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Welcome to our weekly round-up for UK financial services regulation. Paul Staples summarises the key announcements and developments. Be sure to subscribe to receive our updates in your inbox every week.
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In our final newsletter of 2024, regulatory updates continue to land thick and fast.
As one of the most significant initiatives in recent years, it’s appropriate that we lead with several recent key updates on the Consumer Duty. Consistent with the 'not once and done' mantra, this includes constructive feedback on firms’ approach to annual board reports. We also highlight Consumer Duty focus areas for 2025, which cut across several existing in-flight developments.
Next up, building on the FCA’s significant changes to its initial proposals around enforcement investigations, we cover the latest released data on skilled person reports, an important and well-used supervisory tool during 2024.
Elsewhere, in an important step to revoke assimilated (previously retained EU) law and adapt the UK prudential regime, we cover the FCA’s recent MiFID consultation paper, with the PRA’s equivalent paper expected in Q1.
Finally, we round off with sustainability in investment products and news from the credit union sector.
The regulatory update will return in the New Year.
Key updates on the Consumer Duty
The FCA has outlined key updates on the Consumer Duty, emphasising the need for firms to deliver good outcomes for retail customers. The Consumer Duty sets higher standards of consumer protection and requires firms to act in good faith, avoid foreseeable harm, and support customers in achieving their financial objectives. The FCA has reviewed Consumer Duty Annual Reports, complaints, and root cause analysis.
The regulator has identified both good practices and areas needing improvement. For annual reports, the five key aspects of good reports include clear outcomes focus, good quality data, analysis of different customer types, clear processes for production of the report, and a focus on culture throughout the firm. The FCA encourages firms to improve the quality of their data, view of distribution chains, and analysis of different customer types.
Additionally, the FCA has stressed the importance of effective complaints handling and root cause analysis. Firms must identify and address the underlying causes of complaints to prevent recurrence and improve overall customer outcomes.
Skilled person reports and enforcement investigations
The FCA recently published the consultation update 'CP24/2, Part 2: Greater Transparency of Our Enforcement Investigations,’ alongside a letter providing further detail on the update. These publications build on feedback from the February 2024 consultation and reflect the FCA’s commitment to improving the transparency, pace, and focus of its enforcement investigations.
The consultation introduces significant changes resulting from feedback, including
an enhanced public interest test considering the market impact of disclosures
a 10-business-day notice period for firms before public announcements
limitations on proactive announcements for ongoing cases.
The FCA is seeking stakeholder feedback by 17 February 2025, with its board set to make final decisions on the proposals by the end of Q1 2025.
Additionally, the FCA has released data on skilled person reports for Q1 2024/25, offering further insights into its supervisory approach. The FCA commissioned 14 reports, of which six were in the insurance market and five related to conduct of business, with governance and risk management accounting for a further seven.
The FCA has published its consultation paper that sets out proposals to transfer the requirements of the MiFID Organisational Regulation (MiFID Org Reg) into FCA Handbook rules. The MiFID Org Reg contains conduct and systems and controls rules to ensure market integrity and investor protection. The UK version applies directly to UK MiFID investment firms.
The FCA is seeking stakeholder feedback by 28 February 2025, and comments on Chapter 4 by 28 March 2025.
The PRA will publish a separate consultation paper on restating relevant firm-facing provisions in the MiFID Org Reg into PRA rules. The PRA plans to publish its equivalent consultation paper in 2025 Q1. The Treasury will also publish a draft statutory instrument (SI) which sets out how the Government will deal with the non-firm facing elements of the assimilated MiFID Org Regulation.
Once the PRA has published its consultation paper and the Treasury has published the draft SI, the FCA will publish feedback on responses and issue a policy statement following the Government laying out its SI.
The FCA has released an article providing an update one year on from its announcement of a package of measures to improve trust in, and transparency of, sustainable investment products.
The measures introduced included:
four product labels
naming and marketing requirements
an anti-greenwashing rule.
Since introducing these measures, the FCA has supported firms through webinars, meetings, and pre-application calls for those firms considering using the product labels. The FCA has now published additional examples for sustainability impact and sustainability mixed goals labels to showcase how applicants can meet these requirements as they prepare their documentation.
The FCA has also included examples of poor disclosure practices that don’t meet the sustainability disclosure requirements.
The PRA has released two letters to directors of the credit union sector. These letters contain key findings from the PRA's annual assessment and outline the actions that the PRA expects directors to take.
The first letter focuses on credit unions with total assets up to £10 million, while the second letter is targeted at credit unions with total assets between £10 million and £50 million.
Both letters highlight key risks such as operational resilience and disorderly failure, and provide detailed guidance on managing dependencies on third parties, outsourcing, and cyber incidents. They also emphasise the importance of good corporate governance and outline the PRA's expectations for liquidity and investment management.
Additionally, the letters include valuable information on operational change notifications and the impact of providing transactional accounts or processing DWP benefits. Regarding operational changes, the PRA also reminds boards of their obligation to notify it about material operational changes using a form included in both letters.
In the latest episode David Morrey and Ben Farmer discuss a bumper list of current regulatory issues as previewed in Rachel Reeves's Mansion House speech, aimed at unlocking innovation and growth
