EMEA Centre for Regulatory Strategy in Financial Services UK
EIOPA embraces the latest trends in European conduct regulation on value for money, firm culture and customer vulnerability
The European Insurance and Occupational Pensions Authority (EIOPA) recently published a framework to help EU national supervisors (also known as National Competent Authorities – NCAs) assess conduct risks throughout the lifecycle of insurance products. The framework is designed to foster supervisory convergence amongst EU supervisors, and to “provide input to the types of risks EIOPA and NCAs should focus on.”
Importantly, EIOPA has highlighted conduct themes that have been of growing importance and visibility across EU markets. These include the need for supervisors to assess firms’ culture; the importance of value for money as one of the key outcomes firms must deliver to consumers; and the need to protect more vulnerable groups of customers. Some of these conduct themes are already being pursued, to varying degrees, across the EU. However, EIOPA’s framework shows that they are also gathering momentum at a pan European level, and that EIOPA will, as part of its convergence remit, increasingly push for these issues to be scrutinised by supervisors across the EU.
Retail holdings of bail-in-able debt: addressing a long-standing impediment to resolvability
Retail holdings of bail-in-able debt have caused concern for a number of years for supervisors and resolution authorities. From the perspective of supervisors, conduct risks arise from the fact retail investors may not fully understand the risks involved. Partly because of this, and because of high volumes, resolution authorities are concerned that retail holdings of bail-in-able debt have created impediments to resolution.
The Single Resolution Board (SRB) has re-affirmed its opinion that large retail holdings of bail-in-able debt create impediments to resolvability – flagging the potential franchise damage to the restructured bank and the risk that litigation (e.g. for mis-selling) offsets the capital benefit of bail-in. To these impediments could be added the practical difficulty of bailing in a large number of individual investors, and the added political scrutiny it would bring.
FCA considers banning certain commission models following motor finance review
The FCA has recently published the final findings of its review of the motor finance sector. The review found that the way some commission arrangements are operating in motor finance may be leading to consumer harm on a potentially significant scale1. The FCA has started work to assess the options for policy interventions - including banning certain commission models - to address the potential harm it found.
The FCA is also not satisfied that firms are meeting regulatory requirements around customer communications and affordability assessments. It plans to follow up its concerns through supervisory work with individual firms.
This blog summarises the key findings of the FCA’s review and sets out the implications for firms, recognising that, whilst the findings and potential remedies of the FCA’s review are targeted at motor finance lenders and brokers, they raise issues of potential relevance to commission models, customer communications and creditworthiness assessments across the consumer credit sector.
The FCA takes forward investment pathways and other remedies from its Retirement Outcomes Review
The FCA recently published a package of measures to address the potential harm it found during its Retirement Outcomes Review (“ROR”). The package includes:
- a consultation aimed at improving outcomes in the drawdown market including the introduction of ‘investment pathways’ to help non-advised consumers choose the best way to invest their money; and
- final rules and guidance aimed at improving the information consumers receive in the lead-up to, and after, accessing their pension savings.
The future of defined benefit pensions – the regulatory framework for “superfund” consolidators
The importance of the Department for Work and Pensions (DWP) December 2018 Consultation on defined benefit (DB) pension scheme consolidation does not need to be stated. However, were there any doubt, the breadth and depth of the responses to the consultation, following its close at the beginning of February, underscore how critical the legal and regulatory framework for “superfunds” will be.
This blog explores some of the key proposals in what we consider to be the most critical areas covered by the DWP’s consultation, together with the feedback and proposals that the DWP has received in the respective responses of The Pensions Regulator (TPR), the Pension Protection Fund (PPF) and the Prudential Regulation Authority (PRA).
The FCA’s changes to overdrafts and high cost credit
The FCA recently published two Consultation Papers (CPs); CP18/42 which proposes changes to overdraft regulation; and CP18/43 which proposes changes to the regulation of various high cost credit products.
Attention has focussed, in particular, on the proposed changes to overdrafts, which would:
- end the distinction between arranged and unarranged overdrafts;
- stop firms charging fixed fees for overdrafts; and
- require firms to apply APR pricing to their overdrafts.
This blog summarises the package of changes proposed in the two CPs and explores their potential implications for firms.
The Bank of England and PRA’s Resolvability Assessment Framework: end-state resolvability in firms’ hands
The regulatory outlook for 2019
As we enter 2019, firms will naturally ask themselves what they should be doing to prepare for the year ahead. When it comes to the all-important subject of regulation, firms will want to know what issues and concerns are at the top of the regulatory agenda and how they can best respond. To help firms with these vital questions, Deloitte publishes its annual Financial Markets Regulatory Outlook. The Outlook’s perspective is deliberately strategic, both in analysing regulatory strategies and priorities and in considering the implications for firms’ strategies and business models.
Equity release mortgages – the PRA softens the transition but not the end-point regime
In our July blog on equity release mortgages we explored the PRA’s proposals in its Consultation Paper CP13/18 to tighten significantly its approach on equity release mortgages (ERMs). Specifically, the PRA proposed, unusually, to specify particular assumptions that it expects to underlie the calculation of the “effective value” used to assess whether firms are claiming undue Matching Adjustment (MA) benefit for ERMs backing annuities.
Implementing the FRTB in the European Union
Data from the European Banking Authority (EBA) published this Autumn, assessing the potential impact of Basel III reforms on EU banks, underlined the importance of the EU’s forthcoming implementation of global regulatory standards on the capital banks must hold for certain activities. One of the most immediate issues, from the EU’s perspective, is addressing capital requirements for market risk through the implementation of the Fundamental Review of the Trading Book (FRTB). The impact of the FRTB is widely expected to be substantial, with the EBA’s assessment finding that it would require a 52% increase in Tier 1 capital held against market risks for the group of 38 large EU banks that were assessed.