friday, 20 march of 2020


Lawyers warn of UK regulatory hold-ups

Britain’s financial regulators will take longer to carry out existing work and to implement reforms, such as the switch away from the Libor benchmark, according to lawyers advising firms on coronavirus disruption.

Authorisations for financial services businesses and individuals, as well as some investigations, are likely to be held up as resources are diverted to dealing with the economic crisis, advisers said.

Earlier this week, the Financial Conduct Authority announced that it would “delay or postpone activity which is not critical to protecting consumers and market integrity”. 

Among initial changes were extensions to the closing dates for consultations on proposed new rules, with many pushed back to October 1 2020. On Thursday, the independent reviewer assessing FCA supervision of interest rate hedging products said his report would be delayed until early 2021 “as a result of necessary precautions taken in response to the COVID-19 virus”.

However, law firms advising companies on regulatory issues expect a wider slowdown that will affect how some do business. 

“We are beginning to see some impact on regulatory processes,” said Peter Bevan, global head of financial regulation at Linklaters. While it has only affected policy decisions so far, he warned the disruption could spread to day-to-day practicalities. “Some Asian markets are a few weeks or months ahead of the UK and our experience there is that regulatory processes such as approvals or waivers took considerably longer than normal to come through. We can perhaps expect a similar pattern here.”

His counterpart at another London-based firm agreed there could be a slowdown in approval processes for some firms and individuals in the UK. “Our combined feeling is that the regulatory processes are going to take longer,” he told the FT. “On approval and authorisation, it is going to have an effect.” 

Under UK law, financial services providers, investment companies and consumer credit firms have to be authorised by the FCA — a process that normally take six months. Individuals must also be approved to carry out “controlled functions”, with decisions usually made within 90 days.

Given these timeframes, the impact is likely to be felt most in the second quarter, suggested Rob Moulton, partner at Latham & Watkins.

Some prioritising of misconduct investigations is also anticipated. “Some of the less serious may be left to drift or not proceed for the time being,” said a partner at one firm.

But the FCA is not planning for any change in timescales just as yet. A spokesperson said: “The FCA’s approach to enforcement remains the same, especially where misconduct threatens consumers, orderly markets or firms. Similarly, authorisations and approvals are a priority activity for the FCA and will continue as normal. Any change to normal service due to Coronavirus will be communicated to the industry.”

Still, Mr Bevan’s colleague Alison Wilson noted that: “based on our caseload and discussions with the FCA we are expecting enforcement processes to take longer than usual.”

Bank of England regulatory projects — the largest of which involves delinking £400tn of contracts and lending products from the Libor benchmark interest rate by the end of 2021 — may now come under time pressure, as well. 

One person involved in the work said there was no official change to the deadlines. But, at Linklaters, Deepak Sitlani warned: “‘Even before Covid-19, there was a very real prospect of not all markets and contracts transitioning away from Libor before the end of 2021. Covid-19 just makes that prospect even more real.”

(Published by Financial Times, March 20, 2020)

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