Regulatory Update Dec 2022

In this issue we cover:

Inclusion and diversity

New ESG Code of Conduct working group

FCA consults on new investment advice regime

The Edinburgh Reforms

 

Inclusion and Diversity

Sheldon Mills, FCA Executive Director, Consumers and Competition, has delivered a recent speech on Inclusion and Diversity (I&D).

The FCA considers I&D to fall inside its remit under the ESG Priority of its 2022-2025 Business Plan and touches upon its statutory objectives.

The speech explained that I&D is about more than representation at senior levels. Financial services firms’ ability to recognise and cater to the different needs of their customers is crucial.

Culture, data collection and strategy are other issues which need to be considered, suggesting that whilst progress has been made there is still further to go.

New ESG Code of Conduct working group

The FCA has announced the formation of a group to develop a Code of Conduct for Environment Social and Governance (ESG) data and ratings providers.

As financial services firms integrate ESG into their activities and expand their ESG focused products, they are increasingly reliant on third party ESG data and ratings services. In its recent feedback statement on ESG integration in UK capital markets (FS22/4), the FCA expressed its support for introducing regulatory oversight of certain ESG data and ratings providers.

While the government considers whether to extend the FCA’s regulatory perimeter, the FCA has worked to convene, support and encourage industry participants to develop and follow a voluntary code of conduct.

The FCA has appointed the International Capital Market Association and the International Regulatory Strategy Group as the group’s secretariat and has published its terms of reference. It is expected to meet for the first time later this year.

FCA consults on new investment advice regime

The FCA has recently published a consultation paper (CP22/24) on broadening access to financial advice for mainstream investments.

The FCA sets out its proposals for a new core investment advice regime. This will allow firms to provide consumers with straightforward financial needs greater access to simple advice on investing in mainstream products within stocks and shares ISAs. The FCA also highlights that the Consumer Duty will apply to the core investment advice regime.

The consultation period closes to comments on 28 February 2023. The FCA aims to publish a policy statement and final rules and guidance in early 2023, targeting implementation of the regime before the end of March 2024.

The Edinburgh Reforms

HM Treasury recently published a statement by Jeremy Hunt, Chancellor of the Exchequer, on what he has referred to as a “bold collection” of reforms in the financial sector, referred to as “the Edinburgh Reforms”. This builds on the reform agenda that the government is taking forward through the Financial Services and Markets (FSM) bill:

• Building a smarter regulatory framework for the UK – a plan for repealing retained EU law in financial services and replacing it with a new framework tailored to the UK;

• Updating banking regulation and a ring-fencing regime – bringing forward secondary legislation in 2023 to improve the functionality of the regime;
• Regulatory focus on growth and competitiveness – legislating through the FSM bill to introduce new secondary objectives for the FCA and PRA to provide focus on growth and international competitiveness as well as maintaining existing primary objectives;
• Wholesale markets reforms – removing EU requirements relating to reporting rules and removing burdens for firms trading commodity derivatives as an ancillary activity; and
• Unlocking investment to drive growth – reforming Solvency II at the Autumn Statement, to unlock more than £100 billion for UK insurers to invest in long-term productive assets.