U.K. Regulatory and Legal Developments

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By Emma Radmore and Catherine Hogg

Her Majesty's Treasury announces a regulatory cooperation agreement between FCA and the Monetary Authority of Singapore (MAS), among other regulatory and legal developments in the U.K., as outlined below.

HM Treasury (Treasury)
Treasury Announces U.K.-Singapore FinTech Bridge

Treasury has announced the U.K.'s first “FinTech bridge,” which includes a regulatory cooperation agreement between FCA and the Monetary Authority of Singapore (MAS). The agreement will enable the regulators to refer FinTech firms to their counterparts across the globe.

Financial Conduct Authority (FCA)
FCA Supplements New Rules

FCA has published a supplement to its most recent Handbook Notice. It includes the European Long-Term Investment Funds (ELTIF) Regulation (No 2) Instrument 2016 which it has made jointly with FOS and which applies the redress rules to ELTIFs.

FCA Creates STOR Page

FCA has created a new page on its website devoted to Suspicious Transaction and Order Reports (STOR) under the Market Abuse Regulation (EU MAR). The page gives information on FCA's supervisory approach to the new regime, and its expectations on “notifiers.” FCA notes some firms may need to make significant changes to enable them to meet the EU MAR requirements. It says it will take a risk-based approach to supervision, and where firms are not able to apply all the necessary surveillance from the effective date of EU MAR, they should have made best efforts to achieve full compliance, and be ready to explain how approaches will be further developed. FCA is developing systems to ensure firms can report using the ESMA standard forms through Connect.

Up Next From FCA

The latest edition of FCA’s Policy Development Update provides information and links to publications issued since the last edition, recent Handbook developments and an updated timetable for forthcoming publications. Key publications expected over the coming months include:

  •  a policy statement on regulatory fees and levies in June;
  •  feedback on consultation on the regulatory framework for individuals;
  •  the second consultation on implementation of MiFID 2, and a policy statement on increasing transparency and engagement at renewal in general insurance markets, both in “mid-2016,” with a policy statement on the first consultation on MiFID 2 implementation to come at another time;
  •  a policy statement on proposals in response to CMA recommendations on high-cost short-term credit in the second quarter of 2016; and
  •  consultation on FCA's implementation of the Banking Recovery and Resolution Directive (BRRD) in the light of supervisory experience and EBA standards, during the summer.

FCA Announces Insider Dealing Convictions

FCA has announced two convictions in the case it brought as part of Operation Tabernula. Martyn Dodgson, an investment banker, and Andrew Hind, a property developer and chartered accountant, conspired to deal secretly on several occasions, often using information from Mr Dodgson's employers. They created a complex method to avoid detection. FCA described the investigation as the largest and most complex insider dealing investigation it had carried out. It had previously secured three convictions. Three further individuals were acquitted by Southwark Crown Court.

FCA Publishes MiFID 2 Conduct Forum Details

FCA has published the minutes and slides from a conduct forum it held on 18 April on the revised Markets in Financial instruments Directive (MiFID 2). The forum attendees were industry associations and a few firms they suggested, and the forum covered product governance and disclosure of costs and charges. FCA invited questions in advance, and its responses included:

  •  that it is still assessing how to apply product governance rules to non-MiFID 2 business;
  •  how it expects firms to apply the proportionality principle in determining the level of detail needed to assess target markets, and on assessing execution-only products;
  •  how firms should deal with non-EEA products and providers;
  •  how distributors and manufacturers should work together;
  •  how FCA will align MiFID 2 requirements with the Financial Advice Market Review;
  •  generally, that MiFID 2 is likely to bring more prescriptive rules than FCA currently lays down on product governance, thus limiting flexibility;
  •  noting the likely time discrepancies for costs disclosures required under key directives to take effect;
  •  considering the disadvantages of a standardised format for disclosure, where MiFID 2 does not require it; and
  •  using ESMA guidance in dealing with ongoing disclosure requirements.

FCA Announces Insider Dealing Sanctions

FCA has:

  •  banned and fined Mark Taylor, a financial adviser formerly of Towry Law, for trading off the back of inside information accidentally provided to him in his role at Towry Law. Mr Taylor had traded after a message was sent to staff in error, followed by a message instructing staff not to act on it. He had later called his broker to try to reverse the trade as he was concerned about insider dealing, but the broker had not been able to do this and had reported the activity. The fine of £36,285 reflected Mr Taylor's financial situation; and
  •  announced the Court has sentenced Martyn Dodgson and Andrew Hind, respectively, to 4.5 and 3.5 years' imprisonment. The 4.5-year sentence is the longest sentence handed down for insider dealing in a case brought by FCA.

FCA Consults on UCITS V and Related Changes

FCA is consulting on proposed changes to the Client Assets sourcebook (CASS) and the Collective Investment Schemes sourcebook (COLL), following the adoption of the Undertakings for Collective Investment in Transferable Securities (UCITS) V Level 2 Regulation. The UCITS V Level 2 Regulation will apply to firms from 13 October 2016 and does not need to be transposed into U.K. law. Most of FCA's proposals are changes to its handbook to ensure its rules are consistent with EU law. It proposes consequential amendments to CASS, which apply to UCITS depositaries, most of which will affect CASS 6.6. FCA plans to disapply certain CASS rules and guidance, and proposes guidance in COLL 6.9 to signpost the conditions for meeting the UCITS V Level 2 Regulation's independence requirements, while not changing the substance of the guidance. The consultation also covers minor changes to the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) and consequential amendments in COLL and the Investment Funds sourcebook (FUND) to reflect certain measures in the Securities Financing Transactions and Reuse Regulation (SFTR). There will be a minor amendment to SYSC 19E.2.9R(1), on UCITS management company remuneration committee requirements. FCA plans to copy out into COLL the SFTR provisions which require managers of UCITS and alternative investment funds (AIFs) to disclose details of their use of SFTs and total return swaps in the funds’ pre-contractual documents and periodical reports to investors. FCA is consulting on changes to COLL 4.2 and COLL 4.5 for UCITS schemes and non-UCITS retail schemes (NURS), and to add specific guidance for qualified investor schemes (QIS) in COLL 8.3 and for full-scope UK AIF managers (AIFMs) in FUND 3.2 and FUND 3.3 cross-referring to the relevant COLL provisions. Consultation closes on 19 July, to allow FCA time to make its rules and bring them into force with the UCITS V Level 2 Regulation.

FCA Publishes EU MAR Notification Forms

FCA has produced notification forms for firms' use under EU MAR. There are forms for the delayed disclosure of inside information and for persons discharging managerial responsibilities (PDMRs), with a short accompanying market bulletin focusing on how issuers are to file these notifications. FCA reminds users that inside information must be announced as soon as possible and may only be delayed where certain conditions are met. From 3 July, where an issuer has delayed disclosing inside information in accordance with EU MAR, the issuer must notify FCA, via this form, of the delay immediately following public disclosure of the information. PDMRs and persons closely associated with them must notify the issuer and FCA of certain transactions in or related to the issuer’s financial instruments conducted on their own account and worth over €5,000. Notification via these forms should be made promptly and at least within three business days.

London Stock Exchange (LSE)
LSE Prepares AIM for EU MAR

LSE has published an “Inside AIM” newsletter outlining the preparation underway for the implementation of EU MAR. It sets out information to support nominated advisers as they work with their clients to prepare for the introduction of EU MAR and the consequent changes to the AIM Rules that are currently subject to consultation. The newsletter assumed that the proposals set out in the consultation are implemented.

Competition and Markets Authority (CMA)
CMA Recommends Revocation for Northern Ireland PCA Order

CMA has published its provisional decision following a review of the 2008 Northern Ireland PCA banking order as amended in 2011 alongside the review of the 2002 SME banking undertakings and the retail banking market investigation. CMA has provisionally decided that market and regulatory developments and the retail banking market investigation’s proposed remedies package represent a change of circumstances such that the order in its entirety can be revoked. CMA provides an assessment of each of the order's articles.

Emma Radmore is a Managing Associate and Catherine Hogg is an Information Assistant in Denton's UKMEA LLP's Financial Services and Funds Practice in London. Emma Radmore is also a member of the World Securities Law Report Advisory Board. They may be contacted at emma.radmore@dentons.com and catherine.hogg@dentons.com.

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