Conduct and governance
FCA request for information on Politically Exposed Persons regime experiences
On 15 August, the FCA published a letter (dated 14 August) it sent to Politically Exposed Persons (PEPs), inviting them to share their experiences of the PEPs regime. The FCA explains that following the Financial Services and Markets Act receiving royal asset, it is currently reviewing how financial services firms have applied the PEPs regime and whether changes to its guidance are required. The FCA is keen to hear directly from UK PEPs on their experiences, including any problems they or their family members have encountered. As such, the FCA is reaching out to parliamentarians, chairs of the political parties and other UK PEPs. The FCA plans to publish the full terms of reference for the review in September and report back by June 2024, as set out in the Financial Services and Markets Act. The findings will inform any subsequent steps. The FCA notes that this review is separate from its recent request for data on account closures.
Letter
Press Release
Consumer/retail
FCA research note on interest-only mortgages
On 15 August, the FCA published a research note on interest-only mortgages. The report sets out analysis of data on the population of regulated interest-only mortgages that existed at the end of H2 2022. The aim of the analysis is to help the FCA understand the characteristics of current interest-only mortgages. Key findings from the research include: (i) the number of interest-only and part-interest-only mortgages has halved since 2015, this is the result of borrowers moving in greater numbers onto repayment loans or repaying earlier than expected; (ii) of those remaining, the greatest number of interest-only mortgages are set to mature in 2031 and 2032, with a smaller peak in 2027; (iii) the vast majority of borrowers (78%) were aware of the need to have a repayment plan in place when they took out the mortgage; and (iv) that 82% of borrowers were confident in their ability to repay the outstanding capital at the end of the mortgage term, although the research suggests this may be overly optimistic. Borrowers without a repayment plan are encouraged to speak to their lender to discuss their options. The FCA plans to start engaging with industry and consumer groups to discuss the research findings and how lenders can further support borrowers who may not be able to repay all the capital owed at the end of their mortgage terms. The FCA also reminds firms that the Consumer Duty is now in effect and that the FCA plans to review its guidance on the fair treatment of interest-only borrowers to ensure it is in line with the higher standards set by the Duty.
Research Note
Press Release
Webpage
Financial crime and sanctions
Please see the Conduct and Governance section for a letter from the FCA, sent to Politically Exposed Persons (PEPs), inviting them to share their experiences of the PEPs regime.
Please see the FinTech section for a statement from the FCA on its expectations for UK cryptoasset businesses complying with the travel rule.
Fintech
FCA statement on its expectations for UK cryptoasset businesses complying with the travel rule
On 17 August, the FCA published a statement on its expectations for UK cryptoasset businesses complying with the travel rule. From 1 September, cryptoasset businesses in the UK will be required to collect, verify and share information about cryptoasset transfers, known as the ‘travel rule’. The FCA expects firms to: (i) take all reasonable steps and exercise all due diligence to comply with the travel rule; (ii) remain responsible for achieving compliance with the travel rule, even when using third-party suppliers; (iii) fully comply with the travel rule when sending or receiving a cryptoasset transfer to or from a firm that is in the UK, or any jurisdiction that has implemented the travel rule; and (iv) regularly review the implementation status of the travel rule in other jurisdictions and adapt business processes as appropriate. When sending a cryptoasset transfer to a jurisdiction without the travel rule, the FCA expects UK firms to take all reasonable steps to establish whether the firm can receive the required information. If the firm cannot receive the necessary information, UK cryptoasset business must still collect and verify the information as required by the MLRs and should store that information before making the cryptoasset transfer. When receiving a cryptoasset transfer from a jurisdiction without the travel rule, and the cryptoasset transfer has missing or incomplete information, UK cryptoasset businesses must consider the countries in which the firm operates and the status of the travel rule in those countries. The UK cryptoasset business should also take these factors into account when making a risk-based assessment of whether to make the cryptoassets available to the beneficiary. The FCA will be keeping its expectations under regular review as global adoption of the travel rule develops and will communicate any changes accordingly.
Statement
Fund regulation
FSB requests feedback as part of its thematic peer review of MMF reforms
On 16 August, the FSB published a request for feedback and summary terms of reference as part of its thematic peer review of MMF reforms. The objective of the review is to take stock of the progress made by FSB member jurisdictions in assessing and addressing MMF vulnerabilities in their domestic markets. The summary terms of reference provides more detail on the objectives, scope, and process for the review. The FSB is specifically inviting feedback from stakeholders on: (i) how MMF vulnerabilities differ across jurisdictions depending on MMF structure, investor composition, asset profile, or other factors; (ii) the progress made by FSB member jurisdictions in addressing MMF vulnerabilities; and (iii) operational and other challenges faced by the industry in implementing MMF reforms. The deadline for comments is 8 September. The FSB expects to publish the peer review report by the end of 2023.
Request for Feedback
Summary of Terms
Markets and markets infrastructure
Amended RTS under CSDR on the penalty mechanism for settlement fails
On 11 August, Delegated Regulation 2023/1626 amending the RTS laid down in Delegated Regulation (EU) 2018/1229 as regards the penalty mechanism for settlement fails relating to cleared transactions submitted by CCPs for settlement was published in the OJ. The Regulation amends Article 19 of Delegated Regulation 2018/1229, by removing the specific collection and distribution process by CCPs for cash penalties and places CSDs in charge of the process to collect from and distribute to their relevant participants, pursuant to Articles 16, 17 and 18 of Delegated Regulation (EU) 2018/1229. It is believed that this amendment will remove the operational risks, technical complexities and costs to the process of collecting and distributing cash penalties for settlement fails relating to cleared transactions. This Regulation enters into force on 31 August and applies from 2 September 2024.
Delegated Regulation
Payment services and payment systems
PSR consultation on the consumer standard of caution
On 15 August, the PSR published a consultation paper on the consumer standard of caution (gross negligence) and the consumer standard of caution guidance for PSPs on APP fraud. The paper explains the policy approach the PSR proposes to take to the consumer standard of caution and draft guidance it intends to produce alongside it. The PSR proposes that consumers should be expected to meet an express standard of care when executing authorised push payments, that standard should consist of three elements: (i) a requirement to have regard to warnings; (ii) a prompt notification requirement; and (iii) an information-sharing requirement. The PSR explains that where a consumer has not, through gross negligence, met one or more of these standards, their PSP would not be required to reimburse a consumer who has fallen victim to an APP scam. The PSR emphasises that the gross negligence exception is a high standard, with the burden of proof falling exclusively on the PSP to demonstrate that the consumer has acted with gross negligence. The gross negligence exception does not apply to vulnerable customers. The paper seeks: (a) views on the PSR’s approach to the consumer standard of caution; (b) any suggestions for additional standards of care that consumers might be expected to meet in relation to APPs; and (c) views on its proposed policy document and the accompanying draft guidance. The deadline for comments is 12 September.
Consultation Paper
Webpage
PSR consultation on APP fraud excess and maximum reimbursement level for FPS and CHAPS
On 15 August, the PSR published a consultation paper on the APP fraud reimbursement requirements, specifically the excess and maximum reimbursement level for FPS and CHAPS. The PSR is consulting on the value of the excess to gain further views on what would be an effective and suitable approach to encouraging customer caution, while maintaining appropriate incentives on PSPs to prevent APP fraud. The PSR has identified three options for how the excess could operate, either as a: (i) fixed excess; (ii) percentage excess, the excess would be a percentage of the reimbursement claim amount; or (iii) percentage excess with a cap, the excess would work as a percentage excess up to a certain financial limit. The excess could be no more than this limit, regardless of the value of the reimbursement claim. The PSR is proposing that the maximum reimbursement level should match the Ombudsman service limit of £415,000, as the PSR believes it strikes a balance between protecting and reimbursing nearly all customers and protecting PSPs from very large frauds that could affect their financial viability. The PSR is seeking views on which option would be best, as well as among others, if fixed what the value should be or if percentage, what percentage. The PSR is also consulting on whether the cap should apply to all customers, including vulnerable customers. The PSR notes that while it has taken initial responsibility for defining the excess and maximum level of reimbursement under the new reimbursement requirement, once Pay.UK has built sufficient capacity, the PSR will explore transferring these roles to Pay.UK. The deadline for comments is 12 September. The PSR expects to publish the final value of excess and maximum reimbursement level by the end of 2023, which will complement the broader APP fraud reimbursement requirements set out in the PSRs final policy statement published in June.
Consultation Paper
Webpage