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Since taking on responsibility for the regulation of consumer credit in April 2014, the FCA has been addressing issues in this sector. It has always been one of its priorities to tackle risks in the high-cost credit market including payday lending, overdrafts, home-collected credit and catalogue credit.
In response to the increased number of complaints on unaffordable lending, the FCA published a Dear CEO letter on affordability in high-cost short-term credit on 15 October 2018. Assessing the extent to which creditworthiness assessments are compliant is a particularly topical subject in the wake of the latest changes to CONC (PS18/10) on 1 November 2018. As such, whilst this letter is addressed to high-cost short-term credit firms, other retail lending firms should also consider its content and sentiments.
The European Central Bank (ECB) earlier this year launched the first cross-border framework for the standardisation and coordination of cyber defence testing for financial institutions. This could well provide a blueprint for the global standard that has hitherto been absent, benefiting cross-border firms and more generally improving the sector’s cyber resilience. In this blog, we explore the latest European developments and consider what they could mean in this regard. Different regimes are already emerging around the world, but establishing certain commonalities could form the basis of an international approach.
Opening a new chapter of the regulatory response to a transition to a low carbon economy, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have set out their emerging approaches to supervising financial services firms’ management of risks arising from climate change. Many of the regulatory focus areas around governance, risk management, scenario analysis and disclosure align to, and have already been set out in the UK Green Finance Taskforce report, the European Commission’s in-flight legislative package on Sustainable Finance and the voluntary Taskforce on Climate-related Financial Disclosure (TCFD) guidelines. All that said, however, the publications represent a significant step towards requiring banks, insurers and investment managers to integrate climate change into their enterprise-wide risk management practices. We can now expect the regulators to clarify and finalise their approaches over the course of 2019.
Okay, so you have decided you want to be a bank.
Now what? In this blog we look at our banking licence experiences, and look at the main lessons that we took away.
Becoming a fully authorised bank can be a long and drawn out process, with many challenges to overcome along the way, nevertheless we’ve selected our 5 key pointers for navigating the process…
There is widespread consensus that incumbent retail and commercial banks will need to redefine their business models over the next five to ten years to remain viable. Two forces will play a fundamental role in determining the speed of change and the end-point toward which incumbents will move. The first force concerns incumbents’ vision of the future and their capacity for achieving digital transformation alongside the success of new digital native competitors. The second force concerns the role of financial regulators and supervisors as drivers of, or brakes on, digital transformation. Whilst digital transformation typically factors in regulatory compliance based on the current regulatory state of play, it does not tend to factor in regulatory risk. In this series “Digital transformation meets regulation 4.0: Playing and winning in 2030”, we present a way of thinking about how incumbents could play and win to hedge the value of their digital transformation against regulatory change.
There was once a time when the FCA (and its predecessor body, the FSA) would declare that it was “not a price regulator.” By this it meant that while it may put in place rules to promote good conduct, market integrity and fair competition, it did not look to involve itself directly in the prices that regulated firms could charge to their clients or customers.
The delegation of investment management functions by UCITS management companies and alternative investment fund managers (collectively referred to as “mancos” in this blog) has attracted increased scrutiny by EU regulators in the context of Brexit. In July 2017, the European Securities and Markets Authority (ESMA) published an opinion which set out supervisory expectations for EU mancos delegating investment management functions, including to non-EU entities. EU regulators such as the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg and the Central Bank of Ireland (CBI) have responded by affirming local requirements. ESMA also set up a Supervisory Coordination Network to discuss concrete cases of relocation from the UK to the EU to foster a common supervisory approach on issues such as delegation.
FCA consults on measures to protect retail investors in open-ended funds investing in illiquid assets
The FCA is consulting on measures intended to reduce the risk of poor outcomes for retail investors in open-ended funds that invest predominantly in illiquid assets (such as property or infrastructure), following its 2017 discussion paper on this topic. In stressed market conditions, such investors may be unable to redeem their investments at short notice or only be able to do so at a substantial discount to the unit price.
As incumbent retail and commercial banks continue to shape their vision of the future and their capacity for achieving digital transformation, the opportunities and risks are increasing. In our previous blog we explored where incumbents should play to hedge against regulatory risk by assessing their digital transformation target and their geographic footprint. In light of this, how should incumbents play to win? In this blog, we explore how incumbents can secure the value of their digital transformation through a three-pronged approach.
As regulators continue to develop their response to disruptive innovation, the regulatory risk – what type of regulatory change will occur in response to innovation – for incumbents is increasing. In our previous blog we explored how regulators may respond to innovation by presenting two forward-looking regulatory scenarios. In light of this, how should incumbents approach their digital transformation? In this blog, we explore where incumbents should play to hedge against regulatory risk by assessing their optimal digital transformation target and their geographic footprint.