Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry.
If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.
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MiFID II: FCA announces opening of passporting gateway
The FCA announced that its gateway for receiving MiFID II passport notifications from FCA solo regulated firms opened on Monday 31 July 2017 and that the forms and further information were set out on their MiFID II passporting webpage. In order to maximise the likelihood of passports taking effect from 3 January 2018, the FCA strongly recommends the following: (i) firms should submit cross-border service passport notifications as soon as possible and no later than 2 December 2017; and (ii) firms should submit establishment passport notifications as early as possible. Under MiFID II, host competent authorities have up to two months to prepare for supervision of the branch before the passport becomes effective. For MiFID II establishment passports to be effective from 3 January 2018, the relevant notification must be issued by the FCA by 3 November 2017. UK authorised firms wishing to passport activities under MiFID I can continue to submit passport applications through Connect until 3 December 2017. From 4 December 2017 all firms will be required to start applying for passports under the MiFID II legal framework through Connect.
The FCA has published a consultation paper (CP17/28) on rules and guidance relating to some of the recommendations made by the Financial Advice Market Review (FAMR) in its final report. In its final report, FAMR set out a series of recommendations intended to tackle the barriers to consumers accessing advice and guidance. CP17/28 aims to address three of these recommendations. In particular, the FCA proposes to: (i) make changes to the FCA Handbook in the light of recent amendments to the definition of advising on investments under article 53(1) of RAO; (ii) provide guidance on personal recommendations. The FCA proposes to amend PERG to give firms more clarity on what amounts to a personal recommendation; (iii) provide guidance arising from the experience of the FCA's advice unit, which the FCA set up in May 2016 to help firms developing mass-market automated advice models bring them to market more quickly following a recommendation from the FAMR; and (iv) provide guidance on insistent clients. Comments are invited by 2 October 2017.
FCA consultation on client money and unbreakable deposits
The FCA has also published a consultation paper (CP17/29) on client money and unbreakable deposits, which sets out proposals relating to minor amendments to CASS. The FCA has found that some investment firms are experiencing difficulty depositing client money at banks in accordance with CASS requirements. The FCA's proposals aim to prevent the potential harm to consumers if a firm reaches a point where it is unable to deposit client money at banks that meet its risk tolerance. This could result in client money being returned to clients against their wishes, or being deposited with banks that do not meet due diligence requirements. The proposals will not apply to client money received by a firm in its capacity as a trustee firm. Comments are invited by 1 November 2017.
ESRB annual report 2016
The European Systemic Risk Board has published its annual report for 2016. The The report describes the work that the ESRB has carried out during its sixth year of operation and is split into three sections: (i) Section 1: Systemic risks in the financial system of the EU, which considers the four main risks to financial stability in the EU that the ESRB has identified; (ii) Section 2: Policy measures addressing systemic risks, which reviews the ESRB's work in the area of macro-prudential policy; and (iii) Section 3: Ensuring implementation and accountability, which discusses the follow-up to ESRB recommendations, the ESRB's obligation to report to the European Parliament and the institutional framework.
The FCA has published a webpage in light of research it commissioned relating to new technologies and firms' AML compliance. The FCA has published a consultants’ report, dated 31 March 2017, which sets out the findings of three months of research, as it believes it will be of interest to financial firms who are considering the use of new technologies in relation to their AML compliance efforts. It states that nothing in the report represents guidance. The report sets out respondents' views on topics including the following: (i) the key functions of new and emerging technologies related to AML compliance and how they aid compliance activities; (ii) challenges faced by firms in introducing new technologies; (iii) which good practice examples and lessons are available for firms considering new compliance technologies; and (iv) what steps the FCA could take to encourage more innovation in AML compliance. The FCA is working with the government to consider what lessons it can learn from the report's findings and will provide further updates in due course.
This week, Nancy King, senior partner at Portman Compliance Consulting LLP, provides us with a short summary on the Senior Managers & Certification Regime, taken from their publication “The Senior Managers & Certification Regime: The ‘Proportionate & Flexible’ route to a ‘Culture of Accountability’”, as follows:
“Currently, the Senior Managers & Certification Regime (SM&CR) rules only apply to banking sector firms (relevant authorised persons – ‘RAPs’), more specifically those with permissions to accept deposits or who are PRA-regulated and may deal as principal. The FCA has published a consultation paper (CP17/25), setting out the FCA’s proposals on the SM&CR, and invites responses by 3 November 2017. The new SM&CR requirements will apply to all FSMA-authorised firms (except insurers at present), including incoming branches of non-UK firms, and are expected to take effect early 2018, although no specific date has been set as yet. It should be noted that the treatment of approved persons of appointed representatives will be considered in a follow up consultation paper.
The SM&CR will be more rigorous than the approved persons regime. It will require senior managers to accept, and more importantly “document” their own accountability and responsibility for designated business areas. From the regulator’s point of view, it puts into operation one of the FCA’s cross-sector priorities: Firms’ Culture & Governance (see chapter 6 of the FCA’s 2017/18 Business Plan). Critically, it is worth noting that one size does not fit all where SM&CR is concerned; the FCA states the new regime will be “proportionate and flexible” and will apply a ‘baseline of requirements to every firm, known as the “core regime”. The majority of firms will fall under the “core regime”’, with only the creatures great and small sitting within the “enhanced regime” or the “limited scope regime”.
Firms will be required to train all staff (except ‘ancillary staff’) to ensure that they are aware of the conduct rules and must notify the FCA of any breaches of the conduct rules by Senior Management. The new conduct rules will replace APER, but are much the same i.e. act with integrity, due skill, care and diligence etc.”
A full version of “The Senior Managers & Certification Regime: The ‘Proportionate & Flexible’ route to a ‘Culture of Accountability’” can be found at: https://www.linkedin.com/pulse/senior-managers-certification-regime-proportionate-flexible-spencer?trk=mp-reader-card.
If you would like to discuss the above or receive further information regarding the SM&CR, please contact Nancy King at: firstname.lastname@example.org.
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
4 August 2017
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