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A new regulatory requirement for PRA firms
On 30th April 2018, the PRA published its Policy statement (PS) PS9/181 on Group Policy and Double Leverage, finalising its Consultation paper (CP) CP19/172.
The PS updates a number of proposals covered within the CP, primarily intended to ensure that the banking Group has appropriate financial resources to manage prudential risks to the whole Group including its subsidiaries, covering:
PRA Pillar 2: Internal Stress Test Reporting
On 30th April 2018, the PRA published its Policy Statement (PS) PS8/181 on Pillar 2 reporting, finalising its Consultation Paper (CP) CP25/17.2 The PS requires firms to submit a new return (PRA111) to capture internal stress testing data used for Pillar 2B assessments, currently included in firms’ Internal Capital Adequacy Assessment Process (ICAAP) documents.
What new expectations for FMIs mean for the banking sector
The European Central Bank’s (ECB) recent consultation on its Cyber Resilience Oversight Expectations (CROE) for Financial Market Infrastructures (FMIs) and the release of its framework for an EU-wide Threat Intelligence-based Ethical Red Teaming exercise (TIBER-EU) follows a significant amount of work by the ECB in the last four years to scale-up its involvement in the supervision of cyber resilience for both FMIs and banks.
While these new expectations are of most immediate significance to FMIs, the ECB’s approach in the CROE should be read carefully by the banking sector as an indication of what might be coming its way from the ECB and other authorities.
The European Union’s (EU) Market Abuse Regulation (MAR) came into effect on 3 July 2016. MAR strengthened the EU’s previous market abuse framework by extending its scope to new markets, new platforms and new behaviours and the significant introduction of monitoring trade orders as well as executions. It contained prohibitions of insider trading, unlawful disclosure of insider information and market manipulation, alongside provisions to prevent and detect these behaviours.
This blog takes stock of the FCA’s approach to consumer vulnerability in the light of the FCA’s latest business plan. In particular, it discusses the regulatory expectations firms now face in this area, and what actions they might consider to meet them.
When IFRS9 came into force in January 2018, many in the credit risk world thought the hard part was over. After all, conventional wisdom suggested the new standard would cause a one-off shift in expected loss provisioning and life would return to normal.
However, as firms are now rapidly gaining experience with the first generation of models, a number of practical implications have sprung up with far reaching consequences on business models beyond the challenge of accounting for potential credit losses. One such challenge is the adequate pricing of the implied economic costs of credit under the new standard.
Read original blog here.
The EU Benchmark Regulation (EU BMR) became effective on 1 January 2018 and whilst the transitional provisions mean that many of the requirements are not fully effective until 1 January 2020, benchmark administrators – particularly those based outside of the European Union (EU) – should already be taking action to ensure preparedness for that date.
Insurer investment in equity release and the “right” level of the risk margin: the PRA’s latest view
Speaking recently at the Westminster and City Annual Conference on bulk annuities, David Rule (PRA Executive Director of Insurance) set out his views on the risks facing UK life insurance firms as they expand into the bulk purchase annuity market and increasingly back these liabilities with investments in illiquid assets. He also made some important observations on the appropriate level of the risk margin1.
The FCA’s Review of Retail Banking Business Models: Free-if-in-credit banking, vulnerable customers and the issue of overdraft charges
Vulnerable consumers continue to be at the forefront of the FCA’s conduct agenda. While the FCA’s business plan for 2018/19 dropped consumer vulnerability as a cross-sector priority, our view is that this is not because vulnerability has become any less important to it. Rather, as explored in our recent stock take on the FCA’s approach to vulnerability, we see evidence that the FCA is embedding vulnerability into all aspects of its supervisory approach and programme of work.
New technologies and evolving business models have required regulators to review their capabilities and respond to new risks posed. And the UK Information Commissioner’s Office (ICO) is no exception. The new General Data Protection Regulation (GDPR) has vested considerable powers to the ICO to regulate and supervise data privacy risks. Increasing concerns about the wholesale use and processing of personal data by firms are reflected in the ICO's recently published Technology Strategy, which outlines its objectives and focus areas through eight technology goals.
The ICO strategy’s leitmotif is that technological advances “need not come at the expense of data protection and privacy rights” and that “privacy and innovation are not mutually exclusive”. Through the development of its technology strategy, the ICO’s overall aim is to remain relevant by ensuring that the monitoring and understanding of technological change, and its impact on information rights, are a core component of its work going forward.
The back office is the engine of a financial institution. Until now, that’s meant structure, reliability, and efficiency - all things that are independent of revenue. But the competitive forces bearing down on financial services are also changing the way we ordinarily think about financial operations.
Here are three examples of what I mean.