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The last few weeks have seen a flurry of activity on the resolvability front. Lest anyone think momentum was seeping out of the decade-long push to make banks resolvable – and thereby end “too big to fail” – these developments suggest a redoubling of regulatory efforts to demonstrate that the framework will work. Each of the initiatives is important in its own right, but taken together they amount to a raising of the bar in terms of resolution preparedness, particularly identifying and dealing with impediments to resolution. Major banks in the UK and the Banking Union can expect greater focus on resolution authorities’ assessment of their resolvability – and in the UK, the prospect of this assessment being made public. We have also had a very clear signal from the Bank of England (BoE) of what it expects of major UK banks' valuation capabilities for resolution purposes, and are approaching some key milestones for the Single Resolution Board (SRB)’s multi-year work programme. There continues to be progress on targets for MREL (the minimum requirement for own funds and eligible liabilities), albeit with some potential obstacles on the way there. We take the UK, Banking Union, and MREL developments in turn below.
Agile is bringing a new shape to the world of delivery management, successfully adopted from software development and advocating a less rigid delivery mechanism, the agile movement aims to drive improved outcomes across all industries. In the latest in our agile blog series focusing on insight from across Deloitte about the world of agile, we look at agile funding; demonstrating how the alignment of capital expenditure to an agile delivery approach is imperative in this new world of change.
The Bank of England (BoE) and the Financial Conduct Authority (FCA) have released a Discussion Paper (DP) on operational resilience, introducing enhanced expectations for Boards and senior management. The DP emphasises incident recovery – using the concept of "impact tolerance" – and highlights the regulators’ focus on the ability of firms and FMIs (collectively “firms”) to resume critical business services. The DP is of primary interest to CROs, COOs, CISOs, heads of operational resilience or cyber risk and Board members at financial services firms regulated by the BoE, FCA or Prudential Regulation Authority (PRA).
In 2010, Metro Bank was the first high street bank to be launched in the UK for over 100 years. Since then, the UK banking sector has continued to see an unprecedented number of new entrants, each challenging the traditional banking status quo with new and innovative business models, product offerings and technology.
Our previous blog on the FCA’s Strategic Review of Retail Banking Business Models (the Strategic Review), analysed the review’s focus on the free-if-in-credit (“FIIC”) banking model, the impact that this model had on vulnerable consumers, and the potential for FIIC banking to create what the FCA might see as unacceptable cross-subsidies between vulnerable consumers and other consumer groups. Our overall conclusion was that the FCA was unlikely to ban FIIC banking, but would instead focus on the cost of overdrafts and likely look to introduce some form of price cap for unarranged (and possibly arranged) overdrafts.
- Provides an overview of the FCA’s recent high cost credit review;
- Analyses how the review’s findings and proposals fit into the FCA’s wider agenda on vulnerable consumers; and
- Explains what this means for future pieces of FCA work that relate to vulnerability.
The European Banking Authority (EBA)’s Opinion on preparations for the withdrawal of the UK from the EU
The EBA published on 25 June a second Opinion on preparations for Brexit, a follow-up to its Opinion of October 2017. This Opinion is relevant to UK financial institutions (banks, investment firms, payment service providers, electronic money institutions and creditors and credit intermediaries, collectively “firms”) that provide services to the EU27 (whether directly or by establishment) and also to EU27 firms with counterparties, clients or customers based in the UK (whether directly or by establishment).
A decade on since the start of the financial crisis, the Bank of England (BoE) has signalled a step up in efforts to make banks resolvable. The overall message is clear – despite the progress made so far, and the January 2019 deadline for UK retail ring-fencing being just around the corner, more work is needed. There is going to be no let-up for banks. It is not just more of the same; there are new requirements for banks to tackle, which may necessitate new skills and governance arrangements within their resolution teams, and with deadlines over the next four years already set.
“The prices of many cryptocurrencies have exhibited the classic hallmarks of bubbles including new paradigm justifications, broadening retail enthusiasm and extrapolative price expectations reliant in part on finding the greater fool.” Mark Carney, March 2018.
The London Interbank Offered Rate (LIBOR) underpins in the order of $300 trillion in financial products and is one of the most significant reference rates used by financial market participants. However, during the last financial crisis the inadequacies of LIBOR became evident, which in turn triggered a concerted effort by market participants and authorities to fix them. Despite these efforts, in July 2017, the UK Financial Conduct Authority (FCA) announced a transition away from LIBOR as the key interest rate index used in calculating floating or adjustable rates for loans, bonds, derivatives and other financial contracts. The FCA’s intention is that, at the end of 2021, it will no longer seek to persuade, or compel, banks to submit to LIBOR.
On 19 April 2018, the European Parliament adopted the 5th Anti‑Money Laundering Directive. The amendments stemmed from the European Commission’s 2016 Action Plan to tackle the use of the financial system for the funding of criminal activities, terrorist financing and the large‑scale obfuscation of funds. The Directive has been formally endorsed by the European Council and the text has been published in the Official Journal of the European Union. Member States will be required to bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 10 January 2020. Here we outline:
- Key amendments that have been introduced and;
- Actions that you should consider in response.