EMEA Centre for Regulatory Strategy in Financial Services UK
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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.
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.
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.
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.
- The European Commission is seeking views on the “benefits and drawbacks” of an individual “accountability regime” under the Capital Requirements Directive (CRD).
- The proposals are at a formative stage, and it is uncertain whether they will ultimately be taken forward. Nonetheless, we recommend that Board members and senior managers pay close attention to how they unfold through the consultation process.
- Although the Commission has positioned these proposals as more of an extension of the existing fitness and propriety requirements, there are some potential parallels with the UK’s Senior Managers and Certification Regime (SM&CR).
On 5 December, the UK’s financial regulators, the Bank of England (BoE), Prudential Regulation Authority (PRA), and Financial Conduct Authority (FCA), published a series of consultation papers (CPs) on their proposed approach to operational resilience in the financial sector.
EIOPA’s extensive recent consultation1 on the 2020 review of Solvency II gives a first indication of the changes to Solvency II that EIOPA will recommend to the European Commission.
This blog highlights ten over-arching topics from the consultation that we consider indicate where significant change is and is not likely, and which in turn could have an important bearing on the UK’s post-Brexit prudential capital regime. Each topic is detailed in the appendix to this blog.