PIMFA Weekly News Bulletin - 12 April 2021

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PIMFA WEEKLY NEWS BULLETIN | 12 April 2021 Dear Nigel,

Welcome to the PIMFA Bulletin; grab a coffee and take 10 minutes to read this week's latest industry news impacting you and your firm.

The Latest on Brexit

Michel Barnier on UK – EU relationship in financial services In an interview with the European Commission’s Banking and Finance Newsletter, Michel Barnier, former EU Chief Negotiator in Brexit negotiations with the UK Government, said that there is still a great deal to be defined with regards to the future relationship in financial services between the EU and UK. “As it has done in the past with other countries, such as Canada or the US, the EU has always applied a different method, i.e. not negotiation in a free trade agreement but the unilateral granting of equivalence in certain areas. We do this where it is in our interest to establish and grant equivalence and where it also guarantees the protection of what I consider to be the most important aspect, namely the financial stability of the euro area and the single market.”

He said this was an absolute priority on which there can be no compromise. Barnier added that “the UK tried on several occasions to introduce the idea of including equivalence in the agreement and, up until the last moment, it even tried to include prior agreements and

thereby circumvent our system of equivalence, which was not possible and which the President of the Commission rejected.”

JP Morgan on Brexit

In a letter to shareholders, Jamie Dimon, Chairman and Chief Executive of JPMorgan Chase, said that although Brexit was accomplished, many issues still need to be negotiated. In the UK- EU Brexit negotiations, “the EU has had, and will continue to have, the upper hand, and this”, he wrote, “in the short run, cannot possibly be a positive for the UK’s GDP. The effect after that will be completely based upon whether the UK has a comprehensive and well executed strategic plan that is acceptable to Europe. Included among the unresolved questions is how financial services will operate.”

He said that JP Morgan “may reach a tipping point many years out when it may make sense to move all functions that service Europe out of the UK and into continental Europe.”

He added that London still has “the opportunity to adapt and reinvent itself”, and that “innovation is key to preparing for doing the business of tomorrow versus relying on the shifting ways of the past”.

EU Taxonomy

A group of scientists and environmental and consumer experts appointed to the EU Commission’s Platform on Sustainable Finance, have expressed their concern about the contents of the draft climate Taxonomy Delegated Act and its weakening, when compared to the previous version. The Taxonomy Regulation provides a definition of “environmentally sustainable” economic activities. Nine members of the Platform wrote to the Commission recently to complain about deleted references to alignment to the Paris Agreement, exceptions for natural gas fired heat and power plants and a blanket green label for any forest operation 25 hectares or smaller.

The experts fear that the overriding of their work questions the purpose of the Platform and could, at a wider level, discredit the European Green Deal. Discussions on whether natural gas and nuclear can play a role in helping the EU cut its emissions have resulted in discords and intense lobbying pressure from natural gas and nuclear groups. The European Commission’s final version is expected on April 21 but the latest disagreements among Member States may result in delays.

FSB says better global coordination is needed to tackle climate related risks

US regulator Randal Quarles, Chair of the Financial Stability Board (FSB), said in a letter to the G20 that better global coordination is needed to tackle climate related risks. The FSB is building on last year’s report on the financial stability implications of climate change, with three climate-related workstreams underway covering data, disclosures, and regulatory and supervisory practices, and bringing together work being carried out by standard-setting bodies and international organizations. These workstreams will provide important input to the two reports that the G20 has requested from the FSB in July, on ways to promote consistent, high quality climate disclosures based on the recommendations of the Task Force for Climate-related Financial Disclosures, and on the data necessary for the assessment of financial stability risks and related data gaps.

Acknowledging that the greater momentum in climate work is welcome, it also increases the importance of strategic vision, good coordination, and clear communication to the G20 and the public. To this end, the FSB will present a coordinated, forward-looking roadmap to address climate related financial risk. This will leverage work being carried out by standard-setting bodies and international organisations while simultaneously identifying vulnerabilities and building consensus on ways forward.

IMF’s World Economic Outlook Report

According to the International Monetary Fund’s (IMF) latest World Economic Outlook Report, after an estimated contraction of -3.3% in 2020, the global economy is projected to grow at 6% in 2021, moderating to 4.4% in 2022. The contraction for 2020 is 1.1% smaller than projected in the October 2020 World Economic Outlook (WEO), reflecting the higherthan-expected growth upturns in the second half of the year for most regions after lockdowns were eased and as economies adapted to new ways of working. The projections for 2021 and 2022 are 0.8% and 0.2% stronger than in the October 2020 WEO, reflecting additional fiscal support in a few large economies and the anticipated vaccinepowered recovery in the second half of the year.

Global growth is expected to moderate to 3.3% over the medium term, reflecting projected damage to supply potential and forces that predate the pandemic, including age-related slower labour force growth in advanced economies and some emerging market economies. Thanks to unprecedented policy response, the COVID-19 recession is likely to leave smaller scars than the 2008 global financial crisis. However, emerging market economies and low-income developing countries have been hit harder and are expected to suffer more significant medium-term losses.

PIMFA Membership Survey

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PIMFA's Model Portfolio Analysis

Add new layers of analysis to your firms model portfolios with the PIMFA Compare My Allocations report.

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Contact indices@pimfa.co.uk for more information.

Latest PIMFA Press Releases

PIMFA warns firms to prepare for the scale and impact of post-Brexit regulations

PIMFA welcomes enhancements to consumer protection laid out in new Work and Pensions Committee Report on

Latest PIMFA Press Coverage

Citywire: Stop the scams: Google on its final warning over bad ads

Money Marketing: PIMFA Chief: FCA needs to take responsibility for rising FSCS costs

pension savers and scams Financial Planning Today: FCA takes PIMFA welcomes FCA Feedback

action on 105 financial ads in Q1

Statement on Open Finance TheWealthNet : Firms must prepare for PIMFA joins Which? and others in call to tackle growing threat from online scams

PIMFA welcomes continued relaxation of 10% rule and consultation on permanent

the 'scale and impact' of post-Brexit regulation

FT Adviser: PIMFA warns on post-Brexit regulation wave

change RegTech Analyst : MPs slam FCA and PIMFA backs calls for financial harm to be included in Govt’s Online Safety Bill

tech giants for cashing in on pension scams

US urges adoption of minimal global corporate income tax

In a speech to the Chicago Council on Global Affairs this week, Janet Yellen, US Treasury Secretary, urged the adoption of a minimum global corporate income tax, asserting the UK leadership in ongoing international tax negotiations. In 2017, the US cut its corporate tax rate to 21% from 35%, but the Biden administration proposed raising it back to 28%. Yellen

said the Biden administration would work with other advanced economies in the G20 to set a minimum. "Together we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth, and prosperity," she said.

G20 countries have committed to reaching agreement through the OECD talks by midsummer.

EVENTS & LEARNING

FINANCIAL CRIME & CYBER RESILIENCE CONFERENCE 2021 21-22 April 2021 Join us for this year's 2 day virtual Financial Crime & Cyber Resilience Conference.

Attendees will be able to join leading industry debates and hear from Financial Crime and Cyber Security experts across the across the regulatory, provider, law enforcement and innovation

space.

All sessions are eligible for CPD and will have online Q&A's to give you the chance to get involved LIVE, and then be available on demand after the event. We are delighted to announce that our latest keynote speakers are: •

Dr Claudia Natanson, Chair – UK Cyber Security Council

•

Louise Marshall - EU Exit, Governance, Engagement, Operational Policy and Litigation – OFSI

For more info and to book, please click here.

PIMFA Webinar PROFESSIONAL INDEMNITY INSURANCE – THE FULL STORY 2021 27 April 2021 FREE to attend This 60 minute webinar will focus on the subject of Professional Indemnity Insurance for Wealth Managers from three perspectives: •

The insurers looking at historic claims trends and losses, underwriting profitability, capital dynamics and the Lloyd’s review.

•

The lawyers examining potential liability trends to come and how they might transpire, regulatory behaviours, litigation & legislation and sector challenges – such as ESG.

•

The brokers exploring practical coverage challenges as insurers look to restrict the coverage scope, market challenges in terms of insurer behaviours and navigating premium increases.

For more info and to book, please click here.

View all other upcoming PIMFA Events and Learning here.

FCA on the importance of purposeful anti-money laundering controls

In a speech last week about the importance of purposeful anti-money laundering (AML) controls, Mark Steward, Head of Enforcement and Market Oversight at the FCA, said that the detection, investigation and prosecution, where necessary – either civilly or criminally – of breaches of the Money Laundering Regulations and the Principles for Business are key priorities for the FCA. Two of the FCA’s biggest sanctions in the last 12 months related to failures to address financial crime and AML risks, he said, and added that there are currently 42 investigations into firms and individuals involving systems and controls over politically exposed persons, customers with significant cash intensive operations, correspondent banking and trade finance, and transaction monitoring.

He explained that AML investigations are often complex because they are rarely transactional and require a systemic understanding of how a firm operates, its governance controls, its cultural habits, and the nuts and bolts of sometimes opaque systems. In the last 12 months, the FCA has increased its surveillance of online investment promotions targeting offers from unauthorised firms, potential investment scams and other 'too good to be true' promotions, including lead generation sites. Steward said that the FCA has issued alerts on its Warning List concerning over 1,000 firms, an increase of over 100% on 2019.

He said the aim is to provide a means for consumers to protect themselves, but the same list should also be used by firms.

The Carey case is overturned

The Court of Appeal has found in favour of the Claimant, Mr Adams, a retail investor who lost a considerable amount of his pension after having been contacted by an unauthorised introducer and transferring his pension into a SIPP administered by Carey.

Carey had originally won the case in May 2020, with all claims against it being dismissed; but now a unanimous Court of Appeal overturned that ruling finding that Mr Adams had entered into the SIPP as a consequence of something said or done by CLP (the unauthorised introducer) in contravention of the "general prohibition" rendering the SIPP unenforceable. Mr Adams was therefore entitled to ‘unwind’ the SIPP and recover the money he paid into it, as well as compensation to reflect the losses he has suffered as a result.

The judgment has ramifications for regulated firms who choose to do business with

unregulated introducers, who they cannot necessarily control. The risk will rest on them as the court seems to set a low bar when testing whether the actions of the unauthorised party are enough to qualify as "advising" or "arranging" and lack of knowledge by the provider will not amount to a sufficient defence.

FOS also finds against Carey

Carey has lost its Financial Ombudsman Service (FOS) case and was ordered to pay compensation to a complainant who had transferred his pension into a SIPP administered

by Carey. The Ombudsman found that Carey had failed to carry out sufficient due diligence on CLP (the unauthorised introducer) and should have realised that it should not accept business from them.

The Carey cases are a warning for firms to ensure intermediaries are authorised and to think carefully before accepting business from an unauthorised introducer.

PIMFA's Consultation Responses

PIMFA’s latest Consultation Response is to the FCA on their Quarterly Consultation CP21/5. Read this and all other PIMFA consultation papers here.

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