Fintech, digital assets, payments and consumer credit | UK Regulatory Outlook March 2024

Treasury Committee highlights levels of SME bank account closures by major banks

On 28 February 2024, the House of Commons Treasury Committee published a press release and correspondence with certain banks relating to the closure of small and medium enterprise (SME) bank accounts.

As part of its inquiry into SME finance, the committee sent letters to bank CEOs requesting data on forced account closures. It was seeking to understand the breakdown of SME customer accounts and the rate of forced account closure across the market (known as "debanking"). The banks responded to the committee in January 2024, and it has made their letters available.

In its press release, the committee notes that:

• The data provided by the banks (with the exception of one, which does not provide current accounts to SMEs) shows that more than 140,000 SME accounts were closed over the last year, representing 2.7% of SME accounts.
• The reasons given for the closure of SME accounts include risk appetite, financial crime concerns and lack of information sharing.
• The categorisation of reasons for account closures varies. Only three banks listed risk appetite as a criterion for bank closures, with 4,214 cases listed. However, this does not rule out the possibility of risk appetite being considered by banks that did not explicitly list it as a criterion. The chair of the committee, Harriet Baldwin, comments that this raises questions over whether decisions on the debanking of SMEs, based on what banks perceive as a risk, are happening informally with discussions not being systematically recorded.

FCA's key findings of review of claims management companies carrying out unregulated claims

On 15 February 2024, the Financial Conduct Authority published the key findings of its multi-firm work on claims management companies (CMCs) carrying out unregulated claims activity to assess whether firms were using their FCA authorisation to legitimise unregulated services.

The FCA is concerned that consumers might wrongly assume all CMC services were regulated. It explains that it has issued information requests to 26 CMCs that offer unregulated claims services relating to matters including tax, timeshare, diesel emissions and flight delay claims. The FCA found that some of these firms had:

• undertaken very little to no regulated claims management activity – the FCA requires firms to review their regulatory permissions regularly to ensure they are up to date, and to apply for unneeded permissions to be removed;
• inadequate systems and controls to distinguish between regulated and unregulated claims activity;
• charged significantly higher fees for unregulated claims activity – where fees for unregulated claims are higher than for regulated claims services, the FCA urges CMCs to bear in mind the spirit of the Consumer Duty, and whether the services they provide represent fair value for the consumer; and/or
• issued non-compliant financial promotions.

The regulator explains that where CMCs offer unregulated claims services, they are expected to be clear with consumers about which products and services are regulated and which are not. Where the Consumer Duty applies, firms must ensure that communications are likely to be understood by consumers, and enable consumers to make effective, timely and informed decisions.

The FCA reminds CMCs to pay attention to how clear they have made it to consumers that a particular service is not regulated, and to review all customer communications, including financial promotions. In addition, CMCs should review the terms and conditions of their unregulated claims services to ensure they are clear and fair.

Law Commission consultation on draft digital assets bill

On 22 February 2024, the Law Commission consulted on a draft bill to confirm that digital assets (such as crypto tokens) are capable of being recognised as property by the law.

In June 2023, it published Digital assets: Final report, which concluded broadly that certain types of digital assets are capable of being things to which personal property rights can relate, even though they do not easily fit within the traditional categories of personal property, and are better regarded as belonging to a separate category. The Commission concluded that the common law system is well placed to determine which things properly can and should be objects of personal property rights, and which are "third category things" (that is, a category of thing distinct from both things in possession and things in action). Nevertheless, the report recommended that statutory confirmation of the common law position would provide greater legal certainty. (See our Insight for more on the report.)

The draft bill implements those recommendations, stating that a thing (including a thing that is digital in nature) is capable of being an object of personal property rights even though it is neither a thing in possession nor a thing in action. The clauses leave questions for common law, including what things fall within the third category, what personal property rights attach to third category things, and the consequences of this (such as tortious liability and applicable remedies).

The Law Commission requested input from stakeholders on whether the draft clauses successfully implement the final report's recommendations, as well as potential costs, benefits and unintended consequences. It closed on 22 March 2024.

FCA 'Dear CEO' letter on AML control failings

Please see Bribery, fraud and anti-money laundering.

Updated HM Treasury advisory notice on money laundering and terrorist financing controls in high-risk third countries

Please see Bribery, fraud and anti-money laundering.

Treasury Committee inquiry into effectiveness of UK's Russia sanctions regime 

Please see Sanctions.