Financial Stability Board
COVID-19 - FSB publishes report on financial stability, FinTech and market structure - 21 March 2022
The Financial Stability Board (FSB) has published a report on the financial stability impact of the COVID-19 pandemic on FinTech and market structure. The report refers to the FSB’s earlier paper published in February 2019 on the financial stability implications of FinTech and market structure as well as its December 2019 paper relating to BigTechs in finance.
The FSB’s primary finding is that the pandemic has accelerated the trend toward the digitalisation of retail financial services. The report notes that BigTech and FinTech firms’ expansion into financial services can bring a range of benefits, such as improved cost efficiencies and wider financial inclusion for previously underserved groups. However, it warns of “negative financial stability implications from dependence on a limited number of BigTech and FinTech providers in some markets, the complexity and opacity of their partnership activities, and potential incentives for risk taking by incumbent financial institutions to preserve profitability”. It also notes the risks associated with a limited number of cloud service providers magnifying the impact of any operational vulnerability.
The report outlines the types of actions that regulatory authorities have taken during the pandemic that may affect market structure. These actions relate to financial stability, competition, data privacy and governance. The report also stresses the importance of cooperation between financial authorities and, where relevant, their cooperation with competition and data protection authorities.
FSB: FinTech and Market Structure in the COVID-19 Pandemic: Implications for financial stability
Webpage
Press release
UK Parliament
Online Safety Bill - revised text and explanatory notes published - 17 March 2022
A revised Online Safety Bill (the Bill) has been published and introduced to Parliament, together with explanatory notes. The Bill follows various consultation papers and policy documents published since the Department for Digital, Culture, Media and Sport (DCMS) proposed the Bill in December 2020, following the final outcome of its ‘online harms’ White Paper. The revisions follow the Joint Committee’s pre-legislative scrutiny of the Bill and December 2021 report. The government’s response sets out 66 of the Joint Committee’s recommendations that will be incorporated in the revised Bill.
The Bill will introduce new rules for firms which host user-generated content, i.e. those which allow users to post their own content online or interact with each other, and for search engines, which will have tailored duties focused on minimising the presentation of harmful search results to users.
Online Safety Bill
Online Safety Bill: Explanatory notes
Policy Paper: Government response to the Joint Committee report on the draft Online Safety Bill
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Press release
Financial Policy Committee
Financial stability - FPC publishes Summary and Record of meetings - 24 March 2022
The Bank of England’s (the Bank’s) Financial Policy Committee (FPC) has published a Summary and Record of its meetings on 9 and 18 March 2022. The FPC meets to identify risks to financial stability and to further agree policy actions to safeguard the resilience of the UK financial system.
The summary and record make a number of observations, including:
- Russian invasion of Ukraine: global financial markets have been volatile in the wake of the invasion. The FPC specifically notes stress in commodity markets while also observing that major UK banks’ capital and liquidity positions remain strong. The FPC considers that the UK financial system is at a heightened risk from cyber threats;
- macroprudential measures: the FPC is maintaining the UK countercyclical capital buffer (CCyB) rate at 1%. It intends to announce a revised timeline for the Bank’s annual cyclical scenario stress testing framework, in the light of uncertainty relating to the Russian invasion of Ukraine;
- cryptoassets: the FPC judges that, while direct risks to the stability of the UK financial system from cryptoassets are currently limited, this could change if recent growth continues. This has driven the FPC’s recommendation in its financial stability report (see the item in the Banking and Finance section) that enhancements are made to regulatory and law enforcement frameworks. It also states that, in its judgment, a systemic stablecoin issued by a non-bank without a resolution regime and deposit guarantee scheme could meet its expectations, provided the Bank applies a regulatory framework that is designed to mitigate such risks; and
- cost of living increases: the FPC considers that increased costs of living are likely to affect household resilience in relation to domestic debt, although it notes that there is limited current evidence of a deterioration in lending standards.
Financial Policy Summary and Record of the Financial Policy Committee Meeting on 11 March 2021
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Financial Conduct Authority
Russian invasion of Ukraine - FCA updates webpage on operational and cyber resilience - 24 March 2022
The FCA has updated its webpage on operational and cyber reliance in view of the Russian invasion of Ukraine. The webpage notes that the National Cyber Security Centre (NCSC) gave its support to US President Biden’s call for increased cyber security vigilance among firms in response to Russia’s invasion.
The FCA also provides links to NCSC guidance for various sizes of firms (large firms, small and medium sized firms, microbusinesses and small traders) as well as encouraging firms to review the NCSC Cyber Essentials scheme. In addition, the FCA encourages firms to consider their ability to withstand a cyber attack and ensure business continuity and incident management arrangements are up to date, so that firms are ready to report any material operational incidents to the FCA in a timely way. Finally, the FCA warns against false information being gathered or shared about a particular firm, its staff and the financial services sector in general.
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Financial Ombudsman Service
Increased award limits - FOS publishes announcement - 18 March 2022
The Financial Ombudsman Service (FOS) has announced the following increases in its award limits for complaints referred to it with effect from 1 April 2022: (i) £375,000 for complaints about acts or omissions by firms on or after 1 April 2019; and (ii) £170,000 for complaints about acts or omissions by firms before 1 April 2019. These award limits will be automatically adjusted each year in line with inflation. For any complaints referred to the FOS before 1 April 2022, the limits will remain at £350,000 and £160,000, respectively.
Press release: Increase to our award limits
Network for Greening the Financial System
Nature-related financial risks - NGFS publishes statement - 24 March 2022
The Network for Greening the Financial System (NGFS) has published a statement on nature-related financial risks. In April 2021, the NGFS established a joint NGFS-INSPIRE Study Group on Biodiversity and Financial Stability (the Study Group) to develop a research-based assessment of the implications of biodiversity loss for central banks and financial supervisory authorities to use in delivering against their mandates. The NGFS’ statement follows the Study Group’s final report, published on 24 March 2022.
The Study Group’s final report makes five recommendations to central banks and financial supervisory authorities to help them fulfil their mandates in the face of biodiversity loss:
- recognise biodiversity loss as a potential source of economic and financial risk, and commit to developing a response strategy to maintain financial and price stability;
- build the skills and capacity among central bank and supervisory staff as well as market participants to analyse and address biodiversity-related financial risks;
- assess the degree to which financial systems are exposed to biodiversity loss by, for example, conducting assessments of impact and dependency, developing biodiversity-related scenario analysis and stress-tests;
- explore options for supervisory expectations for financial institutions’ governance, risk management, strategy, disclosure and financial conduct in relation to biodiversity-related financial risks and opportunities; and
- help build the necessary financial architecture for mobilising investment for a biodiversity-positive economy, including by considering how central banks’ monetary policy operations and non-monetary policy portfolio management should be conducted in the context of biodiversity loss.
The NGFS’s statement indicates that it welcomes the Study Group’s recommendations. However, it notes that the implementation and prioritisation of the recommendations are subject to each member’s mandate, internal capacity, jurisdictional context, and the actions of other stakeholders such as governments. To help achieve the recommendations, the NGFS sets out the key tasks ahead for central banks, financial supervisors and financial institutions, namely:
- building a scientifically-grounded analytical framework to assess the interactions between nature, the macroeconomy and the financial system;
- bridging the likely data gaps that will emerge from this framework; and
- using this framework and datasets to align policies with environmental sustainability and inform the assessment of nature-related financial risks.
The NGFS concludes by announcing that it will create a task force to make the consideration of nature-related financial risks mainstream across its activities.
NGFS Statement on Nature-Related Financial Risks
Press release
