FCA Updates & Developments

The FCA has released a statement regarding the requirement for authorisation of firms offering cryptocurrency derivatives. Cryptocurrencies are not regulated by the FCA unless they are part of a regulated product or service. However, cryptocurrency derivatives may fall under the Markets in Financial Instruments Directive II (MiFID II) as a financial instrument.

Firms conducting regulated activities in cryptocurrency derivatives must be in compliance with the FCA Handbook and any relevant EU regulations. The FCA notes that activities amounting to regulated activities in relation to derivatives which reference either cryptocurrencies or tokens issued through an initial coin offering, will require authorisation by the FCA

The FCA has updated its website regarding the pre-application stages for FCA authorisation of asset managers. The website contains new flowcharts to aid new applicants in determining the necessary FCA permissions required. 

If you would like advice or support with any licensing applications or modifications, please click here to contact us.

The FCA has published Handbook Notice 54 containing changes made to the FCA Handbook. The changes in the Handbook are in relation to the following:

  • Financial Services Compensation Scheme: to ensure sufficient funds to operate and manage the scheme
  • Collective Investment Schemes: to address weaknesses identified from the FCA’s Asset Management Study. Changes include:
  • Governance arrangement for authorised fund managers
  • Collective Investment Schemes (No 2): implements changes to governance arrangements for authorised fund managers, with particular relevance to the Senior Managers and Certification Regime
  • Financial Conduct Authority (Changes of Address): to address changes in the Handbook to reflect the forthcoming office relocation
  • Fees (Office for Professional body Anti-Money Laundering Supervision): to makes changes in order to establish a fee structure for the Office for Professional Body Anti-Money Laundering Supervision (OPBAS)

The FCA has published a policy statement providing a response to feedback on a previous consultation (CP17/18) on changes to both the governance arrangements for authorised fund managers as well as other technical changes, aimed at improving the fairness of how investors in funds are treated.

The document also feeds back into how the changes will work with the Senior Managers and Certification Regime (SM&CR) from a previous proposal (CP17/18) and will explain the changes made to the proposal as well as set out the final rules and guidance.

This is applicable to UK authorised fund managers (in respect of their management of authorised funds).

The FCA has released an update regarding the basic advice regime under MiFID II. The update also includes information on the provision of streamlined advice to consumers.

The implementation of MiFID I brought changes to the basic advice regime for MiFID investment firms. The changes did not affect firms which were exempt from the requirements under Article 3 of the Directive (Article 3 firms). Various conduct requirements were introduced from the implementation of MiFID II which resulted in the application of MiFID II’s suitability rules in full to Article 3 firms.

The result meant that Article 3 firms can no longer provide basic advice on stakeholder products within the scope of MiFID (under COBS 9.6). When an Article 3 firm does provide a personal recommendation on a stakeholder product which is also a MiFID financial instrument, the firm must comply with the suitability rules.

Basic advice may still be provided in respect of non-MiFID stakeholder products by Article 3 firms, and firms can still provide streamlined advice on all MiFID and non-MiFID products.

PRA Updates & Developments

The FCA and PRA is consulting on its proposed 2018/19 regulatory fees and levies. The proposals in the paper will raise funding for the following:

  • FCA
  • Financial Ombudsman Service (FOS)
  • Money Advice Service
  • Pension Wise service
  • Single Financial Guidance Body
  • Illegal money lending expenses of HM Treasury

This consultation paper applies to all fee-payers. Deadline for comments is by 1 June 2018.

The European Parliament’s Committee on Economic and Monetary Affairs, has published a draft report on the proposal of a directive for the prudential supervision of investment firms, which amends the Capital Requirement Directive (CRD) and MiFID II.

EU Regulatory Updates

The European Securities and Markets Authority (ESMA) has updated the following questions and answers (Q&A):

The Q&A document provides clarification for regulators and firms on identifying profit forecasts in the context of prospectuses, by providing examples on what may or not constitute a profit forecast.

The HM Treasury and the Treasury Department of the United States have released a joint statement to announce the formation of a US-UK Financial Regulatory Working Group.

The Group serves as a forum for both Treasuries to exchange views on the regulatory relationship between the US and UK. It will be used as a platform to further financial regulatory cooperation, improve transparency, reduce uncertainty, identify potential cross-border issues and work towards avoiding regulatory arbitrage.

The European Commission has published the responses received to its consultation regarding fitness check on supervisory reporting. The objective of the consultation was to gather evidence on the cost of compliance with the existing supervisory reporting requirements as well as the consistency, coherence, effectiveness, efficiency and value of those requirements.

The feedback on the consultation will contribute to future efforts to improve usability and consistency in the framework. 

The European Commission has proposed a new law to strengthen whistleblower protection across the EU. The proposal will enable a higher level of protection for those who report breaches by setting new, EU-wide standards. Safe channels for reporting will be established both within an organisation and public authorities.

Protection for whistleblowers will also keep individuals from being dismissed, demoted and other forms of retaliation and require national authorities to inform citizens and provide training for public authorities on how to engage with whistleblowers.

The deadline for comments is 18 June 2018.

Financial Crime

The European Commission has released a statement regarding the European Parliament’s adoption of the 5th Anti-Money Laundering Directive (MLD5). The Directive is part of an action plan to fight against terrorist financing and will substantially improve on the existing rules.

The MLD5 will:

  • Enhance the powers of EU Financial Intelligence Units and facilitate an increase in transparency to ownership of companies and trusts
  • Prevent risks associated with virtual currencies and limit the use of pre-paid cards
  • Improve the safeguards for financial transactions relating to high-risk third countries
  • Enhance the access of information for Financial Intelligence Units
  • Ensure centralised national bank and payment account registers or central data retrieval systems in all Member States

The Council of the EU is also expected to adopt the MLD5 in the near future.

Enforcement Action

The FCA has imposed a Final Notice on Alexander Stuart prohibiting him from carrying out any function in relation to any regulated activity carried out by an authorised or exempt person/firm. This is in conjunction with a penalty of £34,000.

During his time as a CF30, Mr Stuart was found to have made false and misleading statements, falsified a Learning Statement, and provided the falsified statement to mislead the firm. These behaviours amounted to a failure to act with honesty and integrity, contrary to the FCA Statement of Principles 1. In light of this breach, the prohibition and fine was made against Mr Stuart.

Mr Stuart agreed to settle at an early stage and qualified for a 30% discount. If not for the discount, a fine of £48,584 would have been enforced.

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