Banking in Financial Services UK
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Europe might reasonably claim to be the 'cradle of Open Banking' - after all, PSD2 and the UK's Open Banking Standard pioneered it. But, look around now, and open banking initiatives are popping up everywhere. It is not just a matter of replicating the European approach elsewhere. Jurisdictions are adopting their own approaches to Open Banking, reflecting their markets and policy objectives, and in some cases developing cross-industry approaches beyond financial services.
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.
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…
The European Central Bank (ECB) has published details of how it expects banks to manage the process of setting and executing their business strategy. This brings some clarity to the long-standing question of how recent supervisory focus on business models – it is again one of the ECB’s priorities for the year – will translate into action for banks, but in the process introduces an expectation that banks make significant investments in their capabilities in this area.
As the fight against money laundering continues to evolve rapidly, on 12 September 2018, approximately 6 months after the implementation of the 5th EU Anti-Money Laundering Directive (5AMLD), the European Parliament adopted further amendments to the relevant criminal law in order to strengthen and advance the fight against money laundering. Whilst these have a long way to go before they are finalised, there is value in looking now at some of the proposed amendments, such that firms and our clients are aware of what may be needed or expected of them in the near future.
When the Apache attack helicopter was developed it included a monocle for the pilot which gave a heads up display to their right eye featuring a plethora of high level information - keeping an eye on things became a more challenging task when you had to divide your vision to get a holistic view of the battlefield.
In May-June 2018, the European Central Bank (ECB) and the Basel Committee on Banking Supervision (BCBS) published reports on the progress of the largest, internationally active banks towards compliance with the BCBS Principles for Effective Risk Data Aggregation and Reporting – known as BCBS 239.
Last Friday, 13 July, marked six months since the revised Payment Services Directive (PSD2) came into effect across the European Union (EU). With this in mind, we have been taking the pulse of the market to understand how Account Servicing Payment Service Providers (ASPSPs) are progressing with both their compliance programmes and strategic responses.
With few exceptions, ASPSPs seems to us to be broadly compliant with the PSD2 conduct requirements which became enforceable in January, and progressing well against those which will go live next year. However, determining what a successful open banking strategy looks like, and developing compelling use cases, continues to be more elusive.
The last few weeks have seen a flurry of activity on the resolvability front. Lest anyone think momentum was seeping out of the decade-long push to make banks resolvable – and thereby end “too big to fail” – these developments suggest a redoubling of regulatory efforts to demonstrate that the framework will work. Each of the initiatives is important in its own right, but taken together they amount to a raising of the bar in terms of resolution preparedness, particularly identifying and dealing with impediments to resolution. Major banks in the UK and the Banking Union can expect greater focus on resolution authorities’ assessment of their resolvability – and in the UK, the prospect of this assessment being made public. We have also had a very clear signal from the Bank of England (BoE) of what it expects of major UK banks' valuation capabilities for resolution purposes, and are approaching some key milestones for the Single Resolution Board (SRB)’s multi-year work programme. There continues to be progress on targets for MREL (the minimum requirement for own funds and eligible liabilities), albeit with some potential obstacles on the way there. We take the UK, Banking Union, and MREL developments in turn below.
The Bank of England (BoE) and the Financial Conduct Authority (FCA) have released a Discussion Paper (DP) on operational resilience, introducing enhanced expectations for Boards and senior management. The DP emphasises incident recovery – using the concept of "impact tolerance" – and highlights the regulators’ focus on the ability of firms and FMIs (collectively “firms”) to resume critical business services. The DP is of primary interest to CROs, COOs, CISOs, heads of operational resilience or cyber risk and Board members at financial services firms regulated by the BoE, FCA or Prudential Regulation Authority (PRA).