Q2 2024 Financial Regulation Updates: Key Changes for Institutions
Regulatory Developments in the King’s Speech
In July 2024, the newly formed Labour government outlined its legislative agenda in the King’s Speech, introducing major regulatory changes for financial institutions. Key proposals include:
- Banking Resolution Bill – Requires Financial Services Compensation Schemes (FSCs) to provide funding for bank recapitalization, with costs recovered via additional levies on the banking sector.
- Pension Plans Bill – Aims to consolidate small pension pots for retirees and implement a standardized value framework for pension assessments.
- Digital Information and Intelligent Data Bill – Establishes a statutory foundation for open banking and other intelligent data systems.
- National Wealth Fund & Housing Legislation – Provisions for tenant rights, bail system reform, and employment law amendments.
These reforms signal a shift towards greater transparency and security in financial services, particularly in banking, pensions, and digital finance.
Retail Disclosure Rule Updates
In September 2024, the Treasury and the FCA updated the regulatory framework for investment products related to retail and insurance-based investments (PRIIPs). Key changes include:
- Repeal of EU assimilation rules and implementation of a new consumer investment framework.
- Legislation empowering the FCA to enact regulatory modifications, targeting a Q2 2025 launch.
- Temporary exemption of investment triggers from current PRIIPs regulations.
- FCA’s leniency on placement trust disclosures, allowing firms to bypass PRIIPs technical standards while ensuring compliance under Principle 7 and COB requirements.
FCA Review on Politically Exposed Persons (PEPs)
Following the FSMA 2023 mandate, the FCA assessed firms’ handling of PEPs. While most firms had compliance systems in place, the review flagged issues, including:
- Broader-than-required PEP definitions used by some firms.
- Inadequate staff training on regulatory compliance.
- Outdated policies failing to distinguish British PEPs as lower-risk compared to foreign PEPs.
The consultation on proposed guidance changes will conclude in October 2024, shaping future compliance expectations.
FCA’s Overhaul of UK Listing Rules
The FCA released Policy Statement PS24/6 in July 2024, marking the biggest revision in UK registration rules in 30 years. Key changes include:
- Elimination of “premium” and “standard” share listing categories.
- Introduction of a single “commercial companies” category for publicly listed shares.
- Removal of voting requirements for major transactions, granting flexibility to dual-class share structures.
- Institutional investors granted enhanced voting rights, favoring private equity and venture capital for up to 10 years.
These changes have drawn criticism from corporate governance groups, warning of weakened investor protections. The new rules took effect on July 29, 2024.
FCA Research on Trading App Risks
A new FCA study found that digital trading apps using gamified features (e.g., push notifications, live price feeds) encourage riskier trading behavior, particularly among:
- Younger users (18-34 years old).
- Women and individuals with limited financial knowledge.
The FCA had previously cautioned fintech firms about gamification risks ahead of the Consumer Duty regulations.
Regulatory Focus on Digital Wallets & Big Tech
The FCA and PSR launched a call for insights into large tech firms’ role in digital payments, addressing:
- Consumer benefits of digital wallets.
- Potential payment inefficiencies.
- Competitive impacts on payment systems.
- Consumer protection concerns tied to Big Tech’s expansion in financial services**.
This reflects growing regulatory scrutiny over data privacy and competition issues in digital finance.
FCA’s Crypto Promotions Crackdown
On August 7, 2024, the FCA released a report on cryptocurrency firms’ compliance with Financial Promotions Rules, identifying key enforcement areas:
- Mandatory 24-hour cooling-off periods.
- Clear risk warnings in promotions.
- Proper customer categorization for crypto investments.
- Ensuring compliance systems are robust.
Since the rules took effect in October 2023, the FCA has:
- Intervened in 3,273 non-compliant promotions.
- Issued 528 alerts on unauthorized firms.
- Flagged 11% of cases as clone scams.
One major enforcement case involved a high-risk investment firm that failed to include mandatory risk warnings in social media promotions, prompting FCA intervention.
Conclusion
The Q2 2024 financial regulation updates mark a significant shift in compliance expectations, requiring firms to adapt to:
- New banking, pension, and retail disclosure rules.
- Updated FCA policies on PEPs, trading apps, and crypto promotions.
- Regulatory oversight on digital wallets and Big Tech’s financial expansion.
With further developments expected in Q3 2024, financial institutions must remain proactive in regulatory compliance and risk management strategies.