Investment Management in Financial Services UK
Boosting Pillar Strength: PRA consults on enhancements to the Pillar 2 Framework
In March 2019, the Prudential Regulation Authority (PRA) published consultation paper (CP 5/19) to update the Pillar 2 capital framework and to reflect on-going enhancements in setting the PRA buffer (Pillar 2B).
As the CP states, its key objective is to “...bring greater clarity, consistency and transparency to the PRA’s capital setting approach. In promoting a greater level of transparency, the PRA seeks to promote financial stability, the safety and soundness of PRA-authorised firms, and facilitate more informed and effective capital planning for banks.”
This CP is relevant to PRA-authorised banks, building societies and PRA-designated investment firms (‘firms’). This CP is not relevant to credit unions, insurance and reinsurance firms. It is open for review, question or comment by 13 June 2019 and the PRA proposes to implement it from 1 October 2019.
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 end of the Term Funding Scheme
We do not currently expect there to be an extension to the Term Funding Scheme [“TFS”] nor a replacement scheme. Therefore, the ending of the scheme will require a significant change in the funding plans of many UK lenders, some of whom have become reliant on central bank funding to drive growth. As a result we expect securitisation markets to revive and deposit rates to increase in the near term, especially around peaks in the scheme’s maturity profile. The notional value of UK covered bond schemes is also likely to rise for smaller, less highly rated issuers seeking attractive spreads. To avoid sharp increases in their underlying cost of funds, Treasurers will have to move early and look to develop their funding infrastructure well in advance of their contractual maturity payments to the Bank in order to avoid costly funding issues and potential headwinds to future growth.
Innovation and data privacy: the ICO’s technology strategy 2018-21
New technologies and evolving business models have required regulators to review their capabilities and respond to new risks posed. And the UK Information Commissioner’s Office (ICO) is no exception. The new General Data Protection Regulation (GDPR) has vested considerable powers to the ICO to regulate and supervise data privacy risks. Increasing concerns about the wholesale use and processing of personal data by firms are reflected in the ICO's recently published Technology Strategy, which outlines its objectives and focus areas through eight technology goals.
The ICO strategy’s leitmotif is that technological advances “need not come at the expense of data protection and privacy rights” and that “privacy and innovation are not mutually exclusive”. Through the development of its technology strategy, the ICO’s overall aim is to remain relevant by ensuring that the monitoring and understanding of technological change, and its impact on information rights, are a core component of its work going forward.
PS18/4: Credit Cards and Persistent Debt
This blog is aimed at credit card providers but has read across to other consumer credit firms such as debt purchasers, credit reference agencies, debt management companies and providers of free debt advice.
Open-Source or Proprietary Software for Credit Risk: It’s all about asking the right questions
It is no secret that technology and its impact on companies’ business models is shaking up the general market. Technology disruption isn’t limited to media, retail, or transport (to name a few industries), but this disruption is widespread, also impacting financial services. The general theme is that technology enabled companies can execute quicker, cheaper and with greater precision.
Pillar 2 Liquidity: Cashflow Mismatch Risk
Introduction
The PRA recently issued their policy statement on Pillar 2 Liquidity and have finalised the reporting requirements for Cashflow Mismatch Risk (CFMR). This followed the consultation papers released in May 2016 and July 2017. While the policy statement covers CFMR, franchise viability, intraday liquidity and other liquidity risks, this blog focuses on CFMR given the significant implications for firms.
PRA Business Plan 2018/19
The PRA published its Business Plan for 2018/2019 on 9 April 2018. The Business Plan, structured around the PRA’s eight core strategic goals, is cross-sectoral, outlining the work the PRA intends to undertake for the upcoming year across both banking and insurance sectors.
FCA’s Business Plan 2018/19
This blog provides an overview of the FCA’s 2018/19 Business Plan. It discusses the key cross-sector priorities the FCA identifies and compares them to those in the previous year’s business plan, noting dropped, changing and new priorities. It also outlines the FCA’s sector priorities for 2018/19.
Alongside the business plan, the FCA also published its 2018 Sector Views – the FCA’s annual analysis of how each sector is performing – covering retail banking, retail lending, general insurance and protection, pensions and retirement income, retail investments, investment management and wholesale financial markets.
Notably, the UK’s withdrawal from the EU is called out as a top priority, over and above any cross-sector or sector priorities. The FCA notes that they will have to dedicate extra resources to this programme of work, and that this will mean reduced activity in other areas as a result.