EMEA Centre for Regulatory Strategy in Financial Services UK
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The Financial Conduct Authority (FCA) has published its further consultation paper on the future of payment protection insurance (PPI) complaints. CP 16/20 adds further detail to the regulator’s plans to bring the ongoing issues raised by the historic sales of PPI to an orderly close, with a final date for making new complaints now estimated for June 2019.
Amongst mortgage lenders, variations in banks’ Risk Weighted Assets (RWAs) are observed in the market. This information is published in firms’ Pillar 3 disclosures, as well as by the Prudential Regulation Authority (PRA). As an example, in January 2015 the PRA reported performing risk weights ranging from 10.8% to 14.6% for performing residential mortgages with 70%-80% Loan To Value (LTV) amongst firms using the Internal Ratings Based (IRB) approach to calculating RWAs. The variations lend credence to a distrust of banks’ internal models by regulators, shareholders and the general public.
The Financial Stability Board (FSB) has consulted on policy recommendations for addressing structural vulnerabilities from asset management activities. This follows a long debate at international level involving both the FSB and the International Organization of Securities Commissions (IOSCO). The FSB’s proposed recommendations relate to risks arising from liquidity mismatch, leverage, operational issues in transferring investment mandates in stressed conditions, and indemnifications related to securities lending.
The UK has voted to leave the European Union (EU). Uncertainty in financial markets and among the business community is understandably very high. Today, there are many more unknowns than knowns – especially about how financial services firms operating in the UK will access and trade with the EU’s Single Market in future.
The introduction of multiple reporting requirements under different regulations and on different timelines should prompt banks and investment firms to think strategically when implementing regulatory changes and when improving existing reporting processes. In particular, they should consider the potential overlaps and synergies across these reporting requirements, assess the capabilities of their current practices and IT infrastructure, and work out how they can capitalise on the use of reporting data for their own purposes.
Despite the many years that have passed since the global financial crisis, its causes and consequences continue to demand attention from industry and policymakers alike.
In recent papers1, the Basel Committee (BCBS) has proposed a number of changes to the scope and use of internal modelled approaches. Taken together, they represent a tectonic shift in banks’ ability to use internal models for regulatory capital purposes:
Culture in financial services firms has moved towards the top of the agenda for regulators, investors and consumers in the wake of excessive risk-taking by some firms in the run-up to the financial crisis and a string of misconduct scandals. Despite this, there can be a tendency on the part of some in the industry to see culture as “someone else’s problem”. A Deloitte survey on culture in banking carried out in 2013 found that 65% of senior bankers believed there were significant cultural failings across the industry, while only 33% believed the same of their own bank.
The FCA published its 2016-17 Business Plan on 5 April. The document is shorter and less detailed than in previous years, with only a brief Risk Outlook section, and makes limited announcements of new work. This may reflect the fact that the new CEO, Andrew Bailey, will not join the FCA until July, although as a member of the FCA Board, he will already have had an opportunity to influence the Plan. Like last year, the FCA has continued with its magic number of seven priority areas, rolling over five areas and prioritising two new areas – wholesale markets and the provision of advice.
When the EU launched the Banking Union, the ultimate objective of the project was to be able to share risks between countries, rather than retain them at the national level. It is an aspiration that faces many complex political challenges, including the trade-off necessarily made by countries involved between risk sharing and risk reduction. The current EU debate on European deposit insurance, the so-called third pillar of the Banking Union, and the sovereign exposures of banks, reflects precisely such a compromise.