The FCA has confirmed its non-objection to LV taking forward its next steps towards asking its members for their views on de-mutualisation. The FCA has no objections at this stage towards LV proceeding to the Court (with respect to the Scheme of Arrangement) and to putting the proposals (on both the overall Bain transaction and the Scheme of Arrangement) to member votes, subject to LV meeting a small number of additional requirements.
In light of stakeholder interest in LV’s plans to de-mutualise, we have published a letter for interested stakeholders.
The FCA will continue to scrutinise LV’s proposals and activities should the court confirm that the member vote can be convened as planned.
Sophisticated investors and pension funds are among those who will have access to new types of investment opportunities following changes made by the Financial Conduct Authority.
The FCA has confirmed that it will be taking forward proposals to create a new type of open-ended authorised investment fund which will help support investment in assetslike infrastructureand private equity.Investment in theseassets has the potential to generate better returns for investors, including those saving for retirement in defined contribution (DC) pension schemesand appropriately managed, can also benefit the wider economy by supporting the economic recovery from Covid-19andsupporting financial stability.
Currently, some investors are unable, or unwilling, to invest in long-term assets, even though these assets could meet their investment goals.
Nikhil Rathi, Chief Executive of the FCA, said:
'We are supporting fresh collaborative thinking designed to improve the effectiveness of UK markets while protecting standards. If this innovative fund structure, created by our rules, is taken up by the asset management industry, it may provide alternative routes to returns for investors, while supporting economic growth and the transition to a low carbon economy.'
The new rules create a Long-Term Asset Fund (LTAF) regime, a new FCA regulated fund that is designed specifically to help investment in assets including venture capital, private equity, private debt, real estate and infrastructure.
Asinvestments in this type of fund may take longer to sell, the FCA has put in place rules to ensure there is a consistency between how long it will take to sell assetsandhow often and quickly an investor will be able to sell out of the fund.
The LTAF is aimed at DC pension schemes which may be interested in investing, in line with their investment horizons and risk appetite. It also offers long-term investment opportunities tosophisticated investorsand some high-net-worth individuals.
The FCA will be consulting next year on the potential for widening the distribution of the LTAF to certain retail investors. While this would potentially open a controlled route for retail investors to higher risk assets than some of the other routes currently available such as unauthorised funds, safeguards would also be needed to ensure retail investors understand the risks involved. Next year’s consultation will set out proposals for how this could be achieved.
The LTAF structure is one ofthe FCA’swholesale market priorities as set out initsBusiness Plan2021-22and marks its commitment as a regulator to beingmore innovative, assertive and adaptive.
The LTAF regime was committed to by the Chancellor in his statement to Parliament on the Financial Services bill on 9 November 2020, and the fund and its operation formed part of the recommendations of the Productive Finance Working Group’s(PFWG)roadmap,publishedin September 2021. The FCA worked with the PFWG as part of its consultation process on these rules.
Notes to editors
Productive Finance Working Group recommendations
The changes to the permitted link rules will enable pension schemes to consider the proportion of illiquid assets across their investment portfolios, rather than to restrict the proportion of illiquid assets in each underlying fund in which they invest.
A recent survey commissioned by the Department for Work and Pensions (DWP) found that two thirds of these schemes do not invest in illiquid assets, while the remaining third invest between 1.5% and 7%.
Establishing the right framework for long-term asset funds (LTAFs) was one of our wholesale market priorities as set out in our Business Plan 2021-22
Find out more information about the FCA.
We have today made final rules to streamline and simplify prudential requirements for solo-regulated UK firms authorised under the Markets in Financial Instruments Directive (MiFID). This is part of the Investment Firms Prudential Regime, a major change for FCA investment firms. If you’re an FCA investment firm, it’s critical that you prepare for the regime which comes into force on 1 January 2022.
The IFPR will streamline and simplify our prudential requirements. It will refocus requirements and expectations away from the risks that firms face, to also consider and look to manage the potential harm firms can pose to consumers and markets.
We have converted the near-final rules from the first two policy statements of the Investment Firms Prudential Regime (IFPR) into final rules.
The final rules are in the legal instruments – FCA 2021/38and FCA 2021/39. You can read a summary of minor updatesmade since we published the near-final versions of the instruments in PS21/9.
We will publish a third policy statement by the end of 2021.
Remuneration: guidance and templates
We have also published an updated version of our General guidance on the application of ex-post risk adjustment to variable remuneration, which brings FCA investment firms into scope of theguidance.
Also now available are:
a Remuneration Policy Statement template, which FCA investment firms can use to document their remuneration policies and practices
a template,whichFCA investment firms can use to record their material risk takers
About our consultations
The UK IFPR rules aim to streamline and simplify prudential requirements for solo-regulated UK firms, authorised under the UK Markets in Financial Instruments Directive (MiFID) regime.
The first consultation introduced the UK IFPR and focused on categorising investment firms, prudential consolidation and the group capital test, own funds, aspects of own funds requirements, concentration risk and reporting.
The second consultation focused on the remaining aspects of own funds requirements, liquidity, risk management, firms providing clearing services, governance, remuneration, applications and notifications. It also addressed the interaction between the UK IFPR and other existing prudential regimes.
The third consultation focused on disclosure, technical standards, additional aspects of own funds, depositories, our approach to the UK resolution regime, enforcement, applications and notifications and consequential changes to the Handbook.
The IFPR will apply to the following:
MiFID investment firms authorised and regulated by us
Collective Portfolio Management Investment Firms (CPMIs)
regulated and unregulated holding companies of groups that contain either of the above
The IFPR will not apply to PRA designated investment firms. They will remain subject to prudential supervision by the PRA.
For more updates and information, sign up to our new IFPR newsletter by emailing IFPRfirstname.lastname@example.org with ‘sign up’ in the subject line.
In its latest Perimeter Report, the Financial Conduct Authority (FCA) has called for legislative change to address concerns beyond its remit.
The report recommends that duties on internet companies in the Online Safety Bill should extend to paid-for advertising, as well as user-generated content. The FCA also believes that the Bill should designate content relating to fraud offences as ‘priority’ illegal content and so require monitoring and preventative action by platforms.
The FCA publishes an annual Perimeter Report as part of its accountability to Parliament and to support regular dialogue with the Government on the regulatory regime.
The FCA has also called again for amendments to the Financial Promotions Order. Current exemptions to the order mean more ordinary investors are at risk of receiving financial promotions, including for high-risk products, that don't have to comply with the FCA's rules.
Nikhil Rathi, Chief Executive of the FCA, said:
'The annual perimeter report is an important part of our accountability to Parliament, particularly the Treasury Committee. The FCA is committed to being more innovative, assertive and adaptive. That means being more proactive at the limits of our regulation, working with partners and other agencies where we don’t have powers and setting out where we believe more powers are necessary.
'We see real risks to consumers from outside our remit from both online advertising and from those using exemptions to sell products to ordinary customers. Change is needed and we will continue to push for powers where we need them.'
The FCA remit, or perimeter, determines which activities require FCA authorisation and what level of protection consumers can expect for the financial services and products they purchase. The perimeter is decided by the Government and Parliament through legislation.
The FCA have also outlined other areas where legislative change is needed such as extending the Senior Managers and Certification Regime to payment and e-money firms. The report highlights where the FCA is working with other agencies to prevent harm when issues fall outside its perimeter. This includes work with law enforcement agencies like the Serious Fraud Office, the National Crime Agency and the National Economic Crime Centre.
Since last year’s perimeter report progress has been made on bringing funeral plans and unregulated buy now, pay later under the FCA’s regulation.
The report will form the basis of a formal discussion between Nikhil Rathi and the Economic Secretary to the Treasury (EST) before the end of the year, the minutes of which will be published.
Notes to editors
See our Perimeter Report 2020/21
Key sections from the report:
Our 2021/22 business plan set out our current priorities, and our commitment to achieving measurable outcomes across these priorities. Many of these priorities are linked with our perimeter.
One of our key consumer priorities is enabling consumers to make effective financial decisions. This includes ensuring that rules on financial promotions are fit for purpose, as we outline in Chapter 6 (‘Consumer investments’).
Another consumer priority is ensuring that consumer credit markets work well. In Chapter 8 we discuss aspects of our perimeter linked to lending, including our work to support the Treasury in bringing Deferred Payment Credit (unregulated buy-now pay-later products) into our perimeter.
Our wholesale markets priorities include our work on the Appointed Representatives regime. Chapter 5 (‘Firm business models’) includes an update on this work.
A key cross-market priority is taking action to tackle fraud. We discuss in Chapter 4 action we are taking to prevent such harm where it is linked to the perimeter. Chapter 7 (‘Technological changes’) includes details on how we believe the Government’s Online Safety Bill (OSB) could be altered to help protect consumers from illegal online scams.
A second round of guides to help financial firms manage climate-related financial risk has been published by the Climate Financial Risk Forum (CFRF).
Written by industry, for industry, the guides focus on risk management, scenario analysis, disclosure, innovation and climate data and metrics. The guides published today build on those published in July 2020 and will help firms respond effectively to climate-related financial risks.
The CFRF has been running since March 2019 and is chaired jointly by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), reflecting the importance of climate change to their respective strategic objectives.
Sam Woods, CEO of the PRA commented:
'The contribution provided by the forum is based on the development of best practice for industry, by industry. Building on the excellent foundation provided by the 2020 guide, the papers published today provide practical guidance on a multitude of issues to help firms manage the financial risks generated by climate change. These risks are unique and demand an ambitious and strategic response from firms, and the material published today should aid this effort.'
Nikhil Rathi, Chief Executive of the FCA commented:
'These guides will help firms overcome some of the difficulties they’ve faced. Importantly, they also focus on innovation, so financial firms can see the opportunities, as well as challenges, from more effective climate-related financial risk management.'
These guides will help firms and in particular, the risk appetite statements, online scenario analysis tool and the climate metrics dashboard, have been deliberately designed to enable firms to overcome the significant challenges that they have encountered in these areas.
The five CFRF working groups below are collectively publishing a total of 10 deliverablestoday which are summarised as follows:
Risk Management. The outputs for the Risk Management Working Group (RMWG) are designed to help retail banks, corporate banks, insurers and asset managers produce and implement risk appetite statements that integrate climate-related financial risks. Additionally, the RMWG has produced a paper that summarises a firm’s training needs for climate risks and opportunities and how they could be delivered as a coherent syllabus.
Scenario Analysis. The Scenario Analysis Working Group (SAWG) has produced practical examples on how firms can incorporate sector specific points when developing an effective approach to scenario analysis. The SAWG will publish a publicly available online scenario analysis tool in Q1 2022. The tool is designed for use by smaller firms who may not have the experience or resources to attempt independently.
Disclosure. The Disclosure Working Group (DWG) has collated a number of case studies on disclosure from a variety of organisations that will be of interest to firms as they develop their approach to climate-related disclosures. The DWG have also produced guidance highlighting the legal risks associated with publishing a climate-related disclosure and how these risks can be effectively managed.
Innovation. The Innovation Working Group (IWG) has focused on identifying and sharing practical opportunities to mobilise financial capital and steward an economy-wide transition to meet climate targets and the resultant briefing paper highlights the key points. Additionally, the IWG have produced a set of 7 short films highlighting innovative approaches to mobilising finance in support of the transition to net-zero.
Climate Data and Metrics. The report on climate data and metrics recommends five areas where climate-related metrics could be employed: Transition Risks; Physical Risks; Portfolio decarbonisation; Mobilising transition finance and Engagement. The first part of the report provides detail on each of these areas. The second part focusses on implementation and provides practical guidance and support on convergence towards a set of common and consistent climate metrics.
Notes to editors
Climate Financial Risk Forum 21 October 2021 Session 2 outputs
Climate Financial Risk Forum 2020 Guide
The Climate Financial Risk Forum terms of reference and minutes
Bank of England Climate Change page
PRA Policy Statement PS11/19 and Supervisory Statement 3/19: Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change. 15 April 2019
The Climate Financial Risk Forum (CFRF) guide has been written by industry, for industry. The recommendations in this guide do not constitute financial or other professional advice and should not be relied upon as such. The PRA and FCA have convened and facilitated CFRF discussions but the views expressed in this guide do not necessarily represent the view of the regulators and in any case do not constitute regulatory guidance.