Financial Stability Board
Financial policies in the wake of COVID-19 - FSB publishes final report - 14 November 2022
The Financial Stability Board (FSB) has published a report looking at financial policies in the wake of the COVID-19 pandemic, aimed at supporting equitable recovery and addressing the scarring effects of the pandemic, the Russian invasion of Ukraine and other events on the financial sector.
Following the “speedy, sizeable and sweeping policy response” to the COVID-19 pandemic, the report considers exit strategies through the lens of financial stability and the capacity of the financial system to support strong and equitable growth. This analysis is conducted against a backdrop of the Russian invasion of Ukraine, weaker global economic growth and higher inflation, all of which have emerged since the pandemic. To this end, the report discusses specific policy challenges, such as ensuring the effectiveness of domestic policies and preventing scarring by addressing debt overhang issues. It also sets out measures the FSB is taking to tackle these challenges.
FSB final report: Financial policies in the wake of COVID-19: supporting equitable recovery and addressing effects from scarring in the financial sector
Webpage
Press release
Global financial stability - FSB publishes 2022 annual report - 16 November 2022
The FSB has published its latest annual report, which was delivered to the G20 leaders ahead of their summit in Bali this month.
The report warns that the outlook for global financial stability is particularly challenging amidst high inflationary pressures, elevated debt levels, lower growth and much tighter global financial conditions. In particular the report notes that:
- market turbulence could be amplified by elevated valuations of some assets, forced sales from sudden unwinding of leveraged positions of non-bank financial institutions and liquidity mismatches in some types of funds. The FSB has intensified its monitoring of vulnerabilities and its continued support of international cooperation in the aftermath of COVID-19 and the Russian invasion of Ukraine;
- key priorities in relation to the FSB’s analytical and policy work include strengthening resilience of non-bank financial intermediation, enhancing central counterparty (CCP) resilience and achieving internationally consistent and comprehensive regulation of cryptoassets; and
- progress in implementing Basel III reforms continues, but is inconsistent. Implementation of over-the-counter derivatives reforms is well advanced but further progress is incremental. Work is ongoing to close gaps in the operation of resolution plans for banks and to implement effective resolution regimes for insurers and CCPs.
FSB: Promoting global financial stability: 2022 Annual Report
Webpage
Press release
Financial Stability Board and Network of Central Banks and Supervisors for Greening the Financial System
Climate scenario analysis - FSB and NGFS publish joint report - 15 November 2022
The FSB and the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) have published a joint report outlining initial findings from a survey of the different approaches taken by financial authorities to climate scenario analysis exercises.
The report seeks to outline effective climate scenario analysis, and to contribute to capacity building by advancing a common understanding of the impact of climate change on financial stability. The report explains that the impact of climate risks is concentrated in certain sectors. However, it is noted that tail risks and spillovers associated with climate change-related developments may not be as manageable, and that measures of exposure and vulnerability are likely understated.
The FSB and NGFS conclude that the development of these exercises is at an early stage, and their findings have not translated into prudential policies.
FSB: Climate scenario analysis by jurisdictions: initial findings and lessons
FSB webpage
FSB press release
NGFS press release
G20
G20 leaders’ Declaration: the G20 Bali Summit - 16 November 2022
The G20 leaders have published a Declaration following their summit in Bali held on 15-16 November 2022. The Declaration outlines various steps to achieve inclusive and resilient global recovery, and sustainable development that delivers jobs and growth.
These steps include:
- staying agile and flexible in its macroeconomic policy responses and cooperation, ensuring long-term fiscal sustainability, with central banks committed to achieving price stability;
- protecting macroeconomic and financial stability and remaining committed to using all available tools to mitigate downside risk, noting the steps taken since the global financial crisis to strengthen financial resilience and promote sustainable finance and capital flows; and
- unlocking further investments for low and middle-income developing countries, through a greater variety of innovative financing sources and instruments.
More specifically, the Declaration signals that the G20:
- on financial stability: believes the global financial system needs to be reinforced and asks the FSB and the International Monetary Fund (IMF) to continue their monitoring efforts;
- on sustainability: welcomes the progress made across the G20 international organisations and networks, and in the private sector, to address the G20’s Sustainable Finance Roadmap. It looks forward to the finalisation of the International Sustainability Standards Board’s (ISSB) standards;
- on cross-border payments: supports the continued implementation of the G20 Roadmap for Enhancing Cross-Border Payments, and encourages central banks and the payments industry to continue working collaboratively on the Roadmap’s initiatives to enhance cross-border payments; and
- on combating money laundering and terrorism: recognises the need for the international community to step up its efforts to combat these matters, and reaffirms its commitment to delivering the strategic priorities of the Financial Action Task Force (FATF).
G20 Declaration
Press release
European Supervisory Authorities
Greenwashing - ESAs publish call for evidence - 15 November 2022
The European Supervisory Authorities (ESAs), comprising the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, have published a call for evidence on greenwashing. In particular, the ESAs are interested in collecting:
- stakeholder views on the key features, drivers and risks associated with greenwashing;
- examples of potential greenwashing practices relevant to various segments of the sustainable investment value chain and of the financial product lifecycle; and
- any available data to help the ESAs obtain a better understanding of the scale of greenwashing and identify areas which pose high risk of greenwashing.
The ESAs note that this call for evidence uses the term ‘greenwashing’ broadly, recognising that sustainability-related claims can be linked to all aspects of the environmental, social and governance (ESG) spectrum.
The deadline for responses is 10 January 2023. Following this, it is expected that the ESAs will produce a progress report by the end of May 2023 and a final report by end of May 2024.
ESAs Call for evidence on better understanding greenwashing
EBA press release
Sustainable Finance Disclosure Regulation - ESAs publish Q&As on the SFDR RTS - 17 November 2022
The ESAs have published a Q&A document on the SFDR Delegated Regulation (Commission Delegated Regulation (EU) 2022/1288) (SFDR RTS).
The Q&As address the following topics:
- the current value of all investments in principal adverse impacts (PAI) and Taxonomy-aligned disclosures (including the definitions of ‘current value’ and ‘all investments’);
- PAI disclosures (including the use of mandatory indicators; the calculation and adjustment of PAI figures and other indices; and the scope of disclosures for different types of financial market participants (FMPs));
- financial product disclosures (including adjustments to disclosure templates; approaches to assessing good governance; the scope of ‘financial product’; and the application of disclosure requirements);
- multi-option products (including collection of disclosure templates; and approaches to disclosures in relation to the point of reporting versus the whole reference period);
- taxonomy-aligned investment disclosures (including calculation of metrics for financial undertakings with several activities and green bonds; approaches to Article 9 products; scope of third-party reviews; and challenges arising from lack of available data); and
- clarification that: (i) the SFDR requirements only apply to intermediaries and/or financial advisers providing advice and so will not apply to certain insurance intermediaries; and (ii) the disclosure transparency obligations under Articles 8 and 9 of the SFDR do not apply to execution-only investment firms.
ESA Questions and Answers on the SFDR Delegated Regulation
HM Treasury
FPC remit and recommendations - HM Treasury publishes letter to the Bank of England - 17 November 2022
HM Treasury has published a letter from the Chancellor of the Exchequer to the Governor of the Bank of England setting out the remit, recommendations and priorities for the Financial Policy Committee (the FPC) in 2022/23. The Treasury is required to provide such recommendations and guidance to the FPC annually on the approach it should take in pursuit of its statutory objectives.
Recommendations of note include:
- it is important that lessons are learned from the recent dysfunction in the gilt market and the vulnerabilities associated with leveraged funds that this exposed. The FPC should support this work to ensure appropriate levels of resilience in the UK financial system;
- to identify and address systemic risks and vulnerabilities, the FPC should seek to work in a collaborative manner with the PRA and the FCA, but also with the Payment Systems Regulator, the Pensions Regulator, industry participants and academics; and
- the government aims to align private sector financial flows with environmentally sustainable and resilient growth, in a manner consistent with the role that the financial system will play in supporting the UK’s energy security.
The FPC must respond to the government, describing any action it has taken or intends to take in response to a specific recommendation.
Financial Policy Committee Remit and Recommendations
Webpage
Financial Conduct Authority
Consumer Duty - FCA publishes speech - 17 November 2022
The FCA has published a speech delivered by Nikhil Rathi, CEO of the FCA, on matters relating to the new Consumer Duty. In particular, it was highlighted that:
- the FCA does not intend to move its phased implementation deadlines again, although it aims to take a pragmatic approach to overseeing implementation and requests that firms continue to be open about their implementation progress;
- the FCA intends to engage with firms to understand how the Consumer Duty may be used to develop a framework for deployment of AI and other technologies in pursuit of resolving consumer-related issues, including identifying vulnerable customers and collecting accurate customer feedback. The FCA anticipates that the Consumer Duty will enable it to move more quickly to facilitate new technological developments across the financial services sector; and
- the FCA aims to monitor the impact of the Consumer Duty to ensure that it does not lead to excessive risk aversion in firms, or the withdrawal of products for certain hard-to-reach groups. The FCA indicates that it supports accelerated roll-out of banking hubs and other proposals to support the transition to digital for individuals and small businesses.
Speech by Nikhil Rathi, FCA CEO at the UK Finance annual dinner: Rolling regulation forwards
Financial Ombudsman Service
Future funding model - FOS publishes feedback statement - 16 November 2022
The Financial Ombudsman Service (FOS) has published a Feedback Statement on changes to its funding model. This follows the Discussion Paper on future funding published in June 2022.
The Feedback Statement indicates that the FOS will:
- consult in its 2023/24 Plans and Budget consultation on: (i) changing its compulsory and voluntary jurisdiction levies to recover fixed costs; (ii) introducing a 12-month time limit for disputing case fees; and (iii) trialling changes to the group fee account arrangements set out in the Discussion Paper;
- continue to assess and improve its processes to enable differential case fees, with a view to consulting in its 2024/25 Plans and Budget consultation on: (i) differential case fees by case stage and/or by product type; and (ii) charging an initial case fee at conversion; and
- will not progress the following areas: (i) pursuing legislative changes to be able to charge professional representatives; (ii) charging businesses for delays due to non-compliance; (iii) discounts for bulk closures; and (iv) charging case fees based on case complexity.
The FOS plans to publish its 2023/24 Plans and Budget consultation in December 2022. Following this, it will consider the feedback and ask the FCA and the FOS Board to approve a final budget for 2023/24 by 31 March 2023.
FOS Feedback Statement: Creating a funding model for the future
Press release
Financial Services Culture Board
Employee survey results 2022 - FSCB publishes report - 16 November 2022
The Financial Services Culture Board (FSCB) has published its employee survey results for 2022. The survey was sent to over 122,000 employees at 23 financial services firms, and is intended to assess employees’ views of firm culture (the Survey).
Its key findings include that:
- sustained improvement has been evident across all firms in scores relating to leadership, taking responsibility and to speaking up. Of these areas, leadership has seen the greatest improvement, with the number of employees concluding that their senior leaders ‘meant what they said’, increasing from 62% in 2016 to 73% in 2022;
- the period from 2020 onwards has seen more positive scores around personal resilience and wellbeing. The proportion of employees describing their firms as ‘supportive’ and ‘inclusive’ has doubled over the past three years; and
- less progress has been seen on questions relating to customers and in areas of responsiveness and shared purpose.
In light of the new Consumer Duty, and the importance of firms having evidence from which they can assess their performance, the Survey asked four additional questions. The responses indicated that:
- just over half of employees stated it was as easy to cancel a product or service at their firm as to obtain it;
- two thirds of employees said that their team routinely analysed customer feedback and complaints to help improve;
- three quarters of employees believe that their firm’s products and services took into account the needs of different consumers; and
- almost eight out of ten respondents felt that their firm was equipped to assist vulnerable customers with different needs.
The FSCB states that it will continue to work on the link between the results of the Survey and achieving tangible outcomes at firms.
FSCB employee survey results: key findings
Press release
Law Commission
Decentralised autonomous organisations - Law Commission launches call for evidence - 16 November 2022
The Law Commission (the Commission) has published a call for evidence on the characterisation of decentralised autonomous organisations (DAOs), how they might operate under English law and whether any areas of English law relevant to DAOs require potential reform. This follows the government’s request that the Commission produce a scoping paper on the description and legal status of DAOs.
A DAO is a novel type of technology-mediated social structure or organisation of participants made up of several composite elements. The distinctive element is that many of the actions and functions of this type of organisational structure (both in terms of governance and its activities) can be redesigned to use and/or facilitate the creation, modification and maintenance of open-source software-based systems.
The Commission seeks views on whether:
- DAOs would meet the criteria necessary to be characterised as unincorporated associations or general partnerships under English law;
- the current law presents any problems relating to the use of joint ownership arrangements or trust structures as constituent parts of a DAO’s overall organisational structure;
- the law relating to the formation of corporate bodies presents difficulties for DAOs that choose to use one or more incorporated entities in its organisational structuring;
- any or all of the available existing legal forms are unsuitable or unattractive for DAOs that wish to use them as part of their organisational structuring;
- other jurisdictions provide a legislative approach to legal forms that is more effective for, or attractive to, DAOs;
- a new form of legal entity or recognition specifically tailored to DAOs should be introduced; and
- there are any circumstances in which a smart contract or a software protocol could or should be treated as having legal personality.
The Commission also seeks views on additional points, including:
- how the distinction between an incorporated company involved in software development and an open-source software protocol operates as a matter of law; and
- how DAOs, or their constituent parts, structure their governance and decision-making processes.
The deadline for responses to the call for evidence is the 25 January 2023.
Law Commission: Decentralised autonomous organisations (DAOs): Call for evidence
Webpage
Press release
