FCA LIBOR powers in force

Today marks the entry into force of Section 2 of the UK Financial Services Act 2021 (FSA). The second of seven “Commencement” phases, the second is primarily notable for the application of the new FCA LIBOR powers, although it does contain a number of other provisions. A brief summary follows:

• Benchmarks (sections 8 to 21 and Schedule 5)
• Access to financial services markets (section 27 and Schedule 10)
• Variation or cancellation of permission to carry on regulated activity (section 28 and Schedule 11)
• Rules about level of care provided by authorised persons (section 29)
• Insider dealing and money laundering (section 34)
• Other matters (sections 37 to 40 and section 43)

Benchmarks

Sections 8 to 21 and Schedule 5 of the Act amend the retained EU law version of the UK BMR to provide the FCA with additional powers to mitigate the effect of a critical benchmark’s demise. Specifically, the FCA now has the power to:

• designate a benchmark as critical, following a decision that the benchmark’s representativeness cannot reasonably be restored and maintained. It may then impose requirements on the benchmark’s administrator to change the benchmark’s calculation methodology, its rules or the administrative code of conduct
• prohibit some or all use of a critical benchmark by supervised entities
• increase the period during which the FCA can compel an administrator to publish a critical benchmark from 5 years to 10
• Extend the transitional period for third country benchmarks under the UK BMR, from 31 December 2022 to 31 December 2025

In essence, the above gives the FCA wide-ranging and flexible powers to deal with tough legacy contracts which, for various reasons, are recognised as being unamenable to “simple” amendment.

Duty of care

Section 29 of the FSA requires the FCA to consult on duty of financial service provider’s duty of care rules, specifically:

• should the FCA create new general rule(s) in respect of authorised persons in addition to the existing duty of care?
• should a duty of care be owed to all consumers or to particular classes?
• to what extent does a duty of care, or subsequent provision, advance the FCA’s consumer protection objective?

The consultation must be completed, with published results, by year end 2020. Final rules are to be made by 1 August 2022.

Amendments to UK MiFIR

Section 27 and Schedule 10 of the FSA make amendments to UK MiFIR in relation to the UK equivalence regime for third country firms. It amends UK MiFIR to:

• give the FCA a power to specify reporting requirements for firms that register under the regime
• it will also enable HM Treasury to, where appropriate, impose specific requirements on firms that have registered under the regime
• amend the equivalence assessment criteria to incorporate changes to the UK’s prudential rules as a consequence of the FSA
• introduce additional powers for the FCA in respect of registered third country firms to: impose temporary restrictions, impose prohibitions and withdraw registration
• clarify the scope of the reverse solicitation exception

Variation or cancellation of permission to carry on regulated activity

Section 28 and Schedule 11 of the FSA amend Part 4A of FSMA,inserting section 55JA and a new Schedule 6A to provide an additional process for the FCA to cancel or vary Part 4A permissions. The process is additional to the existing cancellation prodecure, allowing for more flexibility in cases such as non-payment of fees or failure to provide information

Application of money laundering rules to overseas trustees

Section 34 of the FSA amends the Schedule 2 of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), to ensure that HMRC will still have access to ownership and beneficiary information in respect of UK-linked overseas trusts

Regulated activities and application of CCA

Section 107(6) of the FSA allows HMT to disapply provisions of the Consumer Credit Act 1974 (CCA), in cases where the CCA-regulated activity is superseded by FSMA. Section 37 of the FSA extends that power to effectively include interest-free, buy-now pay-later products, allowing HMT to bring these products under FCA jurisdiction

Amendments to UK PRIIPs Regulation

Section 38 of the FSA amends the retained EU law version of the UK PRIIPs Regulation to:

• enable the FCA to amend the scope of the PRIIPs Regulation, allowing the regulator to clarify ambiguities
• replace the term “performance scenario” with “appropriate information on performance”. This will allow the FCA to adjust the contents of the Key Information Document
• delegate power to HMT Treasury to further extend the UCITS exemption by up to five years

Amendments to UK MAR- personal data

Section 39 of the FSA amends UK MAR to remove an Article 28 provision in Article 28, restricting the FCA from holding UK MAR personal data for more than five years. The provision is technically overridden by the GDPR stipulation that all personal data should only be held as long as necessary

Amendments to UK EMIR

Section 40 of the FSA makes amendments to UK EMIR the Regulation on OTC derivatives, central counterparties and trade repositories (648/2012) (UK EMIR) to:

• apply the FRANDT terms to UK firms offering clearing services. The FRANDT terms dictate that commercial terms should be fair, reasonable, non-discriminatory and transparent.The FCA has further powers under the FSA to vary the UK FRANDT terms, but has not elected to do so at this time
• require trade repositories to implement procedures to improve data quality and policies to ensure the orderly transfer of data between themselves when required

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