Financial institutions general regulatory news, March 2021 # 5 | Hogan Lovells

Recent regulatory developments of interest to all financial institutions, including updates from the UK, EU and the FATF. See also our sector specific updates in the Related Materials links.


  • CMA 2021/22 annual plan
  • UK-EU trade and cooperation agreement: House of Lords EU Committee report on trade in services
  • Future of UK financial services post-Brexit: BoE response to Treasury Committee inquiry
  • FCA whistleblowing campaign
  • Diversity and inclusion: FCA speech
  • MaPS to launch single consumer offering under holistic new MoneyHelper brand
  • UK regulatory approach to cryptossets and stablecoins: FMLC response to HM Treasury consultation
  • LIBOR transition: FMLC and EFMLG letter
  • Promoting regulatory coherence in financial services: IRSG report
  • Delegated Regulation on framework for design and delivery of PEPP
  • FMI business continuity plans: ECB advises on pandemic planning best practices
  • EU platform on sustainable finance issues transition finance report
  • FATF AML and CTF standards: unintended consequences of incorrect implementation
  • Virtual assets and virtual asset service providers: FATF consults on updating guidance

CMA 2021/22 annual plan

The Competition and Markets Authority (CMA) has published its annual plan for 2021/22. In 2021/22, the CMA will focus on the following themes:

  • protecting consumers and driving recovery during and after the coronavirus pandemic, focusing on protecting the vulnerable from breaches of competition and consumer protection laws and poorly functioning markets, as well as supporting the UK economy by fostering competition to promote innovation, productivity and growth;
  • taking its place as a global competition and consumer protection authority as it assumes new responsibilities after the Brexit transition period;
  • fostering effective competition in digital markets; and
  • supporting the transition to a low carbon economy.

UK-EU trade and cooperation agreement: House of Lords EU Committee report on trade in services

The House of Lords EU Services Sub-committee has published a report, “Beyond Brexit: trade in services”. The report examines the future UK-EU relationship on trade in services, including financial services, professional and business services, data and digital trade, the creative industries, and research and education. The Committee summarises its findings and conclusion on financial services as follows:

“The UK-EU Trade and Cooperation Agreement (TCA) does not include substantive provisions on financial services, and delays to key decisions about the future relationship, particularly on equivalence, mean that the sector is still in a period of uncertainty. The UK’s exit from the passporting regime has led to the movement of some activity to the EU and firms facing the challenges involved in navigating different market access requirements in each Member State. The Committee is concerned that over time this may lead to a big shift of people and assets out of the UK. The Committee recognises that the UK and the EU will seek to change their regulatory regimes where it is in either party’s interests, but calls on the Government not to disregard the value of a close UK-EU relationship in financial services.”

Future of UK financial services post-Brexit: BoE response to Treasury Committee inquiry

The House of Commons Treasury Committee has published the Bank of England’s (BoE) written response to the committee’s inquiry into the future of financial services in the UK after Brexit. The response considers the BoE’s financial stability objective and the PRA’s primary objectives of safety and soundness and insurance policyholder protection. Strong standards are therefore at the centre of the response. Points of interest include the following:

  • leaving the EU gives the UK an opportunity to tailor its approach to financial services policy and regulation. The policy should consider how regulation can facilitate innovation, so that the UK can seize opportunities from new areas of growth and productive investment in financial services as they emerge, especially as such features are also supportive of long-term resilience. This could include digitisation of the economy and FinTech;
  • regulation should promote competition (for example, by ensuring that standards are proportionate to firms’ business models);
  • “safe openness” to firms from other jurisdictions who are seeking to access the UK market, based on international collaboration and standards, will be a key element in the UK’s future success. This approach ensures that the BoE can support openness, while mitigating the risks through regulatory assessments of deference, regulatory and supervisory cooperation, and a commitment to common international standards; and
  • the BoE agrees with the government that there are significant benefits from a model where the technical details of regulatory standards are set by expert, independent regulators. Such a model puts weight on the regulators acting in a transparent and accountable way. Parliament will have a vital ongoing role in any future framework as it is the body that holds the regulators to account for achieving their objectives. The BoE is committed to helping Parliament fulfil this role.

FCA whistleblowing campaign

The Financial Conduct Authority (FCA) has launched a campaign to encourage individuals working in financial services to report wrongdoing. The campaign, which the FCA refers to as “In confidence, with confidence”, encourages individuals working in financial services to report potential wrongdoing to the FCA, and reminds them of the confidentiality processes in place. It has also published a new whistleblowing webpage.

The FCA also reminds firms that its whistleblowing rules require firms to have effective arrangements in place for employees to raise concerns, and to guarantee these concerns are handled appropriately and confidentially. In particular, there is a requirement for firms to appoint a whistleblowers’ champion to ensure there is senior management oversight over the integrity, independence and effectiveness of the firm’s arrangements.

Diversity and inclusion: FCA speech

On 18 March 2021, the FCA published a speech by Georgina Philippou, Senior Adviser to the FCA on the Public Sector Equality Duty (PSED), entitled “From regulator to firm to consumer: a virtuous chain of events”. Points of interest in the speech include:

  • sharing best practice and exchanging ideas and experience is a crucial part of progressing diversity and inclusion (D&I) at an individual firm level and a collective sector level. However, collective does not mean uniform. It is important to recognise the range of firms across and within sectors;
  • there is no “one size fits all” approach to culture and D&I, and it would be inappropriate for the FCA to mandate particular cultures. However, it expects firms to be able to articulate their purpose, explain how their governance structures bring about good decision making, set an appropriate tone from the top, and show that their people policies are effective in driving D&I;
  • there is no rule in the FCA Handbook requiring firms to be diverse or even have an internal or external diversity policy, but this does not mean the FCA is silent or powerless. D&I is relevant not only to culture, people and leadership, but also to integrity, treating customers fairly, pricing structures, marketing and advertising, and environmental, social and governance (ESG) strategies, among other things. The FCA has a range of tools to use, including a unique power to influence and convene; and
  • as a public body delivering public value, the FCA is subject to the PSED and must encourage D&I in carrying out its functions. In practice, this means the FCA has opportunities to consider the PSED in all its interactions with firms. Examples include breaking down diversity barriers to entry into the industry, assessing the composition of boards and executives (including in senior managers regime interviews), considering the impact of its policy and competition work on different consumer groups, and engaging with firms through the supervisory and enforcement process.

MaPS to launch single consumer offering under holistic new MoneyHelper brand

The Money and Pensions Service (MaPS) has announced plans to launch a single consumer destination for financial wellbeing under a new MoneyHelper brand. This new brand will replace the legacy brands: Money Advice Service, the Pensions Advisory Service and Pension Wise. FAQs on the plans are available on the MaPS MoneyHelper webpage.

UK regulatory approach to cryptossets and stablecoins: FMLC response to HM Treasury consultation

The Financial Markets Law Committee (FMLC) has published its response to HM Treasury’s consultation paper on the UK regulatory approach to stablecoins and a call for evidence on cryptoassets used for investment and the broader use of distributed ledger technology (DLT) in financial markets. In response, the FMLC draws attention to a number of legal uncertainties, including:

  • definitional questions, such as identifying what a “token” is, as well as the difficulties arising from interpreting definitions under existing financial regulation in the context of token arrangements;
  • the possible overlap of the new regime for stablecoins with the existing regime under the E-Money Regulations; and
  • the difficulties arising from the application of concepts present in financial services regulation which reflect the traditional market infrastructure of intermediated securities, most, if not all, of which cannot readily be applied to a DLT context.

LIBOR transition: FMLC and EFMLG letter

The FMLC and the European Financial Markets Lawyers Group (EFMLG) have published a joint letter to HM Treasury on LIBOR transition. Given the problems of divergence and overlap that arise from the legislative approaches adopted by authorities in the UK, EU and US, the letter observes that market transactions could become subject to conflicting legal or regulatory requirements. The letter also stresses that international coordination around the exercise of any powers to adapt benchmark methodology or the terms of financial transactions is essential to avoid significant market confusion. The letter sets out areas of potential conflict and overlap that may arise owing to the differences in the legislative approaches.

In addition, the letter refers to a letter sent by the Global Financial Markets Association recommending the establishment of a “tough legacy” cross-border collaboration working group to help facilitate policy alignment wherever possible of regulatory and legislative solutions. Members of both the FMLC and the EFMLG express their support for the establishment of such an international initiative.

Promoting regulatory coherence in financial services: IRSG report

The International Regulatory Strategy Group (IRSG) has published a report on promoting regulatory coherence in financial services for pandemic recovery. On launching the report, the IRSG states: “A decade on from the last financial crisis and as COVID recovery efforts take centre stage, the IRSG calls for renewed commitment to global regulatory coherence, together with an enhanced commitment to solving issues with international co-operation”.

The report argues the case for a renewed commitment to “global solutions to global problems”, with practical examples on where market fragmentation may give rise to financial instability and other risks. It also makes recommendations as to how local and international bodies can ensure this principle remains central to their work in the coming months and years. It makes recommendations in three specific areas: to foster operational resilience; to encourage innovation in digital governance; and to incentivise sustainable finance.

Delegated Regulation on framework for design and delivery of PEPP

Commission Delegated Regulation 2021/473 supplementing the Pan-European Personal Pension Product (PEPP) Regulation ((EU) 2019/1238) with regard to regulatory technical standards (RTS) specifying the requirements on information documents, on the costs and fees included in the cost cap, and on risk mitigation techniques for the PEPP, has been published in the Official Journal of the European Union (OJ). The Delegated Regulation will enter into force on 11 April 2021.

FMI business continuity plans: ECB advises on pandemic planning best practices

The European Central Bank (ECB) has published a paper on best practices applied by financial market infrastructures (FMIs) in their business continuity plans during the COVID-19 pandemic.

The ECB explains that since its outbreak, the Eurosystem has been collecting information on the preparedness of payment systems, payment schemes and their critical service providers for dealing with the pandemic. It has also been monitoring FMIs’ responses and resilience in terms of withstanding this shock. Based on its observations, the Eurosystem has compiled a set of key market practices for pandemic crisis planning.

The ECB explains that the collection of actions in this document aims to:

  • provide support for the overseers in monitoring overseen entities, thus ensuring that the respective system operators are managing the crisis effectively; and
  • identify what market practices related to pandemic crisis planning are or could be applied by payment systems/schemes in their business continuity plans in a flexible way, considering the specificities of each entity. The ECB notes that these market practices may also be valid for other FMIs, therefore, the document refers to FMIs generically.

EU platform on sustainable finance issues transition finance report

On 19 March 2021, the European Commission published the EU platform on sustainable finance’s report on transition finance. The report follows a request for advice by the Commission in January 2021.

The platform explains that the concept of transition is relevant to all the environmental objectives in the taxonomy for sustainable economic activities. However, the immediate priority is the finalisation of the first Delegated Regulation on climate change mitigation and adaptation under the Taxonomy Regulation. For this reason, its report focuses on transition in the context of climate change. It sets out the platform’s key findings and recommendations in response to the six questions posed by the Commission.

The Commission has welcomed the platform’s report and confirming that it will consider its advice when finalising sustainable finance related issues, such as the draft Delegated Regulation on climate mitigation and in preparing its renewed sustainable finance strategy.

FATF AML and CTF standards: unintended consequences of incorrect implementation

The Financial Action Task Force (FATF) has announced the launch of a project to study and mitigate the unintended consequences of the incorrect implementation of its anti-money laundering (AML) and counter-terrorist financing (CTF) standards.

The project focuses on four main areas:

  • de-risking or the loss or limitation of access to financial services;
  • financial exclusion;
  • suppression of non-profit organisations (NPO) or the NPO sector as a whole; and
  • threats to fundamental human rights.

The FATF will conduct the project in two phases. Phase one will involve research and engagement and phase two will focus on solutions. Input to inform the project is welcomed and, for phase one of the project, before 20 April 2021.

Virtual assets and virtual asset service providers: FATF consults on updating guidance

The FATF is consulting on draft updated guidance for a risk-based approach to virtual assets (VAs) (also known as cryptoassets) and virtual asset service providers (VASPs). The revised document provides updated guidance in six main areas. It clarifies the definitions of VAs and VASPs to make clear that these definitions are expansive and there should not be a case where a relevant financial asset is not covered by the FATF AML and CTF standards (either as a VA or as a traditional financial asset). It also updates the guidance to reflect the passage of time and the publication of other relevant FATF reports, as well as providing:

  • guidance on how the FATF standards apply to stablecoins;
  • additional guidance on the risks and potential risk mitigants for peer-to-peer transactions;
  • updated guidance on the licensing and registration of VASPs; and
  • additional guidance for the public and private sectors on the implementation of the “travel rule”.

The revised guidance also includes principles of information-sharing and cooperation among VASP supervisors.

The FATF is asking for feedback on the areas of focus set out on an accompanying webpage, in addition to specific proposals on the proposed revisions to the text of the guidance. Comments can be made until 20 April 2021. The FATF will make any further amendments at its June 2021 meetings.

In addition to revising the guidance, the FATF is also considering the implementation of the revised FATF standards on VAs and VASPs, and whether further updates are necessary, through a second 12-month review. Relevant issues identified in the consultation, which are outside the scope of this review, may be considered in that review.

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