Cookies on Pinsent Masons website

Our website uses cookies and similar technologies to allow us to promote our services and enhance your browsing experience. If you continue to use our website you agree to our use of cookies.

To understand more about how we use cookies, or for information on how to change your cookie settings, please see our Cookie Policy.

Investment Management Brief: 21 March 2019

Updates from the Financial Regulation team at Pinsent Masons.

Select a topic to read more.

UK Regulatory | Ireland | EU Regulatory | Brexit

UK Regulatory

FCA publishes its final rules for the Directory

The FCA has published [8.03.2019] PS19/7 setting out its final rules on the Directory of financial services workers. The PS follows its earlier consultation - CP18/19 Introducing the Directory (read more in our earlier update here). The new public Directory will enable users to search for information on "key individuals working in financial services" the FCA states, including staff certified by their firms as being fit and proper for their Certification function under the Senior Managers and Certification Regime (SM&CR) and directors who are not performing Senior Manager Functions under the SM&CR.  The Directory will also include information on individuals that carry out business for clients and require a qualification to do so - among others. There will be an obligation on firms to keep the Directory information up to date. The Directory "will enable firms to cross-check references, make their staff known to customers and make it more difficult for unsuitable individuals to operate in the UK market" according to the FCA. Read more on the Directory and its implications for firms in our Out-law article here. To find out more on steps firms should be taking to meet the 9 December 2019 SM&CR implementation date, watch our video: Insights - Senior Managers & Certification Regime (SMCR).

Finalised guidance from the FCA on statements of responsibilities and responsibilities maps

The FCA has published [08.03.2019] Finalised Guidance (FG19/2) on the Senior Managers and Certification Regime: Guidance on statements of responsibilities and Responsibilities Maps for FCA firms. The Guidance is intended to provide a practical guide for FCA solo-regulated firms on how to prepare their Statements of Responsibilities (SoR) and Responsibilities Maps as required under the Senior Managers and Certification Regime (SM&CR) which is being extended to all FSMA authorised firms from 9 December 2019.

Under SM&CR all firms will be required to prepare a Statement of Responsibilities for senior managers subject to the regime. The purpose of the SoR is to set out clearly for the benefit of persons in the firm and regulators an accurate description of the senior manager's responsibilities and those matters for which they are accountable.

Firms subject to the enhanced regime will also have to prepare Responsibilities Maps the purpose of which is to provide an overview of how the firm is managed and governed, and where relevant, explain the firm's governance relationships within a group structure.

The Guidance is provided in the form of a series of key questions that persons preparing the SoRs should be asking, along with examples of responsibilities assigned to selected Senior Managers in particular types of regulated firm, and the level of detail to be provided.

The FCA has stated that the Guidance "should be applied in a risk-based and proportionate way. This includes considering the size, nature and complexity of the firm when deciding whether a certain example of good or poor practice is appropriate to its business". The FCA has set out examples of what it considers to be good or poor practice. These examples are not exhaustive though and whilst the Guidance is not binding on Firms, the FCA has warned that certain poor practices may be sufficient to breach applicable rules. However the FCA also states "we will not presume that a firm's departure from our guidance indicates that it has breached our rules."

The FCA confirms its Finalised Guidance builds on the SM&CR Guide for solo-regulated firms it published in July 2018 (read more on the SM&CR Guide in our earlier update here) and that it includes some "revisions" following feedback to its consultation in October 2018 (read more here and here) and you can watch our video on steps firms should be taking now to meet the SM&CR by the 9 December 2019 implementation date: Insights - Senior Managers & Certification Regime (SMCR).

FCA measures announced to improve competition in the investment platforms market

The FCA has announced [14.03.2018] "a package of measures to help consumers who invest through investment platforms more easily find and switch to the right one for them" according to the FCA's new webpage.  The package is in the FCA's Investment Platforms Market Study Final Report (MS17/1.3) [March 2019] published with Consultation Paper 19/12. The FCA is consulting in CP19/12 on issues that came to light in the Market Study notably "to allow consumers to switch platforms and remain in the same fund without having to sell their investments" along with proposals to restrict exit fees.  The proposed restriction on exit fees "could apply to platforms and firms offering a comparable service to retail clients" according to the FCA and it is "seeking views from the wider market about how a restriction could work, before consulting on any final rules". Responses are sought to the consultation by 14 June 2019. The FCA also notes in the Market Study that "in 2020/21 we [FCA] will review the industry's progress in making the switching process more efficient and in helping consumers access comparable charging information.  If progress is not made then we will consider further intervention." Read more in our Out-law article "FCA welcomes investment platform progress on customer switching" here.

Since publishing its interim report [16.07.2018] the FCA says it found that firms and the industry have been "acting to improve the provision of information about costs and charges" - making it easier for consumers to "shop around", so it is not proposing new rules in this area but will review progress in 2020/21 and consider then if further action is needed.  The Market Study follows the FCA's Interim Report (read more in our Out-law article here) and the Asset Management Market Study Final Report [June 2017] – read more in our earlier update here.

FOS award limit increases

The FCA confirmed [08.03.2019] that the financial award limit of the Financial Ombudsman Service (FOS) is to increase from £150,000 to £350,000 from 1 April 2019 for complaints about actions of firms on or after that date.  For complaints about actions that took place before 1 April 2019 and that are referred to the FOS after that date the limit is to rise to £160,000. According to the FCA both limits will be adjusted annually "to ensure they keep pace with inflation". Read more in our Out-law article here.

FCA's digital regulatory reporting page updated

The FCA has updated its digital regulatory reporting (DRR) page on the FCA's work on how technology may improve ways for firms to meet their regulatory reporting requirements and the quality of information they provide. The page contains a video on the work of the DRR pilot group, summarises work to date including a report on the Phase I of the DRR pilot, and sets out the priority and secondary objectives of the current Phase II of the pilot. The focus of the Pilot Phase II will be  on some of the gaps identified in Phase I and how to address those - "in particular understanding the economic viability of DRR and exploring how it could apply to different product groups", according to the FCA.  Pilot Phase II participants listed by the FCA are: FCA, Bank of England, Barclays, Credit Suisse, HSBC, NatWest, Santander and Lloyds Banking Group. Read more on the FCA's DRR work here and here.

FCA published consumer research on cryptoassets

The FCA has published [07.03.2019] two pieces of research looking at UK consumer’s understanding of cryptoassets. The findings show that cryptocurrencies are not well understood by UK consumers and in some instances purchased with no prior research. The FCA estimated only 3% of consumers surveyed had purchased cryptocurrencies with 50% of this subset investing less than £200. According to the FCA the research suggests that the potential scale of harm to consumers “may not be as high as previously thought” - although the FCA still emphasised the risky, volatile nature of cryptoassets quoting Christopher Woolard, the FCA's Executive Director of Strategy and Competition who commented "'consumers investing in them [cryptoassets] should be prepared to lose all of their money'". This research will assist the FCA to understand cryptoassets with the objective of promoting consumer focussed innovation as well as helping it to "understand and address the harms from cryptoassets" the FCA stated.

The FCA is currently consulting on the regulatory perimeter to clarify which types of cryptoassets fall within the existing perimeter and the consultation is open for responses until 5 April 2019. Read more on the consultation in our earlier update click here. The FCA's cryptoasset work has been carried out both independently and as part of the UK Cryptoasset Taskforce. Read more on the Taskforce in our earlier update click here.  The FCA also notes that HM Treasury is looking into possible change to legislation to extend the FCA's regulatory remit so as to bring other types of cryptoassets within it.

PRA and FCA hold first meeting of joint Climate Financial Risk Forum

The FCA announced [12.03.2019] that with the PRA it held a joint Climate Financial Risk Forum (CFRF) on 8 March 2019, seeking to "build capacity and share best practice across financial regulators and industry to advance financial sector responses to the financial risks from climate change" according to the FCA. The CFRF contains representatives from the financial sector in the UK, and includes: banks, insurers, asset managers and others, with observers from trade bodies "to represent a broader range of firms and ensure the outputs of the CFRF are communicated to their members" the FCA states. The FCA webpage sets out that membership of the CFRF " is representative of the UK financial sector, including firms of varying size, business model, and maturity of approach to climate-related risks". 

At the first meeting four working groups were set up focusing on: risk management, scenario analysis, disclosure and innovation. Each working group is to be chaired by a member of the CFRF, meeting more frequently than the CFRF and reporting back at CFRF meetings. The FCA explains "The aim is to produce practical guidance on each of the four focus areas. The final outputs will be shared with industry more widely. Membership of the working groups will be wider than the forum to allow them to draw on expertise as necessary, such as from academia and industry". The current asset management firm members of the CFRF are: Blackrock, Hermes, Invesco, Schroders and Standard Life Aberdeen, according to the FCA.

FCA Cyber security - industry insights

As part of its ongoing work in relation to assisting firms to become more resilient to cyber attacks, the FCA has published [08.03.2019] a Cyber security – industry insights page linking to the Cyber security – industry insights research document [March 2019]. In the publication the FCA has collated examples of the experiences of firms from different financial sectors who have shared their practices with the regulator.

The FCA states in its introduction that "Cyber is complex and unpredictable and sharing information is vital to successful cyber defence and resilience". Since 2017 the FCA has been running a series of cyber coordination groups (CCGs) formed from over 175 firms who have contributed experiences, insights and ideas  - read more (in the speech from Nausicaa Delfas here) and here. The FCA believes that passing on some of this intelligence more widely will benefit firms not in the CCGs.

The insights published cover the following areas where firms can enhance their cyber resilience:

  • Governance: put good governance in place;
  • Identification: identify what you need to protect;
  • Protection: protect your assets appropriately;
  • Detection: use good detection systems;
  • Situational Awareness: be aware of emerging threats and issues;
  • Response and Recovery: be ready to respond and recover;  and
  • Testing: test and refine your defences.

The FCA encourages all firms to consider the insights and how they might be useful to them is setting up their own cyber defences – but emphasises that the document is not to be considered to be FCA guidance. The insights have also been shared with other financial bodies in the financial services sector who attend the CCGs including the Bank of England, and the Government's National Cyber Security Centre. See more in our earlier update.

Treasury Charter and the rise in female representation in the City of London

According to a news story published [14.03.2019] by HM Treasury, the Women in Finance Charter  has now more than 330 signatories. The firms that have signed the charter, which seeks to resolve gender inequality in financial services, employ over 800,000 employees. In the story Jayne Anne-Gadhia, the Government's Women in Finance Champion is quoted as saying:

“HM Treasury’s Women in Finance Charter continues to play a leading role in improving the gender balance across the UK’s financial services sector. We know that there is more to be done and I am pleased to see the progress made by Charter signatories so far, and that a further 36 financial services firms have made a public commitment to develop a more diverse and inclusive workforce by signing the Charter.”

The news story accompanies the launch of the second Women in Finance Charter Annual Review and according to the story "female representation in senior management at firms who have signed up to the charter is rising, with 86% of signatories having either increased or maintained the proportion of women in the top jobs". 87% of signatories are on course to meet the commitments they have signed up to. Contains public sector information licensed under the Open Government Licence v3.0. Read more in our earlier updates here and here.

Ireland - Investment Funds

Deputy Governor Ed Sibley interviewed by Irish Independent*

The Irish Independent’s Donal O’Donovan interviews Ed Sibley, Deputy Governor of The Central Bank of Ireland, on the likely impact of Brexit on the Irish economy and on Irish businesses. The Deputy Governor discusses the rising number of financial services firms moving out of London, with some setting up operations in Ireland. Mr Sibley also revealed that he would not be interested in taking on the role of Governor should the position become available.

Central Bank of Ireland, 15 March 2019

Sharon Donnery speech: building resilience*

Deputy Governor, Sharon Donnery, recently delivered a speech to delegates attending the Institute of International and European Affairs (IIEA) in Dublin on “Risks and Resilience in Uncertain Times.”  The Deputy Governor spoke of the need to build up resilience in the economy and financial system in the face of a two-pronged threat: the external environment, including a disorderly exit of the UK from the European Union; and the risk of overheating of the domestic economy.

Central Bank of Ireland, 8 March 2019

Notice of Intention: Investment by UCITS and Retail Investor AIFs in UK investment funds; and Counterparties to OTC derivative instruments entered into by UCITS and Retail Investor AIFs*

The Central Bank of Ireland has issued a notice of intention in relation to investments by UCITS and Retail Investor AIFs in UK funds and UK counterparties. In the event that the UK becomes a third country on 30 March 2019, the Central Bank will consider whether funds that are UK UCITS shall be treated by the Central Bank as a category of investment funds into which Irish UCITS and Retail Investor AIFs may invest. While making its consideration, the Central Bank states it does not intend to treat the UK funds as ineligible but states that, in the case of UCITS, any investment in UK funds must fall within the aggregate limit of 30% for investments in AIFs. The Central Bank will also, at that time, consider whether UK MiFID firms should be a category of eligible financial derivative counterparty for UCITS and Retail Investor AIFs. It doesn’t propose to treat such firms as ineligible while it considers their status.

Central Bank of Ireland, 7 March 2019

Update on EMIR reporting*

The Central Bank has issued a letter to counterparties to derivative trades, providing feedback on the main issues identified from the EMIR data quality work which it carried out during 2018.  Counterparties are reminded that they must provide Trade Repositories (TRs) with information regarding these derivatives trades.  The regulator is working with both Financial Counterparties (FCs) and Non-Financial Counterparties (NFCs) to ensure they remain compliant under EMIR.

Central Bank of Ireland, 20 February 2019

Central Bank publishes Q&A documents on AIFMD and Investment Firms*

The Central Bank has published the 32nd edition of its AIFMD Q&A document which includes an updated Q&A ID 1129, in relation to Irish Qualifying Investor AIFs with UK AIFMs. Q&A ID 1129 clarifies that the QIAIFs with UK AIFMs (which become non-EU AIFMs) are subject to the full AIFMD depositary regime including the AIFMD depositary liability provisions.  The Central Bank has also published the 7th edition of the Investment Firms Q&A document which includes new Q&As in relation to tied agents under the MiFID II Regulations.

Central Bank of Ireland, 7 March 2019

Brexit FAQ on MMoU between European securities regulators and the UK’s FCA*

The Central Bank has clarified that the Multilateral Memoranda of Understanding (MMoU) which were agreed between European securities regulators and the FCA on 1 February 2019 facilitate delegation or outsourcing arrangements between Irish UCITS Management Companies/AIFMs/MiFID Firms and UK entities.

Central Bank of Ireland, 6 March 2019

*Contains Irish Public Sector Information licensed under a Creative Commons Attribution 4.0 International (CC BY 4.0) license. For further information please click here.

EU Regulatory

Letter from EIOPA to the EC proposes a "quick-fix" for PRIIPs

Gabriel Bernadino, Chair of EIOPA and the Joint Committee of the ESAs, has written a letter [07.03.2019] to Olivier Guersent, Director General of the EC Directorate General for Financial Stability, requesting endorsement for a proposed amendment to the PRIIPs Regulation. As reported in Out-law the European Fund and Asset Management Association (EFAMA) and Insurance Europe had asked the EU to temporarily extend the provision allowing the use of UCITS KIDs for multi-option products which is currently due to expire on 31 December 2019. The amendment would bring the exemption into line with the extended exemption for UCITS so that both exemptions will expire on 31 December 2021. According to Bernadino's letter, in order "to allow market participants to determine their obligations with certainty, it is important to take the required next steps as soon as possible". The letter asks that the EC consider endorsing the proposal set out in a draft Commission Delegated Regulation within a shorter time frame than the usual three months.

ESMA announces recognition of Euroclear UK and Ireland Limited

In an announcement made on 01.03.2019, ESMA has stated that in the event of a no-deal Brexit the UK's Central Securities Depositary (CSD), Euroclear UK and Ireland Limited, will be  recognised as a third country CSD enabling it to continue to provide services in the EU in accordance with the Central Securities Depositories Regulation. The reason ESMA has given for this decision is to allow the CSD to service Irish securities and to avoid disruption to the Irish securities markets.

In accordance with the decision, the UK CSD's third country equivalence will come into effect on the date following exit day should the UK leave the EU without entering into a withdrawal agreement.


ESMA statement on the impact of Brexit on share trading obligations

ESMA has published a statement [19.03.2019] in which it sets out the approach it will take to the share trading obligation (STO) under MiFIR if the UK leaves the EU without a withdrawal agreement on 29 March 2019.

According to the statement "ESMA is aware that the application of the trading obligation for shares in a no-deal Brexit scenario is creating uncertainty among many market participants and may lead to disruptive effects. Therefore, ESMA is informing stakeholders about its approach to the application of the trading obligation for shares after the no-deal Brexit date".The approach ESMA has adopted is to assume that:

  • Shares with an ISIN from an EU27 state together with shares with an ISIN from Iceland, Liechtenstein and Norway are within the scope of the trading obligation; and
  • Shares with ISINs starting with the prefix “GB” are traded on a “non-systematic, ad-hoc, irregular and infrequent” basis in the EU27, unless those shares qualify as liquid in the EU27.

The outcome of this approach is that GB shares which are liquid and traded in the EU will be subject to the MiFIR STO. This means that they must be traded either on an EU trading venue, or equivalent Third Country venue by EU firms. ESMA's statement notes that the UK has not had an equivalence determination made for its venues, so even where the UK is the primary market for liquid GB shares, the EU trading obligation will apply. The FCA has published a response [19.03.19] to ESMA on its website in which it clarifies this point as follows: "This means EU banks, funds and asset managers will not be able to trade these GB or EU ISIN shares in the UK, even where the UK is the home listing of the British or EU company."  The FCA also states "applying the same approach as ESMA to the scope of the UK STO would, based on current trading data, mean there would be a large degree of overlap between the UK and EU obligations. This has the potential to cause disruption to market participants and issuers of shares based in both the UK and the EU, in terms of access to liquidity and could result in detriment for client best execution". For more information on this see our Article published on Outlaw; "ESMA publishes no-deal BREXIT share trading plans".

FCA publishes diagram explaining TPR and the FSCR for inbound EEA Firms

The FCA has published [13.03.2019] a diagram which shows how the temporary permissions regime (TPR) and financial services contracts regime (FSCR) will enable most EEA-based passporting firms to continue operating in the UK after Brexit in the event of there being no withdrawal agreement in place. The diagram should be read alongside the legislation published by HM Treasury in relation to TPR and the FSCR. 

There is also a TPR for inbound EEA funds being passported into the UK. Details of the FCA's approach to TPR for funds and incoming EEA firms are set out on the FCA's dedicated webpage here. In a footnote to the diagram, the FCA reminds EEA established managers, depositaries and trustees of UK authorised funds that such firms will not be permitted to continue to act for or provide services to those funds after Exit Day unless they register under the TPR as they will not be able to do so under the FSCR.

Different arrangements for the continuation of business in the event of a no deal Brexit will apply for incoming credit rating agencies, trade repositories, data reporting services providers and some entities that are dual regulated by the PRA.

FCA's FIRDS is now open for testing

The FCA announced it has now opened its Financial Instruments Reference Data System (FIRDS) [08.03.19] that will replace the ESMA FIRDS in the UK in the event of a no-deal Brexit. Read more on the FCA's FIRDS in our earlier update here (which also covers ESMA's announcement on the use of UK data in its databases on a no-deal Brexit). From 14 March 2019 firms can test the FCA FIRDS's publishing solution for downloading full and delta reference files, although the FCA FIRDS industry testing publishing system is restricted currently, according to the FCA, while some verification work is completed.  The FCA's dedicated webpage contains a link with instructions for firms to follow to test the FCA FIRDS production publishing system. The FCA notes that the FCA FIRDS is only open for testing before Brexit, as the ESMA FIRDS is the "primary source" for files until exit day.

HM Treasury updates guidance for banking, insurance and other financial services if there is a no-deal Brexit

The Treasury updated its Guidance page: Banking, insurance and other financial services if there's a no-deal Brexit [12.03.2019].

Recent Pinsent Masons' SM&CR video

To find out more on steps firms should take to meet the 9 December 2019 SM&CR implementation date for FCA solo-regulated firms watch our video: Insights - Senior Managers & Certification Regime (SMCR).


Recent Pinsent Masons' publications

Read our article "ESMA publishes no-deal Brexit share trading plans" on Out-law here.

Click here to read our Out-Law article on the Final Report of the FCA’s Investment Platforms Market Study.

Read our article: "Insurance and funds industry: extend PRIIPs and UCITS disclosure rules" on Out-law.

Read our Out-law article on "EBA: authorities need to take steps to protect deposits in EU Branches of UK banks" here.


Read the latest edition of our Insurance Briefing here.

Image of David Heffron    Image of Gayle Bowen    Image of Elizabeth Budd    Image of Ian Warner    Image of David Young


Recent Pinsent Masons' video