UK: the new financial regulatory framework

The UK's new financial regulatory framework formally came into existence today, with the creation of the Financial Policy Committee, the Financial Conduct Authority and Prudential Regulation Authority. The FCA and PRA Handbooks are available here. The FCA can be followed on twitter: see here.

UK: entry and expansion in the banking sector

The Bank of England and Financial Services Authority have published the results of their joint review of entry and expansion in the banking sector: see here (pdf). The report also sets out changes to the regulatory requirements and authorisation process which are designed to reduce entry barriers in the banking sector. An overview of these changes is available here.

UK: Financial Conduct Authority - publication of business plan and policy statements

The 2013/14 business plan for the new Financial Conduct Authority, which comes into existence next week on 1 April, has been published: see here (pdf). Additionally several policy statements have been published including: temporary product intervention rules (here, pdf), the regulation and supervision of benchmarks (here, pdf) and complaints against the regulators (here, pdf).

UK: transposition of the AIFIM Directive - further consultation papers from the Treasury and FSA

HM Treasury and the Financial Services Authority have each published another consultation paper with regard to the transposition of the Alternative Investment Fund Managers Directive (2011/61/EU): see, respectively, here and here.

UK: consultation on code of practice for the relationship between the external auditor and Financial Conduct Authority

The Financial Services Authority has published for consultation a code of practice for the relationship between its successor, the Financial Conduct Authority, and the external auditor of regulated firms: see here (pdf). A separate code of practice will be published by the new Prudential Regulation Authority.

UK: FSA chairman appears before the Parliamentary Banking Standards Committee

Lord Turner, the chairman of the Financial Services Authority, appeared before the Parliamentary Committee on Banking Standards last week. A transcript of his evidence has been published: see here. The Committee's questions were wide-ranging and Lord Turner repeated many of the points he has made before, including his view about the value (or lack thereof) of some activities undertaken by banks. He also said something about the impact of disclosure on directors' remuneration:

If you go back to the mid-1990s and the debates that broke out extensively about top-level remuneration at that stage, particularly in relation to utilities-we had the Greenbury report and so on-it is a reasonable interpretation, in retrospect, that transparency of executive directors’ pay probably drove a further increase in top executive remuneration. It made it easier for remuneration consultants to say, "Look, your chief executive is not being paid in the top quartile. Surely you want a top-quartile chief executive".

UK: Transparency and the Financial Conduct Authority

On 1 April this year the new Financial Conduct Authority comes into existence. Section 6(1) of the Financial Services Act 2012 amends the Financial Services and Markets Act 2000 and sets out how the FCA will be created: the body corporate known as the Financial Services Authority will be renamed the Financial Conduct Authority. Section 6(1) also sets out the regulatory principles to which the FCA (and the new Prudential Regulation Authority) must have regard in the discharge of their general functions. Included in the list of principles are the following:

• The desirability in appropriate cases of each regulator publishing information relating to persons on whom requirements are imposed by or under this Act, or requiring such persons to publish information, as a means of contributing to the advancement by each regulator of its objectives.
• Regulators should exercise their functions as transparently as possible.

In respect of these two principles the Financial Services Authority has published a consultation paper the purpose of which is to begin a discussion regarding the information that the FCA and firms should release: see here (pdf).

UK: Lord Turner on global financial and Eurozone reform

Earlier this month Lord Turner, the chairman of the Financial Services Authority, delivered a speech titled Global Financial and Eurozone Reform: Five Questions on a Common Theme: see here (pdf). In a wide-ranging speech, Lord Turner considered the desirability of the single market right available to banks in one Member State to operate through a branch in another Member State. He argued that there was a reasonable case for giving national authorities within the EU the power to require banks from other Member State to operate as subsidiaries not branches, particularly where the bank's operations involved accepting significant retail deposits.

Europe: FSA update on CRD IV implementation

The Financial Services Authority has published an update with regard to the implementation of the new European CRD IV legislation in the United Kingdom: see here. The FSA notes that the European Commission CRD IV proposals - consisting of a Regulation and a Directive - had an implementation date of 1 January 2013 but that agreement has not yet been reached between the European Commission, Parliament and Council. Nevertheless, the FSA expects all firms within the scope of CRD to undertake all preparatory work that is possible in the absence of finalised European legislation.

UK: FSA responds to to Treasury Committee report on LIBOR

Last August the Treasury Select Committee published its report Fixing LIBOR: some preliminary findings: see here. The response of the Financial Services Authority was published today: see here (pdf). This contains some interesting points about the FSA's powers in respect of approved persons, and the approved persons regime, which were also recently discussed before the Parliamentary Commission on Banking Standards: see here.

UK: Supreme Court holds that extended warranty contracts were contracts of insurance

The Supreme Court gave judgment today in Digital Satellite Warranty Cover Limited v Financial Services Authority [2013] UKSC 7: see here or here (pdf). The court unanimously held that extended warranty contracts were contracts of insurance as defined in Article 3(1) and Schedule 1 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/344). The court also held that the fact that the First Council Non-life Insurance Directive (73/239/EEC), as amended by Council Directive 84/641/EEC, specified certain categories of non-life insurance that required regulation did not mean that Member States were precluded from regulating further or wider categories under national law. As such, the court held that the FSA was entitled to seek the winding-up of the companies offering these contracts where they had failed to gain the FSA's authorisation in breach of the general prohibition under section 19 of the Financial Services and Markets Act 2000.

A summary of the court's decision is available here (pdf). A summary was also delivered by Lord Sumption (see below):

UK: England and Wales: land-banking and collective investment schemes

The High Court gave judgment last Friday in Financial Services Authority v Asset L I Inc (t/a Asset Land Investment Inc) [2013] EWHC 178 (Ch). The trial judge held that land-banking schemes were collective investment schemes as defined by section 235 of the Financial Services and Markets Act 2000. The judgment contains some interesting discussion of section 235 including the first part of the definition which refers to "any arrangements" in respect of which the trial judge stated (para. [160]):

"I accept that a (mis)understanding or expectation held by only one person involved in a matter does not amount to an "arrangement" about it. But there can be an "arrangement" without both (or all) parties sharing an intention or expectation (just as a person can make a contract without intending to keep it). The FSA's case, that I have upheld, is not that there would be arrangements if investors simply leapt to their own understanding about their investments or misunderstood what they were being told: it is that the investors' understanding was based, and reasonably based, on what they were told by Asset Land's representatives. Thus, arrangements were made even if Asset Land had no intention of acting in accordance with them and even if their representatives knew this when they made the arrangements. Mr Coppel accepted that a fraudulent scheme can be an arrangement, but explained this on the basis that the parties to it have "mutual expectations", the fraudulent party expecting the innocent party to adhere to it and the innocent party likewise expecting the fraudulent party to do so. I reject that argument; the parties to a fraudulent scheme do not have an arrangement because of such mutual expectations or because of any subjective expectations or intentions, but because of what they have arranged objectively."

Update (13 February 2013): a summary of the case, provided by the ICLR, is available here.

UK: Supreme Court to give judgment in Digital Satellite Warranty case next week

The Supreme Court has announced that its decision in Digital Satellite Warranty Cover Limited v Financial Services Authority will be given next Wednesday: see here. At issue was whether extended warranties for satellite television equipment were contracts of general insurance under Article 3 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 SI 2001/344.

UK: Tribunal upholds FSA finding of market abuse for 'layering'

The Upper Tribunal Tax and Chancery Chamber has upheld the decision of the Financial Services Authority to fine a Canadian company £ 8 million in respect of "layering" that was found to be market abuse within section 118(5) of the Financial Services and Markets Act 2000: see here (pdf). The FSA's original decision notice, which provides an explanation of "layering", is available here (pdf). The FSA states, in a press release noting the Tribunal decision, that £ 8 million this is the largest fine the FSA has imposed for this particular type of market abuse.

UK: Treasury consultation on transposition of the AIFM directive

HM Treasury has published the first of two consultation papers concerning the UK's transposition of the Alternative Investment Fund Managers Directive (2011/61/EU), which will require, amongst other things the authorisation of certain investment managers of hedge funds, private equity funds and investment companies: see here (pdf). The first paper seeks views on various policy decisions that the Government is required to make (matters of scope for example) and includes draft Regulations.

The Treasury's paper should be viewed alongside the related work being undertaken by the Financial Services Authority, which published the first of its two planned consultation papers last November (see here, pdf). Note, too, that last month the European Commission adopted a Delegated Regulation supplementing the AIFM Directive and concerning exemptions, general operating conditions, depositaries, leverage, transparency and supervision: see here (pdf). Further background information is available here.

UK: financial regulation reform - the role and approach of the Prudential Regulation Authority

The Bank of England has published a bulletin (here, pdf) and a short video (below and here) regarding the role and supervisory approach of the new Prudential Regulation Authority. The legislation which will introduce the new framework - the Financial Services Bill - is currently awaiting Royal Assent.

UK: FSA consults on the regulation and supervision of benchmarks

The Financial Services Authority yesterday published for consultation its proposals for the regulation and supervision of benchmarks (initially LIBOR), which will fall under the remit of the new Financial Conduct Authority from April 2013: see here (pdf).

UK: FInancial Services Bill completes third reading in the House of Lords

The Financial Services Bill completed the third reading stage in the House of Lords yesterday. An overview of the debate is available here. Consideration of amendments (including Ping Pong) is timetabled for next Monday and once Royal Assent is given the Bill will become an Act. The Act will introduce a new financial regulatory framework in the UK with the creation of the Prudential Regulation Authority and Financial Conduct Authority (these new authorities, which will replace the Financial Services Authority, are expected to come into existence on 1 April 2013).

UK: Tribunal rejects FSA's finding that trader had engaged in market abuse

The Upper Tribunal (Tax and Chancery) gave judgment last month in Hobbs v Financial Services Authority (FS/2010/0024): see here (pdf). Mr Hobbs appealed the FSA's decision that he had engaged in market abuse, as defined by section 118(5) of the Financial Services and Markets Act 2000, when he instructed a broker to buy coffee futures. Mr Hobbs' appeal was successful: the Tribunal held that his trade had been carried out for legitimate reasons and was in conformity with market practice.

UK: Financial Services BIll - update

Third reading of the Financial Services Bill is timetabled for tomorrow. A copy of the Bill as it will begin this stage has been published: see here or here (pdf).