BoE Sign Joint MoU with the FMSB

Sam Smith and Warren Radloff

The FCA, jointly with the Bank of England (BoE), has signed a Memorandum of Understanding (MoU) with the Fixed Income, Currencies and Commodities Markets Standards Board (FMSB), a standards setting body for the wholesale fixed income, currencies and commodities markets. The MoU sets out a high-level framework which formalizes the continued cooperation between the FCA, the Bank and FMSB in relation to the delivery of FMSB’s primary objectives, as recommended in the Fair and Effective Markets Review Final Report. The report can be found here

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