Global Financial Regulatory Blog

FCA Publishes Final Rules on Sustainability Disclosures and Investment Labelling

Posted in Environmental, Social and Governance (ESG)

The FCA’s long-awaited regime seeks to raise standards, increase consumer understanding, and reduce instances of greenwashing.

By Paul A. Davies, Laura N. Ferrell, Sarah E. Fortt, Nicola Higgs, Betty M. Huber, James McCrory, Nell Perks, Michael D. Green, Clare Scott, James Bee, Anne Mainwaring, Jaime Martin, Ella McGinn, and Charlotte Collins

On 28 November 2023, the FCA published its Policy Statement (PS23/16) containing final rules on its Sustainability Disclosure Requirements (SDR) and investment labelling regime. The FCA originally consulted on this regime in October 2022 (see this Latham blog post). Publication of the final rules was somewhat delayed in light of the volume of feedback received to the consultation.

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Case Update: Hong Kong Regulator’s Right to Enforce Against Foreign Defendants

Posted in Market Misconduct

Hong Kong’s highest court confirms that its financial markets regulator may serve proceedings on foreign defendants for restoration orders as of right.

By Dominic Geiser, Simon Hawkins, Truman Mak, and Adrian Fong

The Hong Kong Court of Final Appeal (CFA) held in a recent judgment that the Securities and Futures Commission (SFC) does not need to seek leave of the Hong Kong court to serve false trading proceedings against defendants out of the jurisdictions for restoration orders.

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FINRA Proposes to Relax Communications Rule for Institutional Investors and Qualified Purchasers

Posted in Securities Regulation

The proposed amendment seeks to modify the existing framework of FINRA Rule 2210 to accommodate the use of certain projections and targeted returns.

By Stephen P. Wink, Marlon Paz, Gail Neely, Naim Culhaci, Matthew Lee, and Deric Behar

On November 13, 2023, the Financial Industry Regulatory Authority (FINRA) filed a proposed rule change with the Securities and Exchange Commission (SEC) to amend FINRA Rule 2210. If adopted, the amendment would permit FINRA-regulated firms to include certain performance projections or targeted returns with respect to a security or asset allocation or other investment strategy in their communications with certain recipients.

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OCC Issues Policy Guidance on Venture Loans

Posted in Banking

The OCC outlines safety and soundness principles and appropriate risk management processes for its regulated institutions that engage in venture lending.

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

On November 1, 2023, the Office of the Comptroller of the Currency (OCC) issued Bulletin 2023-34 (the Guidance), which clarifies the OCC’s policy positions regarding the risk management of venture loans. These lending activities involve commercial loans made to companies that do not primarily rely on their own internally generated cash flow to maintain and grow operations, but rather on equity infusions.

As a general matter, the OCC states that a bank’s venture lending practices should be appropriate to the bank’s size and complexity, and consistent with the bank’s risk appetite and policies and procedures (as established and communicated by the bank’s board of directors and senior management). The OCC expects banks involved in this type of lending activity to identify, measure, monitor, and implement adequate controls over the bank’s risks, while maintaining sufficient capital buffers.

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CFPB and DOJ Release Joint Statement on Fair Lending and Credit Opportunities for Noncitizen Borrowers

Posted in Banking, Diversity and Inclusion

The joint statement provides helpful guidance on the civil rights implications of considering an individual’s immigration status under the ECOA.

By Parag Patel, Justin Talarczyk, and Deric Behar

On October 12, 2023, the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) issued a joint statement (the Joint Statement) to clarify the civil rights implications of considering an individual’s immigration status under the Equal Credit Opportunity Act (ECOA). The Joint Statement is intended to assist creditors and borrowers in understanding these implications.

The ECOA and its implementing regulations (known as Regulation B) do not expressly prohibit the consideration of immigration status. However, they do prohibit creditors from using immigration status to discriminate on the basis of national origin, race, or any other protected characteristic.[i] The DOJ and CFPB are responsible for enforcing the antidiscrimination provisions of ECOA, which are crucial for ensuring fair, competitive, and nondiscriminatory lending markets.[ii]

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FCA Finds Further Improvement Needed on Design, Delivery, and Disclosure of ESG Funds

Posted in Environmental, Social and Governance (ESG)

The FCA has set out good and poor practices for asset managers to consider in relation to funds with ESG or sustainable characteristics.

By Nicola Higgs, Anne Mainwaring, and Charlotte Collins

On 16 November 2023, the FCA published the findings from its review of how asset managers have been embedding current regulatory expectations regarding the design, delivery, and disclosure of funds marketed as having ESG or sustainable characteristics.

With the FCA yet to finalise its Sustainability Disclosure Requirements (SDR) and investment labelling regime, it reviewed authorised fund managers’ (AFMs’) compliance with existing regulatory requirements, including the Guiding Principles set out in the Dear Chair letter issued in July 2021 (see this Latham blog post). The recently implemented Consumer Duty has added an extra dimension for AFMs to consider since the Guiding Principles were issued. The FCA highlights that the consumer understanding outcome is particularly relevant for AFMs providing ESG or sustainable funds; under this outcome, firms need to provide investors with the information they need at the right time and present it in a suitable way.

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EU Revamps Consumer Credit Rules

Posted in Conduct of Business, Regulatory Reform

The changes will significantly modernise the regime and enhance consumer protections.

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

The EU has adopted a new Consumer Credit Directive, known as CCD2, which repeals and replaces the existing EU consumer credit regime under the 2008 Directive. Member States are required to transpose CCD2 by 20 November 2025, and apply the new measures from 20 November 2026. CCD2 aims to keep pace with the digital transformation that has led to new credit products and services being offered which may currently be outside the scope of regulation, and different consumer behaviours and expectations. It is also intended to significantly enhance consumer protection, and to reduce in some respects the current lack of harmonisation across Member States that has resulted from unclear provisions in the 2008 Directive.

CCD2 makes wide-ranging changes to the existing regime, with the European Commission taking the view that the best way forward was to proceed with a wholesale revision of the consumer lending framework rather than continue to make incremental amendments to the 2008 Directive. In this blog post we outline some of the key changes to the regime.

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FRB Proposes to Lower Debit Card Interchange Fee

Posted in Banking, Payments

A proposed rule would lower the maximum amount that large debit card issuers can charge merchants for each transaction.

By Arthur Long, Parag Patel, Barrie VanBrackle, and Deric Behar

On October 25, 2023, the Board of Governors of the Federal Reserve System (FRB) published a proposal that would lower the maximum interchange fee — transaction fees that a merchant must pay to card issuers whenever a customer uses a debit card to make a purchase — that a debit card issuer can charge per transaction (the Proposal). The Proposal would apply only to issuers with at least $10 billion in total consolidated assets (covered issuers). It would also establish a process and formula for updating the maximum fee amount every other year going forward, based on data voluntarily reported by covered issuers to the FRB.

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HM Treasury Confirms Changes to Financial Promotion Exemptions

Posted in Regulatory Reform

Businesses relying on exemptions for high net worth individuals and self-certified sophisticated investors should ensure they are prepared to comply with the updated requirements.

By Rob Moulton, Nicola Higgs, and Charlotte Collins

On 7 November 2023, HM Treasury published the response to its consultation on reforming the financial promotion exemptions for high net worth individuals and self-certified sophisticated investors. These exemptions are set out in Articles 48 and 50A of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the FPO), respectively. They enable financial promotions for unlisted companies to be made to individuals who satisfy the relevant conditions, and were originally designed to assist unlisted companies with raising capital.

HM Treasury and the FCA are concerned that the exemptions, which have not been updated since 2005, are outdated as the financial thresholds have not been raised. This has meant that more individuals have been able to qualify for the exemptions. HM Treasury and the FCA have also been concerned that some businesses have been inappropriately using the exemptions to market investments to ordinary retail investors, including by coaching individuals to self-certify.

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OCC, FRB, and FDIC Finalize Joint Principles for Climate-Related Financial Risk Management

Posted in Banking, Environmental, Social and Governance (ESG)

Guidance for the largest US financial institutions is intended to promote climate risk management consistent with general safety and soundness practices.

By Sarah E. Fortt, Betty M. Huber, Arthur S. Long, Pia Naib, Karmpreet (Preeti) Grewal, Austin J. Pierce, and Deric Behar

On October 30, 2023, the three US federal bank regulatory agencies — the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively, the Agencies) — jointly finalized Principles for Climate-Related Financial Risk Management for Large Financial Institutions (the Principles).

The Principles are intended to provide large financial institutions (i.e., those with $100 billion or more in total assets) with a high-level framework for understanding and managing exposures to climate-related financial risks, including physical[1] and transition[2] risks. Such “financial institutions” include national banks and federal thrifts, state member banks, FDIC-insured state nonmember banks and savings associations, bank holding companies, savings and loan holding companies, intermediate holding companies, branches, agencies and the combined US operations of non-US banking organizations, and any systemically important non-banks that may become supervised by the FRB.

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