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A call to action for Asset Management firms.
As part of the continued regulatory scrutiny and oversight of the transition away from LIBOR, on 27th February 2020 the FCA published another Dear CEO letter addressed to all UK‑regulated asset managers. The FCA makes clear it is essential for asset managers to reflect on the points raised in the letter and to take appropriate action.
It is an indication of the importance that the FCA attaches to LIBOR transition for the sector that it has chosen to write again to asset managers, having covered this topic as recently as 20th January in its letter to CEOs setting out its asset management supervision strategy.
The letter encourages firms to “prepare now for the end of LIBOR” and be “in no doubt” of their responsibility to facilitate and contribute to an orderly transition. The letter sets out clear expectations as to the specific actions asset managers should be taking in terms of their:
- governance and oversight;
- transition plans;
- products and services; and
- mitigation of conduct risks and conflicts of interest.
The UK’s overarching position makes it clear that the Government will not agree to any obligation for its laws to be fully aligned with the EU’s – sovereignty is paramount. The EU’s stance, meanwhile, is to ensure open and fair competition between the two markets, including securing a commitment from the UK to maintain a robust regulatory level playing field.
This note sets out the opening negotiating position around equivalence and market access for financial services (FS) firms, and identifies some differences between the UK and EU’s positions.
Threat Intelligence-based Ethical Red Teaming (TIBER) is increasingly being used by supervisors to enhance the preparedness and resilience of financial services firms to cyber attacks. Recent regulatory trends point to these tests increasing in popularity and frequency in the coming years. Boards may not only need to oversee such exercises regularly, but also demonstrably use the lessons learned in their firm’s cyber and operational resilience strategies. Senior managers (such as CIOs, CISOs, or in a smaller number of cases, CROs) will need to make the case to their boards that these are a valuable use of often constrained resources.
The UK general insurance prudential regulator’s five key concerns and why they matter
The UK’s Prudential Regulation Authority (PRA) sent two letters late last year to the general insurance market: one Dear Chief Actuary letter and one Dear CEO letter. These letters outline findings from the PRA’s latest reserve reviews and priority areas for general insurance supervision.
This blog highlights five key themes from these PRA letters and from our broader experience of the regulator’s perspectives and priorities. In summary, we expect general insurers will see the following themes raised increasingly frequently by the PRA in 2020:
We predicted in our 2020 Regulatory Outlook that the Solvency II review would result in important changes for insurers to factor into their strategies and planning. Less than two months into the year, the review is already seeing twists and turns. This blog discusses two prospective important changes that now look likely to come out of the review – to the risk margin methodology, and to the euro long-term discount curve – and highlights connections with EIOPA’s concurrent project on IBOR transitions.
Following a brief hiatus, we are excited to share additional insights on client lifecycle management. Our blogpost1 in November 2019 introduced some ideas around the potential benefits of applying customer lifetime value (“CLV”) lens to client lifecycle management, and how it can bring enhanced benefits for both corporate and investment banks (“CIBs”) and their clients. This month, we seek to demystify the factors CIBs should consider in applying CLV to their clients.
Conflicts of interest are high on the FCA’s agenda, and are likely to remain so in future.1 They are a clear priority in the FCA’s 2019/20 business plan, and have also been flagged as an important area of concern in recent Market Watch publications. This blog outlines the conflicts that may arise for asset managers in the areas of personal account (PA) dealing, order allocation and outside interests in investee companies, and sets out some ideas to consider when deciding how best to manage these.
Post-crisis regulatory reform for the insurance sector passed a significant milestone at the beginning of this year. While the banking sector has, for good reasons, dominated the post-crisis re-engineering of financial services regulation, the FSB1 nonetheless tasked the IAIS2 in 2013 with a similar objective for the insurance sector in the areas of resilience, supervision and systemic risk. The IAIS has now provided its response in the form of a package of measures that start in 2020.
Creditworthiness, affordability and commissions: the FCA’s expectations in relation to premium finance
It is estimated that over 40% of motor insurance customers and around 52% of household insurance customers in the UK opt to pay their annual premiums by monthly instalments1, with many entering into regulated credit agreements in order to do so.
The FCA is focused on the extent to which firms offering premium finance under regulated credit agreements are meeting the requirements of the consumer credit regime, including changes to the rules around creditworthiness and affordability.
In our experience, firms offering premium finance are sometimes unaware of the full extent of their regulatory obligations under the consumer credit regime. This blog highlights key aspects of the recent rule changes and FCA reviews of the wider consumer credit market which have important implications for premium finance firms.
EIOPA’s annual work programme tends not to deliver many surprises, given EIOPA’s three year planning cycle. However, despite the appearance of consistency there are some significant changes in EIOPA’s 2020 programme that insurers need to be aware of.
The most significant changes are:-
- planned activities to support the development of a sound cyber insurance market
- a reduced level of data requests and;
- a decision not to conduct an insurance stress test in 2020.