What is The Financial Services Act 2021?
Changes to PDMRs, Market Abuse Regulation and Duty of Care

As Brexit continues to reinvent the wheel across the whole of UK society, one less exciting, but a far-reaching piece of legislation reached the statute books in April 2021.

The Financial Services Act 2021 is noteworthy as it will change the underlying structure of regulation and the control of financial services in the UK. This is quite a statement, but this is going to be the foundation for considerable change across the industry for years to come.

Picking up on just a few of the significant aspects contained within the Act, it will be obvious that change is not far away now. Although we’ve been primed over the past year or so to expect this, firms now need to consider how they will be able to transform their recording systems and processes to reflect new requirements, as well as some more cultural changes.

It will take some time for this to work through into FCA and PRA rules, but the work has already started, and some legislative change has an impact immediately.

Aim of the Act

This is the start of a lot of work for a lot of firms, over many years. The Act is the first real move towards unwinding UK financial service rules from the EU directives and ‘taking back control’ of how firms can operate within the UK.

This includes some higher-level changes that will be developed over the coming months. Although the ongoing ‘Future Regulatory Framework Review’ will provide the template for the procedures we must all follow, the Act forms the context behind it.  It is worthwhile considering some of the headline reforms and how some of these may affect us immediately.

PDMRs

Starting with one of the more prosaic modifications, the Persons Discharging Managerial Responsibilities (PDMRs) (basically senior managers under UK MAR rules) reporting requirements have changed slightly, with altered timescales being introduced. The change from ‘three business days’ to ‘two working days’ as the maximum period to notify the FCA by the Issuer is seen as a positive step.

The recognition of English and Welsh Bank Holidays was not something that Brussels ever got round to, so an upside of Brexit is allowing Issuers to join the other day-trippers on a jaunt to Southend without the worry of misreporting.

Other Market Abuse Regulation Changes

With a wider impact, there are a couple of other changes in the Market Abuse Regulations, including clarification around the need for the establishment of insider lists and the role of advisers in this activity. With a deadline of 29 June 2021, this requires some immediate attention.

The other is an increase in maximum penalties that can be meted out in court for market manipulation and insider dealing, with both now carrying a maximum jail term of ten years, up from seven.

The rationale for this change is a belief in the government that insider dealing and market manipulation were seen as ‘lesser’ crimes than fraud, which already carries a ten-year maximum sentence.

I’m not sure who was bargaining on the argument that they were committing market abuse and not fraud to reduce their time in the pokey, but it was a big enough deal to make the change.

Whatever is driving this, it’s been enough for the FCA to send nearly 4,500 staff on courses over the past two years, to help them identify and combat money laundering and fraud.

You have been warned!

Regulation of Buy Now, Pay Later (BNPL)

The COVID-19 pandemic has increase internet sales throughout the world, and following intervention from the House of Lords, it looks as though BNPL will be coming to join the other financial services products under the watchful eye of the FCA.

This had been highlighted in the Woolard review some time ago, so it is seen by the Government as a positive step towards a more regulated sector. With a growing recognition that BNPL can play a significant part in over-indebtedness, it looks like there will be some new additions to CONC in the near future.

Duty of Care

Another bit of work that is coming the way of the FCA relates to ‘Duty of Care’. The Act required the regulator to ‘consider’ whether it should be making general rules around a requirement for firms to have a duty of care towards their customers.

Given the consultation is starting immediately, and the FCA is expecting to have rules produced and published by August 2022, I think we can guess that they are already ‘considering’ the change. Perhaps it’s time to dust off the old TCF training package again.

Other impacts

In addition to the points above, there is a wide range of subjects the Act touches on, and all firms to go through this legislation to see exactly where they will be affected. A couple of the other headline points are:

• The remaining Basel III standards have been accepted and will now be part of a new prudential regime for investment firms and credit institutions.
• Payment Services Regulation changes have been amended, removing some cash provision services from the current rules.

In Conclusion

A big stone has been thrown into the pool by this Act, and there will be a lot of ripples. How these impact your firm will only be seen in time, as the FCA and PRA start uploading the Consultation papers.

A quick look at the overtime arrangements for your staff working on Upstream Risk might be in order.

Customers of our financial services compliance training are easily able to keep on top of changes to the regulatory landscape. We update our training in-line with regulatory changes, to ensure your compliance training is always up-to-date.