Banking in Financial Services UK
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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.
It is no secret that technology and its impact on companies’ business models is shaking up the general market. Technology disruption isn’t limited to media, retail, or transport (to name a few industries), but this disruption is widespread, also impacting financial services. The general theme is that technology enabled companies can execute quicker, cheaper and with greater precision.
This blog provides an overview of the FCA’s 2018/19 Business Plan. It discusses the key cross-sector priorities the FCA identifies and compares them to those in the previous year’s business plan, noting dropped, changing and new priorities. It also outlines the FCA’s sector priorities for 2018/19.
Alongside the business plan, the FCA also published its 2018 Sector Views – the FCA’s annual analysis of how each sector is performing – covering retail banking, retail lending, general insurance and protection, pensions and retirement income, retail investments, investment management and wholesale financial markets.
Notably, the UK’s withdrawal from the EU is called out as a top priority, over and above any cross-sector or sector priorities. The FCA notes that they will have to dedicate extra resources to this programme of work, and that this will mean reduced activity in other areas as a result.
Technology and innovation (“FinTech”) again featured prominently in this year’s Financial Conduct Authority (FCA) business plan. Andrew Bailey, Chief Executive of the FCA, remarked that “technology is supporting competition, transforming markets and changing the way consumers engage with them. […] creating a conveyor belt of risks and opportunity”. Given this, and despite the need for the FCA to dedicate a significant proportion of its resources to the UK’s withdrawal from the EU, FinTech was confirmed as a key priority for the FCA over the coming year. The two specific FinTech priorities highlighted in the business plan are: Innovation, big data, technology and competition and Data security, resilience and outsourcing.
The Prudential Regulation Authority (PRA)'s emphasis on technological innovation in its business plan is relatively less pronounced. Nevertheless, it too is exploring ways to innovate as a regulator, by continuously monitoring FinTech developments, and supporting the authorisation and supervision of new banks and insurers.
Deloitte and UBS hosted a roundtable on Artificial Intelligence (AI) at the recent Innovate Finance Global Summit 2018 (IFGS18). We had representatives from across the FinTech ecosystem covering incumbents, start-ups, scale–ups, consultants and other service providers.
AI is clearly a hot topic and there are a number of challenges and opportunities to explore. We chose four key themes, crowdsourced from experts in the area:
- Navigating the hype
- Bias and transparency
- Role of the regulator
After a lively discussion, we used a voting system to identify the top messages by theme. The messages that earned the highest number of votes are summarised below.
The Government’s recently published response to the House of Lords European Union Committee Report “Brexit: The Future of Financial Regulation and Supervision”1 gives us part of the answer to this question. Much of it confirms what was already known or widely expected. The UK will remain a strong proponent of, and adherent to, global regulatory standards, including those set by the Financial Stability Board and the Basel Committee on Banking Supervision. The UK regulators will continue to adopt a proportionate approach to the application of regulation, with the Government welcoming the PRA’s “proportionate application of Basel rules”. And the Government and regulators will ensure that regulation supports innovation, including through fintech.
Twenty months after the European Banking Authority (EBA) issued the first draft, on 13 March the regulatory technical standard (RTS) on strong customer authentication (SCA) and Common Secure Communication (CSC) under revised Payment Services Directive (PSD2) was finally published in the Official Journal of the European Union.
The length of the process and the number of iterations required to finalise the standard evidence the complexity of developing rules to establish a level playing field between different market participants, while at the same time ensuring technological neutrality, consumer protection, and enhanced security in payments services.
The finalisation of the RTS is an important milestone which will give firms much more clarity and certainty on how to push forward their PSD2 compliance and strategic programmes. Nevertheless, the final RTS still leaves a number of important questions open, particularly in relation to the development and testing of access interfaces for Third Party Providers (TPPs).
The final parts of Basel III, agreed in December 2017, were widely greeted in the banking industry as having a less severe impact than initially feared. Many commentators also noted that the January 2022 implementation date set for these reforms was sufficiently far away to dampen much of their immediate effect on banks. If this assessment holds true, it could limit the need for banks to raise large amounts of fresh capital and help them focus on new business opportunities, controlling costs, and delivering greater shareholder returns.
Cloud Services Integration
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