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LEGAL SHORTS

Welcome to Legal Shorts; a short briefing on some of the week's developments in the financial services industry for the week ending 12 May 2023.

FINANCIAL PROMOTIONS

As you know, the FCA is concentrating at the moment on financial promotions. As well as developing new rules for a gateway they are also looking at bringing some cryptoassets into scope.

In the meantime, the FCA continues to monitor compliance with the current rules and take action where needed.  The data for their actions for Q1 2023 has now been published online. The interventions in this period resulted in 2235 promotions being amended/withdrawn by authorised firms and 611 alerts on unauthorised firms and individuals (12% about clone scams).

Some of the examples of how the FCA intervened and took action against both authorised and unauthorised firms are set out below:

• The FCA removed all trading names from the Financial Services Register when they identified that a credit broking firm had an excessive number of trading names. Websites linked to the trading names promoted FX and crypto trading platforms and listed the parent firm's regulated status, despite it only having limited credit broker permissions;

  
  

• The FCA imposed voluntary requirements and a firm withdrew its financial promotions when the FCA identified a debt firm (whose target market was likely to display vulnerable characteristics), was misleading consumers by suggesting they could become debt free without incurring any costs. The FCA found the firm was using their regulated status in a promotional manner and using online adverts in an unsuitable way due to restricted space for key messages; and

  
  

• The FCA ensured that one firm ended its communication of financial promotions that had not received prior approval from the product manufacturer or another authorised person.  There were concerns that an inappropriate image was being used in a marketing campaign and the FCA held it was in breach of a number of Principles for Businesses, including those relating to integrity, and management and control.

GUEST SHORT FROM  GREENGAGE

We’re delighted to welcome Greengage to provide us with this week’s Guest Short.  Read on and to contact Greengage, just email Sean Kiernan at Sean Kiernan sean.kiernan@greengage.co

Greengage, the UK-based digital merchant banking firm, has launched a core e-money service to complement its existing offering of dedicated relationship management and access to a B2B lending platform. The e-money service enables payments in Pounds and Euros in a competitive package, aimed at small and medium-sized enterprises (SMEs), high net-worth individuals (HNWIs) and digital asset firms. Further plans include a broader Web3 offering to include in-built application programming interface (API) connections to other software-as-a-service (SaaS) products.

Greengage aims to serve entrepreneurs who are not satisfied with their current bank account provider and are looking for a more personal customer service. Companies involved in cryptoassets often must use overseas accounts or pay higher fees because they have difficulty accessing banking services with major banks.

“We’re delighted to launch our core e-money account service which provides a compelling proposition for innovative companies who struggle to find accounts or appropriate support from traditional banking services,” Greengage CEO Sean Kiernan said in the launch release (April 25th). “Greengage’s goal is to consistently be the best-in-class and we have exciting plans to add more advanced technology solutions for entrepreneurs and SMEs of all stripes.”

“By launching e-money accounts designed for digital asset firms and innovative SMEs, Greengage is offering a service that is badly needed in the market” said Simon Jennings of UK Cryptoasset Business Council in the release.

LATEST PEP POD EPISODE

In the latest episode of the hugely popular Cummings Pepperdine's Crypto Questions, we talk to Suzanne Morsfield from Lukka.

Suzanne gives an overview of the Fair Market Value for Crypto and the considerations needed. She covers the following:

· crypto Ecosystems snapshot

· trusted data foundation

· fair Market value

Find out more about Lukka, visit their website.

You can connect with Suzanne on LinkedIn.

MARKETING CRYPTO AND THE FINANCIAL SERVIES AND MARKETS BILL

We have seen some further steps taken with the progress of the Financial Services and Markets Bill (FSMB).  Last week the House of Commons approved an amendment to allow those crypto companies which are registered with the FCA anti money-laundering regime to approve their own advertisements until new, broader crypto regulation is crafted.

This move will allow the FCA to apply existing promotions regulations to crypto firms, helping to safeguard consumers from potentially misleading promotions. Our previous posts on LinkedIn have given updates on this and are on our LinkedIn page.

As for timing, HM Treasury has said that this amendment should come into effect in approximately four months to allow firms time to adjust to the new rules.

HOW LONG FOR A LONG FORM A?

Anyone who has applied to the FCA or the PRA will remember filling in Form A, which asks for background about each individual who seeks authorisation.  One of the sections which needs to be completed, without any gaps, asks for details about the applicant’s last five years of employment history.  The PRA is now thinking of extending this.  On 9 May 2023 it published policy statement (PS4/23) on moving forms relating to the senior managers regime (SMR) from the PRA Rulebook to the Connect system and extending the length of employment history required in the form A (long form).

The PRA consulted on the proposals in CP2/23, which was published in January 2023, the PRA seemed to take its plan to extend the employment period by saying that it does not believe that increasing the length of employment history required in Log Form A from five to ten years will have an impact on the six-year regulatory reference requirement.

Where the PRA leads, the FCA may follow.

FIGHTING CORRUPTION AROUND THE WORLD

The European Commission has adopted a package of measures to fight corruption in the EU and worldwide.  The package includes a number of initiatives which are likely to impact those both in and out of the EU.  The initiatives include:

• A Joint Communication of the Commission and High Representative of the Union for Foreign Affairs and Security Policy on the fight against corruption, that provides an overview of existing EU anti-corruption legislation and policies, takes stock of challenges and reflects on how to step up future action;

  
  

• A Proposal for a Directive on combating corruption, that updates and harmonises definitions and penalties for corruption offences to ensure that high standard criminal law tools are in place to fight the full range of corruption offences, to better prevent corruption and to improve enforcement; and

   

• A Proposal for a Council Decision prepared by the High Representative and a Joint proposal prepared by the High Representative and the Commission for a Council Regulation on restrictive measures against serious acts of corruption, that establishes a new EU sanction regime for corruption.

Public feedback on the proposal is via the EU’s Have Your Say portal and the deadline is 30 June 2023.

PROPOSALS FOR GREATER TRANSPARENCY OF THE FCA

It cannot be possible to spend a career in financial services without, at times, questioning now transparent the FCA is and how transparent it should be.

Well, we’re not alone.  In its a call for proposals on measuring success, HM Treasury has highlighted accountability mechanisms to be introduced under the FSM Bill, these being:

• a requirement for the regulators' annual reports to include an explanation of how, in their opinion, their objectives have been advanced, including the new secondary objectives; and

  
  

• a power for HM Treasury to direct the regulators to publish information where ministers consider it is reasonably necessary for the purpose of reviewing and scrutinising the discharge of the regulators' functions.

The call for proposals closes to responses on 4 July 2023. HM Treasury will then discuss the proposals with the FCA and the PRA. This will include consideration of whether it would be most appropriate for the regulators to publish proposals, or whether the government or another body would be more appropriate.

Following the call for proposals, the regulators may choose to publish a number of the metrics proposed by respondents, either as part of their annual reports or as separate, more frequent publications. The government considers that quarterly is likely to be the right interval for this reporting, but it is open to proposals.

CRYPTIONARY TERM OF THE WEEK

This week, to note the work of the UK Forum for Digital Assets, our cryptionary term of the week is digital currency:

DIGITAL CURRENCY

Also known as virtual currency.  A digital representation of value exists electronically and functions as a medium of exchange, a unit of account and a store of value.  They are not issued or backed by government or other public authority (unlike Fiat currency) but are issued and usually controlled by their developers and used and accepted among the members of a specific virtual community as a means of payment that can be transferred, stored or traded electronically. 

Digital currencies include credits for computer games used as a medium of exchange within the computer games where these are issued, as well as e-money and cryptocurrency.  Although initially designed to be used to make payments, many are now held as speculative assets by investors.

PEP PIC OF THE WEEK

Who are we?

Cummings Pepperdine is a unique leading legal advisor on crypto and alternative assets, advising a large and diverse global client base and the only firm to provide a complete solution building on the three key areas of law, tax and FCA with legal underpinning at every point.

For more information, visit www.cummingspepperdine.com