Regulatory Updates December 2024

 

In this issue we cover: 

• Consumer Duty Narrows Focus 

• CP24/28 Operational Incident and Third Party Reporting 

• Impact of FCA’s Recent MiFID Organisational Regulation Updates 

• FCA’s Crucial Crypto Regulation Consultation 

 

Consumer Duty Narrows Focus 

The FCA launched a new online resource to outline its Consumer Duty strategic priorities for the upcoming year. This initiative aims to provide a clear, consolidated view of the FCA’s focus areas, enhancing transparency and assisting firms in aligning their practices with regulatory expectations. These include: 

• Enhancing Standards Across Sectors: The FCA is actively monitoring compliance with the Consumer Duty across different sectors, with plans to release targeted publications relating to “review of board / governing body reports and complaints and root cause analysis”, “review of treatment of customers in vulnerable circumstances”, and “review of consumer support outcome and supporting informed decision-making”. 

• Value and Fairness in Consumer Finance: The authority emphasises the importance of firms conducting thorough analysis to ensure they deliver fair value to consumers and address any shortcomings in this area. 

• Sector-Specific Focus: Targeted initiatives will address areas of concern within specific sectors such as retail banking, consumer finance, and insurance. Notably, the FCA aims to improve how vulnerable customers are treated in banking, with findings expected to be published in the first half of 2025. 

• Supporting Consumer Investments and Sustainable Finance: The FCA plans to consult on new rules for retail investments and pensions and expects to extend sustainability disclosure requirements to portfolio management by mid-2025. 

 

CP24/28 Operational Incident and Third Party Reporting 

The FCA’s Consultation Paper CP24/28 proposes measures to strengthen operational resilience in the financial services sector. It aims to address risks from disruptions, such as IT outages, cyber-attacks, and third-party failures, which can harm consumers and destabilise markets. The paper introduces standardised reporting for operational incidents, with clear definitions and thresholds based on consumer harm, market integrity, and safety. Additionally, it expands reporting requirements to cover both outsourcing and non-outsourcing third-party arrangements to address systemic risks and improve data consistency. These changes will help the FCA better respond to incidents and mitigate their impact. Stakeholders are invited to submit feedback by 13 March 2025, with finalised rules expected in late 2025. 

 

Impact of FCA’s Recent MiFID Organisational Regulation Updates 

The FCA has issued a new consultation paper CP24/24 that proposes significant amendments to the MiFID Organisational Regulations. This strategic move aims to incorporate firm-facing requirements directly into the FCA Handbook, streamlining both conduct and organisational rules previously derived from various EU Directives. 

Key Changes and Their Implications 

• Simplification of Compliance: The proposed changes are expected to simplify the regulatory framework, making it easier for firms to understand and implement the requirements. 

• Impact on Operational Practices: Firms might need to overhaul their current operational setups to align with the new streamlined processes, impacting everything from client onboarding to transaction reporting. 

• Increased Focus on Governance: With a clearer regulatory framework, the FCA is likely to enhance its scrutiny on governance structures, expecting firms to maintain or improve current standards of accountability and control. 

Preparing for Transition 

• Firms should start by reviewing their current compliance programs against the proposed changes. 

• Conducting training sessions for compliance and operational teams to ensure everyone is on the same page. 

 

FCA’s Crucial Crypto Regulation Consultation 

The FCA took a significant step towards refining the regulatory framework for cryptocurrencies with the release of a discussion paper focused on cryptoasset admissions, disclosures, and the market abuse regime. This move is a clear signal that the FCA is prepared to tighten its oversight of the rapidly evolving crypto market, which has been marked by its volatility and the unique risks it poses to investors and the broader financial system. 

• Scope of Regulation: The FCA’s discussion paper (DP24/4) lays out a comprehensive approach to how cryptoassets should be integrated within the existing financial regulatory system. This includes proposals on how cryptoassets should be admitted to financial markets and the specific disclosures required to enhance transparency. 

• Market Integrity: One of the core focuses is the application of market abuse regulations to crypto transactions, aiming to curb illegal activities and protect investors from manipulation and insider trading within the crypto space. 

• Public Consultation: The FCA has opened the floor for feedback from stakeholders, reflecting its intent to formulate well-rounded and effective regulations. This consultation period is crucial for crypto businesses and investors to voice their concerns and suggestions. 

Implications for the Crypto Industry: The proposed regulations are expected to bring greater clarity and stability to the crypto market, potentially attracting more institutional investment. However, crypto businesses will need to prepare for stricter compliance requirements, which could mean adjusting their operational and reporting processes to align with new regulatory expectations. 

This development is a part of the FCA’s broader strategy to adapt its regulatory framework to accommodate the growth and complexities of modern financial technologies while ensuring that innovation does not outpace consumer protection and market integrity. 

 

Please feel free to reach out to us at info@objectivus.com if you have any questions or would like clarity on any of the points raised.