Recent regulatory developments of interest to all financial institutions. Updates include the latest publications relating to Brexit, LIBOR transition and an FCA call for input on the consumer investments market.
Contents
- The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020
- Draft Sanctions (EU Exit) (Consequential Provisions) (Amendment) Regulations 2020
- UK-Japan Comprehensive Economic Partnership Agreement agreed in principle
- HMRC money laundering supervision: updated Supervised Business Register
- Consumer investments market: FCA call for input
- FCA information requests and STORs
- FCA policy development update
- LIBOR transition: new FCA webpage on getting firms ready
- LIBOR transition: RFRWG papers on supporting transition of existing sterling LIBOR-linked cash products
- Complaints against financial services regulators: consultation period extended
- Fintech Pledge launched by Tech Nation to enable collaboration with banks
- MLD4 obligations regarding trusts and similar legal arrangements: European Commission report
- ML and TF indicators associated with virtual assets: FATF report
The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020
The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 (SI 2020/991) have been published, together with an explanatory memorandum.
The Regulations amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017) to implement amendments made by the Fifth Money Laundering Directive to the Fourth Money Laundering Directive (MLD4). The Regulations also make amendments to the MLRs 2017 relating to HMRC's Trusts Registration Service, the reporting of discrepancies in beneficial ownership information, the use of confidential information, and customer due diligence and enhanced due diligence.
Except as specified, Parts 1 to 3 of the Regulations come into force on 6 October 2020. Regulation 7(2)(a) (substitution of regulation 45(3): register of beneficial ownership information) comes into force on 6 April 2021 and regulations 5 and 7(4), which relate to the registration of express trusts, come into force on 10 March 2022. Part 4 of the Regulations come into force at the end of the Brexit transition period.
Draft Sanctions (EU Exit) (Consequential Provisions) (Amendment) Regulations 2020
A draft version of the Sanctions (EU Exit) (Consequential Provisions) (Amendment) Regulations 2020 has been published, with an accompanying draft explanatory memorandum.
The Regulations are made under the Sanctions and Anti-Money Laundering Act 2018. Regulation 2 amends the ISIL (Da'esh) and Al-Qaida (United Nations Sanctions) (EU Exit) Regulations 2019 (SI 2019/466), Regulation 3 amends the Counter-Terrorism (International Sanctions) (EU Exit) Regulations 2019 (SI 2019/573) and Regulation 4 amends the Counter Terrorism (Sanctions) (EU Exit) Regulations 2019 (SI 2019/577) (together, the 2019 Regulations).
The amendments provide that the 2019 Regulations will amend the Charities Act 2011, the Sanctions and Anti-Money Laundering Act 2018, and the following Regulations: the Electronic Money Regulations 2011 (SI 2011/99), the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLRs) and the Payment Services Regulations 2017 (SI 2017/752). These amendments are triggered at the end of the transition period of the counter-terrorism sanctions framework established by the 2019 Regulations. This counter-terrorism sanctions framework is intended to replace the counter-terrorism sanctions regimes currently implemented through EU Council Decisions and Regulations (and associated UK legislation) and the Terrorist Asset-Freezing etc Act 2010.
UK-Japan Comprehensive Economic Partnership Agreement agreed in principle
The UK Government has announced that the UK and Japan have reached an agreement in principle for a Comprehensive Economic Partnership Agreement to take effect at the end of the UK-EU transition period. This is the UK's first major post-Brexit trade agreement and will replace the EU-Japan Economic Partnership Agreement.
The text of the agreement in principle has not yet been published, but the press release indicates that, in relation to financial services, it will facilitate improved market access for UK financial services "including greater transparency and streamlined application processes for UK firms seeking licences to operate in Japan. The deal creates an annual dialogue between Her Majesty’s Treasury, UK financial regulators, and the Japanese FSA [Financial Services Agency] that will explore ways to further reduce regulatory friction - something that would be impossible were the UK still in the EU. Financial services are our biggest export to Japan, accounting for 28% of all UK exports".
In this context, "agreed in principle" means that agreement has been reached on all substantive issues, but that the legal text still needs to be finalised and translated before signature.
HMRC money laundering supervision: updated Supervised Business Register
HMRC updated its guidance on checking whether a business is registered for money laundering supervision by inserting a new version of the Supervised Business Register. The register provides a full list of HMRC-registered businesses for money laundering supervision including their registration number, business name, trading name, first part of their postcode, the date the business first became supervised and the sector(s) they are registered for.
Consumer investments market: FCA call for input
The UK Financial Conduct Authority (FCA) has published a call for input on the consumer investments market. The call for input considers areas where the consumer investment market is not working well for customers and seeks views on what changes the FCA can make to improve protections and outcomes in this market.
The call for input focusses on the following core questions:
- What more can the FCA do to help the market offer a range of products and services that meet straightforward investment needs?
- How can the FCA better ensure that those who have the financial resources to accept higher investment risk can do so if they choose, but in a way that ensures they understand the risk they are taking?
- How can the FCA make it easier for people to understand the risks of investment and the level of regulatory protection afforded to them when they invest?
- What more can the FCA do to ensure that when people lose money because of an act or omission of a regulated firm, they are appropriately compensated and that it is paid for fairly by those who cause the loss?
- How can people be better protected from scams?
- What more can the FCA do to facilitate effective competition and encourage firms to develop innovative products and services which help consumers to invest?
The deadline for responses is 15 December 2020. The FCA intends to use the feedback to the call for input to shape its work over the next three years, sharing any views or insights with the government, as appropriate.
FCA information requests and STORs
The FCA's most recent edition of its newsletter on market conduct, Market Watch 65, contains cautionary tales for firms responding to an information request by the FCA or when submitting a suspicious transaction and order report (STOR). The FCA's observations are made in the context of firms' dealings with suspected market abuse – although they apply to communications with the FCA more generally.
Read more in our briefing: Cautionary tales when dealing with FCA information requests and STORs.
FCA policy development update
The FCA has updated its policy development update webpage which sets out information on recent and future FCA publications.
LIBOR transition: new FCA webpage on getting firms ready
The FCA has published a new webpage for firms on getting ready for LIBOR transition. The page includes FCA commentary, links to further resources and additional information for firms under the following areas:
Among other things, the FCA states that it expects firms to conduct an end-to-end inventory of LIBOR exposure. This should cover the full range of processes and systems, including, where relevant, pricing, valuation, risk management and booking. It should also cover contracts with clients, counterparties, creditors, employees, suppliers and others. These may include in-house or ancillary systems and where third-party vendors provide critical systems, firms should get assurance on timely software upgrades in order to use alternative rates.
Between now and the end of 2021, the FCA will update its webpage periodically. It advises firms to regularly check the information provided to determine what the move away from LIBOR means for them.
LIBOR transition: RFRWG papers on supporting transition of existing sterling LIBOR-linked cash products
The Working Group on Sterling Risk-Free Reference Rates (RFRWG) has published the following to support the transition of existing sterling LIBOR-linked contracts:
The RFRWG will monitor the availability of data sources for the adjustment methodology and consider further work if necessary.
Complaints against financial services regulators: consultation period extended
Following communications from the House of Commons Treasury Select Committee, the Bank of England (BoE), the Prudential Regulation Authority (PRA) and the FCA have agreed to extend the period for responses to their joint consultation paper on complaints against the regulators (FCA CP20/11 / PRA CP8/20).
The closing date for the consultation is extended to 12 October 2020, rather than 14 September 2020, as was originally stated.
Fintech Pledge launched by Tech Nation to enable collaboration with banks
Tech Nation has announced the launch of the Fintech Pledge, an initiative of the Fintech Delivery Panel with support from HM Treasury. The aim of the voluntary pledge is to accelerate the growth of the UK's FinTech sector by enabling enhanced collaboration between banks and leading Fintech firms. Tech Nation describes the initiative as setting "globally leading standards" for the establishment of efficient and transparent commercial partnerships between banks and Fintech firms.
The Fintech pledge has initially been signed by the UK's five largest banks, Barclays, HSBC, Lloyds Banking Group, NatWest Group and Santander. Signatories will be listed on Tech Nation's website, updated quarterly by Tech Nation in conjunction with HM Treasury.
The banks pledge to:
- provide clear guidance to technology firms on how the onboarding process works through a dedicated online landing page;
- provide clarity to tech start-up firms on their progress through the onboarding process;
- provide a named contact, guidance and feedback;
- encourage good practice and improvement; and
- commit to implement this process six months from signing the pledge and provide bi-annual feedback in the first year.
The full pledge can be accessed via Tech Nation.
Pledge signatories will be required to provide a senior sponsor from within their institution and a named person responsible for updating the Fintech Delivery Panel's onboarding working group on progress.
Separately, the Investment Association has also launched "Best Practice For FinTech Engagement: Being a responsible partner & client".
MLD4 obligations regarding trusts and similar legal arrangements: European Commission report
The European Commission has published a report assessing whether member states have duly identified and made subject to MLD4 all trusts and similar legal arrangements governed under their laws. The Commission is required to carry out the assessment under article 31(10) of MLD4
ML and TF indicators associated with virtual assets: FATF report
The Financial Action Task Force (FATF) has published a report on "Virtual Assets Red Flag Indicators of Money Laundering [ML] and Terrorist Financing [TF]" to help national authorities detect whether virtual assets are being used for criminal activity.
Key indicators in the report focus on:
- technological features that increase anonymity, such as the use of peer-to-peer exchanges websites, mixing or tumbling services or anonymity-enhanced cryptocurrencies;
- geographical risks – criminals can exploit countries with weak, or absent, national measures for virtual assets;
- transaction patterns – if irregular, unusual or uncommon, this can suggest criminal activity;
- transaction size, for example, where the amount and frequency have no logical business explanation;
- sender or recipient profiles – unusual behaviour can suggest criminal activity; and
- source of funds or wealth which can relate to criminal activity.
The FATF says that the report will help virtual asset service providers, financial institutions, and designated non-financial businesses and professions, and other reporting entities, detect and report suspicious transactions. It will also provide useful information for financial intelligence units, law enforcement agencies, prosecutors and regulators to analyse suspicious transaction reports or monitor compliance with anti-money laundering and counter-terrorist financing controls.
This report complements the FATF guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (June 2019) which explains how to understand the ML and TF risks of virtual assets, how to license and register the sector, actions sectors need to take to know information about their customers, how to store this information securely, and how to detect and report suspicious transactions.
Alongside the report, the FATF has published handouts summarising virtual asset red flag indicators relating to the following areas:
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