EMEA Centre for Regulatory Strategy in Financial Services UK
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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.
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.
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.
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.
Transaction reporting was a key focus in MiFID I. Twelve firms were fined a total of £33m by the Financial Conduct Authority (FCA) and further fines were levied across the EU.1 With the greatly expanded rules under MiFID II, there are even more pitfalls. Our survey of ten EU regulators revealed that six of these are currently undertaking or planning supervisory activities on MiFID II transaction reporting, the FCA among them.2
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.
The FCA has become increasingly concerned that firms’ use of cross-subsidies or price discrimination (also known as differential or dual pricing) may lead to unfair outcomes for certain groups of consumers who, as a result of these pricing practices, end up paying higher prices. The FCA’s scrutiny of these practices was explored in our recent paper, “Cross-subsidies in the crosshairs.”
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.