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The consultation paper confirms a radical approach to bolster the international competitiveness of the UK markets and return to a disclosure-based listing framework.

By Mark Austin, Chris Horton, James Inness, Anna Ngo, and Johannes Poon

The FCA today published consultation paper CP23/31 setting out detailed draft rules for the new UK listing regime. The publication represents the final stage of the journey to reshape the UK Listing Rules which started with the launch of Lord Hill’s UK Listings Review in 2020. Most of the key changes reflect proposals in the FCA’s preceding consultation paper CP23/10 published in May 2023 (see this Latham Client Alert for further details).

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A new publication from the UK’s financial regulator signals to firms that they should take steps to manage risks in the use of AI.

By Stuart Davis, Fiona M. Maclean, Gabriel Lakeman, and Imaan Nazir

The UK’s Financial Conduct Authority (FCA) has published its latest board minutes highlighting its increasing focus on artificial intelligence (AI), in which it “raised the question of how one could ‘foresee harm’ (under the new Consumer Duty), and also give customers appropriate disclosure, in the context of the operation of AI”. This publication indicates that AI continues to be a key area of attention within the FCA. It also demonstrates that the FCA believes its existing powers and rules already impose substantive requirements on regulated firms considering deploying AI in their services.

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.

10 Key Regulatory Focus Areas for UK/European Wholesale Markets in 2019

By David Berman, Carl Fernandes  Nicola Higgs, Rob Moulton, Charlotte Collins, and Christopher Sullivan.

In the fifth post of this 10-blog series, we identify key milestones in the derivatives market for the year ahead. This is taken from our wider publication: 10 Key Regulatory Focus Areas for UK/European Wholesale Markets in 2019 – Progress Report. Read the full publication here.

By David Berman, Carl Fernandes  Nicola Higgs, Rob Moulton and Charlotte Collins

In our January publication, we highlighted what we were seeing as the top regulatory focus areas for our clients during the year ahead, focusing on wholesale market structures and conduct risk.

In a series of 10 blog posts, we will take a closer look at the key areas highlighted, mapping developments from the first half of 2019, and looking ahead to the remainder of the year.

Call for evidence on regulatory cooperation marks the first phase of the planned review.

By Carl Fernandes, Nicola Higgs, Rob Moulton, and Charlotte Collins

The Chancellor announced in the Spring Statement that HM Treasury would undertake the Financial Services Future Regulatory Framework Review — examining the long-term effectiveness of the UK regulatory regime and considering where change might be necessary, particularly in light of Brexit.

The Review will take stock of the overall approach to regulating the UK financial services sector, including how the regulatory framework may need to adapt in the future. The Review will seek to address the following four key challenges:

FATF has published its highly anticipated report on the effectiveness of the UK’s anti-money laundering and counter-terrorist financing measures.

By Jon Holland, Rob Moulton, and Jonathan Ritson-Candler

On 7 December 2018, the Financial Action Task Force (FATF) published its highly anticipated mutual evaluation report of the UK. The report sets out the UK’s global standing in combatting money laundering and terrorist financing. The report is generally positive, ranking the UK as either highly or substantially effective in its fight against money laundering and terrorist financing in the majority of areas. The report does, however, highlight some concerns about the UK’s approach, particularly in relation to the Suspicious Activity Reporting (SAR) regime, the utilisation of financial intelligence, and the FCA’s role in the supervision of firms’ compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) rules.

The UK’s last FATF evaluation took place in 2007 and in light of recently heightened sensitivities around money laundering, the government was motivated to ensure that the UK maintained its status as a global financial centre with robust tools to combat financial crime. The report summarises the FATF’s analysis, based on its on-site visit in March 2018, of the UK’s compliance with the FATF 40 Recommendations and the effectiveness of the UK’s AML and CTF regimes. It also provides recommendations as to how those systems can be strengthened.

Key Findings

The report is largely positive and states that the UK:

  • Has a robust understanding of the money laundering and terrorist financing risks to which it is subject.
  • Proactively investigates, prosecutes, and convicts a range of money laundering and terrorist financing activity, securing approximately 1,400 convictions a year for money laundering offences.
  • Has improved its legal framework since the 2007 evaluation by implementing the People with Significant Control (PSC) Register to aid enforcement agencies, regulators and businesses in identifying the ultimate beneficial owners of UK-incorporated companies.
  • Ensures that all entities within the FATF definition of “financial institution” (e.g., banks and regulated investment firms) and “Designated Non-Financial Business Professionals” (e.g., lawyers and accountants) are subject to appropriate AML and CTF rules and are supervised for compliance with those rules.

The FCA has recently announced that it will begin a review of how firms have implemented the unbundling rules “within weeks”.

By Beatrice Lo and Jonathan Ritson-Candler

At its recent asset management conference, the FCA announced that it will imminently launch a review of how asset managers have implemented the new MiFID II obligation to pay for the research they receive from sell-side firms separately from execution costs (the so-called “unbundling rules”). This is the first FCA-initiated MiFID II review, and comes only six months after the implementation of MiFID II. This is indicative of the regulator’s focus in this area.

The unbundling rules, as part of MiFID II, came into effect on 3 January 2018. The rules represent one of the most significant implementation challenges for the industry given that previously, research had not been separately priced and the new rules are silent on how sell-side firms should negotiate and price their research services (and what buy-side firms could accept). This meant that firms were still developing their pricing models and were still engaged in negotiations post the 3 January 2018 deadline. In recognition of this, towards the end of 2017, the FCA and ESMA permitted “trial periods”. During these periods, sell-side firms can provide, and buy-side firms can receive, free research for a maximum of three months (within any 12 month period). The regulator is keen not only to ensure that firms are compliant with the new rules, but also to understand the broader impact of the unbundling rules on the market.

FEMR progress report commends the efforts of firms to drive higher market standards

By Rob Moulton and Katy Sanders

HM Treasury (HMT), Bank of England (BoE), and the Financial Conduct Authority (FCA) have issued a progress report in relation to the Fair and Effective Markets Review (FEMR). The progress report follows almost three years after the final FEMR report and recommendations were published, in an attempt to restore trust in the Fixed Income, Currency, and Commodities (FICC) markets after the attempted manipulation of LIBOR.

Whilst the progress report does not identify any new initiatives, it nonetheless provides a good summary of the work firms and authorities have undertaken and development to date across the following four areas:

  • Strengthening individual accountability
  • Improving market standards
  • Embedding a forward-looking approach to FICC markets
  • Strengthening benchmarks