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The latest regulatory update – February 2022

Regulatory Update February 2022

In this issue we cover:

  • Transforming data collection
  • Regulatory collaboration on wider implications to the framework
  • Determining competency of heads of compliance and MLRO applicants
  • Considerations for regulatory references
  • Memorandum of Understanding for UK payment systems
  • 2 month delay to processing FCA change in control notifications
  • FCA speech on Enhancing UK’s capital markets
  • UK JMLSG: Revisions to syndicated lending guidance

Transforming data collection

The FCA has provided further details relating to its work with the Bank of England (BoE) and industry to transform how data is collected across the sector. This involves the development of a joint transformation programme with the BoE to identify how data collection should improve to increase the value and reduce the burden to firms.

The regulators have identified three areas of focus:

  • integrating reporting to increase consistency
  • modernising reporting instructions to improve how data is interpreted and implemented by firms
  • defining and adopting common data standards.

During 2022 the FCA will be broadening its engagement with solo-regulated firms. It’s also inviting firms to get involved in the programme to ensure it has the widest possible set of views and experiences.

Regulatory collaboration on wider implications to the framework

Financial regulatory bodies including the FOS, the FCA, the Pensions Regulator, FSCS and MaPS have announced the establishment of the Wider Implications Framework. This is a formal agreement for collaboration on matters of common interest, with the aim of achieving a better outcome for consumers, small businesses, and the wider industry.

The framework will establish a procedure consistent with each regulatory body’s independent role and statutory functions to discuss risks and issues that may have broader implications, and to agree the most appropriate approach to managing those matters.

The FOS stated that an example of an issue which would follow the framework, is one that could have a wider impact across the sector; for example where many consumers are affected, redress is significant or where there is the risk of business failure. 

Determining competency of heads of compliance and MLRO applicants

The FCA has set out further guidance on how to demonstrate that an individual is appropriate for regulatory approval to be the Head of Compliance or the MLRO.

The FCA wants to ensure these positions are filled by people who are suitably competent and capable of effectively performing the role. Firms should think about the following in advance of their application:

  • Training: the FCA does not endorse specific exams but does indicate it’s easier to demonstrate competence than acquired knowledge.
  • Experience: the FCA clarifies that you do not need to have held a similar senior compliance role before.  A more junior role within the compliance function helps, or a similar senior role in a related discipline, such as legal or accountancy would be accepted too. However, it does indicate that someone with only front-line experience is unlikely to be approved, unless it’s a smaller firm, and that person has the requisite training and capacity.
  • Use of external advisers: the FCA does not see the use of advisers as necessary for success but does state that it sees the use of third parties as useful. 
  • Capacity: the FCA expects firms to demonstrate that the person has the time and the capacity to fulfil the role.

Considerations for regulatory references

The FCA has published its regulatory round-up for January 2022 in which it clarifies some key points about regulatory references under the SM&CR, following feedback from firms on challenges they face when obtaining references.

The FCA clarifies that:

  • regulatory references should be requested and responded to promptly. The six-week guidance in SYSC 22 is a limit, not a target
  • the template in SYSC 22 Annex 1 should be used when providing regulatory references. Failing to use the correct template or sending incomplete or inaccurate information can cause delays
  • if a firm experiences difficulties obtaining regulatory references from another firm, it should inform the FCA. If a firm is unable to obtain regulatory references as part of an application, it should set out the steps it took to obtain references. This will help avoid delays during the application assessment
  • regulatory references should be assessed on a case-by-case basis. Firms should not have a quota for the number of qualified references they’ll accept.

Memorandum of Understanding for UK payment systems

The FCA has issued a statement on the Memorandum of Understanding (MoU) between the Bank of England, FCA, PRA and PSR which sets out the high-level framework the authorities use to co-operate with each other regarding the payment systems in the UK. The Financial Services (Banking Reform Act) 2013 requires the authorities to review the MoU on an annual basis.

Senior representatives from the BoE, FCA, PRA and PSR concluded that the MoU is working well. The authorities have implemented several initiatives identified previously, such as the exchange of expertise, information and data. They have also identified further opportunities to deepen cooperation and coordination, which will be implemented later in the year.

2 month delay to processing FCA change in control notifications

On 18 February 2022, the FCA updated its webpage on how to submit a change in control notification to outline how it will respond to the recent high volumes of section 178 notifications.

The FCA highlights that there is currently a delay of approximately two months between submitting a complete notification and allocating a case officer. The FCA explains that a substantial number of incomplete notifications contribute to further delays and recommends providing all relevant information for initial submissions.

As part of the FCA’s transformation programme outlined in its business plan for 2021/22 the FCA is recruiting additional case officers and making improvements to decrease the time between allocating and determining cases.

FCA speech on enhancing UK’s capital markets

On 8 February 2022, the FCA published a speech by Sarah Pritchard, Executive Director, Markets, on enhancing the UK’s capital markets.

Areas of focus in the speech included:

  • Transformation of the FCA: Ms Pritchard reiterated the FCA’s plan to become a more innovative, assertive, and adaptive regulator and one that is data-led;
  • The future regulatory framework: Ms Pritchard stated that the FCA welcomed the proposals contained in HM Treasury’s paper to transfer significant pieces of onshored legislation into the FCA Handbook, and that it is a critical opportunity to create a rulebook that meets the needs of the UK as well as enhances the attractiveness of UK capital markets; and
  • What to expect in 2022: Ms Pritchard confirmed the FCA will be publishing its overarching consumer and markets strategies outlining priorities and focus in the future. Areas of focus will be capital markets, future regulatory framework, ESG and transformation of the FCA.

UK JMLSG revisions to syndicated lending guidance

On 17 February 2022, following on from a consultation in December 2021, the Joint Money Laundering Steering Group (JMLSG) published a new paragraph 17.29A to be inserted into Part II Sector 17 (Syndicated Lending) of its anti-money laundering and counter-terrorist financing guidance.

Paragraph 17.29A covers the completion of customer due diligence (CDD) by lenders for syndicated lending. Under the new guidance, lenders should adopt a risk-based approach when evaluating what CDD is available for the borrower under a syndicated loan before becoming a lender of record under the facility documentation.

The revised guidance has been submitted to HM Treasury for approval.