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A New European System of Financial Supervision: European Commission proposes changes to the powers, governance and funding of the ESAs
The European Commission has proposed a legislative package that is intended to increase substantially the powers of the three European Supervisory Authorities (ESAs)1 and to replace the funding currently provided by national competent authorities (NCAs) with direct funding by firms.
This blog is part of a series of insights on Building Society risk management.
One of the key focus areas of regulatory reviews performed over the last 18 months has been the effectiveness of the Risk Function. As part of the feedback issued to Building Societies following their supervisory review and evaluation process, the Prudential Regulation Authority (‘PRA’) has emphasised that it considers an effective Risk Function to be crucial to the future well-being of societies and the successful delivery of their business strategies.
Over the last 18 months, the level of regulatory focus on the adequacy of the design, implementation and operating effectiveness of Risk Management Frameworks within the Building Society sector, and the adequacy of their Risk Functions, has heightened significantly. As a direct consequence, these matters are high on the agenda of Boards, Risk Committees and Audit Committees across the sector.
On 14 September, the Financial Conduct Authority (FCA) announced its final decision to make a Market Investigation Reference (MIR) to the Competition and Markets Authority (CMA) in relation to investment consultancy and fiduciary management services. This is the first time that the FCA has made such a reference to the CMA. The statutory deadline for the investigation is 13 March 2019.
For an asset class that represents just 1.4% of insurer’s asset holdings1, equity release mortgages (ERMs) have consumed a remarkable amount of firm and supervisory time. A decade or so ago, the regulatory challenge of this asset class lay on the conduct side. More recently, however, and not without some irony, the main mitigant of these conduct risks, the no negative equity guarantee2 (NNEG), has switched the focus primarily onto the inherent prudential risks of equity release, namely its illiquidity and, owing to the NNEG, the long term exposure it brings to the fortunes of the housing market without further recourse to the borrower.
Banks are confronted by an ever increasing volume of compliance challenges. These challenges are fuelled by an increase in analytical complexity associated with regulatory and accounting requirements. This increase in analytical complexity has made solutions more complex to implement in an effective and efficient manner. Furthermore, the deadlines of these new regulatory requirements can be years apart and the requirements are often targeted on a specific business function, which makes it difficult to create synergies between compliance solutions.
50% of operating model changes1 today are focussed on adoption of Agile and DevOps delivery models. While prototypes and proof of concepts have demonstrated value, scaling Agile hasn’t always been successful – here’s why.
In our report “The next frontier - the future of automated financial advice in the UK”, published in April, we noted that a key regulatory challenge for firms in providing automated advice is understanding which side of the “advice boundary” their services fall on – guidance or regulated advice. We argued that the success of automated models in the UK would therefore depend, in part, on how much clarity the Financial Conduct Authority (FCA) would be able to provide about where the boundary lies.
Earlier this year1 we shared our comments on the level of provisioning seen in Europe’s largest banks (by balance sheet size)2, based on the 2015 reporting year. Following the settlement of a number of high profile financial services disputes and fines imposed by the US Department of Justice, we have now updated our findings for the most recent reporting period. Has the trend we saw up until 2015 – of ever increasing provisions – continued?
Insurers’ recovery and resolution: EIOPA calls for extensive powers mirroring international standards already applied to banks
The European Insurance and Occupational Pensions Authority’s (EIOPA’s) recently-issued opinion on the harmonisation of recovery and resolution frameworks for the insurance sector is a landmark step for the insurance industry towards implementing the G20’s 2011 commitment to end “too big to fail” for financial services1. While a harmonised resolution regime has been implemented (and applied this year in a live context) for the European banking sector, insurance resolution has so far remained a national matter. Consequently, substantial differences in regime and approach currently apply across Europe.