Regulation Watch aims to provide members with updates on the activity of the sector's regulators, highlighting areas of specific interest.
Recommended - highlights speeches, videos and audio relating to hot topics
Recent News - a digest of some of the most relevant publications and updates released by the main regulatory bodies
Green Swan Conference 2022: The videos and transcripts from this 2-day virtual conference provide plenty of food for thought. Organised by, amongst others, the Bank for International Settlements the agenda offers a 'deeper dive' into the topics of monetary policy through the lens of climate change and the role of finance in the climate transition, including disclosures, transition plans and financing green innovation. Take your pick from a series of insightful panel sessions and keynote speeches!
Critical issues in financial regulation: The FCA's perspective If you haven't had time yet to digest the conduct regulator's recently published 3-year strategy, then this speech by the FCA's Chief Executive, Nikhil Rathi, provides a good summary. In it he acknowledges the cost of living crisis and refers to the work being done to further protect consumers and improve outcomes for them when using financial services.
Bufferati This speech by Sam Woods, CEO of the Prudential Regulation Authority (PRA) provides a hypothetical regulatory regime, presenting a vision of capital requirements that is less complex, more practical and offering greater flexibility. And whilst a regulator stating that regulation is too complicated is somewhat novel, the fact this is done through an analogy to the production of concept cars, makes a highly technical subject interesting and accessible for, well most of us. The model proposes, amongst other features, a single capital buffer that takes into consideration both micro- and macro-prudential risks, potentially released in its entirety under a stress. It is a radical vision (see his previous Strong and Simple speech below) and one viewed by some with some caution. As the FT comments: one argument in favour of “rules and rigidity is that it helps protects the regulator from external pressure, and the system against regulatory drift or forbearance”.
Supporting consumer through tough times - Speech by FCA Interim Director of Retail Lending, Brian Corr in which he calls for firms in the credit market to no wait until the new Consumer Duty comes into force. Instead he urges them to follow the regulator in turning their attention to delivering the right outcomes for their customers now. It provides some clear examples of what the FCA is expecting. For example with regard to product suitability, are products designed for short term borrowing being used by customers for long-term borrowing and is that leading to persistent debt? A recommended read for those following the development of the Consumer Duty and especially how this will look in practice.
Bank of England statement will launch a consultation with HMT in 2022 which will set out their assessment of the case for a UK Central Bank Digital Currency (CBDC). CBDC would be a new form of digital money issued by the Bank of England for use by households and businesses for everyday payment needs. It would exist alongside cash and bank deposits, rather than replacing them. Find out more about Central bank digital currencies in this Institute blog.
Drivers of change in the financial services industry and how we are responding: Jessica Rusu, Chief Data, Information and Intelligence Officer, discusses the issues of fraudsters and scammers as well as the regulator's role in an increasingly data driven world.
Measuring and assessing culture, now and in the future, the role of purpose and the importance of Divesity and Inclusion: Sheldon Mills, FCA's Executive Director, Consumers and Competition, gives a regulator's perspective just days before the joint FCA/PRA discussion paper (DP21/2) on this important topic closes. Outlining the drivers against which the FCA measures organisational culture as purpose, people, leadership and governance, he highlights some examples of areas where purposeful culture might be observed: "significant business model restructures, the approach to remuneration, a speak-up culture, Board and ExCo composition, diversity, succession planning, the application of the SMCR, the effectiveness of a firm’s controls environment or its governance structures." Sustainability and the transition to net zero are also brought into this context - with the warning that: "Climate change, like diversity and inclusion and other ESG issues must be a central part of how you do business. This will increasingly form part of the FCA’s supervisory engagement strategy and you should expect to be challenged more on these issues."
Seizing the opportunity: Nikhil Rathi, CEO of the FCA outlines the priorities for the regulator in the coming months. It comes with a clear statement of purpose: "We have often been criticised for acting slowly or with too much risk aversion. This is changing." He also trails the publication of the third annual perimeter report in October. This will set out the FCA's views on how the regulatory framework might evolve.
The risks of token regulation: A speech by Chair of the FCA and PSR, Charles Randell, voices his concerns about the increase in crypto token scams. It's not often you'll hear a regulator refer to a Kardashian - but he does this to good effect in describing the risks involved with this unregulated sector. Most powerful stat: around 2.3 million Britons currently such tokens, with 14% using credit to purchase them and 12% mistakenly believing they will be protected by the FCA or FSSC if things go wrong.
Transforming to a forward-looking, proactive regulator: Speech by FCA CEO, Nikhil Rathi in which he sets out the role of the regulator 'in a post-covid, post-Brexit and increasingly post-carbon economy' whilst launching the FCA's delayed Business Plan (see note below under 'Recent News').
Do we need 'public' money?: Speech given by Sir Jon Cunliffe of the Bank England on the future of money. in an increasingly digital world. Food for thought!
Compliance, Culture and Evolving Regulatory Expectations: This recent speech from Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, focuses on conduct. Following the cues in Nikhil Rathi's speech in March, in discussing the 5 Conduct Questions, it seems even more likely that a 6th question will be asked of firms - one that speaks to the issues of diversity and inclusion - you have been warned! It also comes with a fascinating, cautionary tale of individual responsibility which underlies the importance of 'tone within' in addition to tone from the top.
Key facts about UK-based financial and related professional services: This is the annual update by CityUK of key data about the Financial Services sector in the UK. It comes with the caveat however, that many of the figures reported are pre-pandemic. That said, in themselves they are interesting, as they potentially indicate pre-pandemic trends, for example, in the use of digital services, which meant the sector was ready to support consumers during the last year. Click the headline for a visual summary, or here for the full report.
Why diversity and inclusion are regulatory issues: In this speech, FCA CEO, Nikhil Rathi comments that the ongoing lack of diversity at the top in some firms raises questions about their ability to understand the different communities they serve, and their different needs. Tying his points to the recently published guidance on vulnerable consumers, which highlighted the needed for firms to understand and respond to the needs of their customers, Mr Rathi notes that this is unlikely if they do not have the diversity of background and experience required to overcome biases and blind spots. As a regulator there are tools at their disposal, for example whether the diversity of management teams – and the inclusivity of the management culture they create – could be part of our consideration of senior manager applications. He concludes by stressing that diversity matters to the FCA because it reduces conduct risk - so firms that fail to reflect society run the risk of poorly serving diverse communities. "And, at that point, diversity and inclusion become regulatory issues."
FCA warning to banks re branch closures: Notified that some banks and building societies plan to continue their plans for, branch closures or have announced further closures, the regulator is reminding firms of their requirement to treat their customers fairly, and communicate with them in a fair, clear and not misleading way. In doing so, it highlights the expectation that firms will exercise particular care with vulnerable customers. The Final Guidance (FG20/03) on Branch and ATM closures or conversions (published September 2020) outlines the FCA's expectation in this regard.
Why does the FCA care about diversity and inclusion? An interesting speech by Georgina Philippou, Senior Adviser to the FCA,
in which she talks about issues of diversity, as well as inclusion: “People with different life experiences can bring new thinking and their experiences can inspire new approaches to problem solving and decision making”. There are also some thoughts on culture - acknowledging that culture will be different in different firms but that “it is the responsibility of us all, of everyone in the financial services industry, to create and maintain cultures which embody diversity and inclusion”.
Covid and the composition of spending: An interesting, if at times technical speech by Ben Broadbent of the Bank of England, in which he looks at how Covid has changed the spending habits of households and what this may have meant for costs and inflation.
Anneliese Dodds’ speech to Bloomberg: Some positive messages about the role of responsible bankers during the current pandemic in this speech by Anneliese Dodds., to whom our CEO wrote earlier this year. "In 2020, we have often seen the sector at its best. Setting up huge new systems overnight to get government-backed loans out to businesses who were desperately short of cash. Helping those who ran into difficulty to keep a roof over their head. Partnering with charities to support those most in need.
We must harness that sense of active commitment as we plan for the recovery- a recovery which must be environmentally productive, not destructive; and one marked by providing additional opportunity, not wasting it."
Seizing the Opportunities from Digital Finance: This speech is not exactly the one delivered by Andy Haldane, Chief Economist at the Bank of England and Member of the Monetary Policy Committee. Andy spoke of the regional economic imbalance across the UK. There were issues pre-COVID, such as gaps in financing SMEs, which are only increased by the pandemic. We will attempt to get hold of the speech as it was very informative and thought provoking. It concluded by returning to the published script and how the opportunities offered by digital might support the need to level up.
The potential long-term effects of Covid The Bank of England's Deputy Governor for Markets and Banking, Dave Ramsden, looks at the impact of the Covid pandemic on the UK economy. He examines what the long-term effects are and how the economy is likely to respond.
Strong and simple: In this speech, the PRA's CEO, Sam Woods, explains where to next for the regulator when certain limitations are removed upon our withdrawal from the EU. Without getting overly technical, this is an informative look at where we can expect changes in UK regulation of small deposit-takers and how he believes this will contribute to his vision of the future UK regulatory framework that has high regulatory standards, offers responsible openness to those seeking to invest, and a dynamism that keeps pace with developments in the sector. That is once they can decide what 'small' means!
Acting flexibly and treating customers fairly in the face of a pandemic: A worthwhile read for those working in consumer credit. In this speech, the FCA’s Jonathan Davidson outlines the priorities as the regulator sees them, during the current phase of this pandemic. This includes a focus on vulnerability, the expectations around forbearance and the operational challenges to be overcome.
Is home working good for you? A really interesting speech by the Bank of England's Andy Haldane, in which he looks at the impact home working has had on productivity and output, through well-being and happiness to the impact on creativity and relationships. Sadly, I couldn’t access the Engaging Business report which he refers to – if I do I’ll post the link here.
Evolution of a new model for financial regulation in the UK: As he prepares to stand down as Interim Chief Executive of the FCA on 30 September 2020, Chris Woolard looks at what lessons the regulator can should be taking from Covid-19 so far in terms of society, technology and the manner in which the FCA regulates; what changes might the FCA need to make to meet some of these challenges; and, as we transition out of the EU, what kind of regulation does the UK need?
Older speech listings and some research referenced by regulators can be found in this archive.
Open Banking: On 25 March 2022, HM Treasury (HMT), the Competition and Markets Authority (CMA), the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) published a joint statement on the future of Open Banking. The statement provides an overview of the phased approach being taken to provide the vision and constitution for the future entity. These bodies will jointly oversee the new entity once it is set up. This annonucement follows the publication of the CMA's recommendations in response to its public consultation last year as to the required arrangements necessary for ensuring the effective oversight and governance of the new entity. A new regulatory oversight Committee, led by the FCA and PSR, will first convene in Q2 2022 with the intention of having established priorities by Q4 2022.
FCA ESG priorities. Published alongside a discussion paper (DP 21/04) the regulator sought initial views on new sustainability disclosure requirements for asset managers and FCA-regulated asset owners, as well as a new classification and labelling system for sustainable investment products. The FCA strategy focuses on 5 key themes:
- Transparency – promoting transparency on climate change and wider sustainability along the value chain
- Trust – building trust and integrity in ESG-labelled instruments, products and the supporting ecosystem
- Tools – working with others to enhance industry capabilities and support firms’ management of climate-related and wider sustainability risks, opportunities and impacts
- Transition – supporting the role of finance in delivering a market-led transition to a more sustainable economy
- Team – developing strategies, organisational structures, resources and tools to support the integration of ESG into FCA activities
We would hope to see this strategy cutting across future policy work, ensuring that sustainability is placed at the heart of all developments in the sector.
Diversity and Inclusion - Further to the 2021 Discussion Paper (DP21/2) published jointly by the PRA, the FCA and the Bank of England, the FCA has now published its Policy Statement outlining new requirements for listed companies to disclose information against targets on the representation of women and ethnic minorities on their boards and executive management. On a 'comply or explain' basis firms must provide numeric statements against the following targets:
- At least 40% of the board should be women.
- At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Chief Financial Officer (CFO) or Senior Independent Director (SID) should be a woman.
- At least one member of the board should be from an ethnic minority background excluding white ethnic groups (as set out in categories used by the Office for National Statistics).
The discussion paper had included suggested plans to extend targeted diversity characteristics to improve, for example, physical, cognitive and socio-economic diversity. The rules do not move this agenda forward in terms of a requirement to make a full numeric disclosure. However, the relevant rule within the Disclosure and Transparency Rules (DTR) is amended so that a company’s disclosure on its board diversity policy provides greater transparancy in this regard and as applied to executive committees, and further guidance provided under DTR 7.2.8CG.
The requirements apply for the financial accounting periods starting 1 April 2022 and there is a commitment to review these rules in 3 years’ time.
Our response to the originating Discussion Paper can be found on the Consultation Response pages of the Knowledge Hub.
New Consumer Duty: The FCA published its feedback and further proposals for consultation on the planned new Consumer Duty. This included draft rules and draft guidance. To recap, the new duty comprises a package of measures, a new high level Principle (A firm must act to deliver good outcomes for retail clients), 4 outcomes supporting the Principles and a set of cross-cutting rules outlining the 3 key behaviours the FCA want to see from firms. These proposals also introduce a new conduct rule within the SMCR where their firms’ activities fall within scope of the Consumer Duty. In this case Rule 4 within the conduct rules would not apply and instead individuals will be required to 'act to deliver good outcomes for retail customers’.
The finalised policy statement is expected in Summer 2022 (likely July) at which point an implementation period will start, and firms and their employees will have until April 2023 to ensure they meet the new requirements.
Fair Treatment of Vulnerable Customers: The Financial Conduct Authority (FCA) has published final guidance clarifying its expectations of firms on the fair treatment of vulnerable customers. This is incredibly important as recent FCA data indicates that: "27.7 million adults in the UK now have characteristics of vulnerability such as poor health, experiencing negative life events, low financial resilience or low capability. Not all people with these characteristics will suffer harm, but they may limit people’s ability to make reasonable decisions or put them at greater risk of mis-selling." Those interested in this topic may also be interested in the proposals set out by Fair by Design and the Money Advice Trust, in their joint guidance for firms called Inclusive Design for Essential Services, published in January 2021:
Consumer Investments: The FCA is committed to publishing an update report on a half yearly basis with regard to its work to reduce the impact of consumer harm in the investment market and the insights we are gaining from it. Here is the latest report.
Consumer Credit: In November 2020 the FCA updated its guidance for firms relating to the exceptional circumstances arising out of the coronavirus (Covid-19) pandemic and its impact on the financial situation of consumer credit customers. Follow the guidance here.
Mortgages and Covid -19: The Financial Conduct Authority (FCA) has published updated guidance on mortgages repossessions which came into effect from 29 January 2021. Firms were not to enforce repossessions before 1 April 2021, except in exceptional circumstances, and only as a last resort. Importantly, firms are also expected to consider the impact on customers who may be vulnerable, including because of the pandemic, when deciding whether repossession of goods or vehicles is appropriate.
Regulatory Initiatives Grid: The Financial Services Regulatory Initiatives Forum in May 2020 published the updated grid which sets out the regulatory pipeline across the Treasury [HMT], Bank of England [BoE], Financial Conduct Authority [FCA], Prudential Regulation Authority [PRA], Payment Systems Regulator [PSR] and the Competition and Markets Authority [CMA]. It also includes some important work from the Information Commissioners Office (ICO). The GRID is published at least twice a year to help manage the operational impact on firms of implementing initiatives from the Forum members. It outlines timings for initiatives that are multi-sector as well as sector specific work. The Forum continues to encourage feedback to ensure the Grid is as useful as possible.
Access to Cash: The FCA published a limited period consultation on draft guidance for firms with regard to maintaining customer access to cash. The draft guidance set out the regulator's expectations for banks, building societies and credit unions when considering the closing of branches or ATMs, or converting a free to use ATM to pay to use. The consultation closed at the end of July 2020 and the draft guidance can be accessed via the FCA's website.
Consumer Credit: The review of the unsecured credit market, led by Chris Woolard was published in February 2020. It concentrates on how regulation can better support a healthy unsecured lending market, taking into account the impact of the coronavirus on employment security and credit scores, changes in business models and new developments in unsecured lending including the growth of unregulated products in retail and the workplace. For more details you can view the report on the FCA's website.
To read about the existing expectations of the regulator with regards to the support firms should be providing for customers with credit cards and other revolving credit (store card and catalogue credit) and personal loans coming to an end of a payment freeze, please visit the FCA website.
Senior Managers and Certification Regime (SM&CR) and coronavirus (Covid-19): The FCA continues to update the guidance on the expectations for dual regulated firms during the pandemic.
FCA Register: The FCA has replaced its Financial Services Register with an enhanced Financial Services Register. The enhanced Register has a new look and includes improvements made in response to user feedback. The intention is that these changes will make it easier to find and understand information on the Register - why not take a look and send in your feedback!
Financial Inclusion and Capability: The Treasury has released its report for the period 2019-20 outlining the progress made against its objectives. It does not reveal much that is new to followers of this topic, but neatly summarises the number of government led/supported initiatives ongoing.
Live and Local to check if the FCA are running any events, in your area on a topic of interest follow this link to their website.