On 20 September 2024, the Department for Energy Security & Net Zero (DESNZ) issued a consultation paper setting out proposals to regulate third-party intermediaries (TPIs) in the retail energy sector. Background TPIs in the retail energy sector can be broadly defined as a third-party that exists to help a consumer choose – such as comparison websites, energy brokers, and bill aggregators. This list is not exhaustive and given the changing nature of the energy market, the Government expects that other types of TPIs will emerge and develop in response to market reforms or technological change. The regulatory oversight of TPIs within the energy market primarily consists of voluntary codes of practice, Ofgem licence conditions on energy suppliers, and consumer protection regulations. However, the regulatory oversight differs by individual types of TPI. The consultation paper follows Ofgem’s Non-Domestic Market Review in July 2023 which highlighted problems with the TPI sector and suggested the need for government intervention to directly regulate TPIs. The Government believes that a comprehensive regulatory framework encompassing TPIs would fortify consumer protection and bolster trust, whilst also promoting competition. This is because a standardised regulatory landscape would offer stability within the market, preventing annual piecemeal changes whereby TPIs are constantly having to adjust their practices. Consultation In the consultation the Government is consulting on making TPIs in the retail energy sector subject to possible compulsory regulation which would align it more closely with financial services. The intention, if implemented, would be to capture energy brokers, price comparison websites and “bill splitting companies”.   The Government’s preferred options are to go for a general authorisation regime, rather than a licensing style regime. The Government believes that a general authorisation regime would meet three main outcomes: appropriate enforcement capabilities, suitable levels of transparency, and the adoption of a regulatory framework that complements existing TPI regulations within and outside the energy sector. Potential design principles for the general authorisation regime include transparency and accuracy, treating customers fairly, clear route for dispute resolution, appropriate data protection arrangements, consideration of net zero and energy efficiency targets and training, governance and compliance. As for a regulator, Ofgem, the FCA and a new regulator are all mentioned. The Government notes that Ofgem has experience with some forms of TPIs such as brokers in the non-domestic space and soon the licence of load controllers. The FCA regulates TPIs (e.g. price comparison websites, insurance brokers) operating in the insurance market and therefore has expertise but does not have experience of the energy market. An entirely new regulator for TPIs may be disproportionate. For any authorisation regime, new primary legislation would be required to provide new powers to a regulator and set out the intention of the regime. Next steps The deadline for comments on the consultation paper is 15 November 2024. DESNZ will issue a response in due course after the consultation has closed. If the Government decides to pursue the proposal of regulating TPIs – including through its preferred option of a general authorisation regime – the response will include details on how it proposes to do this.

On 24 September 2024, the Financial Conduct Authority (FCA) published Primary Market Bulletin 51 (the PMB). In the PMB, the FCA sets out feedback to its consultation in PMB 48 and subsequent changes to the Knowledge Base on the listing regime. The PMB notes that the changes to the Knowledge Base reflect not only feedback from the consultation, but also the publication of policy statement PS24/6 on 11 July 2024 and the final UK Listing Rules which came into force on 29 July 2024. The FCA also reminds firms of (a) the deadline for commenting on its consultation on planned improvements for the National Storage Mechanism; and (b) the deadline for responding to the Financial Reporting Council’s Discussion Paper Opportunities for the future of digital reporting.

On 24 September 2024, the European Commission published the following Implementing Regulations supplementing the Regulation on markets in crypto-assets (MiCAR): Implementing Regulation laying down implementing technical standards (ITS) for the application of MiCAR with regard to standard forms, templates and procedures for the cooperation and exchange of information between competent authorities and EBA and ESMA. Implementing Regulation laying down ITS for the application of MiCAR with regard to standard forms, templates and procedures for the cooperation and exchange of information between competent authorities and annex.

On 24 September 2024, the Financial Conduct Authority (FCA) published a Policy Statement, PS24/11, confirming that it is extending its temporary changes to handling rules for motor finance complaints. Background The FCA announced in January 2024 that it was reviewing whether motor finance customers have been overcharged due to the past use of discretionary commission arrangements (DCAs). It also paused its 8-week deadline for motor finance firms to provide a final response to relevant customer complaints. In Consultation Paper CP24/15, published on 30 July 2024, the FCA consulted on a proposal to extend the DCA complaint handling pause, as it had taken longer than expected to get the data it needed from firms and as there was relevant ongoing litigation. Extension of the complaint handling pause In PS24/11, the FCA confirms that it is extending the DCA complaint handling pause for the reasons outlined in CP24/15. The FCA says that extending the pause will ensure it can prevent disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while it completes its assessment to decide the best way forward. The extension means that: The complaint handling pause will continue until 4 December 2025. Consumers have until the later of 29 July 2026 or 15 months from the date of their final response letter from the firm, to refer a DCA complaint to the Financial Ombudsman Service (FOS), instead of the usual 6 months, so that consumers will not have to decide whether to refer their complaint to the FOS before the FCA announces its next steps.   Next steps The FCA plans to set out next steps in its review into the past use of DCAs in May 2025.

On 23 September 2023, the Payment Services Regulator (PSR) published Policy Statement 24/6: Supporting the identification of APP scams and civil disputes (PS24/6). In PS24/6 the PSR provides feedback to its earlier consultation on proposed guidance to help payment service providers (PSPs) distinguish between an authorised push payment (APP) scam and civil dispute.  By private civil dispute, the PSR means a dispute between a consumer and payee which is a private matter between them for resolution in the civil courts, rather than involving criminal fraud or dishonesty. The PSR also sets out its finalised guidance which sets out a non-exhaustive list of high-level factors that PSPs should consider when determining whether a clam is an APP scam or civil dispute. PSPs should consider all high-level factors, and the information provided by the consumer or third party when assessing a claim.

On 23 September 2024, the Financial Ombudsman Service (FOS) published a speech given by its Chief Executive and Chief Ombudsman, Abby Thomas at the StepChange Connected 2024 conference. In her speech Abby Thomas discusses the role of the FOS and in particular, what it sees in complaints that involve credit and debt. Key points in the speech include: In the year ending March 2024, the FOS more than halved the average time that customers had to wait for a resolution to their complaint, compared to two years ago, while at the same time improving the quality scores. The FOS received over 18,000 complaints about credit cards in the first three months of this financial year.  The vast majority of those – well over 15,000 – were about irresponsible and unaffordable lending. The FOS has seen a considerable increase in complaints involving irresponsible lending across banking and consumer credit – it received over 20,000 cases this first quarter, up from a little under 5,500 cases for the same period last year. Both the FCA rules around consumer credit and the Consumer Duty set out clearly what’s required when a customer is struggling to manage. Firms should ensure complaint-handling teams have a thorough and in-depth understanding of both. The requirements of the Consumer Duty have had an impact on what the FOS considers to be fair and reasonable in the individual circumstances of each case.  Every case is unique, and the FOS takes into account all the facts and evidence from both the financial business and the complainant, and the circumstances of the case, in each one to determine what’s fair and reasonable. The Consumer Duty says firms should monitor the quality of their customer service – actively looking for evidence that will tell them where they’re falling short. Firms can use complaints to gain insights to improve every aspect of their business – from product design to marketing – as well as customer care. 

On 20 September 2024, the Prudential Regulation Authority (PRA) published a speech by David Bailey (Executive Director, Prudential Policy) entitled Strong and Simple – completing the picture. In his speech Mr Bailey discusses the recent PRA consultation paper that was published which sets out the proposed capital regime for the Strong and Simple framework. In particular, he makes three key points about the proposals which are that they: Will significantly simplify the capital regime for small domestic deposit takers (SDDTs) whilst maintaining SDDTs’ overall resilience. Provide a comprehensive offering that simplifies all aspects of the capital stack including Pillar 1, Pillar 2A, buffers, and the calculation of regulatory capital. Advance both the PRA’s primary and secondary objectives, including the secondary competitiveness and growth objective that became effective in 2023. In the annex to the speech the PRA has set out a table which lists implemented and proposed SDDT simplifications. Mr Bailey also reminds firms that the recent second near-final Basel 3.1 Policy Statement includes further details about the Interim Capital Regime (ICR), a key initiative that will allow firms eligible to be SDDTs to choose to remain on the current Pillar 1 framework until the SDDT capital regime is implemented. Without joining the ICR, small firms that intend to join Strong and Simple would end up implementing the Basel 3.1 package, only for a more tailored set of capital rules for them to be introduced later. Mr Bailey strongly encourages SDDT-eligible firms that wish to take advantage of the new regime to refer to the ICR chapter in the second near-final Basel 3.1 Policy Statement for details on the joining process. The PRA will provide more details when it finalises the Basel 3.1 rules.

On 20 September 2024, the Payment Systems Regulator (PSR) published an updated version of its guidance on powers and procedures. The guidance covers the PSR’s role as the regulator for payment systems and the powers it has under the Financial Services (Banking Reform) Act 2023 (FSBRA) to take regulatory action by way of making directions and imposing requirements and also take enforcement action for non-compliance. The update to the guidance follows an earlier consultation which included proposals to amend the following: Paragraph 5.7 – process for opening an investigation. Paragraph 5.12 – flexibility for staff deployed on monitoring or enforcement to work across functions. The guidance explains: The PSR’s role and ways of working (Chapter 2). The FSBRA legal and regulatory framework under which the PSR operates (Chapter 3). The PSR’s powers to take regulatory action under FSBRA, how it will decide what, if any, action to take, what processes and procedures it will follow, and how a party can appeal against regulatory action (Chapter 4). The PSR’s powers to take enforcement action under FSBRA where it considers that a compliance failure has occurred, how it will decide what, if any, enforcement action to take, what processes and procedures it will follow, and how a party can appeal against a decision to impose a penalty or publish details of any compliance failure (Chapter 5). The updated guidance came into effect on 20 September 2024.

Recent FCA outcomes and a speech by the ECB earlier this month are stark reminders that financial resilience alone is not a sufficient safeguard to operate in today’s increasingly complex risk environment – firms must have robust, resilient operational systems in place, as well. (See our comments on the ECB speech). From an enforcement perspective, the past couple of years have seen significant outcomes relating to outsourcing (see here) and cybersecurity arrangements (see here) and we have also seen an increase in intervention and enforcement action by the FCA including in relation to firms breaching requirements imposed on them as a result of inadequate implementation, testing and monitoring of controls designed to comply with requirements imposed by the regulator.  (See our briefing on issues for firms to consider when managing regulatory intervention).  In a very recent speech by the markets and executive director of the FCA at the Financial Crime Summit, ‘A targeted and outcomes-based approach to tackling financial crime’, the FCA reemphasised the importance of making “strategic interventions” to prevent fires from breaking out rather than  “constantly hosing down fires where they arise”.  Financial crime in particular has been a consistent area of enforcement action where inadequate systems and controls has often been the key breach.  It is clear that, in the eyes of the regulators, a robust approach to operational resilience, and diligent implementation, testing and monitoring of new and updated IT or other systems when they are put in place, should be taken as seriously by firms as the financial and commercial factors that drive the commercial business. Against this regulatory backdrop, we set out below, at a high level, some key lessons learned from recent FCA outcomes for firms to consider when carrying out systems/operational changes and updates.  1. Regulated firm (and relevant SMF) retains responsibility:  Where the firm is undertaking an IT change management project, making use of outsourcing arrangements more broadly or changing its systems or products in response to regulatory intervention – whether via an independent third party or intragroup service – the regulated firm and relevant SMF remain responsible and this should be factored into consideration of the steps necessary to mitigate adequately the risks of any issues arising and how these steps could be evidenced to the regulator.  2. Governance framework:  Those involved in overseeing the process should consider the appropriate governance framework for implementation of any new operational change or process and how to document this.  Individual accountability and oversight, MI reporting, escalation and ongoing monitoring should all form part of project governance, and be regularly recorded and filed so as to be easily accessed in the event that questions arise in future (when key individuals may no longer be available).  3.  Pre-implementation testing:   Undertaking sufficiently robust pre-implementation testing of changes to new systems (for example, IT migration) and/or processes (for example, customer onboarding) will help the firm to understand where there might be any gaps in controls in the business which would increase its regulatory exposure before any new systems ‘launch’ or ‘go live’; firms would be well advised to keep records of the testing carried out. 4. Ongoing monitoring:  Review and stress-testing should be an ongoing process in order to avoid the perception of a ‘plug and play’ approach which does not periodically evaluate the effectiveness of implementation. 5. Respond to early warning signs:   Firms and senior managers must be alert and respond to any early warning signs in relation to planned IT migrations or other projects, such as any indicators of potential performance or service issues.  Root causes should be investigated promptly and lessons learned fed back into the system. Adequate reporting and management information will need to be in place so as to equip relevant individuals with an early warning system and they will need sufficient time, expertise and resource to be able to review and assess the information and respond.  Designing and planning this support and safety mechanism should take place before any change is implemented. 6. Reliance on third (or fourth) parties:  Liked to the first point regarding regulated firm responsibility:  Where assertions of confidence or confirmations in system readiness are provided by third or fourth parties, senior managers must ensure that sufficient challenge and investigation has taken place (and is documented in writing) to mitigate regulatory criticism that the firm and relevant individuals were over-reliant on third/fourth parties.  Asking enough of the right questions and getting the answers on the record in advance will be invaluable in the event of any unforeseen developments.  Related to good governance, records of steps taken with regards to design, implementation, testing and ongoing monitoring should be maintained on a centralised basis and responsibility for updating these should be clearly assigned.  Organised documentation puts a firm on the front foot in dealing with any regulatory enquiries which may be made on a relatively short notice basis. We regularly advise firms and individuals on operational resilience and general governance around change management, including responding to regulatory intervention and enquiries at pace. Please get in touch if you require a deeper dive on any of these issues or wish to discuss.

Global N/A EU 23 September 2024 – On 12 July 2024, the European Supervisory Authorities issued a consultation paper on guidelines on templates for explanations and opinions, and the standardised test for the classification of crypto-assets, under Article 97(1) of the Regulation on Markets in crypto-assets (MiCAR). The ESAs will hold a virtual public hearing on the consultation paper on 23 September 2024 from 10:00 to 12:00 CEST. 29 September 2024 – The European Securities and Markets Authority will start publishing the Designated Publishing Entities Register on 29 September 2024. UK 25 September 2024 – On 4 September 2024, the Financial Conduct Authority (FCA) launched a consultation on proposed guidance for UK trade repositories (TRs) registered under Article 55 of the UK European Market Infrastructure Regulation (UK EMIR), ahead of the implementation of the new UK EMIR reporting requirements that apply from 30 September 2024. The consultation closes on 25 September 2024. 27 September 2024 – On 9 August 2024, the FCA published Consultation Paper 24/17: Enhancing the National Storage Mechanism (CP24/17). The deadline for comments on CP24/17 is 27 September 2024.

On 19 September 2024, HM Treasury (HMT) and the Financial Conduct Authority (FCA) announced their plans to reform UK retail disclosure rules. They also confirmed that they will temporarily exempt investment trusts from assimilated EU law requirements. Reforming the UK retail disclosure rules As part of the ongoing reform programme for the UK’s capital markets, HMT and the FCA confirmed that they are committed to replacing EU-inherited consumer cost disclosure regulation with a new framework tailored to UK markets and firms. In particular: Following its consultation on replacing the EU-inherited Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation with a new framework for Consumer Composite Investments (CCIs), HMT plans to lay legislation as soon as possible to provide the FCA with the appropriate powers to deliver this reform. The new CCI regime is intended to deliver more tailored and flexible rules which will address concerns across industry with current disclosure requirements, including for costs.  The new UK retail disclosure regime is expected to be in place by H1 2025 (subject to Parliamentary approval and the FCA consultation process) and the FCA plans to consult on proposed rules for the CCI in autumn 2024. The FCA consultation process will give the opportunity for a full range of stakeholders to provide feedback on the proposed new CCI framework, with the aim of ensuring it works as intended. The CCI framework is intended to be proportionate and to allow more bespoke arrangements to address concerns that have been raised with the current PRIIPs framework. In response to feedback from the investment trust sector on the operation of current cost disclosure requirements and how they might be impacting the investment trust sector specifically, the Government plans to lay legislation to exempt listed investment trusts from the current PRIIPs Regulation, as well as making other necessary amendments to other EU-assimilated law. This approach is intended to be an interim measure, and investment trusts will be included within the scope of the future UK retail disclosure framework. Forbearance in relation to investment trust disclosure requirements In light of HMT’s announcement of its plans relating to investment trusts, the FCA will immediately apply new forbearance to provide firms with certainty ahead of the relevant legislation taking effect. With effect from 19 September 2024 and until the legislation to amend the PRIIPs Regulation for investment trusts comes into force, the FCA has announced that it will not take supervisory or enforcement action if an investment trust chooses not to follow the requirements of the PRIIPs Regulation and associated technical standards, and/or the requirements of Article 50(2)(b) and Article 51 of the MiFID Org Regulation (Commission Delegated Regulation (EU) 2017/565). This is an interim measure, pending longer term reform.

On 17 September 2024, the European Parliament approved the final texts of twenty corrigenda relating to proposals that were adopted earlier this year but had not completed lawyer-linguist reviews before the European Parliament elections. The new Parliament had to approve the texts under the corrigenda procedure. The proposals include the Regulation on horizontal cybersecurity requirements for products with digital elements. The proposals should be formally adopted by the Council of the EU, before being published in the Official Journal of the European Union.

On 18 September 2024, the Financial Conduct Authority (FCA) published an update on how firms across the financial services sector have assessed their products and services against the price and value outcome of the Consumer Duty. The update collates insights from the first year of the implementation of the outcome and is intended to help firms improve the way they think about fair value assessments.    Background The Consumer Duty sets high and clear standards of protection for retail customers across financial services. The FCA notes that firms made significant compliance efforts in the lead up to the Duty coming into force on 31 July 2023, and after that in relation to closed products and services, which have become subject to the Duty from 31 July 2024. It explains that firms are continuing to adjust and improve the way they are implementing the Consumer Duty to deliver good consumer outcomes.  The FCA is working with firms to ensure they are taking an appropriate and proportionate approach to the price and value outcome. It warns that it will act where it sees firms not making improvements in response to feedback, or if firms’ products and services are clear poor value outliers when compared to the price and value of similar products and services.  Key messages The FCA highlights the following key messages to firms: Outcomes of the Consumer Duty should be considered holistically The FCA states that it is important not to consider the price and value outcome in isolation. It should be considered alongside the other outcomes and cross-cutting obligations under the Consumer Duty (i.e., products and services, consumer understanding and consumer support). Effectively identifying target markets helps in assessing impacts on different customers Firms should consider the types of customers who, by virtue of their circumstances or behaviours, are likely to get value from the product (inside the target market) as well as the types who are less likely to get value (outside the target market). If different products or services have different features or target markets, they should be considered separately. An analysis of cross-subsidies, where relevant in a firm’s business model, can be helpful in identifying where different consumer groups may be at risk of not receiving fair value The Consumer Duty does not prevent firms from adopting any business models which may have different prices for different groups of consumers. It also does not prevent cross-subsidies between different products or services. However, the FCA reminds firms that they must demonstrate that all groups of customers get fair value from their products (and be particularly alert to risks that cross- subsidies may disadvantage vulnerable customers). Evidence is vital in fair value assessments, but firms should be proportionate in their approach Assertions made in fair value assessments about the costs and benefits of the product or service, or any other contextual factors, should be backed by reasonable evidence. The extent or level of detail of the supporting evidence should be proportionate to the size of the firm and complexity of the factors being considered.   Prompt action should be identified and taken if fair value assessments show consumers are at risk of not receiving fair value The FCA notes that these actions should be specific, and their success and impact should be monitored.  Information set out in the publication In the publication, the FCA looks at: How firms are assessing whether they are providing fair value for consumers.  How firms are using fair value assessments as part of their efforts to deliver good outcomes. Examples of good and poor practice for firms to consider and incorporate into their approach, particularly when producing fair value assessments. These are set out under the following headings: holistic consideration across the Consumer Duty outcomes, assessing value, differential outcomes, considering costs to the firm, mitigating actions, and effective governance. In May 2023, the FCA published findings from their review of 14 firms’ fair value assessment frameworks. Building on that publication and drawing on its experience, the FCA shares further practical examples, in particular relating to the production of a thorough fair value assessment.

Speak up and other internal investigations are on the rise (see our article here) amid increasing scrutiny from the media, public, authorities and other stakeholders of how investigations are conducted. Indeed, in higher profile matters the way in which an investigation is conducted can receive as much attention as the underlying issues. The recent draft guidance published by the Solicitors Regulation Authority (SRA) (the Guidance) highlights the importance of effective internal investigations, but also the challenges and risks that they present for in-house counsel. When investigations are not handled correctly, there may be significant legal and reputational risks, as well as the risk (for those involved) of breaching professional duties to act independently, to treat colleagues fairly, and to act in a way that upholds public trust and confidence in legal profession. Internal investigations are often conducted under real time pressure, and can give rise to tensions within an organisation, with different stakeholders mindful of their own positions and, in some cases, seeking to influence the scope or findings of the investigation. As the Guidance flags, in-house counsel may “risk being put in situations in which their instructions risk conflicting with their regulatory obligations” (and failing to carry out investigations properly can give rise to serious consequences for the organisation and individuals, including breach of professional duties, employment/data privacy laws, and regulatory expectations). These may give rise to reporting obligations to the SRA. In this blog we look at some of these considerations, and how in-house counsel can best manage these risks throughout the course of an internal investigation. Independence At the outset of an investigation, the independence of in-house counsel (and the broader investigation team) should be carefully reviewed. This assessment and any steps taken to manage independence should be documented clearly. As the Guidance notes, if an investigation is not sufficiently independent, it risks giving rise to breach of in-house counsel’s obligations to act with independence and integrity (Principles 3 and 5) and to avoid acting where they have or risk an own interest conflict. Consideration should be given to the following (which can be documented in terms of reference and/or a scoping document): who commissions the investigation and determines its scope (this person or committee should have appropriate authority and not be connected to or implicated in the allegations); who leads and conducts the investigation (the Guidance notes that in-house counsel should ensure that they, or any other internal team assisting with the investigation, are independent of the matters being investigated and not have preconceived ideas about the outcome of the investigation); whether a more serious investigation should be instructed by a subcommittee of the board (for example the audit committee); whether it is appropriate to appoint external counsel to lead the investigation (to give a greater degree of independence, but also to provide subject matter expertise, additional resource, and to strengthen legal privilege arguments, particularly in jurisdictions where the work of in-house counsel may not be subject to privilege). Independence should be kept under review as the investigation progresses, for example as new allegations or evidence emerge which could put those commissioning or conducting the investigation at risk of actual or perceived conflict, or if senior management seeks to inappropriately steer or narrow the investigation process or findings. The Guidance emphasises that in-house counsel should take a step back and: “be sure that they are “in a confident position to give independent, objective advice to [their] client. The ‘client’ for these purposes may not necessarily be the individual or team who has commissioned your advice or with who you have day-to-day interactions.” We recommend periodic investigation “check ins” where these issues can be reviewed and documented, along with the project scope, methodology and implications of the investigation. Any conflict issues should be escalated (for example to a board subcommittee). Particular care is required in relation to the findings of an investigation (see further below). As the Guidance notes, the outcome of the investigation being improperly influenced can itself give rise to a regulatory breach, for example if the findings or investigation report do not accurately reflect the true findings of the investigation. Interviews Interviews can be stressful for those involved. In-house counsel should consider how interviewees can be best supported and how interviews can be conducted in a way that minimises stress (for example considering the number and seniority of interviewers, and the interview setting). This is a balance: interviewees need to be treated fairly and with respect, but it is important that interviews are sufficiently thorough and probing. The start of an interview and any pre-discussions should be carefully scripted. It should be made clear to interviewees that the interviewers are acting on behalf of the company, and that only the company may elect to waive privilege or confidentiality. That said, it is also important that interviewees do not perceive that their rights to speak up or “blow the whistle” are being curtailed in any way. It may be helpful to communicate the basis of the interview in advance. In-house counsel (and any other individuals) conducting interviews should have sufficient interview expertise and training. It is important to plan interviews very carefully, ensuring that the right documents are available and put to employees, avoiding leading questions, allowing sufficient time for interviewees to read documents, and ensuring that an accurate note of the meeting is taken (ideally by a lawyer, though noting that the relevant circumstances, such as whether there is imminent or pending litigation or relevant enforcement action, will determine whether the note is privileged). Findings Issues of independence and integrity can come to a head when it comes to communicating the findings of the investigation. As the Guidance notes: “In-house solicitors can experience pressures from senior leaders to take steps or reach conclusions that inappropriately pre-empt or influence the outcome of an investigation. We have also heard about outcomes of internal investigations being blocked from being reported, or outcomes being manipulated, before being presented.” While it is of course important that investigation findings are fully challenged and tested before being finalised, it is crucial that investigation reports (whether oral or written) accurately reflect the strength of the evidence identified and that changes to findings (and the rationale for those changes) are carefully documented. How can we help? We have significant experience advising clients on investigations in various contexts. Preparedness is key. To this end, we have recently been supporting various clients to enhance and formalise their internal investigation procedures. Many clients have found it very helpful to have in place (or enhance) written triage processes, protocols and investigation precedents to ensure that investigations are conducted efficiently and consistently, whilst managing the risks involved.

On 18 September 2024, the Payment Systems Regulator (PSR) published a consultation paper, CP24/12, on a draft statement of policy on its cost benefit analysis (CBA) framework. The Financial Services and Markets Act 2023 introduced additional CBA accountability requirements for the PSR, including a requirement to publish a statement of policy on its use of CBAs. The draft statement of policy being consulted on in CP24/12 builds on and replaces a draft CBA framework published by the PSR in February. The PSR’s draft statement sets out its approach to CBA, which it considers to be part of its robust consideration of economic evidence and an important component of delivering outcomes-focused policy. The PSR uses CBAs to help it consider whether regulatory action is likely to result in an overall positive impact. The deadline for comments on CP24/12 is 3 November 2024. The PSR will then consider and respond to comments received, with the aim of publishing its final statement of policy around the end of 2024.

On 18 September 2024, the FCA issued an update on progress in the cash savings market since its previous update in December 2023. The update in December 2023 followed the publication of the FCA’s review in July 2023 which set out a 14-point action plan. Specifically, the update focuses on the 8 FCA-specific actions set out in the plan which should be helpful for firms which offer cash savings products and highlights areas where the regulator expects to see further improvements. Fair Value Assessments (action 1) The FCA sets out its findings under the following headings: Assessment of value. Among other things the FCA notes that the better fair value assessments (FVAs) it reviewed were evidence-based reviews of financial and other benefits provided to customers by a savings account product. However, it also found that many FVAs were not sufficiently testing and tended to seek to validate previous pricing decisions. Many FVAs lacked appropriate data and analysis to support the conclusions. Benchmarking. In better examples the FCA saw, firms compared accounts against easy access accounts across the market, including those offering market leading rates, and other accounts offered by the firm. The FCA found that some FVAs did not compare rates at all, or only chose to benchmark against a lower peer group, avoiding comparison with market leaders. The FCA warns that if a firm chooses to benchmark its accounts against only low paying accounts, or a subset of competitors, this is unlikely to represent effective benchmarking. Differential outcomes. The better FVAs the FCA reviewed identified core customer groups within accounts’ target markets, for example customers starting to save, low balance/high transaction customers and customers who maintain high balances, and considered the value received by each customer cohort. The best FVAs also set out actions the firm will take to improve outcomes for those customer groups who were receiving lesser outcomes. Customers with characteristics of vulnerability. The FCA reminds firms that the Consumer Duty requires them to pay particular attention to the needs of customers with characteristics of vulnerability. The regulator expects firms to apply the Consumer Duty alongside existing guidance and further reminds firms that Finalised Guidance 21/1 sets out its expectations. The better FVAs the FCA reviewed proactively considered what characteristics of vulnerability easy access savings customers may have (for example, customers with limited digital capability, poor financial resilience or in poor health and whether these customers were receiving fair value. Contextual factors. In those FVAs that included an assessment of costs, the FCA found the better FVAs demonstrated a clear analysis of the relationship between the interest rate offered to customers and the relevant costs to the firm of providing the product. Taking appropriate action. The best FVAs the FCA reviewed set out the steps the firm was taking to mitigate harm, which included increasing interest rates and improving customer communications. Other less developed FVAs acknowledged poor outcomes but did not set out appropriate actions Data, governance, and outcomes monitoring. The FCA reminds firms that their FVAs should contain appropriate data and metrics to identify and track outcomes for different groups of customers. Where firms are still refining their approach, the FCA states that they should consider and identify proposals to develop their capabilities with clear timelines as well as actions on how they will identify and mitigate foreseeable harm in the meantime. Cash savings practices where the FCA has observed greater risk of not meeting Consumer Duty standards The FCA discusses the following practices which may be acceptable but tend to pose greater risk of not delivering good customer outcomes: Creating multiple tranches of a savings product which offer the same terms and conditions – distinguished only by the use of distinct issue numbers – to pay higher interest rates to new customers and not to existing customers of the same product. Using annually renewable bonus rates on savings products. Using regressive interest rate tiering to discourage customers from maintaining large balances in easy access savings accounts. Data update (actions 2 – 5) The FCA has set out tables which show the improvement in the average interest rate paid on easy access and fixed-term and notice deposits between the publication of our July 2023 report and end June 2024. Analysis of on-sale and off-sale easy access savings rates (action 3) The FCA states that it has concluded this action (publishing an analysis every 6 months of firms’ open and closed easy access savings rates, listing distribution from best to worst) as it is not an effective use of resources given widely, freely available comparison websites and best buy tables. The FCA does not intend to publish this data again. Differences between on-sale and off-sale products (action 4) The FCA sets out its analysis of easy access products. The FCA also reminds firms that from July 2024, the Consumer Duty applied to both open and closed products, and it expects any differential pricing between open and closed products to be justified by a clear rationale in the relevant FVAs. Cash ISA to cash ISA switching (action 5) The FCA sets out a table showing the proportion of cash ISA transfers completed within 7 working days. Profitability analysis (action 6) The FCA has published its further analysis into the contribution of cash savings to firms’ profitability. Overall, the FCA found: Whilst some firms experienced some benefits to their profitability as base rates rose, these benefits seemed to be increasingly passed through to the consumer. Improved overall financial performance (net interest margins) between December 2021, when the base rate started increasing, to mid-2023, with a rising contribution from savings. Firms’ savings products saw faster rises in income than interest expenses for all types of account. Easy access accounts saw the highest net interest margins (NIMs) compared with term accounts. There were signs in the analysis that savings NIMs peaked and early signs of decline as the mix of products shifted from easy access and limited access accounts to term accounts. Review of customer communications (action 7) The FCA is encouraged to see that firms have taken steps to proactively engage and prompt savings customers to secure a better rate. Some firms used specific targeted communications to small groups of customers while other firms communicated repeatedly in large volumes throughout the year.  Some communications reviewed did not equip customers to make effective, timely and properly informed decisions. These communications often did not explain the rate a customer was receiving and the potential benefits of switching in a way that was likely to be understood.   In addition, the FCA’s review found that communications often:   Had overly passive messaging, with vague calls to action that may not encourage a response from customers. Were overloaded with generic information. Communications often included detailed information about all account options and tariffs, rather than signposting upfront on where customers could go for more details on switching. Used jargon or terms without explanation that could cause confusion. Financial resilience (action 8) The FCA welcomes the Money and Pensions Service’s (MaPS) Savings Charter. This forms part of the Nation of Savers pillar of the UK strategy for financial wellbeing that MaPS has a statutory duty to coordinate.

On Tuesday 17 September, Commission Present-elect Ursula von der Leyen published her long-awaited list of European Commissioner-designates and the allocation of their portfolios. The presentation of the Commissioner-designates and their responsibilities is a key step in the transition to the 2024-2029 legislative term. The process for selecting candidate Commissioners has been complex so far, as von der Leyen needs to balance national interests with the various demands of the political groupings in the European Parliament. In addition, in her objective to ensure gender-balanced College of Commissioners von der Leyen had requested each EU Member State to nominate one male and one female candidate but was met with resistance with many countries only nominating a male candidate. The structure of the College of Commissioners presented today shows that von der Leyen has chosen to appoint five Executive Vice-Presidents who will be in charge of mostly horizontal policies. They are: Teresa Ribera Rodríguez, Executive Vice-President for Clean, Just and Competitive Transition. Henna Virkkunen, Executive Vice-President for Tech Sovereignty, Security and Democracy. Stéphane Séjourné, Executive Vice-President for Prosperity and Industrial Strategy. Roxana Mînzatu, Executive Vice-President for People, Skills and Preparedness. Raffaele Fitto, Executive Vice-President for Cohesion and Reforms. The five Executive Vice-Presidents will oversee the work of the other twenty Commissioners in charge of the more vertical policies. The College of Commissioners is completed with the EU High Representative/Vice-Present for Foreign Affairs and Security Policy, former Estonian Prime Minister Kaja Kallas, who will have a more independent role. Maria Luís Albuquerque has been nominated as the European Commissioner-designate for Financial Services and the Savings and Investment Union. A Portuguese citizen, she was Minister of Finance and Planning between 2013 and 2015. Prior to that, Albuquerque was the Secretary of State for Treasury from 2011 until 2013. Albuquerque was a member of the European Commission High-level Forum on Capital Markets Union in which she was the Chair of its Subgroup on Retail Investor Participation. In her Commissioner role, she would work under the guidance of the Executive Vice-President for Prosperity and Industrial Strategy, a role that has been given to former French Minister of Foreign Affairs Stéphane Séjourné.  If confirmed, Maria Luís Albuquerque will take over the role from current Commissioner Mairead McGuinness. In the mission letter to Albuquerque, von der Leyen has set out the priorities for her term. Among other things, Albuquerque has been asked to: Develop a European Savings and Investments Union to channel more savings towards investments. Address the fragmentation of capital markets by supporting the design of simple and low-cost savings and investment products at EU level. Scale up sustainable finance and ensure that the EU remains a global leader on this topic. Explore measures to increase the availability of venture and other risk capital and promote the scaling up of investment funder. Remove barriers to the consolidation of stock exchanges and post-trading infrastructure. Improve the supervisory system at EU level. Assess artificial intelligence deployment in the financial sector, which could improve digital finance and payments. Ensure the implementation and enforcement of the anti-money laundering and counter-terrorist financing package. Next steps The Commissioner-designates will have to be confirmed by the European Parliament. Although the European Parliament must approve or reject the proposed College of Commissioners as a whole, it will organize confirmation hearings with each designate. These hearings are expected to take place in the week of 04 November 2024. Before that, the European Parliament Legal Affairs Committee will undertake a conflict of interest check on each candidate. Following feedback from the European Parliament, European Commission President-elect von der Leyen may decide to change candidates or swap portfolios, to ensure that the College of Commissioners as a whole will be confirmed. It is expected that the new European Commission will start its work on 01 December 2024.

On 17 September 2024, there was published in the Official Journal of the EU a Corrigendum to Regulation 2023 as regards the requirements pertaining to the investment policies and operating conditions of European long-term investment funds and the scope of eligible investment assets, the portfolio composition and diversification requirements and the borrowing of cash and other fund rules. The Corrigendum concerns an amendment to Article 1(11)(b) of the Regulation.

On 17 September 2024, the Financial Conduct Authority (FCA) published a speech (dated 5 September 2024) given by Andrea Bowe (FCA Director of Specialist Directorate) entitled Frameworks for effective fraud prevention measures. Highlights from the speech include: Collaboration and a collective effort are key to tackling fraud. In particular, Ms Bowe notes that the relationship between regulated and regulator can be seen as adversarial. What the outside world sees are criticisms made, fines levied, formal action taken. What is often less obvious is that there is a mutual interest in tackling the scourge of financial crime, not least because it inhibits growth by diverting funds that could go to investment into criminal coffers instead. Partnerships, where ideas are shared, lessons learnt, exchange data and intelligence are essential in reinforcing defences and staying ahead of evolving threats. Among other things, Ms Bowe gives the example that last year, the FCA and the National Crime Agency jointly hosted a 3-day investment fraud tech sprint. This saw regulatory, intelligence and law enforcement agencies get together to test tactical, cross-agency collaboration, and it led directly to the development of solutions that participants are continuing to explore. Addressing mule activity is an area where collective efforts can have a substantial impact on disrupting and greatly reducing the flow of fraudulent funds. Firms must adopt a collaborative approach, prioritising not only the sharing of information on suspected mules, but also acting swiftly when such information is received, whether through internal or external channels.

Following an article published in the Dutch Financial Times on 28 July 2024, members of the Dutch Parliament submitted questions to the Minister of Finance regarding the upcoming crypto supervision by the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) under the Markets in Crypto-Assets Regulation (MiCAR). The aforementioned article contains criticism aimed at the Ministry of Finance for being reluctant to allocate sufficient funds to the AFM for crypto supervision. Additionally, it stated that the Ministry has imposed strict limits on the fees the AFM can charge crypto-service providers for licence applications, even though those fees could cover the costs of supervision. According to the AFM, these funding limitations may hinder their ability to properly oversee the crypto market. On 2 September 2024, the Minister of Finance responded to the parliamentary inquiries, acknowledging that the phased implementation of the MiCAR framework introduces new responsibilities for the AFM in overseeing crypto supervision. Following consultations with the AFM, it was decided that the authority would adopt a strategy of what it terms ‘minimal supervision’ for the crypto market in the Netherlands. Under this approach, the AFM will concentrate its efforts on addressing the most significant risks within the crypto sector.   The Minister explained that the decision for ‘minimal supervision’ stems from uncertainties within the sector, such as the unknown number of crypto-asset service providers that will operate in the Netherlands. The Minister also emphasised that crypto-asset service providers licensed in one European Union (EU) Member State can operate across the entire EU, making it difficult to accurately predict the level of supervision required. Moreover, the volatile and rapidly evolving nature of crypto markets adds to these challenges. As a result, the AFM and the Ministry have agreed to evaluate the effectiveness of this approach during 2025. Additionally, the Minister emphasised that while stricter supervision could reduce some risks, it cannot entirely eliminate the inherent risks of the crypto market. If future developments necessitate increased oversight, additional funding could be allocated to enhance the AFM’s supervisory capacity.