Regulation Watch aims to provide members with updates on the activity of the sector's regulators, highlighting areas of specific interest. 


Regulation in a Changing WorldThis speech by Christopher Woolard,  Executive Director of Strategy and Competition at the FCA, sets the context for why now is the time to consider what the future of regulation might look like. He outlines that, in addition to the anticipated consultation on Duty of Care [see below for background] and review of the Handbook, there will be an open invitation to all to engage with thoughts and ideas about the future of regulation, and a review of the Principles themselves.  

Understanding Pay Gaps: An interesting speech by the Bank of England's Andy Haldene which gives some fascinating insight and statistics about gender and ethnic minority pay gaps. 

Turning Technology Against Financial Crime: The FCA's Executive Director of Supervision, Megan Butler uses this speech to talk about on how technology can be used to detect and disrupt financial crime, and ultimately the criminals who seek to exploit the system. She refers to the establishement of the Analytics Centre of Excellence, an internal initiative to drive the use of data science, machine learning and AI across the whole of the FCA.

Machine Learning in UK Financial Services: An interesting blog by a team at the Bank of England which outlines the findings of a joint survey with the FCA in 2019 to better understand the current use of machine learning (ML) in UK financial services. This included the finding that the median firm uses live ML applications in two business areas and this is expected to more than double within the next three years.

UN Principles for Responsible Banking: On September 22nd, 130 global banks became the founding signatories of the UN Principles for Responsible Banking yesterday at the UN General Assembly in New York.  The Principles aim to promote sustainable and responsible banking - you will find our programmes cover these as green finance and professionalism in banking. For our response please see our news section.

Improving the suitability of financial advice: Although this speech by Debbie Gupta, Director of Life Insurance and Financial Advice Supervision at the FCA is aimed specifically at the financial advice commnuity, there are some aspects which we might all usefully note.  "Challenging misconceptions and client education is core to good advice. It is valuable. You are the experts. You will always know more than your client. And we expect your expertise to support your clients in this way. It is what we expect of the services you are paid to provide."

The future of regulation: AI for consumer good: Speech by Christopher Woolard, FCA Executive Director of Strategy and Competition which outlines recent findings on how AI is currently being used in the financial services sector as well as flagging the need for sound governance around the use of AI and machine learning. The FCA are working with the Alan Turing Institute to explore the transparency and 'explainability'  of Ai in the sector and we can expect more later in the year/start of 2020. 

Open letter on climate related financial risks from the Governor of Bank of England Mark Carney, Governor of Banque de France François Villeroy de Galhau and Chair of the Network for Greening the Financial Services [NGFS] Frank Elderson. It outlines the role of central banks, but reminds us that 'climate change is a global problem, which requires global solutions, in which the whole financial sector has a crucial role to play'. This was timed to highlight the publication of the NGFS Call for Action which is accompanied by a short explanatory video

Avoiding the storm: Climate change and the financial system: Sarah Breeden, Executive Director, International Banks Supervision at the bank of England, adds her voice to the rallying call for firms to take climate change seriously and to take action now. This times with the release of the PRA's Policy and Supervisory Statements on Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change. You can also read our blog series on climate change. 

Less cash, but not cashless: Speech in which Sarah John, Chief Cashier at the Bank of England makes it clear that ensuring that people can continue to choose to use cash isn’t something that the central bank can do alone. Sarah John also spoke at one of our events recently: you can watch this online.

New Directory of Financial Services workers: The FCA has published its Policy Statement [PS 19/7] creating a new Directory of Individuals, to help consumers and other stakeholders check on the current and past status of individuals covered by the Certification Regime.  Whilst delighted that our calls for the new directory to include details of an individuals' professional standing have been included,  in our view the FCA has not gone far enough by failing to include details about the level of professional membership held. In its feedback the FCA stated the reason for this as the lack of 'consistent language when describing comparable levels of accreditation (eg fellow, member, Chartered etc) making comparisons difficult for most consumers'.  Working with our Alliance partners, we will challenge this concern and remain hopeful that a future iteration of the directory will provide better recognition of the knowledge, skills and experience of our qualified members. Our response to the original consultation can still be viewed on the Alliance website.

The FCA Register will remain and hold data on those individuals that require FCA approval, however the new directory will also include those individuals assessed as fit and proper by their firm.

The Senior Manager & Certification Regime will soon be extended to all FCA regulated firms. To mark this, the FCA has released a new video in which senior leaders from banking share their experiences.   

Recent News

Senior Managers and Certification Regime:  As we approach the date for full extension of the regime, the FCA has anounced that data collection for the new Directory of Individuals is open. Banks, building societies, credit unions and insurance companies (and their appointed representatives) must submit their data before 9 March 2020 . All other firms must submit between 9 December 2019 and 9 December 2020.  In July the FCA published its final rules on extending the SM&CR to FCA solo-regulated firms, including claims management companies (CMCs). the policy statement (PS19/20) also makes final rules on the new Directory of individuals working in financial services. In our various responses we have consistently pushed for more details to be included that provide greater understanding about the professional standing of Directory Individuals.  See our news section for more information.

Guidance on the fair treatment of  vulnerable customers: The FCA has seen some changes in the perception and understanding of issues realting to the treatnment of those in vulnerable circumstances. However, firms are seeking greater clarity on exactly what they should be doing and so new guidance has been drafted (GC19/30). The aim of the proposed guidance is to make clear what firms should be doing to ensure fair treatment and to develop some consistency in outcomes. Ultimtately it seeks to address what more needs to be done to embed in firms’ a culture of doing the right thing for vulnerable, and indeed all, consumers. The consultation closes on 4th October. 

Duty of Care: The FCA has provided feedback to this discussion paper, indicating that further work will be undertaken internally to review proposals. These include looking at how it applies the existing regulatory framework, and considering revision of/addition to its Principles for Business. We are satisfied with this approach as it follows the recommendations made in our response to the discussion.  A further paper outlining next steps is expected in Autumn 2019.

FCA Business Plan 2019/20:  April marks the release of the regulator's future plans. As we review the plan and prepare a summary, here are some of the key points.  There are four ongoing cross-sector priorities highlighted:

  • work on firms’ culture and governance, including extending the Senior Managers and Certification Regime to all firms
  • ensuring the fair treatment of firms’ existing customers by monitoring firms’ practices, including the information they give prospective and current customers
  • developing the work being done on operational resilience,  and
  • combating financial crime and improving anti-money laundering practices

The plan also sets out 3 additional cross-sector priorities, which have longer time horizons:

  • the future of regulation
  • ensuring innovation and the use of data work in consumers’ interests
  • examining the intergenerational challenge in financial services

PRA Business Plan 2019/20:  Operational resilience also feature prominently in the PRA's future planning, as does preparing for a transition to a post-BREXIT economy. With regard to competition, the PRA will continue its work to reduce barriers to entering the UK market, but also promises to take a fresh look at barriers to growth. There will also be more focused effort in its ‘horizon-scanning’ programme. If you can't wait for our summary, you can view the full report on the PRA website.

Mortgage Market Study - Final Report: The FCA has published its final report in which it confirms earlier findings that the mortgage market is working well in many respects but falls short of the FCA’s vision in some specific ways. Alongside the report is a new consultation on new lending rules; part of a package of remedies designed to help the market work better.  The remedies package: 

  • seeks to speed up more widespread participation by lenders in innovative tools to help customers more easily identify what mortgages they qualify for;
  • includes a proposal for the Single Financial Guidance Body (SFGB) to extend its existing retirement adviser directory to include mortgage intermediaries to help customers make a more informed choice of broker;
  • signposts a consultation in Spring on proposals to change mortgage advice rules and guidance to help remove potential barriers to innovation; and 
  • further, in-depth analysis to understand more about those customers that do not switch mortgage to inform any necessary intervention.

Digital Regulatory Reporting [DRR]: The FCA has produced a short video and report outlining the ongoing work to investigate how technology might be used to make the current system of regulatory reporting more accurate, efficient and consistent. The report outlines the progress made during Pilot Phase I of the project which examined the feasibility of scaling the proof of concept. Phase II is now underway and looks to address some of the gaps identified in Phase I, in particular understanding the economic viability of DRR and exploring how it could apply to different product groups.

Financial Inclusion and Capability: The Treasury has released its first report 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. 

Cryptoassets: The FCA has published two pieces of research looking at UK consumer attitudes to cryptoassets, such as Bitcoin or Ether. The research includes qualitative interviews with UK consumers and a national survey. Christopher Woolard, the FCA’s Executive Director of Strategy and Competition commented: 'This research gives us evidence we haven’t had before about how consumers interact with cryptoassets'. The FCA has been carrying out work, both as part of a broader UK Cryptoasset Taskforce and independently.

Regulators Focus on Climate Change Related Risks: Both the PRA and the FCA published papers addressing this important issue. The PRA consulted on a draft supervisory statement which clarified its expectations; non intervention is favoured, but clearly there is more firms should be doing strategically to ensure they have given significant consideration to their exposure to climate related risk, as well as the opportunities possible from the move to a low carbon economy. Our feedback to the statement will soon be available to read. The FCA opened a discussion on the issue, setting out its approach and focus. in our response we've favoured a non intervention policy, given that there are already some excellent, global initiatives, such as the TaskForce for Climate-Related Financial Disclosures [TCFD]. To follow the progress of this FCA discussion, visit their website

FCA Strategic Review of Retail Banking Business models [not to be confused with the work by the CMA - see their report here]. Launched in May 2017, the specific objectives of the FCA review were to:

  • understand retail banking business models in greater depth
  • understand how free-if-in-credit banking is paid for
  • understand the impact of changes such as increased use of digital channels and reduced branch usage on business models 

The final report was published in December 2018 and highlights some key activities which the FCA will undertake: 

  • on-going monitoring of retail banking business models
  • analysis to understand the value chain in new payment services business models
  • exploratory work to understand certain aspects of SME Banking

The FCA has also identified 3 potential areas requiring coordinated action in the future to ensure a retail banking sector that works well for consumers:

  • continued access to banking services
  • appropriate use of customer data
  • system resilience and effective prevention of financial crime and fraud

FCA Approach to Consumers and Duty of Care Discussion: In July the published its final version of its Approach to Consumers outlining the measures it will take to protect consumers and setting out when and how the regulator takes action.. Alongside this was published a new Discussion Paper on a Duty of Care which explores whether a new duty of care could enhance good conduct and culture and provide additional protections for consumers.  We provided feedback to this discussion paper and await further output - although this is probably on the back burner due to FCA work relating to BREXIT. 

High Cost Credit reforms: In December 2018, the FCA announced the next package of measures forming part of its high-cost credit review. It has announced proposals to change how banks charge for overdrafts, which would bring to an end to banks charging higher prices for unarranged overdrafts. This forms part of the work relating to the strategic review into the retail banking market and links to ongoing work to address the serious concerns the regulator has regarding harm to consumers, particularly to vulnerable consumers, from the disproportionate burden of high charges and repeat use of overdrafts. 

Mortgages: The FCA has published its interim report into the mortgage market. The report found that competition in the mortgage market is working well for many people. Recommendations include: that it be easier for consumers to find the right mortgage; there should be a wider range of tools providing consumers with a choice about the support (including advice) that they receive; that consumers choosing an intermediary should be able to do so on an informed basis; and that consumers should be able to switch more freely to new deals without undue barriers.  In CP18/41 the FCA sets out proposed requirements intended to gather more data about internal product transfers and product performance to improve its understanding of possible conduct and competition harm in the sector.

The Financial Stability Board [FSB] has set out its toolkit for Strengthening Governance frameworks to Mitigate Misconduct Risk. It sets out 19 steps that regulators and firms can take to tackle the causes and consequences of misconduct. Tool 8 notes that ‘Individuals are subject to professional standards of competence and conduct in the discharge of their duties’. The FSB is also developing a cyber lexicon aimed at ensuring clear and common understanding of the issues and threats in this field. It comprises a set of 50 core terms related to cyber security and cyber resilience in the financial sector.orld Autism Awareness Week which ran 26/3-2/4.] The FCA's intention is to raise awareness of the issues some autistic people face when accessing financial services.

BSB’s Principles for Strengthening Professionalism in Banking: Output from the BSB’s year-long project to explore ways of strengthening professionalism in the UK banking sector for the benefit of employees, customers, clients and wider society. CB:PSB and Institute colleagues actively participated in this project which can be found here.

Innovation: The FCA has also published a report outlining lessons learned during the first year of its regulatory sandbox.  The sandbox allows firms to test innovative products, services or business models in a live market environment, while ensuring that appropriate protections are in place. Read more here.

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