Global Financial Regulatory Blog

FCA Seeks Improvements to ESG Benchmarks

Posted in Environmental, Social and Governance (ESG)

The regulator is concerned that ESG-related disclosures are not meeting expectations.

By Nicola Higgs, Becky Critchley, Anne Mainwaring, Ella McGinn, and Charlotte Collins

The FCA has published a Dear CEO letter sent to benchmark administrators on 20 March 2023, expressing concerns about the quality of their ESG-related disclosures. The FCA’s concerns are based upon a preliminary review of ESG benchmarks, which assessed the disclosures made by a sample of UK benchmark administrators. The review found the quality of ESG-related disclosures to be poor, and the letter sets out the FCA’s specific findings in this regard. The FCA states that it is acutely aware that poor practices in this area could lead to claims of greenwashing and dilute trust and confidence in ESG labelling. Therefore, the FCA is not only concerned about technical compliance with disclosure requirements, but also about ensuring the integrity of ESG-related products.

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Consumer Duty Update: FCA Issues Dear CEO/Director Letters Setting Priorities for Sectors

Posted in Regulatory Reform

The letters ask senior management to prioritise implementing the Duty.

By David BermanNicola HiggsRob MoultonBecky CritchleyElla McGinnJaime O’Connell, and Dianne Bell

On 3 February 2023, the FCA published Dear CEO/Director letters underscoring the immediate (i.e., during the implementation period up until 31 July 2023) and longer-term expectations, priorities, and demands under the Consumer Duty. For further information, see Latham’s recent blog on the FCA’s multi-firm review summarising areas of improvement for firms’ implementation plans.

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FCA Publishes “Areas for Improvement” for Firms on Consumer Duty Implementation

Posted in Regulatory Reform

The FCA has reviewed firms’ progress to embed the Duty into their businesses, providing good and poor practice examples for firms to improve and direct their implementation work.

By Nicola HiggsBecky CritchleyJaime O’Connell, and Dianne Bell

The Consumer Duty (Duty) rules (as set out under the FCA’s Policy Paper (PS22/9) and guidance document FG22/5) come into force at the end of July 2023. On 25 January 2023, the FCA published feedback on firms’ current implementation progress via its Multi-firm review: Consumer Duty Implementation Plans. While the FCA notes a number of positives, the overall impression is that firms need to do more and do it quickly.

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Federal Reserve Establishes Bank Term Funding Program to Stabilize Financial System

Posted in Banking

The decisive action will mitigate emerging liquidity and solvency risks, contain pressure on the banking system, and protect depositors.

By Arthur S. Long, Pia Naib, and Deric Behar

On March 12, 2023, the Board of Governors of the Federal Reserve System (Federal Reserve) took a unanimous emergency step to protect the safety and soundness of the financial system from contagion risk following the second largest bank insolvency in US history. The move aims to “reduce stress across the financial system, support financial stability and minimize any impact on businesses, households, taxpayers, and the broader economy.”

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European Parliament Publishes Proposed Changes to AIFMD and UCITS Directives

Posted in Environmental, Social and Governance (ESG), Markets and Investments

The “AIFMD II” proposals continue their progress through the EU legislative process with more detail provided, but in many areas specific criteria will not be known until Level 2 measures are developed.

By Nicola Higgs, Jaime O’Connell, Denisa Odendaal, and Dianne Bell

On 9 February 2023, the European Parliament’s Economic and Monetary Affairs Committee (ECON) published a report on the amendments it has adopted to the European Commission’s legislative proposal for a directive (the Directive) amending the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD) and Directive 2009/65/EC (UCITS Directive). The proposed new legislation arises out of the Commission’s AIFMD review and the identification of specific areas where the AIFMD framework could be improved, as well as the Commission’s view that a number of those issues were equally relevant for the activities of UCITS. As such, both directives will be amended to better align their requirements.

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DP 23/1: FCA Publishes Discussion Paper on Sustainability-Related Governance, Incentives, and Competence

Posted in Environmental, Social and Governance (ESG)

The discussion paper aims to encourage industry-wide dialogue on sustainability related-governance, incentives, and competence.

By Anne Mainwaring, Sara Sayma, and Dianne Bell

On 10 February 2023, the FCA published DP23/1: Finance for positive sustainable change: governance, incentives and competence in regulated firms.

The FCA considers that a firm’s governance, purpose, and culture are central to how it embeds environmental and social considerations into business, risk, and capital allocation decisions for the benefit of consumers. With this in mind, the FCA is seeking views on how it can move effectively beyond disclosure-based initiatives to help and encourage firms as they develop their arrangements for governance, incentives, and competence in the area of sustainability.

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HM Treasury Publishes Draft Legislation to Regulate BNPL Lending

Posted in Regulatory Reform

A consultation that will remain open until 11 April 2023 offers further clarity on the proposals to regulate buy-now-pay-later products.

By Rob Moulton, Becky Critchley, Ella McGinn, and Dianne Bell

On 14 February 2023, HM Treasury published its consultation and accompanying draft legislation on the regulation of buy-now-pay-later (BNPL) lending. The consultation follows the proposals in HM Treasury’s prior publications released in October 2021 and June 2022, since the government announced its intention to bring currently unregulated BNPL products within scope of the regulatory perimeter. This latest consultation provides some welcome clarity on the approach to this upcoming sea change for firms operating in the BNPL space.

The key changes will be effected by amending the current fixed-sum interest-free credit exemption in Article 60F(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). BNPL lending usually falls within this exemption as such agreements meet the conditions as interest-free loans repayable in under 12 months and in 12 or fewer instalments. Article 60F(3), which provides an exemption for running-account credit, will remain unchanged.

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ISDA Launches Version 1.0 of Definitions for Digital Asset Derivatives

Posted in Fintech and Cryptocurrency

The Definitions aim to support the safe and efficient development of the digital asset derivatives market through consistent contractual standards.

By Yvette D. ValdezThomas Vogel, Naffie Lamin, Tiiu Lemsalu, and Deric Behar

On January 26, 2023, the International Swaps and Derivatives Association, Inc. (ISDA) published version 1.0 of the long-awaited ISDA Digital Asset Derivatives Definitions (the Definitions), intended to create “an unambiguous contractual framework for digital asset derivatives under the umbrella of the ISDA Master Agreement.” Latham & Watkins LLP was pleased to participate in the development of the Definitions as part of a working group of sell-side and buy-side market participants and digital asset legal advisors.

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FCA Implements Strategies to Clamp Down on Illegal Social Media Financial Promotions

Posted in Advertising and Social Media

The regulator described the steps it is taking to increase scrutiny of advertisements about financial products and services on social media platforms.

By Rob Moulton, Jonathan Ritson-Candler, and Sara Sayma

On 3 February 2023 the FCA published an analysis of its financial promotions data for 2022. The data reflects the action taken against authorised firms for breaching financial promotion rules and referrals and investigations into unregulated activity over the last year. As part of its analysis, the FCA emphasised the link between good quality marketing information and good consumer outcomes.

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Whistleblow Insights — Recurrent Themes and Common Drivers

Posted in Conduct of Business, Environmental, Social and Governance (ESG)

A new Latham & Watkins guide examines the recent increase in whistleblowing and poses self-assessment questions against which firms can benchmark themselves.

By David Berman, Andrea Monks, Nell Perks, Nathan H. Seltzer, Becky Critchley, and Charlie Bowden

Many sectors, including financial services, have encountered a discernible increase in whistleblows in recent times — a trend that shows no signs of abating. Indeed, some whistleblowers have seen fit to publicise their concerns in the press and/or share them with the Regulator — often due to a frustration that their issues were not addressed satisfactorily (or at all) when raised internally.

This guide identifies the recurrent themes and common drivers that underlie many whistleblowing incidents in the financial services sector. It also offers practical insights and observations, together with thought-provoking questions — with the overarching objective of helping organisations prevent the underlying circumstances that commonly serve as whistleblow catalysts.

Access the guide by clicking on the thumbnail below.