2016 – undeniably a turbulent year in all respects. Whilst we can’t predict the economic impact of triggering Article 50 and the incoming US administration, we can at least predict some of the legal and regulatory changes that 2017 has in store for the alternative finance industry:

1.Brexit

When Article 50 is triggered (anticipated to be in March 2017), EU regulation will continue to apply to UK financial institutions until further notice. UK law that applies to financial institutions that is derived from EU Regulation will therefore continue to apply. Further, where the implementation of EU Regulation into UK law is ongoing, but has not yet come into effect, such implementation will continue. From a practical point of view, alternative finance and FinTech firms should continue to consider the various possible Brexit outcomes and put contingency plans together

2.Extension of the senior managers and certificate regimes

The senior manager’s regime (SMR) and certification regime (CR) is already in place for deposit-takers, PRA-designed investment firms and insurers. The government had prioritised implementation of the regimes for the banks in response to concerns relating to individual accountability in banks.

The first quarter of 2017 will see the FCA’s consultation paper on extending the regimes to all firms authorised under the Financial Services and Markets Act 2000. Authorised P2P lending firms are therefore likely to be affected, as well as asset managers, investments firms, insurance and mortgage brokers, and consumer credit firms.

Key features of the extended regime include:

-requirements to submit robust documentation on the scope of individual senior management responsibilities;

-a statutory requirement on senior managers to take reasonable steps to prevent regulatory breaches in their area of responsibility;

-certification of individuals as being fit and proper to perform functions that could cause significant harm to the firm or its customers, at recruitment stage, and annually;

-regulatory powers of enforcement against individuals.

Firms will need to conduct an extensive regulatory project to ensure that they have suitable documentation in place and that their employees are suitably notified and trained in respect of the conduct rules that apply to them.

3.Data Protection – GDPR and Cyber Security

25 May 2018 is the date that the General Data Protection Regulation will take effect in all EU member states. Anyone involved with the collection or processing of personal data will need to look at their current contractual arrangements and ensure they are sufficient to deal with the new requirements imposed on both data controllers and data processors.

Current data protection laws will be replaced, and whilst there are similarities between the old and new legislation there are some new concepts and new rights of data subjects, such as the “right to be forgotten”. Penalties for non-compliance will also be dramatically increasing therefore it is vital that internal procedures and external arrangements are assessed and updated in good time.

Cyber security is also expected to take priority for financial services firms in 2017. At government and regulatory level:

-The FCA is focused on engaging nationally and internationally to ensure a co-ordinated approach to addressing the threat posed by cyber crime; and

-The House of Commons Treasury Committee is also considering whether the financial services sector needs a single point of responsibility for dealing with cyber risk. At present that responsibility is shared among a number of bodies, being the PRA, FCA and GCHQ.

4.Consumer Credit

CCA retained provisions: In February 2016 the FCA sought input for its review of the Consumer Credit Act 1974 provisions that were retained when it took over regulation of the consumer credit markets. The review is considering whether the regime can be simplified, whilst still ensuring an appropriate degree of consumer protection and not placing disproportionate burdens on consumer credit firms.

The review should be complete by 1 April 2019 but in the interim the FCA is planning to publish a summary of the responses received in the first half of 2017. The FCA has also asked for those interested in being involved in stakeholder consultative groups to contact the FCA by 31 January 2017.

High-cost credit: The deadline for submissions relating to the FCA’s call for input on high-costs credit including a review of the payday loan price cap is on 15 February 2017. The FCA introduced the price cap on 2 January 2015 and committed to reviewing it two years after its implementation.

Further work is also being carried out relating to overdrafts, high-cost products and repeat high-cost short-term borrowing.

5.FinTech

Initiatives driving regulatory improvements in FinTech are underway in the UK and at EU and international level and will continue into 2017. One example of this is the European Commission’s  recently set up task force which will bring together those services responsible for financial regulation, the Digital Single Market, competition and consumer protection policy. The task force will consult with external experts and stakeholders to formulate policy orientated recommendations in 2017.

Contactless payments are also expected to double in 2017; use of biometric ID to counter security fears will see an increase; and artificial intelligence will be used to enhance and create smarter customer experiences.

6.FCA

In October 2016 the FCA published its future mission to start a discussion as to how it can make the biggest difference in making markets work well, and achieve the right level of consumer protection, now and in the future. 2017 may see the publication of the final mission statement as it is expected to be published with its 2017/2018 business plan. The consultation period is open until 26 January 2017.

The FCA is also expected this year to review its Handbook. A call for input seeking views on which parts of the handbook require clarification will be made initially. 

 

Jonathan Segal, Partner at Fox Williams LLP

 

Jonathan is a partner in the FinTech and Alternative Finance team at Fox Williams, a City-based Law Firm. He advises clients across the FinTech and Alternative Finance spectrum, from start-ups disrupting existing markets with innovative technology to financial institutions looking to invest in new technology.

 

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