Legal Shorts 06.09.19 including national private placement regime (NPPR)

National private placement regime (NPPR)

On 3 September 2019, the FCA updated its webpage on the NPPR to announce changes to the submission of notification and material change by alternative investment fund managers (AIFMs). The NPPR allows AIFMs to market AIFs that cannot otherwise be marketed under the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) domestic marketing or passporting regimes.

On 9 September 2019, the FCA will be introducing changes to the submission of notifications by AIFMs marketing alternative investment funds (AIFs) under Regulations 57, 58 and 59 of the Alternative Investment Fund Managers Regulations 2013 (SI 2013/1773) (as amended) (AIFMD UK Regulation).

Details of the changes will be published on by the FCA on 9 September 2019 but the changes are, in summary:

  • AIFMs marketing funds under Regulations 58, 59 and, for UK AIFMs only, Regulation 57, will return to submitting notifications via Connect; and

Full scope EEA AIFMs marketing AIFs under Regulation 57 will be required to submit notifications using new forms.

FCA – Strong Customer Authentication (SCA)

From 14 September 2019, new rules apply that affect the way banks or other payment services providers check that the person requesting access to their account or trying to make a payment is the person permitted to make a payment and validate specific payment instructions. The rules are set in the Payment Services Regulations 2017 (PSRs and related EU standards. Unless an exemption applies, they apply when a payer:

  • initiates an electronic payment transaction;
  • accesses their payment account online; and
  • carries out any action remotely that may imply a risk of payment fraud.

The FCA expects firms to develop SCA solutions that work for all groups of customers and wants firms to implement SCA in a way that minimises disruption to, and ensures good outcomes for, consumers. The FCA has agreed to exercise some supervisory flexibility to give firms extra time to implement the requirements in the following areas:

  • E-commerce – due to concerns about industry readiness to apply SCA to e-commerce card transactions, the FCA will not take enforcement action against firms simply for not meeting the relevant SCA requirements from 14 September 2019. E-commerce firms should speak to trade associations to get more information about the agreed industry plan. Firms should not act outside the agreed industry plan in ways that cause unnecessary problems for consumers or merchants. The FCA also states that all parties involved in card-not-present transactions should work together to implement SCA by 14 March 2021.
  • Online banking – the FCA is concerned that some third-party providers (TPPs) have not been able to use and migrate their customers to new or modified interfaces, and the implementation of SCA will prevent TPPs from accessing account data without the customer being present. This could cause significant disruption for customers of open banking services provided by TPPs. To avoid disruption to consumers and TPPs, the FCA has agreed an adjustment period for certain firms until 14 March 2020. TPPs should move to application programming interface standards access as soon as possible. During the adjustment period, TPPs should use an electronic identification, authentication and trust services or an equivalent certificate to identify themselves. Where it is not possible to do so, they should continue to be transparent and open about their identities (for example, when accessing accounts via existing screen-scraping channels). Account servicing payment service providers are encouraged to use the additional time to adjust the modified customer interface to support ongoing access.

After 14 March 2020, failure to comply with the requirements for SCA and identification will be subject to full FCA supervisory and enforcement action.

PRA consults on authorisation and supervision of insurance special purpose vehicles

On 3 September 2019, the PRA published a consultation paper on insurance special purpose vehicles (ISPVs) and updates to authorisation and supervision (CP19/19) which is relevant to parties who want to apply for, or have obtained authorisation as, an ISPV. It is also relevant to insurers and reinsurers seeking to enter into arrangements with UK ISPVs as a form of risk mitigation.

The PRA sets out proposed updates to its approach and expectations relating to the authorisation and supervision of ISPVs. The amendments reflect experience gained by the PRA and users of the UK insurance linked securities regime, and commitments made by the PRA to refine the framework to facilitate the issuance of ILS through ISPVs in the UK. Amendments are proposed to the Insurance Special Purpose Vehicles Part of the PRA Rulebook, including the supervisory statement on the authorisation and supervision of ISPVs (SS8/17) and the multi-arrangement insurance special purpose vehicle (MISPV) new risk assumption notification form. The amendments are set out in appendices to CP19/19 and include changes to:

• Documentation requirements.
• Funding arrangements.
• Risk transfer requirements.

A consultation webpage states that the deadline for responses is 3 December 2019. The PRA notes that the focus of the consultation is on updates to SS8/17 and not to its ISPV FAQs. The PRA proposes that the changes will take effect from the date of publication of the final policy.

Polling and Market Abuse Regulation (MAR)

In response to questions on how the MAR might apply to information obtained via electoral polling, on 3 September 2019 the FCA published a webpage on how it expects firms and individuals to handle any information that has the potential to be inside information. This could include information obtained as a result of polling. Determining whether information is inside information requires judgement based on the facts at the time. The FCA stated that it encourages firms, where appropriate, to take legal advice on specific questions and actions which should be applied on a case by case basis. It is important to note that all firms and individuals – regardless of whether they carry out regulated financial services activities – fall in scope of the FCA’s regulatory remit on market abuse.

MAR states that inside information is ‘information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments.’

Where the MAR definition of inside information has been met, disclosing the information, other than where necessary in the normal exercise of employment, a profession or duties, would be an offence. So too would be trading of in-scope instruments on the basis of the information. As noted above, whether or not such information were inside information would need to be judged on a case-by-case basis.

For example, if an established polling firm is due to publish polling results and on publication the results are likely to affect the price of government bonds traded on regulated trading venues and meet the other criteria to be classified as inside information, then it could be an offence under MAR to share that information prior to publication other than where necessary “in the normal exercise of employment, a profession or duties”.

It could also be an offence for anyone in possession of the information to trade in the relevant government bonds in advance of publication of the polling results if it is trading on the basis of the anticipated bond price movement that will result from publication of the results.

Where the inside information definition is not met, MAR does not impose a restriction on individuals and firms collecting or receiving polling information relevant to financial market prices even while polls are open.

In addition, trading in spot foreign exchange (FX) is not covered by the insider dealing provisions of MAR. However, in these circumstances, other FCA rules such as the Principles for Business and other legislation may apply and firms should be aware of and comply with all relevant legislation. Trading in spot FX may also be covered by the MAR provisions on market manipulation where the trading has an impact on relevant financial instruments, such as certain spot FX options.

Banking Standards Board (BSB) finalises good practice guidance on certification regime regulatory references

On 3 September 2019, the BSB published the final version of its statement of good practice on the certification regime and regulatory references. It has also published a summary of responses received to its January 2019 consultation on regulatory references. The majority of respondents supported the proposals and no response suggested significant changes were needed to the tone of the guidance. Therefore, the BSB has published the final guidance with only minor amendments to the consultation version.

The statement of good practice is intended to help firms implement the regulatory reference requirement of the senior managers and certification regime (SM&CR) by providing a high-level set of principles and good practice guidance.

The guidance is based on the three principles of fairness, proportionality and consistency. It covers:

• good practice when providing regulatory references. This includes information about the role of central functions (such as HR) and data security;
• good practice in obtaining a regulatory reference. This covers the importance of timeliness; and
• the type of information to include in a reference.

The guidance has been developed in partnership with BSB members through a cross-industry certification regime working group. It does not impose any legal or regulatory obligations on BSB members and does not replace regulation. However, it does allow firms to reference their own policies and procedures against a statement of what “good” looks like.

FCA appoints Kate Collyer as its Chief Economist

The FCA has appointed Kate Collyer as its Chief Economist. Ms Collyer is currently Chief Economist for Energy and Market Frameworks and Joint-Director of Analysis at Department for Business, Energy and Industrial Strategy. Ms Collyer’s appointment will be effective from October.

The FCA’s Chief Economist Division, which Ms Collyer will head, provides rigorous economic thinking, research, analysis and advice to help the FCA deliver on its strategic objective of making financial services markets work well, and to assess and demonstrate the impact of FCA interventions on those markets.

Christopher Woolard, executive director of Strategy and Competition, said:

‘Kate will play a vital role at the FCA, further embedding the use of economic analysis in our decision making and assessing how well the interventions we make are working. Kate’s excellent economic credentials, and her experience of managing diverse teams will be a huge benefit, given the breadth of analysis the FCA undertakes. I look forward to welcoming her.’

As well as managing the FCA’s economic research and analysis, the FCA’s Chief Economist jointly heads the wider Competition and Economics Division. As chief economist, Ms Collyer will act as an adviser to the FCA’s executive committee and board.

Claire Cummings

Claire practises financial services law with a focus on regulatory issues, cryptocurrencies and tokens, trading and brokerage documentation and advising both existing and start-up funds and fund managers.

If you would like to discuss any of the points we raise, please contact me or one of our other lawyers.

Phone: 0207 585 1406
Email: claire.cummings@cummingsfisher.com

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