HM Treasury and Financial Conduct Authority Regulatory Perimeter Meeting - December 2021
Published 18 March 2022
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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 21 October 2021.
1) On 15 December 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 second 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.
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.
3) The EST and the CEO agreed it was important to use this opportunity to have this helpful and constructive conversation on the perimeter and noted there had been a good dialogue between the organisations on perimeter issues since the last meeting. The CEO also noted the importance of the Treasury and the FCA discussing the operational implications of bringing further activity inside the perimeter, particular in sectors which have not previously been regulated which the EST agreed was important.
4) The CEO suggested that, in the context of the Treasury’s Future Regulatory Framework (FRF) Review, the Treasury should continue to consider whether any further mechanisms were necessary, in addition to the existing, productive perimeter meeting. The EST noted that it was important to ensure the right balance of responsibility, accountability and independence through the FRF Review and that that there was an ongoing consultation on proposals.
Progress since the last perimeter meeting
Funeral Plans
5) The EST welcomed extensive work by the FCA and the Treasury including collaborating to pass the necessary legislation to bring all pre-paid funeral plan providers and intermediaries within the FCA’s regulatory remit from July 2022, and the FCA’s policy statement of 5 November. The CEO noted the FCA is working hard on processing the approvals and that there are a wide variety of business models across the sector. The CEO and the EST agreed that it was important to get the right balance between rigorous regulation, proportionality and appropriate protection for consumers in the event of failure – this balance would need to continue to be evaluated over time.
Buy-Now Pay-Later
6) The EST and the CEO noted the debate on Buy-Now Pay-Later products and the best way to bring them into regulation. The CEO noted the FCA’s priority is to regulate where there is consumer detriment or risk of detriment. The EST noted the government’s ongoing consultation setting out proposals for the regulation of Buy-Now Pay-Later products, which closes on 6 January 2022 and that the Treasury will set out next steps early next year.
Cryptoassets
7) The EST noted that it will be important to keep up the pace of progress on key cryptoasset measures, including proposals to bring cryptoassets into financial promotions regulation, and considering legislation to regulate stablecoins. The CEO updated on the FCA’s work to register cryptoasset firms under the anti-money laundering regulations. The CEO and the EST agreed that the UK needs to create a regulatory environment for cryptoassets in which firms can innovate responsibly, while crucially maintaining high regulatory standards and managing financial crime risks so that people can use new technologies reliably and safely. The cross-border dimensions of regulation in this area were also particularly important and both the EST and CEO welcomed international cooperation on these topics.
Environmental, Social and Governance (ESG) Data and Ratings
8) The EST noted that there have been discussions on ESG ratings and potentially bringing the providers into the perimeter. The CEO noted that there is support for the government’s work to consider bringing ESG ratings providers into the perimeter. The EST and the CEO agreed that common baseline standards that support innovation would allow the UK to lead globally.
Specific issues raised in the FCA’s report
Online Harms
9) The CEO updated on the FCA’s recent work on online harms, including the early indications of the effect of the Financial Services Verification Policy put in place by Google, but noted that there was not yet consistent industry-wide action. The CEO reiterated the FCA’s view that fraud and paid-for advertising should be included in the government’s Online Harms Bill. The EST noted the FCA’s position and that the government would consider the recommendations of the Online Safety Bill Joint Committee before making its next steps.
Financial Promotions
10) The EST noted that the Treasury had today (15 December 2021) published a consultation seeking views on reforms to the financial promotions regime – in particular the thresholds for qualifying as a high-net worth individual and the definition of a sophisticated investor. In the context of discussing high net worth individuals and sophisticated investors, the CEO noted that the Financial Services Compensation Scheme (FSCS) is wide ranging and that the FCA’s Discussion Paper on the future of FSCS protection asked whether FSCS protection should apply in the same way to these investors in future and also whether FSCS protection should apply to non-mainstream investments such as cryptoassets. The EST welcomed the FCA’s approach to considering compensation.
Extending the Senior Managers & Certification Regime (SM&CR)
11) The EST asked the CEO to share the FCA’s assessment on the case for potentially applying SM&CR to payments and e-money firms in the future. For recognised investment exchanges (RIEs) and credit ratings agencies (CRAs), the CEO noted their systemic role in financial services markets meant in the FCA’s view it was appropriate for the SM&CR to apply as was being proposed for other financial market infrastructure. The EST confirmed the Treasury would consider this, and that any expansion of SM&CR would be subject to the usual processes of policy development and consultation.
AOB
12) The CEO noted that the FCA is considering the optimal format for the perimeter report and will update the EST in due course.
13) Both the EST and the CEO welcomed the strong and engaged dialogue in the areas discussed.