Financial services

Contact: Jonathan Cary and Matthew Griffith

Financial services

PRA announces rules aimed at improving financial stability and investment

On 12 September 2024, the Prudential Regulation Authority (PRA) announced Basel 3.1 reforms, which are part of the international Basel 3 framework. The proposals are focused on strengthening the banking sector's financial resilience as banks will be required to maintain capital against risks to prevent another crisis, as in 2008. The rules are also intended to promote growth, investment and competitiveness, including by lowering capital requirements for loans to SMEs and for infrastructure projects and a streamlined approach to mortgage lending. The rules will come into force on 1 January 2026.

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FCA portfolio letter highlights FCA priorities for the next two years

The Financial Conduct Authority (FCA) issued a portfolio letter on 7 October, outlining its priorities for the next two years for the finance advice and investment intermediary market. In our recent article, Rachael Healey explores the priorities outlined in the FCA's letter, with highlights including retirement income advice, and a continued focus on the expectations around the consumer duty. The letter also confirms that we can expect a further update from the FCA on its review of the retirement income advice market in the first quarter of 2025 and an update on ongoing advice services later this year.

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FCA provides guidance for Lifetime Mortgage Providers

The UK Financial Conduct Authority (FCA) has issued guidance to lifetime mortgage providers (LMPs) highlighting several priority areas of focus for 2025. Amid economic instability and rising consumer demand, the FCA is concerned about the potential for mis-selling of unsuitable lifetime mortgage products. Key priorities include ensuring LMPs embed the new Consumer Duty, with a focus on product design, fair value, and monitoring changes in customer circumstances; maintaining adequate financial and operational resilience; managing financial crime and fraud risks; and making accurate sustainability claims. The FCA will closely monitor LMPs' treatment of customers, particularly those in vulnerable circumstances, and will intervene where necessary, including in relation to closed products and services. The guidance underscores the evolving regulatory landscape and challenges facing the lifetime mortgage sector.

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Financial services

Insights from the Price and Value Outcome

The Financial Conduct Authority (FCA) has published insights from the first year of the price and value outcome implementation, following the introduction of the Consumer Duty. The FCA is reminding firms that establishing fair value is not only in relation to price but ensuring that the services and products offered are assessed in a manner that established whether these provide fair value to customers. The publication provides poor and good practice examples across several areas.

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Improvements to be made for anti-money laundering supervisors

The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) has assessed 25 Professional Body Supervisors (PBS) and found that none were deemed to be fully effective, with weaknesses observed in enforcement powers, supervisory tools and fines. Some PBS were also found to be lacking when sharing information with regulators and law enforcement.

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PSR appoints new Non-Executive Director and new Chair of the PSR Panel

On 26 September 2024, the Payment Systems Regulator (PSR) announced that Andrew Buckley has been appointed as non-executive director. In addition to being a Simon Industrial Fellow at The University of Manchester, he is also a Governor at Birmingham City University and a Trustee at B:Music (Birmingham Symphony Hall). The regulator also announced that Robert Caplehorn, a lawyer and fintech expert, has been appointed as Chair of the PSR Panel.

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Applications open for digital security Sandbox

On 30 September 2024, the Bank of England and the FCA announced that applications for the Digital Security Sandbox (DSS) are open. The DSS allows firms to test new technologies, such as distributed ledger technology, in traditional financial markets. Firms can also test legislative changes before their implementation. The Bank of England and FCA have published guidance to support firms during the application process and are jointly operating the DSS. Instruments in scope of the DSS include equities, corporates and government bonds and money market instruments, while unbacked cryptoassets such as Bitcoin are not in scope.

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Financial services

The Payment Services (Amendment) Regulations 2024 draft published

On 3 October 2024, HM Treasury published the final draft of The Payment Services (Amendment) Regulations 2024. According to the regulations, payment service providers will be able to modify outbound payments and their processing when they suspect fraudulent activity. The legislation is part of the government's effort to prevent authorised push payment (APP) fraud and will be laid in parliament after the conference recess.

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Consultation on Buy-Now, Pay-Later draft legislation

On 17 October 2024, HM Treasury published a consultation on draft legislation to regulate Buy-Now, Pay-Later (BNPL) products and the market. The government plans to safeguard the public from the use of BNPL products by ensuring that clear information is provided, and their rights are protected. Through these plans, the government also aims to prevent unaffordable borrowing through BNPL products. The consultation is open until 28 November, and the legislation will be introduced following feedback on the consultation.

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Finfluencers subject to action by the FCA

The FCA is taking action against finfluencers, a term used to define personalities on social media who promote financial products and provide advice to their followers on their platforms. 20 individuals are currently being interviewed under caution by the regulator, who has also issued alerts against 38 accounts that might promote financial products illegally.

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FCA's response to the Transition Market Review

On 17 October 2024, the FCA published its response to the Transition Finance Market Review (TFMR), reaffirming the regulator's commitment to support transition finance as more firms look to decarbonise. The FCA plans to action several measures including embedding the TFMR's findings into their policymaking and supervisory functions; work to establish a new regime for ESG ratings providers alongside the government; advance transition finance by further engaging with stakeholders such as industry participants and international bodies; and increased guidance and best practice examples to provide more support to firms.

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Financial services

FCA seeks feedback on new safeguarding measures for payment services

The Financial Conduct Authority (FCA) has published a consultation (CP24/20) on proposed changes to the safeguarding regime for payment and e-money firms. This consultation aims to address ongoing concerns about poor practices in safeguarding and wind-down arrangements. The FCA proposes a two-stage approach to strengthen and clarify safeguarding rules, ensuring customers can recover their funds quickly if a firm fails. The proposal includes replacing the current regime with a CASS-style system, introducing interim rules to improve compliance with existing regulations, and establishing an end-state stage where relevant funds are held in trust for consumers. The consultation period ends on 17 December 2024, with final interim rules expected in the first half of 2025. Implementation periods of six and twelve months are proposed for the interim and end-state rules, respectively.

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Findings of the FCA and Practitioner Panel 2023/24 survey

On 23 October 2024, the FCA published the findings of their joint survey into FCA regulated firms. The survey found increased levels of satisfaction from firms in relation to their approach with the FCA. The firms surveyed also highlighted areas of improvement for the FCA, including increased support for growth and competitiveness, a proportionate approach when introducing new initiatives and improved data collections processes to reduce regulatory burdens on firms.

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FCA’s evolving enforcement approach explained

The Financial Conduct Authority's (FCA) joint executive director of enforcement and market oversight, Therese Chambers outlined the FCA's evolving approach to enforcement in a recent speech. Key points include the enhancement of the Cyber Forensics Unit, emphasising data-driven methods and encouraging firm collaboration. The FCA aims to reduce investigation timelines, having already shown improvement with 24 outcomes so far in 2024 compared to 26 in all of 2023. The agency is streamlining its caseload to focus on high-risk conduct and maximise deterrence. Regarding transparency proposals, the FCA plans to engage stakeholders intensively in autumn 2024, addressing concerns and providing more detailed information on potential implementations. This includes developing a clearer public interest test, publishing case studies, and allowing firms to contribute their views on announcement practices.

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PSR's annual report

The Payment System Regulator (PSR) has published their 2023/24 Annual Report. During the year, the regulator has continued to deliver its strategy including a focus on APP fraud, with plans to drive firms to take greater efforts in preventing fraud and helping victims. The regulator is also committed to encouraging innovation in open banking services, such as variable recurring payments. In addition, the PSR continues to carry out work to ensure competition is safeguarded.

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