HM Treasury and Financial Conduct Authority Regulatory Perimeter Meeting January 2021
Published 25 February 2021
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Record of the meeting between the Economic Secretary to the Treasury and the Chief Executive of the Financial Conduct Authority to discuss the FCA’s Perimeter Report published on 20 September 2020
1) On 20 January 2021, the Chief Executive (CEO) of the Financial Conduct Authority (FCA) and Economic Secretary to the Treasury (EST) discussed the issues set out in the FCA’s Perimeter Report [footnote 1]. This was the first annual meeting to discuss issues related to the regulatory perimeter, which defines the financial services activities that require firms to be authorised by the FCA. The CEO also noted the investigation by Dame Elizabeth Gloster, published in December 2020, which had recommendations for the FCA regarding their approach to the perimeter.
2) The EST thanked the CEO for the analysis that went into the Report. The EST noted that the inclusion of activity inside the perimeter is a finely balanced judgement for the government; it is important to support innovation by the UK’s sophisticated financial services industry while also ensuring that retail consumers are appropriately protected and market integrity supported. The EST and the CEO agreed on the importance of personal responsibility, and consumer education on investment risks, particularly in the context of mass-marketing of products on the internet.
3) The EST and the CEO agreed that the regulatory perimeter can be complex for consumers to understand and agreed the need to work together to continue to build clarity and consumer understanding. They noted that the ability of consumers to seek redress when things go wrong, including through the Financial Services Compensation Scheme (FSCS) and the Financial Ombudsman Service (FOS), can add further layers that consumers need to understand when engaging with financial products, given variations in coverage. The CEO agreed to work with the HM Treasury (HMT) Prudential Regulation Authority (PRA), FSCS and FOS to continue to improve clarity for consumers and consider if there is scope to simplify the regime for consumers.
4) The CEO also noted the importance of HMT and the FCA discussing the operational implications for the FCA as part of the process to bring further activity inside the perimeter which the EST agreed was important.
The key activities highlighted in the Perimeter Report are summarised below
High Risk Investments
5) The Perimeter Report (and the FCA’s Call for Input on Consumer Investments [footnote 2] also published in September 2020) noted the FCA’s consideration of the mass marketing of high-risk investments to retail consumers and examples of misleading promotions to attract investors. The CEO drew particular attention to the section of the Report which noted questions about the current criteria for exemptions for ‘high-net worth’ and sophisticated investors and the process of self-certification.
6) The EST noted that HMT has announced that it will launch a consultation in the first half of 2021 to consider the regulation of non-transferable debt securities (commonly known as ‘mini-bonds’).
7) The Report also noted the role of online platforms in communicating financial promotions to consumers, including false or misleading promotions. The EST noted that HMT is working with the FCA to consider whether paid for advertising on online platforms should be brought into the scope of the financial promotions regime. The CEO mentioned the FCA remained of the view that there was a strong case to include fraud within Online Harms legislation. HMT is working with the Department for Digital, Culture, Media and Sport to ensure that fraudulent online advertising is addressed as a priority harm through its Online Advertising Programme.
Access to cash
8) The CEO noted HMT’s Call for Evidence on Access to Cash. The EST and the CEO agreed that there were a number of stakeholders who all had a role to play (even if the government decided to take forward its proposed ‘lead regulator’ model as set out in the Call for Evidence). Any future interventions to ensure access to cash should allow for flexibility given the evolving nature of the sector, and consider the resources required to maintain a sustainable cash infrastructure.
Cryptoassets
9) The Report noted the expansion of cryptoassets in the UK market and interest from consumers in these innovative products. The CEO noted the FCA’s introduction of a temporary registration regime of cryptoasset firms for money-laundering purposes. The EST and the CEO noted HMT’s consultation on cryptoassets and the need to support innovation while ensuring sufficient consumer protection and market integrity.
AOB
10) The Report also set out that pre-paid funeral plans will be brought into the FCA’s perimeter. It was noted that the Statutory Instrument to effect this change was formally approved by Parliament on 20 January 2021 and will shortly be made into law. There will then be an 18-month implementation period after which the FCA will start regulating the sector and it was important to recognise that it was possible that not all current providers would meet the standards needed for regulatory authorisation.
11) The Report noted the role of unregulated lead generators who identify customers with debt problems and seek to refer these customers to debt solution providers. The CEO asked to work with HMT and BEIS to explore this issue in more detail and agree next steps.