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Financial services 

2020 has been dominated by COVID-19 and its consequence for business and wider civil society. The mammoth FCA business interruption insurance case has captured much of the headlines. Following an impressively expedited trial in July 2020, the FCA declared a win over insurers on most of the key issues relating to insurance coverage for pandemic related business interruption. Both sides have successfully sought permission to appeal to the Supreme Court, ‘leap-frogging’ over the Court of Appeal. In this and other respects, the pandemic will continue to be the focus for regulators and firms in 2021.

The pandemic has also accelerated underlying trends in financial services provision and regulation. For example, the FCA has recognised the adoption by consumers of financial technology and the corresponding retreat from cash, which has fast-forwarded its pre-existing policy work streams focused on fintech. The FCA is also working together with other regulators such as the PSR, which has launched a collaborative payments ‘innovation and future payment methods’ strategy, upon which it will consult industry in Q4 2020.

A key fintech focus has been on crypto-assets and the risk of financial crime. The Money Laundering Regulations have been amended to include specific crypto-asset business activities of crypto-exchanges, wallet providers, coin offerings and crypto-asset ATMs. The FCA qua AML supervisor for specific crypto-asset activities will actively supervise crypto-asset firms from January 2021 (either in addition to existing Part IVA FSMA permission, or for the first time), monitor fitness and propriety and take enforcement activity where necessary. Whilst the FCA’s stated objective is to support and encourage fintech and crypto-asset innovation, its early focus has been on ensuring consumers and markets are protected from the risk of financial crime.

The pandemic, for a time at least, has overshadowed the bogeyman of financial services regulation in recent years: Brexit. Like most other interested regulatory bodies, the FCA has tried to keep a straight face and appear prepared for all eventualities. Whilst a temporary permission regime for EEA firms and funds who presently passport into the UK is in place, and statutory instruments have been laid to on-shore the EC regulatory architecture into UK law, there is little sign of a cogent EC–UK trade deal encompassing financial services come the end of the transition period on 31 December 2020.

The thorny issue of equivalence in the medium to long term remains unresolved. The failure of either side to declare the other’s regime as equivalent by the end of June 2020 (as anticipated by the political declaration), which frankly ought to have been straightforward, is a clue to the fact that financial services is a major piece in the political theatre of Brexit negotiations. A late deal remains likely (because that’s how things tend to go), but the uncertainty of brinksmanship continues to be deeply unsettling for the industry.

Amongst the drama of pandemic and Brexit, the FCA has continued taking enforcement action against firms. Notable Final Notices include those issued against Lloyds Bank, which was fined £64 million for consumer mortgage related failures, and Commerzbank, which was fined £54 million for AML failings. The FCA has also determined to issue a Warning Notice to Carillion plc (in liquidation) for breach of listing rules prior to its well-publicised collapse.

The PRA has also flexed its muscles, most notably imposing upon Citigroup a £43 million fine for historic reporting failures.

Financial services litigation in the Commercial Court and Chancery Division continues apace and without pause, including mis-selling cases involving pensions and other investments and Section 90/90A shareholder claims. A case to watch includes the group action against Clydesdale Bank relating to ‘economic costs’ or break costs applied by the Bank when refinancing ‘tailored business loans’.