Legal Shorts 13.09.19 including FCA steps up efforts to ensure firms are getting ready for a no-deal Brexit

FCA steps up efforts to ensure firms are getting ready for a no-deal Brexit

The FCA is stepping up its efforts to ensure firms are aware of what they need to do to prepare for the potential of a no-deal Brexit. It is urging firms to consult its Brexit webpages (

This is particularly relevant for firms that:

  • are a UK business which does any business in the EEA
  • passport into the UK and have not notified the FCA for entry into the Temporary Permissions Regime
  • have consumers in the EEA
  • transfer personal data from the EEA

The FCA, working with the government, has put in place a number of measures to minimise the potential for disruption, for example Temporary Transitional Powers and the Temporary Permissions Regime.

Brexit will also result in the loss of passporting for UK firms doing business in the EEA. Whether firms need regulatory permissions to continue to do business in an EEA country will depend on the activity they are carrying on, the local law and the approach of the local authorities in that jurisdiction. The FCA suggests that firms should make themselves aware of any transitional regimes, with deadlines or registration requirements attached to them, that have been put in place by relevant EU Member States. A list is available on the FCA website, but the FCA would draw particular attention to the Luxembourg transitional regime for existing contracts where firms must register by 15 September 2019.

In the event of no-deal there will be a number of changes to the FCA Handbook, the Temporary Permissions Regime will come into force, and the FCA will become responsible for Credit Ratings Agencies and Trade Repositories. Firms should take note of these changes in advance.

Information on SM&CR extension for FCA solo-regulated firms

On 11 September 2019, the FCA published further information for FCA solo-regulated firms relating to the extension of the senior managers and certification regime (SM&CR).

It has updated its webpage on checklists for FCA solo-regulated firms to include additional information relating to Form K, which is the form that firms must submit to the FCA to notify it about which approved persons should be converted to a senior management function (SMF). The information is in the “Enhanced firms” section. The form can be found in Connect, under the “Approved persons” tab.

Form K must be submitted by 11.59 pm on 24 November 2019. A firm’s SMFs will appear on the financial services register on 9 December 2019. Therefore, on or shortly after 9 December 2019, the FCA advises firms to check the register to ensure that they have the correct SMFs.

The FCA has also updated its webpage on converting from the approved persons regime to the SM&CR to include a section with information for sole traders. Among other things, it states that sole traders will be limited scope firms and the only SMFs that will normally apply are SMF29 (Limited scope function) and SMF16 (Compliance oversight function).

It goes on to state that the certification regime does not apply to a sole trader as an individual, but may apply to their employees. This means that it does not apply to a sole trader with no employees. In addition, the conduct rules do not apply to a sole trader as an individual unless they hold an SMF. However, the conduct rules will apply to employees of sole traders (unless they perform one of the excluded ancillary roles).

The SM&CR will be extended to FCA solo-regulated firms on 9 December 2019.

FCA updates webpages in relation to SM&CR

The FCA has updated its webpages for (i) checklists for solo-regulated firms implementing SM&CR (; additional text in relation to form K (which is used to notify the FCA which currently approved indivudals should be converted to a mapped SMF and form K must be submitted before 25th November 2019); and (ii) conversion from the approved persons regime to the SM&CR (; a new section in relation to sole traders has been added which states that sole traders will be classified as a limited scope firm under the SM&CR.

Execution of documents: Law Commission report on electronic execution

On 4 September 2019, the Law Commission published a report on the electronic execution of documents. It had sought views on its provisional conclusions and proposals in August 201.
The report includes a statement which sets out the high-level conclusions of the Law Commission as to the law regarding the validity of electronic signatures. This includes:

  • An electronic signature is capable in law of being used to execute a document (including a deed) provided that the person signing the document intends to authenticate the document and any execution formalities are satisfied.
  • An electronic signature is admissible in evidence in legal proceedings. It is admissible, for example, to prove or disprove the identity of a signatory and/or the signatory’s intention to authenticate the document.
  • Save where the contrary is provided for in relevant legislation or contractual arrangements, or where case law specific to the document in question leads to a contrary conclusion, the common law adopts a pragmatic approach and does not prescribe any particular form or type of signature. In determining whether the method of signature adopted demonstrates an authenticating intention the courts adopt an objective approach considering all of the surrounding circumstances. Examples are given of electronic forms that the courts have held amount to valid signatures in the case of statutory obligations to provide a signature where the statute is silent as to whether an electronic signature is acceptable.
  • The Law Commission’s view is that the requirement under the current law that a deed must be signed “in the presence of a witness” requires the physical presence of that witness. This is the case even where both the person executing the deed and the witness are executing or attesting the document are using an electronic signature.

The Law Commission recommends an industry working group be established to consider practical issues relating to the electronic execution of documents. The working group should, among other things, consider potential solutions to the obstacles to video witnessing of electronic signatures on deeds and attestation and legislative reform to allow for video witnessing. It also recommends a future review of the law of deeds.

FCA brings first prosecution for destruction of documents

On 6 September 2019, the FCA published a press release announcing that it has brought its first prosecution relating to a destruction of documents offence under the Financial Services and Markets Act 2000 (FSMA).

The FCA reports that Konstantin Vishnyak has appeared at Westminster Magistrates’ Court in relation to one count of destroying documents that he knew or suspected were or would be relevant to an investigation, in breach of section 177(3)(a) of FSMA.

The FCA was investigating Mr Vishnyak for suspected insider dealing offences. It alleges that Mr Vishnyak deleted the WhatsApp application on his mobile phone after being required to provide it as part of the FCA’s investigation.

Mr Vishnyak pleaded not guilty. The proceedings have been transferred to Southwark Crown Court where he will appear on 4 October 2019.

FCA expectations about strong customer authentication under PSD2

On 3 September 2019, the FCA published a webpage on strong customer authentication (SCA) under the revised Payment Services Directive ((EU) 2015/2366) (PSD2).

The webpage sets out the FCA’s expectations about how firms should develop SCA solutions that work for all groups of customers. This means that firms may need to provide several different methods of authentication for customers, including methods that do not rely on mobile phones.

Supervisory flexibility to give extra time to implement requirements has been agreed 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 (API) access as soon as possible. During the adjustment period, TPPs should use an electronic identification, authentication and trust services (eIDAs) 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 (ASPSPs) are encouraged to use the additional time to adjust the modified customer interface (MCI) 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.