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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.

The letters ask senior management to prioritise implementing the Duty.

By David Berman, Nicola Higgs, Rob Moulton, Becky Critchley, Ella McGinn, Jaime 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.

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 Higgs, Becky Critchley, Jaime 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.

By David Berman, Sarah Gadd, Nicola Higgs, Rob Moulton, Becky Critchley, and Nell Perks

The FCA’s latest report into D&I highlights the need for additional metrics, social mobility, firm culture, staff development, data quality, and systematic strategies.

In 2021 and 2022, the FCA carried out a survey of firms in respect of their approach to diversity and inclusion. In advance of a full consultation on new rule proposals in 2023, the FCA has provided a progress update. Overall, the FCA remains concerned about the lack of progress in the industry and has highlighted a number of key points that it encourages regulated firms to consider and use.

The judgment clarifies the Court’s approach to proposed transfers under Part VII of FSMA, as well as the scope and application of s. 110(1)(b). 

On 24 November 2021, the High Court of England and Wales (the Court) sanctioned a £10.1 billion annuity book transfer from The Prudential Assurance Company Limited (PAC) to Rothesay Life Plc (Rothesay) under Part VII of the Financial Services and Markets Act 2000 (FSMA).

The Court previously declined to sanction the transfer following an initial sanction hearing in July 2019. The Court of Appeal then overturned that decision in December 2020 after an appeal by PAC and Rothesay, and the transfer was remitted to the Court for a further sanction hearing between 8-10 November 2021 before the honourable Mr Justice Trower (the Remitted Sanction Hearing). The Court’s judgment following the Remitted Sanction Hearing was handed down on 24 November 2021 (the Judgment), and provides useful guidance on certain aspects of the Part VII process.

Court of Appeal sets out correct approach to transfer of long-term Insurance.

By Victoria Sander, Jon Holland, Alex Cox, and Duncan Graves

Latham & Watkins has won an appeal on behalf of Rothesay Life Plc (Rothesay) in an unprecedented challenge to the High Court’s refusal to sanction the transfer of around 370,000 annuity policies in August 2019 (comprising total policyholder liabilities of approximately £11.2 billion) from The Prudential Assurance Company Limited (PAC) to Rothesay.

The Court of Appeal overturned the High Court’s refusal to sanction the scheme in a judgment[1] handed down on 2 December 2020, and set out the correct approach for a court to adopt when dealing with applications to sanction transfers of insurance business under Part VII of the Financial Services and Markets Act 2000 (FSMA).  The case is the first time an application under Part VII FSMA has been considered in detail by the Court of Appeal.

The Court of Appeal held that the judge was “not justified in making an adverse comparison between the financial strength, record and expectations of PAC and Rothesay”; that his reasoning had been based on a misunderstanding of the applicable financial metrics; and that he did not give adequate weight to the views of the independent actuarial expert or the on-going regulatory role of the PRA.  The Court of Appeal also held that, although non-actuarial factors may be relevant to the assessment of some Part VII applications, the subjective choice of provider by policyholders is not a relevant factor to be considered.

The UK government signals a diversion from the onshored regime towards a more flexible financial services regulatory framework.

By Rob Moulton, Anne Mainwaring, and Anna Lewis-Martinez

HM Treasury has published a consultation paper marking the start of Phase II of its financial services review, which will focus on the broader regulatory framework for financial services regulation in the UK post-Brexit.

HM Treasury acknowledges the drawbacks of the EU approach to financial services regulation. Namely, this approach has complicated the operation of the regulatory model under the Financial Services and Markets Act 2000 (FSMA), which HM Treasury considers to be an appropriate framework for financial services regulation in the UK after the end of the transition period. HM Treasury therefore proposes an adaptation of the FSMA model as the most effective approach to the post-EU regulatory framework, acknowledging that the onshored regime of EU legislation will fail to provide an adequate long-term solution for the UK’s post-EU financial services regulatory framework.

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:

CONSOB notice 8/2019 details the requirements under the Italian investor compensation scheme applicable to UK banks and investment firms operating in Italy.

By Antonio Coletti and Isabella Porchia

On 29 March 2019, the Italian Securities Commission (CONSOB) issued a notice detailing the terms and requirements applicable to UK banks and investment firms operating in Italy in connection with the Italian compensation scheme (Fondo Nazionale di Garanzia or the Italian ICS) pursuant to Article 8 of the Brexit Law Decree…