Regulatory Updates August 2024

In this issue we cover:

• Consumer Duty: 1 Year On and Lessons Learnt
• Overseas Funds Regime (OFR): Roadmap to Implementation
• The Future of Digital Reporting
• Sustainability Disclosure and Labelling Regime Updates 

 

Consumer Duty: 1 Year On and Lessons Learnt

The Consumer Duty is an evolving challenge for firms in continuing to bring better outcomes to retail customers, with a focus on improving interactions and creating cultural change within firms. A webinar hosted by the FCA, a year after the Duty came into force highlights just how far firms have come.

1. Positive Impacts and Outcomes:
   • Improved firm culture and consumer outcomes, with many firms adjusting their practices and products to align with the new regulations. This includes changes to employee bonus structures and better communication with consumers to ensure fairness and transparency.
   • A significant positive financial impact, with examples such as firms increasing interest rates on savings accounts more swiftly following base rate increases, benefiting consumers.
2. Challenges and Areas for Improvement:
   • Despite positive strides, firms are encouraged to make ongoing improvements, particularly in areas such as fair value assessments and customer service.
   • The FCA notes that some firms have struggled with embedding the Duty fully, specifically in relation to price and value assessments and monitoring customer outcomes.
3. Enforcement and Compliance:
   • The FCA is taking a proportionate approach to enforcement, focusing on collaboration and education to help firms meet the new standards.
   • There have been no significant enforcement actions, but firms identified as outliers may face closer scrutiny.
4. Looking forward:
   • The FCA will continue to monitor the implementation of the Consumer Duty, publish more guidance on best practices, and launch a program of work to address potential consumer harm.
   • In addition to the webinar the FCA published a Call for Input asking for views on whether, where and how retail conduct rules can be refined whilst ensuring the continued support and protection of consumers.

 

Overseas Funds Regime (OFR): Roadmap to Implementation

The FCA have released a roadmap to introduce the OFR which covers a number of areas including –

2. Objective and Overview:
   • The OFR is designed to streamline the process for non-UK investment funds (especially European Economic Area (EEA) UCITS funds) to access UK retail markets.
   • The Government has deemed EEA states equivalent for UCITS funds (excluding money-market funds) under the OFR.
3. Timeline:
   • Q2 2024: Legislation to implement the equivalence decision and extend the Temporary Marketing Permissions Regime (TMPR) will be laid out.
   • September 2024: OFR gateway opens for non-TMPR funds to apply for UK market recognition.
   • November 2024: OFR gateway opens for TMPR umbrella schemes.
   • December 2026: TMPR will cease for non-money market funds.
   • 2025-2026: Depending on government consultations, the FCA may introduce sustainability and labelling rules for OFR funds.
4. Application Process:
   • Applications for recognition under the OFR will need to be submitted via the FCA’s Connect system, along with a fee.
   • For TMPR funds, a series of three-month “landing slots” will be provided to smooth the transition to OFR.
   • Failure to apply within the landing slot may result in the fund being delisted from the TMPR, prohibiting marketing to UK investors until OFR recognition is granted.
5. Sustainability Disclosure Requirements (SDR) and Labelling:
   • The government will consult on applying the UK’s Sustainability Disclosure Requirements and labelling regime to OFR funds in Q3 2024, with potential legislative changes by H2 2025.
6. Other Regulatory Requirements:
   • Funds recognised under the OFR must comply with the UK point-of-sale disclosure requirements for retail investors.
   • The FCA will implement rules on the operational and reporting requirements for OFR funds, with consultations planned as necessary.

 

The Future of Digital Reporting

For over a decade, the Financial Reporting Council (FRC) has played a key role in developing and maintaining UK taxonomies, creating a robust framework that ensures consistent and high-quality digital reporting. The UK Taxonomy Suite is central to easing the reporting burden on businesses, fostering economic growth by enabling investors to easily access and compare data, and helping regulators ensure compliance with legal and regulatory standards. The FRC prepared a discussion paper on the evolving nature of digital reporting in light of the Economic Crime and Corporate Transparency Act 2023.

The discussion paper covers several critical areas, including:

• Alternatives to the European Single Electronic Format (ESEF) taxonomy for UK-regulated markets
• Proposed updates to structured digital reporting that support regulatory disclosure initiatives
• Considerations for mandatory assurance of digital tagging
• The impact of “full tagging” requirements on companies and charities
• Strategies to assist stakeholders in transitioning to new digital reporting standards

It seeks input from a broad range of stakeholders, including financial report preparers, investors, software vendors, accountants, and regulators, to shape the future of digital reporting in the UK. The goal is to ensure that the evolving system meets the needs of all users while enhancing transparency, comparability, and efficiency in corporate reporting.

 

Sustainability Disclosure and Labelling Regime Updates

The Financial Conduct Authority updated its webpage on the sustainability disclosure requirements (SDR) and investment labelling regime, introducing a new section with downloadable labels. This is part of the continued drive to enable consumers to navigate the market for sustainable investment products with confidence.

This new section is designed for distributors who are subject to the requirements outlined in ESG 4.1.16R to 4.1.19R, which were added to the FCA Handbook as part of the SDR and investment labelling regime. It provides distributors access to the various investment labels, including ‘sustainability mixed goals,’ ‘sustainability improvers,’ ‘sustainability impact,’ and ‘sustainability focus,’ along with information on their terms of use.

The FCA also highlights its exclusive rights to the trademarked investment label logos under UK law, emphasising that any unauthorised use, reproduction, or modification of the labels is prohibited without prior written consent. By downloading the investment labels, users agree to comply with these trademark terms of use.