FinTech in Turkey: Overview
Ekin İnal and Ecem Naz Boyacıoğlu provide an overview of FinTech in Turkey.
On October 10, 2018, the FCA published its first consultation paper setting out proposed changes to its Handbook and to binding technical standards (BTS) as a result of Brexit. At over 780 pages long Consultation Paper 18/28 – Brexit: proposed changes to the Handbook and BTS – first consultation (CP18/28) is the FCA’s first publicly available policy paper on Brexit.
CP18/28 is part of the UK’s contingency planning for a hard “no deal” Brexit. Another important component of this contingency planning is the draft statutory instruments (draft SIs) that HM Treasury has been publishing under the powers given to it by the European Union (Withdrawal) Act 2018 (the EUWA). Essentially the draft SIs “onshore” in the UK directly applicable EU financial services legislation, remedying deficiencies in domestic UK law should the UK leave the EU without a deal.
CP18/28 sets out amendments to the FCA Handbook (hereafter Handbook) and BTS which relate to the draft SIs that HM Treasury has so far published (a list of draft SIs is set out in Annex 2 of CP18/28). In addition, CP18/28 deals with the FCA’s proposed approach to the related EU nonlegislative material otherwise known as Level 3 material (i.e. guidelines, recommendations and Q&As produced by the European Supervisory Authorities (ESAs).
No. CP18/28 only deals with the draft SIs that have so far been published by HM Treasury. More draft SIs are expected. The whole of EU financial services law has to be dealt with. In all it is rumoured that 60 or so draft SIs will be produced.
The FCA states that a second consultation paper will be published later this Autumn covering the BTS and parts of the Handbook that are affected by the draft SIs that are published later. Also, the FCA warns that material in CP18/28 may be further revised in light of other changes being made to the Handbook. Such Handbook changes include those relating to the extension of the senior managers’ and certification regime to non-bank financial services firms.
Maybe, it depends if the UK and EU can finalise the withdrawal agreement.
The consultation period for CP18/28 is fairly short (deadline by December 7, 2018) in order to give the FCA sufficient time to reflect on industry comment before publishing the new rules ahead of Brexit. If a no deal Brexit occurs, then the new rules come into effect at 11pm on March 29, 2019 when the UK leaves the EU.
However, if the UK and the EU finalise the withdrawal agreement, the new rules that were proposed in CP18/28 will not come into effect until sometime after December 31, 2020 when the implementation period expires. In addition, the new rules may be subject to further change. The FCA states in CP18/28 that “the changes we make to the Handbook and to BTS after the implementation period will depend on the outcome of the negotiations on the future relationship between the UK and the EU.”
Yes, most definitely.
To help firms the FCA has set out in chapter 4 of CP18/28 (para 4.4) a useful table that gives an overview of the sourcebooks and chapters it has reviewed for the consultation and the potential interested stakeholders by sourcebook.
The FCA states in CP18/28 that most of the proposed changes are consequential in nature and follow the amendments HM Treasury is making in the draft SIs. The regulator adds that its approach has not been to revisit previous policy decisions or make refinements unconnected to Brexit.
Like always the devil will be in the detail and practitioners will need to undertake a line by line review of the amended Handbook text set out in Appendix 1 of CP18/28.
Chapter 2 of CP18/28 explains the legal basis for the amendments and the FCA’s general approach to the changes. As mentioned above, the FCA has said that it’s only proposing changes to the Handbook and BTS that deal with deficiencies in its Handbook that arise from Brexit, broader policy changes are not introduced. A “deficiency” is explicitly defined in the EUWA thereby limiting, at least in theory, what changes the FCA can propose.
In paras 2.11 to 2.14 of CP18/28 the FCA discusses the underlying assumptions for its amendments applying the test set out in the Financial Regulators’ Powers (Technical Standards etc) (Amendment etc) (EU Exit) Regulations 2018. The baseline approach is that the FCA will be treating the EU and its Member States in the same way as it treats non-EU or third countries after Brexit day. However, there will be some divergence from this baseline approach where the regulator either judges it is needed to ensure a sound, functional regulatory regime after Brexit day or where it wishes to avoid significant disruption to firms, investors and/or consumers.
Obviously there will be many implementation challenges for firms.
The FCA discusses implementation challenges in paras 2.24 to 2.29 of CP18/28. In particular, the regulator states that it expects to use the powers that HM Treasury will confer on it to phase in changes to firms’ regulatory requirements. The FCA states that it will use these powers in a “proportionate manner bearing in mind [its] statutory objectives.” It also adds that firms “will not be expected to make individual applications to benefit from the transitional powers that HM Treasury is giving the regulators”.
The FCA is keen to get feedback on the challenges associated with implementing the changes that have been proposed in CP18/28. In particular, it would welcome feedback on any systems that may need to be developed or amendments, including the expected time needed to build these changes. Feedback on compliance challenges should provide evidence of the reasons why full compliance would be at risk.
Chapter 3 of CP18/28 deals exclusively with cross-cutting issues and these are issues that affect several chapters or sourcebooks in the Handbook. The FCA will consult further on cross-cutting issues in its next consultation paper.
Generally, the approach taken by the FCA is to reflect the changes that are being made by the draft SIs. This includes proposing amendments so that
A further proposed amendment deals with the references in the Handbook to the Treaty on the Functioning of the European Union (the Treaty). As the UK will no longer be a party to the Treaty on Brexit day the FCA is proposing to remove references to it in the Handbook, this includes where such a reference is part of a specific term – for example “Treaty firm”. However, the FCA states that there are some exceptions to this and from the examples provided in chapter 3 (COLL references to EU Capital Requirements Regulation (CRR) are retained as are UK CRR (there is a new glossary definition for EU CRR)) these exceptions may not be material.
The Handbook provisions dealing with passporting are another cross-cutting issue considered in chapter 3 of CP18/28. The course of action the FCA is proposing (see para 3.18) is that these provisions will be removed from the Handbook. This includes deleting references to the roles and responsibilities of “home” and “host” state regulators that relate to passported activities. It also means amending or deleting some glossary terms such as consent notice, passported activity or passport right. However, the proposed changes are distinct from the FCA proposals for a temporary permissions regime.
Yes. The FCA proposes to remove or replace the references in the Handbook to the EU institutions with the relevant UK institution.
Yes. However, the FCA confirms that it will continue to share information with the ESAs despite the EU legislative obligations to do so falling away on Brexit day.
Chapter 4 of CP18/28 deals with the FCA’s proposed amendments to the Handbook on a sector by sector basis. As mentioned earlier a table in para 4.4 gives an overview of the impacted sourcebooks. It’s also worth noting that the FCA has reviewed the following Handbook guides: Energy Market Participants Guide (EMPS), Oil Markets Participants Guide (OMPS) and Service Companies Guide (SERV).
Yes, in summary
The FCA’s approach to BTS is discussed in chapter 5 of CP18/28. It’s important to note that the consultation does not cover BTS for all EU financial services legislation, rather those pieces of EU legislation that HM Treasury has already published a draft SI for. Consequently this means that the proposals cover BTS in respect of: credit rating agencies, fund management, EMIR (only BTS related to registration and application of trade repositories), MiFID II/MiFIR, short selling and capital requirements. The FCA’s second consultation later this Autumn will deal with BTS in other pieces of EU financial services legislation.
Responsibility for BTS is set out in the Financial Regulators’ Powers (Technical Standards) (Amendment etc.) (EU Exit) Regulations 2018. This draft SI sets out which BTS each of the FCA, the PRA and the Payment Systems Regulator is responsible for. In some cases both the FCA and the PRA are responsible for a particular BTS.
The FCA explains in CP18/28 that in respect of where responsibility for a BTS is shared, one of the UK regulators will take the lead in making the amendments. This will be based on which authority’s remit and objectives are most relevant.
In essence the changes the FCA is proposing are designed to make the BTS fit for purpose after Brexit day.
It’s also worth noting that
The FCA’s supervisory expectations in respect of guidelines and recommendations will remain the same. In particular, the regulator will expect firms and market participants to continue to apply them to the extent they remain relevant, as they did before Brexit day.
In terms of other non-binding material the FCA states that it will continue to have regard to it where it is relevant, taking into account Brexit and ongoing domestic legislation. Firms, market participants and stakeholders should also continue to do so.
Paragraphs 12 to 16 of Appendix 3 of CP18/28 set out certain exceptions to the approach set out above. For instance, where the FCA has informed the relevant ESA that it would not comply with part of or all of a pre-Brexit day guideline it will continue with this approach. One example given by the FCA concerns the European Banking Authority’s (EBA) guidelines on sound remuneration policies. This is where the FCA notified the EBA that it would comply with all aspects of these guidelines, except for the requirement that the limit on awarding variable remuneration to 100per cent of fixed remuneration, or 200per cent with shareholder approval (the bonus cap) must be applied in any case to all firms subject to the CRD IV.
In terms of materials that the ESA produce post Brexit day, the FCA states that it will consider them and set out its expectations as to how they should be treated where its appropriate to do so.
It’s worth noting that the FCA is proposing to change the text in chapters 19A and 19D of SYSC which allows firms to apply a notional discount rate to the total variable remuneration awarded to material risk takers to calculate the bonus cap. The Handbook currently requires firms wishing to apply the discount rate to apply the methodology set out in the EBA guidelines on applicable notional discount rate for variable remuneration. Compliance with these guidelines is mandatory and the formula for calculation relies on inflation and interest rates produced by Eurostat. The figures produced by Eurostat may not be produced for the UK following Brexit and to deal with this the FCA proposes to remove from its rules the requirement to discount variable remuneration in the way specified in the guidelines and replace this with a Handbook note reference.
The FCA is not currently consulting on how it will change its forms in a no deal Brexit scenario. This will be covered in a future consultation.
Ekin İnal and Ecem Naz Boyacıoğlu provide an overview of FinTech in Turkey.
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