Regulatory Updates September 2024

In this issue we cover: 

• “Naming and Marketing” Rules Flexibility 
• Principal Firms Enhanced AR Oversight 
• FCA Speech on Firms Need to Adaptation 
• FCA Annual Report – Improved Authorisations 

“Naming and Marketing” Rules Flexibility 

Temporary flexibility for the latest SDR and investment labels regime delivered by the FCA, PS23/16, is designed to protect investors and strengthen the UK’s position as a leader in sustainable asset management. As global ESG-oriented assets are projected to reach $34 trillion by 2026, these measures aim to enhance investor decision-making through clearer, consumer-focused labels. 

Key Developments: 

• Anti-Greenwashing Enforcement: Effective 31 May 2024, this rule guards against misleading ESG claims. 

• Investment Labels in Action: Starting 31 July 2024, UK-based funds have been able to use new investment labels, signalling adherence to stringent standards. 

• Compliance Requirements: Firms must now ensure they comply with the upcoming naming and marketing rules coming into force from 2 December 2024. 

Progress and Support: 

• Firm Compliance: Many firms show progress in adhering to the new standards, with a robust pipeline of funds eager to adopt investment labels. 

• Industry Challenges: Adjustments have taken longer than anticipated for some firms, especially those updating product names or aiming to use investment labels. Extended support is being provided to these firms. 

Temporary Flexibility: 

Deadline Extension: The FCA are offering temporary flexibility until 2 April 2025, for firms facing exceptional circumstances. This applies to those who have submitted their disclosure amendments by 1 October 2024 and are adjusting fund names to reflect sustainability accurately. 

Guiding Principles and Ongoing Support: 

• Naming Consistency: The new rules require that fund names genuinely reflect their sustainability characteristics, aligning with our longstanding guiding principles. For example, at least 70% of a fund’s assets should reflect sustainability characteristics to use related terms in their names. 

• Engagement and Assistance: Continued support includes firm engagement, pre-application meetings, and specific guidance on fund mergers, wind-ups, and terminations. 

 

Principal Firms Enhanced AR Oversight 

The FCA reviewed how principal firms are implementing new oversight rules for appointed representatives (ARs) introduced on 8 December 2022, and highlighted good practices and areas for improvement. 

Scope – This applies to all firms with ARs, including Introducer ARs (IARs). 

The FCA evaluated around 270 firms, primarily through a telephone questionnaire and in-depth assessments of 23 firms. They examined annual reviews, self-assessments, AR oversight, onboarding, and monitoring processes. 

Key Findings 

• While many firms claim compliance, some are overconfident. For example, 20% had not completed necessary checks. 

• Self-assessments and annual reviews were completed by most firms, but many lacked quality or were incomplete. 

• Only a few firms adjusted onboarding and termination procedures after the new rules took effect. 

Good Practices 

• Documenting deficiencies with action plans. 

• Using broad management information for oversight. 

• Regular board discussions of AR oversight. 

• Proactive AR monitoring and in-person checks. 

• Areas for Improvement 

• Avoiding a tick-box approach to assessments. 

• Improving documentation and record-keeping. 

• Addressing gaps in AR monitoring and using adequate resources. 

The FCA highlights that there is work yet to be done regarding the principal and AR relationship and firms should be acting now to enhance their oversight of these relationships.  

 

FCA Speech on Firms Need to Adaptation 

Sarah Pritchard stressed the FCA’s shift towards a more outcomes-based regulatory approach, encouraging firms to adapt to evolving risks while keeping consumer needs at the forefront of their actions. With new regulatory frameworks being developed, there is a unique opportunity to reform rules in a way that better reflects the current market and risk appetite. Collaboration with government, industry, and consumer groups is key to shaping a future regulatory regime that supports innovation and growth. 

The Advice Guidance Boundary Review, launched with the Treasury, aims to make financial advice more accessible and affordable. The FCA also supports firms innovating through digital sandboxes and encourages them to act now rather than wait for regulatory changes. Consumer confidence in investing, especially with clearer, more accessible information, is a priority. The FCA’s ongoing reforms, such as improvements to disclosure rules and the Consumer Duty, will help firms better serve and understand consumers. 

Pritchard concluded by urging firms to embrace change, innovate, and collaborate with the FCA to build a more effective and sustainable regulatory environment. 

 

FCA Annual Report – Improved Authorisations 

The FCA’s annual report has revealed that the FCA has significantly improved its authorisations process, with 98% of applications now assessed within statutory deadlines, up from 89% in early 2022/23. This includes applications from wholesale market firms. Overseas firms benefit from pre-application support, and recent reforms to the listing rules further support economic growth by enabling better access to capital.  

Key improvements include: 

• Faster Interventions: The FCA has doubled the cancellation of firm authorisations in 2023 and increased interventions by 68%, addressing firms causing consumer harm earlier. 

• Fair Compensation: The FCA has ensured that nearly £60 million in compensation will be paid to around 270,000 customers, and the Financial Services Compensation Scheme (FSCS) levy has dropped to a 10-year low. 

• Tackling Financial Crime: The FCA has charged 21 people with financial crime offences in 2023, the highest in a single year, and restrained £21.1m in assets under investigation. 

• Crypto Protections: New rules mandate that cryptoasset promotions be clear, fair, and not misleading to protect consumers. 

• Consumer Duty Compliance: Over 42,000 firms must now ensure good consumer outcomes for new and existing products, in line with the Consumer Duty. 

• Innovation Support: The FCA has launched a permanent Digital Sandbox to support early-stage product development. 

FCA leaders, Ashley Alder and Nikhil Rathi, emphasised the agency’s commitment to a balanced approach, supporting consumers, businesses, and the economy while playing a leading role in global financial standards.