General

Issue 1111 / 27 May 2021

HM Treasury

UK - US Financial Regulatory Working Group - HM Treasury and US Department of the Treasury publish joint statement on the fourth meeting - 24 May 2021

The UK and US Financial Regulatory Working Group held its fourth meeting virtually on 20 May 2021. The Working Group was formed in 2018 to deepen bilateral regulatory cooperation with a view to the further promotion of financial stability, investor protection, fair, orderly and efficient markets, and capital formation in both jurisdictions. The Working Group meeting focused on seven themes:

  • international and bilateral cooperation;
  • sustainable finance;
  • updates on domestic initiatives and priorities;
  • benchmark transition;
  • cross-border regimes;
  • operational resilience; and
  • banking and insurance.

The Working Group’s participants will continue to engage bilaterally on these topics, as well as other topics of mutual interest ahead of the next Working Group meeting, which is expected to take place in autumn 2021.

Joint Statement on U.S.-UK Financial Regulatory Working Group Meeting

Prudential Regulation Authority

Firm feedback survey 2020 - PRA publishes results - 21 May 2021 

The PRA has published the results of the firm feedback survey 2020. The annual firm feedback survey gives PRA-authorised firms the opportunity to comment on their experience of being supervised by the PRA and specifically in relation to:

  • the PRA’s understanding of firms and its level of challenge of firms;
  • firms’ understanding of the PRA’s regulatory objectives and expectations, and the effectiveness of their relationships with the regulator; and
  • the PRA’s co-ordination with other regulators on data requests, and its approach to new technologies.

Feedback provided by firms to the 2020 survey and consequential steps being taken by the PRA include:

  • SMCR approvals: firms commented that Senior Managers and Certification Regime (SMCR) approval timescales are, in some cases, too long. The PRA acknowledges this and indicates that the FCA has increased resources to deal with the increase in applications received. The PRA is considering ways that firms can improve the quality of their applications, and is having discussions with larger firms and trade bodies;
  • Supervision: firms indicate that they prefer a consistent supervision team, but also recognise that handover quality has improved. Firms consider the quality of the PRA’s feedback to be high, but would also benefit from greater and more timely information;
  • Operational resilience: the PRA’s approach to operational resilience has been generally well received, with firms noting the effectiveness of its guidance and the good level of co-ordination between the PRA and the FCA during the joint exercise;
  • Data requests: firms commented on the increased demand of the regulator for data during COVID-19. The PRA has taken steps to increase notice periods and reduce the volume of data required where possible, as well as developing the consistency of data needed in times of stress and its own data capability, to reduce the burden on firms; and
  • PRA website: the PRA has enhanced the search function on its website and is planning to introduce a ‘mega-menu’ to aid firms’ navigation of the site.

Presentation: Results of the firm feedback survey 2020

Webpage

Updated webpage: Supervision

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PRA business plan - PRA publishes business plan for 2021/22 - 24 May 2021

The PRA has published its business plan for 2021/22, which sets out its strategy, work plan and budget for the coming year. It also sets out the actions taken to mitigate the impact of COVID-19 on PRA-regulated firms. The PRA’s strategic goals and key workstreams for 2021/22 include the following:

  • Robust prudential standards and supervision: this includes having in place robust prudential standards and holding regulated firms accountable in relation to meeting them. In addition, the PRA is supporting the Financial Policy Committee’s commitment to uphold firms’ resilience levels to ensure continuity in the supply of vital financial services. Other key work in this area includes reviewing the Solvency II regime, creating a simpler prudential framework for smaller non-systemic banks and building societies, and supporting LIBOR transition;
  • Financial resilience: the PRA continues to focus on ensuring that firms are adequately capitalised and have sufficient liquidity for the risks they are running or planning to take, which includes resuming regular stress testing. Other key work in this area includes engaging with other jurisdictions on banking and insurance, and reviewing firms’ asset quality and management of investment risk while addressing weaknesses through supervisory action and setting expectations;
  • Operational resilience: key work in this area is the assessment of firms’ ability to meet operational resilience policy expectations by the deadline of 31 March 2022 and ensuring the PRA’s policy is aligned with the Basel Committee on Banking Supervision’s operational resilience guidance;
  • Recovery and resolution: banks and insurers should have credible plans in place to enable them to recover from stress events and firms should work to remove barriers to their resolvability to support the management of failure. The implementation of the Resolvability Assessment Framework and ensuring firms are held accountable for their recovery and resolvability, as well as developing an approach to recovery and resolution planning for insurers, are key areas of work;
  • Competition: key work in this area includes active consideration of the proportionality of the PRA’s regulatory approach to ensure effective competition and implementing a tailored approach to the supervision of new non-systemic banks and building societies;
  • EU withdrawal: key work in this area includes maintaining a sustainable and resilient UK financial regulatory framework following the UK’s exit from the EU. This includes ensuring the authorisation process for firms supervised under the temporary permissions regime and changes to the approval regime for holding companies and the designation of investment firms. The PRA also intends to work with the government and other regulatory authorities to understand the new regulatory environment and will develop its approach in line with this; and
  • Efficiency and effectiveness: key work in this area includes operating efficiently and effectively by ensuring that resources are allocated to best advance the PRA’s strategy and provide an inclusive working environment. The PRA indicates that a strategic review of the regulator will be conducted and it will act on the review’s recommendations. It will also advance its diversity and inclusion agenda, expand the support provided to all areas of the PRA and transform data collection.

The PRA has also included details of its budget for 2021/22. This is set at £297 million, which includes implementation and transaction fees of £9 million and is an increase of £12 million (4%) on the 2020/21 budget.

PRA Business Plan 2021/22

Webpage

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Cyber risk - PRA publishes speech – 25 May 2021 

The PRA has published a speech by PRA Deputy CEO and Bank of England (BoE) Executive Director for Regulatory Operations and Supervisory Risk Specialists, Lyndon Nelson, on cyber risk. In the speech, Mr Nelson considers the role of simulation exercises, penetration testing and international collaboration, and sets out details of the PRA’s future plans relating to cyber risk. Points of interest include:

  • the PRA’s testing has demonstrated improvements, but there are still many instances of failures in what is called “cyber hygiene”. Examples of these failures include shortcomings in vulnerability management and information storage, poor configuration of IT infrastructure and poor user account and password management;
  • the PRA is working on developing a testing strategy and a framework which will allow it to increase the coverage and frequency of assessments. This is expected to include a more approachable CBEST-style test that applies to a wider range of firms. CBEST is a threat-led penetration testing framework, and is part of the Bank of England and PRA’s toolkit to assess the cyber resilience of firms’ important business services; and
  • the composition of cyber-attacks has shifted towards third party and outsourced relationships, and firms should view these as an additional exposure. Moreover, where a third party itself grows market share and a position of dominance, it also becomes a source of systemic vulnerability.

Speech by PRA Deputy CRO and Bank of England Executive Director, Regulatory Operations and Supervisory Risk Specialists: Cyber Risk – 2015 to 2027 and the Penrose steps

Financial Conduct Authority

COVID-19 - FCA publishes statement on the regulatory treatment of the UK Recovery Loan Scheme - 26 May 2021

The FCA has published a statement on the regulatory treatment of the UK Recovery Loan Scheme (RLS) which was launched as part of the government’s COVID-19 support for UK businesses.

The FCA confirms that most of the lending available as part of the RLS will not be a regulated activity, and therefore most lending applications will be outside the regulatory perimeter. The FCA’s rules will apply as usual to regulated lending under the RLS, in this case regulated asset finance. This includes FCA rules on creditworthiness assessments in CONC 5.2A.

The FCA adds that the relevant requirements under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) will continue to apply and lenders should undertake appropriate anti-money laundering and fraud checks on RLS applications.

Statement on the Recovery Loan Scheme

Financial Ombudsman Service

Complaints data - FOS publishes data for 2020/21 - 25 May 2021 

The Financial Ombudsman Service (FOS) has published its annual complaints data for 2020/21, together with an article analysing the data.

The FOS observes that new complaints received increased by 2% to 278,033. Payment protection insurance (PPI) complaints continue to be the most complained about product, accounting for 15% of complaints, although this figure is down from its peak of 78% in 2013/14. There has been a sharp increase in non-PPI complaints, largely driven by a 66% increase in complaints about banking and credit products. Within the banking and credit category, the data shows that current accounts were the most complained about product, and unaffordable lending was the most complained about issue.  

Commenting on the figures published, Nausicaa Delfas, interim Chief Executive and Chief Ombudsman of the Financial Ombudsman Service, said:

“The sharp increase in complaints about issues other than PPI is a reminder that it has rarely been more important for financial businesses to support their customers when things go wrong. As people continue to deal with the impact of Covid-19 on their lives and finances, they know they can come to our service if they’re not happy with how a financial business has treated them.”

Annual complaints data and insight 2020/21

Press release

TheCityUK

Cryptoassets - TheCityUK publishes report - 25 May 2021

The industry body, TheCityUK, has published a report ‘Shaping UK regulation for innovation and global leadership’. The report calls on UK government and regulators to act quickly to capitalise on the opportunities arising from the rapid growth of cryptoassets and the use of Distributed Ledger Technology (DLT) and take a world-leading position in this high-growth, high-potential sector.

The report sets out four key policy recommendations and five important principles for driving innovation and shaping regulation in this space, including that:

  • the UK should act quickly to set a global gold standard in cryptoasset and DLT regulation, while recognising that not all uses of DLT need to be regulated;
  • the specific features and risks associated with novel technologies and use cases should not be overlooked;
  • industry engagement should be maintained, as it is crucial to achieve a proportionate and risk-based approach; and
  • legislators and regulators should recognise the transformative potential of stablecoins and Central Bank Digital Currencies (CBDCs).

Miles Celic, Chief Executive Officer, TheCityUK, states in the report that:

There is a fierce global race underway to see which applications of DLT and cryptoassets will win out, and who will grab the biggest slice of the value they promise. The ultimate winner is for markets to decide, but government and regulators have an important part to play. They must set safe and robust rules for this burgeoning sector – while ensuring they don’t inadvertently squash good ideas before they can mature and flourish.

The UK has a great track record in supporting innovation with regulation. Its regulatory FinTech sandboxes, for example, have been copied around the world. Now we need to show similar vision and nimbleness in our regulatory approach to cryptoassets.

The report concludes that the optimum regulatory framework will take account of cryptoassets’ unique characteristics, features and use cases. The framework should be adaptable, flexible, tailored to specific emerging risks and clearly defined to serve both consumers and industry.

TheCityUK: Report: Cryptoassets: Shaping UK regulation for innovation and global leadership

Webpage

Press release

Summary report