PIMFA Weekly News Bulletin - 26 April 2021

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PIMFA WEEKLY NEWS BULLETIN | 26 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.

Scam Alert

We have been informed of a number of recent incidents where brokers have been asked to change payment details by a third party, resulting in often significant sums being diverted to fraudsters. We would encourage our members to review workflow processes and the robustness of their email security measures, as well as the effectiveness of the controls including agreed processes to verify and effect any changes to third party bank details.

Firms should also ensure they have up-to-date cybersecurity measures to detect and prevent email spoofing and cyber-squatting.

The Latest on Brexit

European Parliament to vote to ratify post Brexit deal

The European Parliament will vote in a plenary session on 27 April to ratify the EU-UK

Trade and Cooperation Agreement. The Foreign Affairs and Trade Committees voted in favour of the post Brexit deal between UK and EU last week. The European Parliament delayed the full ratification back in March after the UK said it planned to unilaterally extend grace periods on post-Brexit customs checks at Northern Ireland’s ports for at least six months.

The EU argued that such a move was a breach of the Withdrawal Agreement and the Protocol on Northern Ireland, designed to maintain an open border on the island of Ireland.

The EU-UK Trade and Cooperation agreement has been applied provisionally since 1 January this year pending the full ratification in the European Parliament. The temporary application period ends on 30 April.

CEBR: ‘What the first months have told us about Brexit’ The Centre for Economic and Business Research (CEBR) published a report on 19 April 2021 on ‘What the first months have told us about Brexit’. The CEBR experts say it is too early to reach a definitive view on the basis of two months of trade data about how Brexit is likely to work out, but it looks as though Brexit will be ‘harder’ than it had been originally assumed after the UK – EU Trade and Cooperation Deal was signed. CEBR experts are assuming that both exports to and imports from the EU will settle at a level that might be 15% lower than would have been the case had Brexit not occurred. Some of the reduced imports will be replaced by imports from other sources.

The City’s activities will be initially hit by the movement of some activities elsewhere, with an estimated loss of activity of about 10%. The CEBR modelling suggests that only a third of this will move to other EU financial centres, the rest moving away from Europe or lost, as a result of reduced economies of scale and scope. But this loss could be easily compensated for, and the report says that the potential gain is twice the potential loss by achieving the right post-Brexit deals. In principle, the effect on the UK’s critically important Flat White Economy should mainly be through the impact on its labour force. If the sector can still attract sufficient skills both from the EU and elsewhere it may survive Brexit relatively unaffected. The CEBR also claims that the impact of the earlier rollout of the vaccination programme, which would have been impossible had the UK been in the EU programme, will give the UK economy a one-off boost of about 2% in 2021.

European Commission considering six months PRIIPs disclosure delays

Speaking at the Better Finance conference on Post-Brexit Capital Markets Union on 22

April 2021, Financial Services Commissioner Mairead McGuinness said that the European Commission is ‘considering the merits in a short extension of the current temporary extension for retail investment funds from PRIIPs’. Commissioner McGuinness said the managers of UCITS may have a “short period” to update their documentation once the final technical standards are adopted for PRIIPs.

She added that the Commission should propose to give providers of UCITS funds an additional six months to prepare for the switch to the new PRIIPs key information document. UCITS funds have until January 2022 to prepare for the change but the potential delay of six months, until July 2022, would not meet the demands of stakeholders who were arguing for the full-year extension to update hundreds of thousands of KIDs. The standards aim to harmonize disclosures on costs and performance scenarios across insurance and fund products, making it easier for consumers to compare.

Plans to boost UK fintech and financial services

Ambitious new plans to help fintechs scale up and ensure the UK remains at the cutting edge of digitalising finance were announced by Chancellor Rishi Sunak on 19 April 2021.

Speaking at Fintech Week, the Chancellor set out proposals to enhance the UK’s competitive advantage in fintech, from regulatory support and reforms to help firms grow to a new taskforce to lead the UK’s work on a central bank digital currency. Building on opportunities generated since the UK’s departure from the EU, the Chancellor confirmed the UK will be taking forward many of the recommendations made in the recent Fintech Review, led by Ron Kalifa, and the Listing Review, led by Lord Hill.

The FCA will take forward a ‘scale box’ - a package of measures to enhance its pioneering regulatory sandbox. It will also launch the second phase of its Digital Sandbox to enable firms to test concepts that tackle sustainability and climate change-related challenges, helping to deliver a greener financial sector that supports the transition to net zero. The Chancellor also backed the creation of an industry-led Centre for Finance, Innovation and Technology (CFIT) and committed to work with regional and national fintech bodies to make it a reality. A new Taskforce, bringing together HM Treasury and the Bank of England, will be established to explore a possible UK central bank digital currency (CBDC).

Two new forums will also be established to engage technical experts, and key

stakeholders (including financial institutions, merchants, business users, civil society groups, and consumers) through the process.

The Bank of England announces plans for a new northern hub

The Bank of England intends to create a new northern hub as part of an ambitious plan to significantly increase its staff presence across the UK. The Bank’s review of its geographical footprint will consider aspects such as the number of staff involved, recruitment models, and the timescales for delivery. The Bank’s current intention is to locate a new hub in Leeds, and look to further expand the Bank’s presence, based around the office network used by the Agencies around the UK. This will be subject to further review as work progresses. Governor Andrew Bailey said; “Our mission at the Bank is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability and to deliver that for the whole country. The Bank has 12 Agencies across the UK, including for nine regions of England and each of the devolved nations.

These operate from a network of offices in Belfast, Birmingham, Bristol, Cardiff, Fareham, Glasgow, Leeds, Manchester, Newcastle and Nottingham.

Latest PIMFA Press Releases

PIMFA welcomes Government compensation for LC&F bondholders

Latest PIMFA Press Coverage

New Model Adviser: FCA CEO: Consumers shouldn’t face greater investment risks online

Organisations must work together to defend themselves against cyber-attacks, warns Chair of Cyber Security Council PIMFA welcomes intervention from Financial Conduct Authority CEO Nikhil Rathi in debate over online financial harms 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

FT Adviser: Advisers ‘pleasantly surprised’ at modest FCA fee increase

New Model Adviser: Government to pay £120m compensation for LCF investors

Wealth Manager: Taxpayer to foot £120m compensation bill for LCF investors

FT Adviser: It's not right the FSCS levy is giving

Committee Report on pension savers and scams

chief execs sleepless nights

Money Marketing: New rules must stop the PIMFA welcomes FCA Feedback Statement on

online investment scammers

Open Finance Wealth Manager: Quilter's Feeney calls on PM to back investment scams amendment

The Treasury Committee publishes new report - Net Zero and the Future of Green Finance

The Treasury Committee has published a unanimously-agreed report as part of its decarbonisation and green finance inquiry: Net Zero and the Future of Green Finance. The Committee has made a series of recommendations in its report for how the Government can achieve net-zero by 2050, including that financial products should be clearly labelled to allow consumers to assess their relative climate impacts and to make choices accordingly.

HM Treasury and the FCA should consult on making such green labels mandatory, including how they could encourage innovation and be widely understood by retail consumers; HMT must ensure that the FCA has the appropriate remit, powers, and priorities to prevent the greenwashing of financial products available to consumers.

The report says that the FCA should consider further FinTech challenges, which it launched in 2018, to develop innovative products and services to assist the transition to a greener economy. The FCA should also set out how it will tackle remaining regulatory barriers that discourage innovative green financial products from coming to market. The Government should set out the principles upon which the UK will fund its transition to netzero. Many pension savers in defined contribution pension schemes are invested in their pension’s default fund, which is the fund used should the saver fail to make an alternative investment choice. HM Treasury will not require default funds to move to greener alternatives but maintains that consumers should not have to switch out of the default fund to invest sustainably. The Government should resolve this apparent contradiction. It should also report on the proportion of pension holders in defined contribution pension schemes

who remain in the default fund, and the extent to which those default funds are aligned with a path to Net Zero.

The Glasgow Financial Alliance for Net Zero

On 21 April 2021, Mark Carney, the UK Prime Minister’s Finance Advisor for COP26 and UN Special Envoy for Climate Action and Finance, in partnership with the UNFCCC Climate Action Champions and the UN Race to Zero Campaign, the COP26 Presidency, John Kerry, US Special Presidential Envoy for Climate and Janet Yellen, US Treasury Secretary, launched a global alliance that brings together existing and new net zero finance initiatives into one sector-wide strategic forum: The Glasgow Financial Alliance for Net Zero (GFANZ). GFANZ will work to mobilise the trillions of dollars necessary to build a global zero emissions economy and deliver the goals of the Paris Agreement.

It will provide a forum for strategic coordination among the leadership of finance institutions from across the finance sector to accelerate the transition to a net zero economy. 160 companies, including 43 banks from 23 countries, will set targets to cut the carbon content of their assets by 2030, in line with an overall goal of net zero emissions by 2050.

US takes a whole-of-government approach to climate change

US Treasury Secretary Janet Yellen said in a speech to the Institute of International Finance this week that the Biden administration is taking a whole-of-government approach to aggressively tackle climate change. Her goal at Treasury is to support this work with a whole-of-economy approach. Specifically, the US government is committed to directing public investment to areas that can facilitate the transition to net-zero and strengthen the functioning of the financial system so that workers, investors, and businesses can seize the opportunity that tackling climate change presents.

The new US administration will help drive international efforts to require companies to disclose their contributions to climate change, She said transparency was a “fundamental” step toward understanding the economic risks of global warming and climate-related disclosures are critical for investors, financial firms and regulators. “Investor demand for

climate-aligned investments, including green bonds and sustainable assets, is rapidly increasing. A key challenge though, is that the current financial reporting system is not producing the reliable, consistent and comparable disclosures needed for investors to accurately compare climate-related risks and opportunities across companies.”

EVENTS & LEARNING

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.

PARTNER EVENTS

Online Event | The Future of UK Fund Management 20 May | 9am-4:15pm PIMFA Discount: 20% | Use code: RAM4PIMFA20 Issues to be covered include: •

What are the key strategic challenges facing fund managers in 2021?

•

What has been the industry response to HM Treasury’s Review, in particular the tax, legal and regulatory hurdles?

•

Preventing an exodus of skills and overcoming immigration challenges in recruitment from overseas

•

Latest developments in transparency, performance and fees

•

Misconduct and mismanagement in the asset management industry: the regulatory response and enforcement action.

Find out more and register here.

Roundtable | North West Regional Investment 28 April | 12-1pm Discover more about the options that investors have when thinking about investing in real estate as an asset class and the forthcoming opportunities that the Liverpool City Region has to offer.

Find out more and register here.

The FCA Chair speaks about the scale of the organisation’s transformation

In a speech delivered on 22 April, Charles Randell, Chair of the FCA, said that he feels optimism about the challenge and opportunity to reshape the FCA for the future, but it is also cautious optimism, because of the scale of the change that is required to transform the organisation for a world that coronavirus has changed fundamentally. In order to pivot to a greater focus on outcomes in a rapidly changing world, the approach of regulators and legislators needs to change. Both financial services legislation and financial regulation are full of complex detail, with statutes, statutory instruments and rulebooks that fill countless shelves. But complexity produces loopholes and opportunities for regulatory arbitrage. He said that in order to regulate in this world, the FCA needed to be more agile and confident in using the Principles for Businesses to take action against those firms which are not doing the right thing. Transforming the FCA will require resetting the current approach to the Principles, including the Principle that firms should treat their customers fairly.

The FCA has been giving consideration to a New Consumer Duty (or Duty of Care) and will make further announcements about this shortly. The FCA Chair also said that the regulator needs to use the additional speed and scope to adjust the existing rules now that the UK has left the EU. Not to undermine the standards of consumer protection which European rules require, but to deliver equivalent or better outcomes more effectively. To be effective in the new world of financial services that coronavirus has brought forward, the FCA must enforce the gateway to authorisation - focus on the basics, focus on outcomes and use the rulebook better and faster. He added that the FCA transformation is under way and to make the transformation last, “we must state clearly the outcomes we want, measure these outcomes and be transparent about whether we have achieved them.”

EU Regulation – Sustainable Finance and EU Taxonomy

On 21 April 2021, the European Commission adopted a comprehensive package of measures to help improve the flow of money towards sustainable activities across the EU: The EU Taxonomy Climate Delegated Act, (Annex 1 and Annex 2) which aims to support sustainable investment by making it clearer which economic activities most contribute to meeting the EU's environmental objectives. The EU's Taxonomy Regulation, which entered into force on 12 July 2020, will help create a classification system for environmentally sustainable economic activities and a common language that investors can use when investing in projects and economic activities that have a substantial positive impact on the climate and the environment. The first Delegated Act defines the technical screening criteria for economic activities that can make a substantial contribution to climate change mitigation and climate change adaptation. The Taxonomy Delegated Act introduces clear performance criteria for determining - within each sector covered - which economic activities make a substantial contribution to the Green Deal objectives. These criteria create common ground for businesses and investors, allowing them to communicate about green activities credibly and help them to navigate the transition to sustainability. The Taxonomy Climate Delegated Act is a living document and will continue to evolve over time, with more activities being added to its scope by means of amendments. It will also reflect technological progress. The Delegated Act will be formally adopted at the end of May and will enter into force at the end of the scrutiny period of colegislators (four months that can be extended by another two months), and it will apply

from 1 January 2022.

A proposal for a Corporate Sustainability Reporting Directive (CSRD) aims to improve the flow of sustainability information in the corporate world and make sustainability reporting by companies more consistent, so that financial firms, investors and the broader public can use comparable and reliable sustainability information. The proposal revises and strengthens the existing rules introduced by the Non-Financial Reporting Directive (NFRD).

It aims to create a set of rules that will – over time – bring sustainability reporting on a par with financial reporting. It will extend the EU's sustainability reporting requirements to all large companies and all listed companies. The Commission proposes the development of standards for large companies and separate, proportionate standards for SMEs, which non-listed SMEs can use voluntarily. Overall, the proposal aims to ensure that companies report reliable and comparable sustainability information needed by investors and other stakeholders. The proposal will also simplify the reporting process for companies. The proposed EU sustainability reporting standards should be a “one-stop-shop”, providing companies with a single solution that meets the information needs of investors and other stakeholders.

Finally, six amending Delegated Acts (Commission Delegated Directive amending Directive 2010/43/EU, Commission Delegated Regulation amending Delegated Regulation (EU) No 231/2013, Commission Delegated Regulation amending Delegated Regulations (EU) 2017/2358 and (EU) 2017/2359, Commission Delegated Directive amending Delegated Directive (EU) 2017/593, Commission Delegated Directive amending Delegated Directive (EU) 215/35, Commission Delegated Directive amending Delegated Directive (EU) 2017/565 ), on fiduciary duties, investment and insurance advice which will ensure that financial firms, e.g. advisers, asset managers or insurers, include sustainability in their procedures and their investment advice to clients. On investment and insurance advice - when an adviser assesses a client's suitability for an investment, they now need to discuss the client's sustainability preferences. On fiduciary duties - today's amendments clarify the obligations of a financial firm when assessing its sustainability risks, such as the impact of floods on the value of investments. On investment and insurance product oversight and governance manufacturers of financial products and financial advisers will need to consider sustainability factors when designing their financial products. The six amendments to Delegated Acts on investment and insurance advice, fiduciary duties, and product oversight and governance will be scrutinised by the European Parliament and the

Council (three month periods and extendable once by three additional months) and are expected to apply as of October 2022.

PIMFA's Consultation Responses

PIMFA’s latest Consultation Response is to the FCA on restricting CMC charges for financial products and services claims.

Read this and all other PIMFA consultation papers here.

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