U.K. Regulatory Developments and UCITS V

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HM Treasury has issued regulations implementing changes to the FSMA, among other regulatory developments in the U.K., as outlined below.

HM Treasury (Treasury)
Treasury Makes UCITS V Regulations

Treasury has made the Regulations implementing changes to the FSMA necessary to bring U.K. law into line with the UCITS V. The changes relate to:

• FCA's powers;
• publication of final notices and other sanctions;
• a new part of the Undertakings for Collective Investment in Transferable Securities Regulations 2011 to cover depositary liability; and
• small amendments on information disclosure and whistle-blowing.


The changes took effect on 18 March. Much of the detail of UCITS V is implemented by changes to FCA Rules, and Treasury has also published a transposition table showing relevant FCA provisions, including the changes to the Senior Management Arrangements, Systems and Controls Sourcebook (SYSC) covering remuneration.

Treasury Consults on ILS

Treasury has launched a consultation on a new regulatory and tax framework for insurance-linked securities (ILS) business. The consultation sets out the key features that will be needed to attract ILS vehicles to the U.K. In particular, it examines how to take an effective and competitive approach to the authorisation and supervision, corporate structure and taxation of ILS vehicles. Treasury plans to draft regulations for a new ILS framework later this year. Consultation closes on 29 April.

Treasury Summarises LP Consultation Responses

Treasury has published a summary of the responses received to its consultation on using legislative reform order to change partnership legislation for private equity investments as well as the government's decision on the final policy design. The proposed amendments to the Limited Partnerships Act 1907 related to:

• registration issues and on-going filing and notification requirements;
• the role, function and rights of limited partners; and
• obligations of, and restrictions on, limited partners in respect of capital.


The government received 22 responses. Based on the responses, the government has changed the process for setting up a private fund limited partnership (PFLP) to remove the requirement for a solicitor's certificate for registration purposes. Instead the general partner will be required to confirm that the partnership fulfils the requirements to qualify at the point of registration. The one year transition period will also be removed, so that a limited partnership will always have the option of applying for PFLP. Changes have also been made in relation to the provisions for striking off partnerships from the limited partnership register. The government intends to submit draft legislative amendments in due course and for the changes to be fully operational within a year.

Financial Conduct Authority (FCA)
FCA Makes New Rules

FCA has made various changes to its Handbook following its Board meetings in February and March and FOS rule changes made in March. Those instruments made by FOS have also been reflected by FCA changes to the Handbook. Regulators made the:

• Benchmarks (Amendment No 2) Instrument 2016: this amends the FCA Handbook Glossary and creates the fair, reasonable and non-discriminatory (FRAND) framework within the Market Abuse Sourcebook. It came into force on 1 April;
• Handbook Administration (No 40) Instrument 2016: this makes minor administrative changes with various application dates between 1 March and 7 September;
• Accountability (Conduct Rules) (Breaches Reporting) Instrument 2016: this makes consequential changes to rules to ensure compatibility with the SMR and came into force on 1 March;
• Accountability (Foreign Branches) (Amendments) Instrument 2016: this brings application of the common platform requirements into line with the foreign branches rules. It came into force on 7 March;
• Fees (Handbook Separation) Instrument 2016 and the UKLA Fees and Other Fees Instrument 2016: these create a freestanding FEES manual for FCA with no unnecessary reference to PRA, restructure fees for the UK Listing Authority and introduce a fees discount for passporting-in mortgage intermediaries. The changes also bring forward the date on which large fee payers make their first “on-account” payment. Most provisions making the new FEES manual came into force on 1 March and a few on 1 April;
• RDR (Miscellaneous Amendments) Instrument 2016: this ensures FCA can continue to meet its obligations under the RDR by being able to identify relevant staff where they no longer require pre-approval from the regulator after the SMR takes effect. The changes include a new form in the Training and Competence Sourcebook (TC), the Retail Investment Adviser Competence Notification Form, and new reporting requirements, and changes to the supervisory reporting requirements in the Supervision Manual. The rules came into force partly on 7 March and the remainder on 31 December;
• Handbook Separation (Insurance) Instrument 2016: this amends the FCA rules to accommodate the PRA re-write of shared PRA and FCA rules. It came into force on 1 March;
• Small and Medium Sized Business (Credit Information) Instrument 2016, and Small and Medium Sized Business Credit Information (Fees) Instrument 2016, both took effect on 1 April. The rules ensure compliance with legislation and introduce a fee regime for designated credit reference agencies;
• Fees Manual (FOS Case Fees 2016/17) Instrument 2016, which also took effect on 1 April. This updates the lists of constituent firms in charging groups and makes minor changes to the volumes in the groups;
• Mortgage Contracts (Legacy CCA) Instrument 2016 and Mortgage Credit Directive (Amendment No 3) Instrument 2016, both of which took effect by 21 March. The former brought pre-2004 first charge CCA loans into the mortgage regime and the latter reflected draft Treasury legislation for MCD implementation;
• Peer-to-Peer Lending Instrument 2016, with the changes effective from 6 April to support the introduction of the Innovative Finance ISA and new regulated activity of advising on P2P agreements;
• Training and Competence Sourcebook (Qualifications Amendments No 14) Instrument 2016. These changes, updating the appropriate qualification list, took effect on 18 March;
• Fees (Payment Systems Regulator) Instrument 2016. These changes, affecting the funding of the PSR, will be effective from 15 April;
• FSCS (Management Expenses Levy Limit 2016/17) Instrument 2016, which applied from 1 April and implements the new Management Expenses Levy Limit;
• Client Assets Sourcebook (Amendment No 9) Instrument 2016. This update took effect on 21 March to simplify client money requirements for firms that operate loan-based crowdfunding platforms and hold money in relation to both regulated and unregulated P2P business;
• Supervision Manual (Reporting) Instrument 2016, which takes effect partially on 31 March and is fully effective from 31 October. This instrument clarifies guidance notes and changes submission methods for compliance reporting; and
• Prospectus Rules Sourcebook (Omnibus 2 Directive Regulatory Technical Standards) Instrument 2016, which is effective from 24 March and aligns the sourcebook with relevant regulatory technical standards.


Regulators Make SMR Consequential Changes

FCA has published a policy statement setting out its final position on making consequential changes relating to the SMR reflecting Treasury's removal of the FSMA requirement for firms to report known and suspected breaches of FCA conduct rules to the regulator. These changes follow consultation. The statement summarises the feedback received and confirms the final policy and forms. After 7 March, firms should use only the versions of forms included in this statement. The statement also finalises some minor technical amendments dealing with how the SYSC module of FCA's Handbook applies to foreign branches. PRA has also published its statement containing its final rules on the notification of conduct rules breaches for individuals in scope of the SMR for U.K. banks, building societies, credit unions and PRA-designated investment firms. It also sets out the amended definition of the term “significant risk taker” in PRA's certification rules as proposed in a previous occasional consultation paper. The concept of a significant risk taker is now limited to employees of firms governed by the Capital Requirements Regulation.

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. Publications expected before the end of April include:

• consultation on proposed rates for regulatory fees and levies in 2016/17;
• policy statement on the FSCS management expenses levy limit for 2016/17;
• policy statement making consequential Handbook changes for non-Directive firms;
• policy statement on the future regulatory treatment of Consumer Credit Act 1974 (CCA) regulated first charge mortgages;
• consultation on the secondary annuity market;
• policy proposals and Handbook changes related to the implementation of the Market Abuse Regime;
• policy on proposed changes to FCA rules and guidance on pensions;
• policy statement on proposed changes to the FSCS Compensation sourcebook; and
• policy statement on proposals in response to the CMA's recommendations on high-cost short-term credit.


The next MiFID 2 consultation is scheduled for “mid-2016.”

FCA and BoE Review Markets MoU

FCA and BoE have revised their memorandum of understanding (MoU) on cooperation in supervising markets and market infrastructure and concluded it is still fit for purpose and is working well.

FCA Publishes MiFID 2 Roundtable Minutes

FCA has published the minutes of the MiFID 2 implementation roundtable meeting it held on 22 February. FCA noted that there was little implementation news since the previous meeting but that progress in this area is expected soon. The minutes recognised that the debate around the Commission's proposal to delay the implementation by a year focused around the issues of the application of pre-trade transparency to package transaction, and the possible opportunity to change Article 2.1.d to allow commercial firms to be members or participants in forex venues without being required to be authorised. The round table also discussed aspects of FCA's now-closed consultation on MiFID 2. The minutes also report that the Commission will not be publishing written responses to questions raised on the Level 1 legislation at its MiFID 2 transposition workshop.

FCA Issues Quarterly Consultation

FCA has issued its latest quarterly consultation on proposed miscellaneous amendments to the Handbook. Proposals include:

• making changes to the Glossary, SUP, MCOB and MIPRU to signpost how rules implementing the MCD apply to passporting firms;
• changes to the Listing, Disclosure Rules and Transparency Rules, the Prospectus Rules and the Glossary to clarify certain rules and policies;
• changes to the EG to address the situation where a Final Notice is issued following the prior publication of a Warning Notice Statement;
• changes to the regulatory reporting requirements set out in SUP. The proposals amend the notes for the completion of Product Sales Data, conduct breach reporting, credit union prudential reporting requirements, annual reports and accounts reporting, consumer credit forms, non-EEA subgroup reporting and Mortgage Lenders and Administrators Return notes; and
• amendments to the EG and DEPP manuals to reflect FCA powers over U.K. European long-term investment funds and to set out a decision-making procedure.


Responses are due by 18 April on the MCD-related changes, and 18 May for all other proposals.

FCA Finalises P2P Rules

FCA has published a policy statement setting out its response to feedback submitted in relation to two consultations. The statement first sets out FCA's views in relation to its consultation on loan-based crowdfunding/P2P platforms and segregation of client money. It then gives FCA feedback to the responses received to its consultation which proposed Handbook changes to reflect the introduction of the Innovative Finance ISA (IFISA) and the regulated activity of advising on P2P agreements. The statement includes the finalised rules and guidance made by FCA in the Peer-to-Peer Lending Instrument 2016, effective from 6 April when the IFISA is introduced, and the Client Assets Sourcebook (Amendment No 9) Instrument 2016, which took effect on 21 March.

Office of the Complaints Commissioner (OCC)
FCA and ASIC to Co-Operate on Fintech

FCA and the Australian Securities and Investments Commission (ASIC) have signed a co-operation agreement to help start-up fintech providers seeking to enter each others' markets. The agreement could help automated financial advisers, crowd-sourced equity funds, digital payments and blockchain business models. The move forms part of FCA's Project Innovate.

Bank of England (BoE)
BoE Reports on FMI Supervision

BoE has published its annual report on its supervision of financial market infrastructures (FMI). The report looks at BoE's focus on enhancing cyber resilience, increasing the robustness of a range of financial risk mitigants across FMIs, and improving the governance of FMIs, in particular the effectiveness of FMI boards, and of central counterparty board risk committees. It notes the Basel Committee on Payment and Market Infrastructures and IOSCO have assessed BoE as meeting all its responsibilities. The report also sets out next year's priorities.

Prudential Regulation Authority (PRA)
PRA Consults on MiFID 2 Implementation

PRA has published its first consultation on how it will change its rules to implement MiFID 2. The consultation covers two areas:

• passporting: PRA comments that the wider scope of services and activities (specifically, operating an organised trading facility) and investments (specifically, emission allowances) will allow both investment firms and credit institutions to extend their passports. It notes the changes it will make to its forms for investment firms to use so its rules will link to the forms ESMA has provided in RTS. It notes that credit institutions, while still largely using the EBA forms for MiFID passports, will need to comply with the MiFID 2 rules in respect of passporting of tied agents; and
• algorithmic trading: PRA proposes a new part for its rulebook dealing with firms that engage in algorithmic trading and provide direct electronic access to trading venues. It also reminds them how many other parts of the rules relating to systems and controls, compliance and organisational requirements will apply.


PRA will consult further on other necessary changes to its rules, and may need to change these proposals depending on the final text of EU measures, but wanted to provide some clarity for firms. PRA asks for comment by 27 May.

PRA Publishes FEES Policy

PRA has published its policy statement setting out its approach to and application of the Fees Part of the PRA Rulebook following consultation. These changes have been designed to make the FEES module conform more with the Rulebook's style. PRA consults on its fee rates annually, with the new fee rates taking effect from 1 March each year. It addresses periodic fees, regulatory transaction fees, special project fees for restructurings and the invoicing and collection of fees.

PRA Updates Statement on Regulatory Reports

PRA has published an updated version of its supervisory statement on guidelines for completing regulatory reports following consultation on including guidelines for completing supervisory reports relating to the Close Links and Change in Control Parts of the PRA Rulebook. It sets out PRA's expectations for how firms should complete the data items and returns as required.

Serious Fraud Office (SFO)
SFO Closes Forex investigation

SFO has announced the closure of its investigation into allegations of fraudulent conduct in the foreign exchange market. SFO has concluded that despite grounds to suspect offences involving serious or complex fraud, a review of the available evidence suggests that the alleged conduct, even if proven, would not meet the evidential test required for SFO to mount a prosecution and it would not be able to remedy this by continuing the investigation. The US Department of Justice is still continuing its investigation, with which SFO is helping it.

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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