Regulatory update December 2023

The summary includes consultation/policy papers and speeches published by the regulators and other bodies, as well as articles that may be of interest. It is not intended to be an exhaustive list of all matters relevant to financial services.

Please refer to the relevant organisations’ website for a complete record of their publications and news releases.  

On 6 December, as part of the Edinburgh reforms, the government published a policy note setting out its approach to create a new regulatory framework for Money Market Funds, (MMF) and a near final draft statutory instrument. The policy note indicates that “The changes made through the SI to the MMF framework are limited”, but that the FCA will get new rule making powers (eg the definition of an MMF and the scope of the regime is unchanged). The matters in the draft SI include the permitted types of MMF, the requirement for MMFs to be authorised or approved, the liability of MMF managers, and the FCA’s general supervision and enforcement powers.    

On 8 December the government and FCA consulted on the Advice Guidance Boundary Review. The Review’s proposals aim to fill an ‘advice gap’ that exists between financial advice that is unaffordable for many consumers, and guidance that is free to access but not personal to the consumer. The FCA’s Financial Lives Survey found only 8% of UK consumers received full financial advice in 2022.  The proposals include clarifying what support can be provided without it being regulated, and a new form of simplified advice that can be provided to consumers that have straightforward needs and small sums of money to invest. The deadline for responses is 28 February 2024.  

On 8 December, the Treasury Committee published its assessment of progress of  the Edinburgh Reforms. Overall, the Committee concludes that “from what has been completed so far, the Sub-Committee is of the view that none of the achievements to date will make a substantial difference to the UK economy”. The Committee also notes that certain reforms are not genuine reforms, as they are preparatory in nature (eg a review of regulation) and may not lead to change; while other proposed changes are insignificant in effect. The Treasury and Committee views of progress are set out in paragraph 10, but in summary, while the Treasury claims it has delivered 21 of the 31 reforms, the Committee takes the view that only 9 have been completed, 6 have not been completed, and 6 are not genuine reforms. Similarly, the Committee considers that 3 of the uncompleted 10 reforms are not genuine reforms (ie in total around a third of the reforms are not genuine).   

On 8 December the government published its response to its call for proposals that the regulators should publish metrics to enable scrutiny of the new secondary competitive objective. The regulators should start publishing the new metrics in 2024.  

On 5 December the PRA published feedback and final policy on its Strong and Simple framework (PS15/23), covering scope, liquidity, disclosure and reporting requirements. The PRA has also renamed ‘Simpler-regime Firms’ to ‘Small Domestic Deposit Takers (SDDTs)’. Since the original consultation, the PRA has made a few changes to the eligibility criteria for firms in scope – notably, the size threshold has been raised to £20bn, a firm can now provide sterling settlement, custody, or correspondent banking services to other members of its group, and there is now a 36-month smoothing mechanism to the domestic criterion albeit with a 75% floor. The scope and disclosure rules take effect from 1 January 2024, while other rules take effect from 1 July 2024. The PRA intends to consult on simplifications to Pillar 2 and buffer requirements in Q2 2024.

On 6 December the Bank published the record of the FPC’s 21 November meeting. UK borrowers and the financial system have been resilient, but the FPC considered that the overall environment “remains challenging, reflecting subdued economic activity, further risks to the outlook for global growth and inflation, and increased geopolitical tensions”. While it was noted that the market suggests rates are at or near their peaks, it was felt that the effect of the rate rises had yet to be fully experienced. And as reported by the Insolvency Service on 15 December, registered company insolvencies are increasing (November 2023 was 21% higher than November 2022), although individual insolvencies show a flatter trend.

On 7 December the Bank, PRA and FCA consulted on proposals to oversee the services provided by critical third parties (CTP) to the financial services sector. These are services provided by non-financial entities (eg cloud outsourcing services) that the financial sector might be reliant upon, and where disruption of the services could have a significant detrimental effect on UK financial stability. The proposals aim to strengthen the resilience of CTPs, and include how the regulators might identify potential CTPs, a set of fundamental rules, more granular operational and resilience requirements, and reporting requirements. The deadline for responses is 15 March 2024.

On 12 December the PRA published a policy statement with its near-final market and operational risk proposals under both Basel 3.1 and its Interim Capital Regime for smaller firms. The PRA has amended certain of its initial proposals, including aligning market and credit risk frameworks, removal of market risk models for sovereign defaults. The PRA intends publishing a second policy statement in Q2 2024 on the remaining elements of the Basel 3.1 package (including credit risk and the output floor). Basel 3.1 comes into effect on 1 July 2025 with a 4.5-year transitional period ending on 1 January 2030.

On 20 December the Governor set out the FPC’s response to the Chancellor’s recommendations to the FPC. The letter highlights the FPC’s four priority areas for the next three years: market-based finance; structural changes and new risks; lessons learned from periods of stress; and the macroprudential oversight of operational resilience. The annex to the letter sets out various work by the FPC to manage the risks to UK resilience (including from cyber vulnerability, cryptoassets, digital money, artificial intelligence, climate change), and how it implements the Chancellor’s recommendations. It also highlighted that the FPC will take stock of and update concurrent bank stress testing framework in 2024.

On 18 December the Bank published its annual report for 2022/23 on the supervision of financial market infrastructure (FMIs). The report sets out the Bank’s supervisory and policy activities during 2022/23 and its future priorities. In summary these are to ensure the operational resilience of FMIs and that innovation in payments, settlement and clearing is undertaken safely. A significant change in 2022/23 was the new statutory regulatory framework post Brexit, and the introduction of a secondary objective to facilitate innovation in the provision of FMI services.

On 5 December the FCA published its final report on the credit information market. The FCA’s interim report, published in November 2022, found a number of weaknesses including weak competition, poor quality data and a lack of consumer awareness how to access and challenge information on their creditworthiness. The final report proposes a package of remedies including new data reporting requirements to promote consistency, improved data sharing, competition and help improve data quality. A new industry working group is also being created to establish a new credit reporting governance body.

On 6 December the FCA provided an update on the cash savings market. The FCA reports there has been some improvement since July 2023, when it set out an action plan to deal with concerns that banks and building societies were not passing on interest rate rises to savers in an appropriate manner. The FCA will continue to monitor firms’ approaches to providing fair value, and will challenge those firms that appear to be taking too long to react.

On 7 December the FCA consulted on new rules to maintain access to cash in increasingly digital world. The proposals will require banks and building societies to assess and fill gaps in local cash availability. They also include a provision that the banks and building societies consider and assess local representations that there is a gap, and fill if there is. The deadline for responses is 8 February 2024, and the FCA expects to finalise rules by Q3 2024.

On 12 December the FCA wrote to 42 investment platforms and SIPP operators, following a review, with concerns about the retention of interest on customers’ cash balances. The FCA’s concerns are that too much interest is retained, and that some firms ‘double dip’ (ie charge a fee as well as retain interest) and that neither practice is consistent with the Consumer Duty. The recipients have until 31 January to respond to the FCA with the actions they are taking or why they believe they are compliant with the Duty, and until 29 February to implement any changes. The FCA will review responses and take further action as it feels necessary.

On 14 December the FCA welcomed the launch of a global voluntary code of conduct for ESG ratings and data product providers. The code was developed by the International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG), at the instigation of the FCA. The code focuses on promoting transparency, good governance, management of conflicts of interest, and strengthening systems and controls in the sector; and should also provide a benchmark for providers outside of any future regulatory regulation.

On 18 December there were a number of publications relating to open banking, including: the Joint Regulatory Oversight Committee (JROC) published an update on progress to deliver its vision of open banking, and set out plans to deliver a new generation of payments; and the Payment Systems Regulator published a consultation to consider how to expand variable recurring payments. In Q1 2024, the JROC will publish its proposed approach to the design and governance of the entity (currently called the Future Entity) that will take forward open banking in the UK.

On 19 December the FCA, the PRA and Bank published the latest CBEST thematic report. Cyber resilience is a priority for the regulators and is fundamental to the operational resilience of firms and financial market infrastructures (FMIs). CBEST tests the cyber resilience of firms and FMIs. The report identifies good practices, includes insights from the National Cyber Security Centre, and highlights the need for strong foundational practices (eg around training, detection capabilities, robust authentication) and that firms and FMIs should simulate a range of cyber scenarios to test resilience.

On 20 December the FCA published three consultations: detailed proposals for a new listing regime, proposals for a bond market consolidated tape regime, and proposals to revise the transparency regime for bond and derivative markets. The detailed listing regime proposals build upon earlier reviews, consultations and outreach, and include a single listing category and moving to a disclosure based regime. A further tranche of proposed listing rules will be published in Q1 2024. The response deadline for the listing regime consultation is 22 March 2024 (except proposals for sponsor competence have a 16 February deadline). The response deadlines for the consolidated tape proposals is 9 February, and for the transparency regime proposals is 6 March 2024.

On 28 December the FCA highlighted some of its key achievements and milestones for 2023. These are set out under four themes: reducing and preventing harm; tackling online harm; setting higher standards; and promoting competition and positive change. A raft of individual achievements are noted, including the introduction of the Consumer Duty, working with firms to improve the treatment of customers in financial difficulties, the removal of over 10,0000 misleading adverts and cancelling 1,266 firms that failed to meet minimum standards, new rules to maintain access to cash and an action plan to improve the treatment of savers, new sustainability disclosures, and proposals to update the listing rules.