Compliance Digest: 26th January 2024

This is a summary of some of the regulatory issues that have come from the FCA, PRA and my various news feeds this week. 

• Are capital proposals for Personal Investment Firms progress or penal?

• Expectations of firms selling client banks

• Elder abuse is crime, but not often treated like one

• Leaning in on making consumer tech a force for good

• Bank of England and HM Treasury respond to digital pound consultation

• Eversheds Sutherland Financial Services Navigator January 2024

• PRA review of ring-fencing rules

Are capital proposals for Personal Investment Firms progress or penal?

In this week’s blog from B-Compliant, they remind us that the FCA is consulting about capital requirements for Personal Investment Firms.

In the last eight years, Personal Investment Firms (PIFs) exiting the market have left nearly £760 million in FSCS costs.  A whopping 95% of that amount was generated by just 75 failed businesses.  The FCA has decided it is time PIFs were more prudent and put capital aside to safeguard against potential liabilities.  As a result, it released a consultation paper at the end of November outlining its proposed guidance.  This was backed up by a Dear CEO letter to affected firms, highlighting the importance of providing feedback.

The FCA announced the consultation on 29th November 2023, the consultation period is 16 weeks, ending on March 20.

• A link to the consultation paper (CP23/24) is here 

• There is a useful infographic

• And a  Dear CEO letter 

Expectations of firms selling client banks

This month’s FCA Regulation Round-up includes a link to guidance published in December 2023 regarding firms selling client banks. 

The FCA states, client banks are an important part of a firm’s business.  Firms may seek to sell or transfer client banks.  A client bank forms part of a firm’s assets.  The FCA accepts that they may be sold for legitimate reasons – for example, to merge with another firm or so that an adviser can retire. 

However, evidence has shown that in a small number of cases, firms have sold a client bank when they either knew they had redress liabilities or had failed to detect them.

The guidance includes links to the FCA’s Principles for Business and the Consumer Duty pages in the FCA website.

Leaning in on making consumer tech a force for good

In a speech by Nikhil Rathi delivered at the Imperial College London Business School, he looked at how can consumer-facing technology help keep consumer markets honest?

Highlights:

• We are at a global inflection point in the rise of technology in financial services and must use and adapt our existing regulatory tools to protect consumers and markets while making sure we continue to embrace innovation.

• We must be alert to competition impacts.  Big data must not be the preserve of Big Tech: A digital identity authentication system and a commitment to Open Data could boost productivity and consumer confidence in how their data is used.

• A wider debate between policymakers, industry and consumers is needed about what we are willing to risk in search of innovation and better products and services – and we must be honest that we cannot mitigate all risk that arises from rapid adoption of new technologies.

• Consumer facing technology in financial services should be used to boost financial inclusion and security of data and services, or the industry risks triggering a Techlash.

Elder abuse is crime, but not often treated like one

This was a subject that was discussed at an APCC (Association of Professional Compliance Consultants) forum this week.  An article from 2016 provides some food for thought, as does the Hourglass  website.  Having seen clients who have been subject to elder abuse, it is difficult to address and as advisers we need to tread carefully.  I know that some of you are STEP qualified, but I hope these provide some useful resources.

Bank of England and HM Treasury respond to digital pound consultation

In a news release the Bank of England and HM Treasury update on proposals for a digital pound which would include primary legislation to guarantee users’ privacy and control. 

• The response confirms that neither the Bank nor the Government would have access to users’ personal data.

• Authorities committed to maintaining access to cash for those who prefer it.

• Continuing work on digital currency will strengthen the UK’s position as a competitive global leader in finance.

No final decision has been made to pursue a digital pound - also called a central bank digital currency (CBDC).

Work will continue during the design phase exploring its feasibility and potential design choices. This will look at how a digital pound could be used in the UK economy, providing greater choice, convenience and innovation for households and businesses making and accepting everyday payments.  As part of broader work on payments innovation, the work will also help strengthen the UK’s position as a competitive global leader in finance.

Eversheds Sutherland Financial Services Navigator January 2024

In a short video, Matthew Allen from Eversheds Sutherland gives a whistlestop tour of four hot topics for 2024.

PRA review of ring-fencing rules

As of 1st January 2019, the largest UK banks were required by UK law to separate core retail banking services from their investment and international banking activities.  This is known as ring-fencing.

In a recently published report, the PRA sets out its conclusions of the review of its rules on ring-fencing, which has been conducted throughout 2023.  Most of the ring-fencing regime is contained in legislation, but there are also some requirements set by the PRA in its Rulebook, supported by supervisory statements.  It is these PRA rules only that are in scope of this review; however, ring-fenced bodies are subject to the Rulebook as a whole.

Ian Ashleigh