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Retail Finance round-up - 14 July 2016

Retail Finance round-up - 14 July 2016

  • United Kingdom
  • Financial institutions - Retail finance

14-07-2016

The FCA has published its finalised guidance on outsourcing to the cloud and other third party IT services. The guidance is intended to help firms oversee all aspects of the lifecycle of their outsourcing arrangements. Financial institutions have shown increasing interest in cloud technology over the last six months. Our joint report with the Lawyer, Spotlight on the Cloud, highlights financial services as the sector with the second highest amount of growth.

The FCA has published a call for input seeking views on which areas should be considered a part of its forthcoming review of the rules on crowdfunding. The FCA introduced rules for the regulation of crowdfunding platforms in March 2014 and committed at that time to a full review of their impact. This is a rapidly growing market and the FCA considers now is the right time to consider whether the right rules are in place ‘to support the development of this dynamic market’.

Also of interest this week is the adoption by the European Parliament of the Network and Information Security (NIS) Directive. Each member state will be required to adopt a national NIS strategy and set up a network of Computer Security Incident Response Teams to handle incidents and risks, discuss cross-border security issues and identify coordinated responses. 

Regulatory updates

Government, legislation and case law

Industry news

Brexit

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FCA guidance for firms outsourcing to the cloud and other third party IT services

Following the FCA’s consultation, the FCA has published its finalised guidance on outsourcing to the cloud and other third party IT services. The guidance is intended to help firms oversee all aspects of the lifecycle of their outsourcing arrangements.

In the finalised text of the paper, the FCA recognises the evolution and benefits of cloud-based delivery models. However the regulator uses the finalised guidance to outline the over-arching principle that firms must enter into and manage cloud services in such a way as to limit operational risk, ensure ongoing compliance with the regulatory framework and satisfy the duty of care owed to customers and clients.

In particular the FCA underlines the importance of:

  • detailed due diligence and robust assessment of risks/benefits prior to moving workloads and applications to the cloud
  • well-defined business continuity, data security and incident management arrangements
  • ensuring visibility and control of the entire supply chain
  • control over the jurisdictions where data is processed, stored and managed (and the interplay with data privacy legislation)
  • defining clear arrangements for termination, exit and transfer of service in a manner which ensures continuity of service
  • clarification of the SYSC 8 requirements for effective access to data and business premises.

The FCA expects firms to read the guidance and where appropriate, use it to inform their cloud outsourcing arrangements.

If you would like to discuss this development please contact Simon Gamlin or Craig Rogers

Financial institutions have shown increasing interest in cloud technology over the last six months. Our joint report with the Lawyer, Spotlight on the Cloud, highlights financial services as the sector with the second highest amount of growth.

Spotlight on the Cloud report

FCA re-appointment of the Chair of the Financial Services Consumer Panel

In a recent press release, the FCA confirmed that Sue Lewis has been re-appointed as the Chair of the Financial Services Consumer Panel for a further two and a half years, with effect from 1 July 2016. The Chairman of the FCA, John Griffith-Jones, confirmed that Ms Lewis was the natural choice for this role due to her experience in leading the Panel.

If you would like to discuss this development please contact Jo Owens.

FCA call for input on crowdfunding rules

The FCA has published a call for input seeking views on which areas should be considered a part of its upcoming review of the rules surrounding both loan-based crowdfunding and investment-based crowdfunding. The FCA introduced rules for the regulation of crowdfunding platforms in March 2014 and committed at that time to a full review of their impact.

Christopher Woolard, director of strategy and competition at the FCA, said: “Since [2014] the market has grown rapidly and we want to explore concerns that have been expressed about developments in some aspects of the market. We believe now is the right time to consider whether… we have the right rules to support the development of this dynamic market by ensuring consumers are adequately protected.”

On loan-based crowdfunding, the FCA is seeking views on:

  • Whether financial promotions, due diligence and prudential standards are still appropriate for the way the market has developed.
  • Whether to mandate in greater detail the disclosure firms are expected to give consumers and the time that the disclosures must be provided.
  • Whether platforms should be required to assess investor knowledge or experience of the risks involved in this type of investment.
  • Whether investors in loan-based crowdfunding should be protected by the Financial Services Compensation Scheme (FSCS) if a platform fails.

On investment-based crowdfunding, the FCA is seeking views on:

  • How conflicts of interest are managed on these types of platform.
  • Whether the due diligence rules for platforms need to be strengthened.
  • Whether to mandate the disclosure of risk warnings in relation to non-readily realisable securities (such as unlisted equities) held within Innovative Finance ISAs.

The deadline for responses is 8 September 2016.

If you would like to discuss this development please contact Geraint Thomas.

Structural reform - Ring-fencing and continuity in resolution

The PRA has issued a policy statement, PS20/16, on the implementation of the ring-fencing regime relating to prudential requirements, intragroup arrangements and the use of financial market infrastructures.

The policy statement includes feedback to the PRA’s October 2015 consultation paper (CP37/15) on ring-fencing. It also sets out a revised version of the PRA’s ring-fenced bodies Part and its supervisory statement on ring-fenced bodies (SS8/16), as well as updates to existing supervisory statements and guidance that will take effect when the ring-fencing regime comes into force.

At the same time, the PRA issued a consultation paper on the implementation of ring-fencing: reporting and residual matters (CP25/16). This contains:

  • Part one on reporting requirements for ring-fenced bodies (RFBs).
  • Part two on additional matters relating to ring-fencing on which the PRA has decided to consult.

The consultation closes on 7 October 2016. The PRA has published a new webpage on ring-fencing, containing further information and updates relating to the ring-fencing regime.

The PRA has also published its policy statement on ensuring continuity in resolution. The policy statement sets out feedback to responses to the PRA’s October 2015 consultation paper on provisions aimed at ensuring firms' operational arrangements facilitate the continuity of critical services (CP38/15), and the December 2015 addendum to CP38/15.

Critical services are services required to be available to one or more units of a firm to enable the provision of functions critical to the economy. Based on the feedback received, the PRA found the responses did not necessitate significant changes to its proposals. Nonetheless, in order to add further clarity, minor amendments have been made to the proposed rules and supervisory statements.

If you would like to discuss this development please contact Andrew Henderson.

Government response to the Treasury Committee report on scrutiny of appointments

The Government has published its response to the Treasury Committee's report on the scrutiny of appointments published in February 2016.

In its report, the Committee made a series of recommendations on how it should be involved in the appointments process for several posts, including at the Bank of England and the FCA. In its response, the Government highlights the steps it took following the passage through Parliament of the Bank of England and Financial Services Bill including the following: 

  • The Government introduced an amendment to the process for appointing the FCA Chief Executive.
  • The Government announced an agreement between the Chancellor of the Exchequer and the Committee Chair on how it would conduct future appointments.
  • The Government introduced amendments ensuring no-one who is appointed FCA Chief Executive may take up the appointment before they have appeared before the committee, or a period of three months has passed, giving the committee time to call in the appointee and scrutinise the Government's choice.
  • The Chancellor agreed to seek, at the earliest opportunity, to alter the legislation governing FCA Chief Executive appointments to make the appointee subject to a fixed, renewable, five-year term. Current legislation does not set a term length. This change will bring the appointment length into line with appointments to the Deputy Governor of the Bank of England.

The Government also welcomed the pre-commencement scrutiny provided by the Committee relating to appointees to the Financial Policy Committee (FPC), the Monetary Policy Committee (MPC), the FCA Regulatory Decisions Committee (RDC), the Governor of the Bank of England, the Chairs of Court and the FCA.

The Government confirmed it would also welcome the extension of pre-commencement hearings to members of the new Prudential Regulation Committee (PRC) and to PRA decision-makers.

If you would like to discuss this development please contact Andrew Henderson.

Treasury Committee letters to retail banks on overdraft charges

In a recent press release the House of Commons Treasury Committee (the Committee) announced that Andrew Tyrie, Chairman of the Committee, has written to the Chief Executives of 13 retail banks, seeking information in relation to their overdraft charges.

The letters contain six questions for the banks to address, all relating to overdraft charges (paid and unpaid) for both authorised and unauthorised overdrafts. The six questions were as follows: 

  • What is the daily charge for a customer using an authorised overdraft?
  • Is there a cap on the charge incurred by a customer using an authorised overdraft? If so, what is the maximum charge that a customer can incur in any week, month or year?
  • What is the daily charge for an unauthorised overdraft?
  • Is there a cap on the charge incurred by a customer using an unauthorised overdraft? If so, what is the maximum charge that a customer can incur in any week, month or year?
  • Are any other costs incurred by a customer using an unauthorised overdraft, compared to an authorised overdraft -such as additional fees or interest rates?
  • What action does [the firm] take – if any - when a customer enters into an unauthorised overdraft?

The letters also emphasise the Committee’s concerns on the level of competition in banking and that recent analysis of the market appears to confirm that some customers, especially overdraft users, could get a better deal from their bank. 

The letters confirm that responses received will be made public by the Committee.

If you would like to discuss this development please contact Geraint Thomas.

Speech by Treasury Minister on the Women in Finance Charter

The Treasury Minister, Harriett Baldwin, delivered a speech on 11 July 2016 at the Barclays Accelerator event celebrating the signing of the Women in Finance Charter. The Charter was signed by 72 organisations within the UK financial services sector.

Some of the key points raised by Ms Baldwin in her speech include:

  • Ms Baldwin’s confirmation that she had seen very little change in female representation in leadership positions over the last 30 years, with female CEOs accounting for just 6% of the financial services sector in the UK.
  • An emphasis on the importance of utilising the full talent and potential of women in finance, an industry still heavily controlled by men.
  • The need for the gender pay gap to be addressed in the financial services sector as it is larger than in most other UK industries.
  • Reference to Ms Baldwin’s collaboration with Jayne-Anne Gadhia, the CEO of Virgin Money, to produce recommendations to ensure women can attain senior positions. This review led to the Treasury’s Charter for Women in Finance.
  • Ms Baldwin’s praise of all firms and organisations, which signed up for and are actively promoting the Charter. Signatory firms are expected to set out their goals by September 2016. Their progress will be reviewed on an annual basis by the New Financial think tank.
  • The need to work together with other diversity initiatives to enable women to reach senior leadership positions and make change happen for “the businesses to do better, the industry to prosper and to benefit the UK”.

If you would like to discuss this development please contact Jo Owens.

Formal adoption of the Network and Information Security Directive and the European Commission’s cybersecurity objectives

On 6 July 2016 the European Parliament formally adopted the Network and Information Security (NIS) Directive. The NIS Directive sets out common cybersecurity standards for firms supplying essential services such as energy, transport, banking, health and digital.  The aim of the NIS Directive is to step up cooperation between EU countries and help prevent attacks on interconnected infrastructure. 

Each Member State will be required to adopt a national NIS strategy and set up a network of Computer Security Incident Response Teams to handle incidents and risks, discuss cross-border security issues and identify coordinated responses. 

The NIS Directive is also expected to assist the European Commission, in achieving its three objectives in the cybersecurity field, which were recently updated by the Commission as being:

  • Increasing cybersecurity capabilities and corporation by bringing it to the same level of development in all the EU Member States and ensuring cooperation and information exchanges at cross-border level.
  • Making the EU a strong player in cybersecurity by nurturing its competitive advantage. The Commission acknowledges that Europe needs to overcome the current cybersecurity market fragmentation and foster the European cybersecurity industry.
  • Mainstreaming cybersecurity in EU policies, in particular with regard to new technologies and emerging sectors.

The NIS Directive will be published in the EU Official Journal and will come into force 20 days after publication.  Once in force, Member States will have 21 months to transpose the NIS Directive into national law, and a further six months to identify operators of essential services.

If you would like to discuss this development please contact Polly Sprenger or Craig Rogers.

European Commission proposal to amend the Fourth Money Laundering Directive  

On 5 July 2016, the European Commission published its proposal to amend the Fourth Money Laundering Directive (MLD4). The proposal sets out a series of steps to counter the financing of terrorism and to increase the transparency of institutions and corporate entities.

The proposal states that terrorism has grown and is increasingly evolving, and that a sound financial system with appropriate safeguards will foster a better understanding of terrorist networks, threats and connections. The proposed amendments to MLD4 target the following:

  • Adopting stricter transparency rules to prevent tax avoidance and money laundering.
  • Strengthening the transparency rules around prepaid instruments (such as prepaid cards) by reducing the threshold for identification from €250 to €150 and increasing customer verification checks.
  • Giving Financial Intelligence Units (“FIUs” – public bodies that exist in every member state which collate and analyse information about suspicious transactions spotted by banks) quick access to information on the holders of bank and payment accounts and the power to request information.
  • Harmonising the EU wide approach to high risk countries, by each member state adopting a specific list of enhanced due diligence measures towards high risk countries.

If you would like to discuss this development please contact Neill Blundell.

ICO publishes its overview of the General Data Protection Regulation

The Information Commissioner’s Office (ICO) has published its overview of the General Data Protection Regulation (GDPR). This overview highlights the key themes of the GDPR to help organisations understand the new legal framework in the EU. It explains the similarities with the existing UK Data Protection Act 1998 (DPA), and describes some of the new and different requirements.

The overview is a useful high level guide for those with day-to-day responsibility for data protection and covers the following:

  • To whom the GDPR applies.
  • The kind of information which the GDPR applies to, including personal and sensitive data.
  • Principles.
  • Key areas to consider, including lawfulness of processing.
  • Individuals rights, including the right to erasure also known as ‘the right to be forgotten’, the right to restrict processing, the right to data portability, the right to object and the rights in relation to automated decision making and profiling.
  • Accountability and governance, including recording of processing activities, such as documentation and what you need to record, when you need to do a data protection impact assessment, when a DP Officer needs to be appointed.
  • Breach notifications and when they need to be made.
  • Transferring data.
  • Derogations.

The ICO’s Interim Deputy Commissioner, Steve Wood, has confirmed that despite the outcome of the EU referendum, the GDPR is still relevant to the UK. With so many businesses and services operating across borders, Mr Wood stated that international consistency around data protection laws and rights is crucial both to businesses and organisations, and to consumers and citizens.

The ICO confirmed that its overview of the GDPR is the first substantive part of the suite of guidance on the GDPR to be published by the ICO.

For further information please see our GDPR hub or to discuss this development please contact Paula Barrett.

Which? call for action on unarranged overdraft charges and MAS’ increased provision of telephony debt advice

In a recent press release, Which? has called for unarranged overdraft charges to be set at the same level as arranged overdraft charges and for the FCA to review overdraft charges in the context of other forms of credit.

Following its review of retail banking in the UK, the Competition and Markets Authority (CMA) has published a number of provisional remedies to tackle overdraft charges, including a requirement for banks to have a monthly maximum charge for unarranged overdraft usage. However, Which? is of the view that this is unlikely to have an impact as it does not address the overall level of fees.

In a separate press release, the Money Advice Service (MAS) gave an update on the progress of the implementation of increasing debt advice telephone provisions, as set out in its 2016/17 Business Plan. In order to achieve the desired target within the set timescales, MAS has invited three organisations, Citizens Advice, Money Advice Trust and StepChange Debt Charity to co-ordinate a proposal to build this capacity. An announcement on how the service will be delivered will be made in August, and the service is scheduled to commence in October 2016.

If you would like to discuss this development please contact Chris Busby.

Joint statement by George Osborne and the leaders of UK’s main lenders on support for households and businesses following the EU referendum

HM Treasury has published a joint statement from the then Chancellor of the Exchequer, George Osborne, and the leaders of the UK’s main lenders, on maintaining support for households and businesses during the economic challenge following the EU referendum.    

The statement highlights the following:

  • Whilst banks were at the heart of the 2008 economic crisis, the rebuilding of banks and the arrival of new challenger banks means that banks and building societies are now part of the solution.
  • The Government gave the Bank of England new counter-cyclical capital buffer powers to support lending in the financial system in the good times and bad, powers which the Financial Policy Committee recently put to use.
  • UK’s main lenders have agreed to make the extra capital available to support lending to UK businesses and households in this challenging time.

Signatories and attendees to the speech included representatives of the Treasury and most of the high street banks and building societies.

If you would like to discuss this development please contact Andrew Henderson.

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