FCA Recognises Industry Lending Standards For Business Customers

Small businesses need all the leverage they can get when it comes to dealing with UK banks, so it's worth noting that the Financial Conduct Authority has ‘recognised’ the Lending Standards Board Standards of Lending Practice for Business Customers for the purposes of the FCA's Senior Managers and Certification Regime.

The Standards apply to overdrafts, loans (excluding trade loans), commercial mortgages, credit cards and chargecard products.

FCA recognition is significant because the five conduct rules that Senior Managers of all FCA authorised firms have to abide by (in COCON 2.1) include the obligation to "observe proper standards of market conduct". The Standards should also help demonstrate that an individual satisfied the obligation to "pay due regard to the interests of customers and treat them fairly".

The FCA's individual conduct rules apply to all activities carried out by the individual in the course of their employment, even if the activities are regulated.  

Accordingly, the FCA has established a framework to formally recognise industry codes covering certain unregulated activities. 

Behaviour in line with an FCA recognised industry code will tend to indicate a person subject to the SMCR rules is meeting his or her obligation to observe ‘proper standards of market conduct’ in relation to unregulated activities. 

But industry codes are not mandatory and are not the only way of observing proper standards of market conduct, and "it may equally be possible to observe proper standards of market conduct in other ways." 

The FCA does not want industry codes to become prescriptive rules or have the same status as the FCA rules that govern regulated markets. They will be just one factor taken into account when the FCA makes decisions about the use of its enforcement powers.

Equivalence Is No Solution For Most UK Financial Services Accessing The EEA

At the end of 2020, any UK financial firms operating in the EEA under a 'passport' will lose that right. They must either get a new subsidiary authorised in an EU/EEA country and passport from there, or get the subsidiary registered as an agent etc of a local firm with the right passports. Meanwhile, there are calls for the UK government to ask the EU to declare that UK financial regulation is "equivalent" to standards under EU law, so UK firms can continue to access the single market under UK rules. Here's why nobody should wait for that.

The UK has no 'right' to equivalence, even if it can demonstrate a basis for it.

Equivalence is at the discretion of the European Commission, so political considerations can affect the outcome and timing.

Equivalence can be withdraw at any time without any right of appeal (ask the Swiss).

Only two areas of EU financial regulation allow for equivalence - MiFID (2,250 firms as at August 2016) and AIFMD (212 firms).  In particular, an equivalence finding is not available for deposit-taking (102 banks), insurance (220 firms), insurance distribution (2,758 firms), e-money issuers (66) or other payment services providers (284).

While there have been calls within the EU for a broader framework, the European Commission has considered it and explained that this would be "extremely difficult".

Relying on equivalence would also require the UK to align with EU regulation in the relevant area, with no say in shaping the rules. The UK government is sending mixed messages on this point, having repeatedly said that it is against alignment while repeatedly claiming that it wants future trade arrangements (e.g. a 'Canada deal') that would require it. Johnson is probably hoping that his voters won't understand the magic trick, but everybody else does. Either way, the government is along way from being able to help the Commission work through an "extremely difficult" equivalence process.

You're on your own. The only viable option is to set up a subsidiary in the EU27 and passport from there. 

 

Let me know if I can help, either in the UK or in Ireland/EEA - particularly on e-money and payment services.