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As part of its ongoing work to investigate and understand the UK cryptoassets sector the FCA has published the findings of two pieces of complementary consumer research on cryptoassets.

By Sam Maxson and Stuart Davis

Following the publication of the UK Cryptoassets Taskforce final report in October 2018, the FCA has engaged in a series of focused pieces of work relating to the UK cryptoassets sector.

This work includes the headline public consultations that were announced in the Taskforce final report — such as the FCA Cryptoassets Perimeter Guidance Consultation (published in January 2019 and open for responses until 5 April 2019) and the proposed FCA consultation on a potential ban on the sale of certain cryptoasset derivatives to retail investors (expected later this year) — as well as more “behind the scenes” work that the FCA is conducting to improve its evidence base and understanding of the cryptoassets sector.

From August 2019, certain existing FCA rules and guidance will extend to payment service providers and e-money issuers in a signal that the FCA wants a consistent approach to consumer protection.

By Rob Moulton, Brett Carr, and Frida Montenius

The FCA has published a Policy Statement extending certain rules and guidance to the payment services and e-money sectors, following a Consultation Paper published in August 2018. The extensions concern the FCA’s Principles for Businesses (Principles) and the Banking Conduct of Business Sourcebook (BCOBS), along with new guidance concerning the communication and marketing of currency transfer services. The FCA has made these changes, aimed at payment institutions (PIs), electronic money institutions (EMIs), and registered account information service providers (RAISPs), with a hope to protect consumers by providing a clear and consistent set of rules that firms must abide by.

The PSR will not review the fees and rules set by Visa and Mastercard, but will look at the practice of bundling, and will examine effects on innovation in card-acquiring services.

By Brett Carr, Stuart Davis, and Christian McDermott

Following the publication of its Draft Terms of Reference in July 2018, the PSR has now listened to market feedback and has issued its Final Terms of Reference, marking the launch of its review into whether competition in the supply of card-acquiring services is working well for merchants and consumers.

Card-acquiring services allow merchants to accept payment for goods and services via debit, credit, charge, and prepaid cards. In order to benefit from card-acquiring services, merchants must enter contracts with so-called “merchant acquirers.”

By Andrew Moyle and Stuart Davis

Growth in applications for blockchain and tokenisation, combined with an increasing number of initial coin offerings (ICOs), mean that buyout firms should note developments in this sector.

Why Should PE Be Interested in Blockchain?

A shared blockchain ledger could drive a single interface between a PE fund and its investors, increasing transparency and efficiency, providing real-time updates for LPs on investments, and enhanced investment analytics.

FCA teams up with other regulators to advance its idea of creating a global regulatory sandbox.

By Stuart Davis, Gabriel Lakeman, Sam Maxson, Brett Carr and Charlotte Collins

The FCA, along with several other financial services regulators, has launched a consultation on the operating framework for a Global Financial Innovation Network (GFIN). This is an evolution of the FCA’s proposal, mooted earlier this year, to create a global regulatory sandbox (see Latham’s related blog post).

The FCA reports that its proposal was received positively, with respondents keen to see greater regulatory coordination and cooperation at a global level. Therefore, the FCA sees merit in continuing to explore this idea.

FCA Chair hints that new regulation addressing data ethics in the FinTech space may be on the horizon.

By Nicola Higgs, Fiona Maclean and Terese Saplys

Will societies of the future be ruled by algocracy, in which algorithms decide how humans are governed? Charles Randell, Chair of the Financial Conduct Authority (FCA) and Payment Systems Regulator, addressed how to avoid this hypothetical scenario in a broad-ranging speech on that he delivered on 11 July 2018 in London.

Randell’s Remarks

Contributing Factors to an Algocracy

According to Randell, the following three conditions could collectively give rise to a future algocracy:

The FCA has outlined its approach to implementing key standards under the revised Payment Services Directive.

By Christian McDermott, Stuart Davis, Brett Carr, and Charlotte Collins

The FCA has published a statement on its website relating to the European Banking Authority’s (EBA’s) Opinion and draft Guidelines of 13 June 2018 on the Regulatory Technical Standards on Strong Customer Authentication and Common and Secure Communication under PSD2 (the RTS).

Background

The drafting of the RTS, which will apply from 14 September 2019, proved to be one of the most controversial aspects of the revised Payment Services Directive (PSD2) (for background on the RTS, please see Latham’s related Client Alert).

Both the FCA and the PRA have written to firms to warn about certain risks associated with exposures to crypto-assets, and to advise firms of the measures they should consider implementing to mitigate such risks.

By Stuart Davis and Charlotte Collins

The FCA and the PRA have each written a “Dear CEO” letter to firms, to warn about the risks associated with exposure to crypto-assets. The letters reflect each regulator’s concerns, according to their regulatory remit, and provide examples of practical measures that firms should be putting in place.

These letters come at a time when both the use and regulatory scrutiny of crypto-assets is increasing, with the FCA recently revealing in a response to a Freedom of Information Act request that it is currently investigating 24 crypto firms.

Many auto advisers and automated discretionary investment managers risk poor outcomes for customers by falling short of FCA expectations.

By Nicola Higgs and Brett Carr

The Financial Conduct Authority (FCA) has issued a statement outlining its expectations of firms providing automated online discretionary investment management (ODIM) services and retail investment auto advisers (auto advisors). The FCA uses its statement to remind firms that the regulator’s rules, including those in relation to suitability and advice, apply equally to services regardless of the medium through which they are offered. Current providers and planned new market entrants should heed the warnings and the learnings of this statement.

FCA warns providers of cryptocurrency derivatives of their regulatory obligations.

By Andrew Moyle, Stuart Davis and Charlotte Collins

The UK Financial Conduct Authority (FCA) has issued a statement reminding businesses offering cryptocurrency derivatives of the requirement to be authorised.

The FCA explains that, although cryptocurrencies are not themselves regulated in the UK, derivatives that reference cryptocurrencies (such as cryptocurrency futures, cryptocurrency contracts for differences, and cryptocurrency options) are capable of being financial instruments under the Markets in Financial Instruments Directive II (MiFID II) and therefore within scope of regulation. The FCA clarifies that it does not consider cryptocurrencies to be currencies or commodities under MiFID II.