The following is a list of some regulatory publications or announcements from June 2023 affecting UK financial services.
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.
HM Treasury
On 23 June the Chancellor met the UK's principal mortgage lenders to agree a series of support measures for customers struggling with mortgage payments. The measures include the ability to switch to an interest only mortgage for a period of six months, to extend the mortgage term for a period with the ability to switch back within six months, and that customers will not face repossession within 12 months of a missed payment. On 30 June, the FCA announced changes to its rulebook to implement the commitments made by the lenders. In response to regulatory scrutiny, the FCA highlighted that it expects lenders to have contacted 20 million customers to offer support by end of 2023, and that 2 million customers have been so far provided with active support.
On 27 June the Chancellor signed a Memorandum of Understanding on financial services with the EU. The agreement will establish an ongoing forum for the UK and the EU to discuss voluntary regulatory cooperation on financial services issues. Both sides will share information, work together towards meeting joint challenges and coordinate positions where appropriate on issues ahead of G7, G20 and other international meetings.
On 28 June the Chancellor agreed with various regulators with responsibility for markets and competition that they would take action to ensure markets are working properly and that consumers receive appropriate support. The FCA agreed to review the savings market and report by end of July; and to require the largest banks to explain their pass through of interest rates and how they are supporting switching.
On 29 June the Financial Services and Markets Bill received Royal Assent. The government indicates the Act is central to its vision to grow the economy and create an open, sustainable, and technologically advanced financial services sector. Some of the key reforms are changes to the Solvency II requirements which it is estimated will unlock around £100 bn for investment; new secondary objectives for the regulators to facilitate growth and the international competitiveness of the UK economy, and new accountability mechanisms for the regulators given their broader rule making powers.
Bank of England / Prudential Regulation Authority (PRA)
On 15 June the PRA wrote to CROs with findings from a review of funded reinsurance. The review was in response to the growth in bulk purchase annuity (BPA) activity which transfers both asset/investment risk and longevity risk (ie all the material risks) to a reinsurer. The letter sets out the PRA's perception of key risks (revolving around probability of recapture as the market involves new reinsurers that are growing rapidly, are correlated, and are exposed to credit shocks). The PRA found firms' practices to have some material shortcomings, when assessed against its current policies and expectations. The PRA will undertake further supervisory work to consider the issues.
On 19 June the Bank of England launched its first system-wide exploratory scenario exercise to improve its understanding of the behaviours of banks and non-bank financial institutions in stressed financial market conditions. It will explore how those behaviours might interact (eg if there is a common collective action such as a fire sale) to amplify shocks in UK financial markets that are core to UK financial stability. Participating firms include large banks, insurers, central counterparties and a variety of funds (pension funds, hedge funds, and funds managed by asset managers). There is an initial information gathering phase which will be followed by banks, insurers, funds and CCPs being asked to evaluate the impact of a severe but plausible stress to global financial markets. The Bank anticipates publishing a report in 2024.
On 23 June the PRA wrote to Chief Actuaries with its observations on how firms had responded to its October 2022 letter (dealing with claims inflation). The letter provides feedback on firms’ adequacy of reserve strengthening; mitigating benefits to reserves and capital; and financial resilience and governance challenges in responding to claims inflation. Generally, the PRA expressed a concern that firms may not be reserving sufficiently for future inflation and indicated it would continue to monitor firms' approaches.
On 28 June the PRA published CP 10/23 (solvent exit planning for non-systemic banks and building societies). The CP sets out proposals for non-systemic banks and building societies in the UK to prepare for an orderly ‘solvent exit’. The proposals include new rules and expectations stating that firms must prepare for a solvent exit as part of their BAU activities, and that firms must document those preparations in a solvent exit analysis; and if solvent exit became a reasonable prospect, expectations for how firms should prepare a detailed solvent exit execution plan and monitor and manage a solvent exit. The PRA considers that solvent exit would be more efficient, more cost-effective, and more likely to succeed with improved forward planning by the firms in scope. The consultation closes on 27 October 2023.
On 29 June the PRA published CP12/23 Review of Solvency II. The proposals in the CP reform the UK regulatory regime for insurance firms (to be known as Solvency UK) and are intended to adapt Solvency II to the UK insurance market. They include further streamlining of reporting requirements for all firms and substantially simplifying and improving the flexibility in the assessment of internal models. The proposals are also intended to help new entrants into the UK insurance market by simplifying the regulation of international insurers operating through UK branches. The proposals are part of a wider package of reforms which will be implemented through a combination of government legislation and PRA rule changes. The PRA will issue a further consultation paper in Q3. Some reforms are expected to be implemented by the end of this year, and the remainder in 2024. The deadline for CP 12/23 responses is 1 September 2023.
On 30 June, in response to the Financial Services and Markets Bill (now the Act), the PRA issued a consultation paper on its proposed approach to reviewing its rules. As the PRA takes on wider rule-making responsibilities under the act, and retained EU law is moved to PRA rules, there will be more scope to review rules and flex to changing UK circumstances. At the same time PRA indicates it is mindful of the costs for firms of frequent regulatory change, and the need to prioritise reviews to ensure efficient use of its own resources and of that of regulated firms. The PRA aims to use this consultation to gather responses from all stakeholders on how it can enhance its approach to rule review and benefit from these new opportunities. The deadline for responses is 29 September 2023.
Financial Conduct Authority
On 2 June the FCA banned certain debt advice providers from receiving referral fees from debt solution providers. The FCA indicates the ban should save consumers struggling with debt thousands of pounds in unnecessary fees and ensure they receive better quality advice. It will put a stop to the business model which incentivises debt packagers to recommend certain options that make them more money rather than what is in the customer’s best interest.
On 6 June the Joint Regulatory Oversight Committee (JROC) set out a programme of work to take forward recommendations for the next phase of open banking in the UK. The JROC also launched two new working groups on variable recurring payments (VRP) and future open banking entity.
On 8 June the FCA introduced new rules for marketing cryptoassets to UK consumers. Under the rules cryptoassets will be categorised as ‘Restricted Mass Market Investments’. This will allow them to be mass marketed to UK consumers subject to certain restrictions, in addition to the overarching requirement that financial promotions must be fair, clear and not misleading. The restrictions include clear risk warnings, banning incentives to invest, client categorisation requirements and appropriateness assessments. The FCA is also consulting on additional guidance setting out expectations for firms advertising crypto to UK consumers. The deadline for responses is 10 August.
On 26 June the Joint Regulatory Oversight Committee (JROC) published a joint paper setting out five high-level principles for banks and registered third parties to follow when agreeing a premium API (Application Programming Interface) commercial model. The JROC has indicated this is key for the next phase of open banking. Premium APIs are expected to facilitate new open banking products and services (eg variable recurring payments), and to bring increased benefits such as potential cost savings, greater flexibility and control over payments. The JROC paper outlines the characteristics of a safe, sustainable commercial model for premium APIs. It hopes this will help ensure the prices banks and other payment providers charge third party providers (TPPs) for open banking services remain competitive and fair, encouraging ongoing development and innovation in a sustainable way, which is safe and mitigates cyber and financial crime.
On 28 June the FCA highlighted that there was only one month to go before the Consumer Duty comes into force on 31 July. From a recent survey, the FCA indicated the majority of firms in the sectors covered believe they are on course to fully implement the Duty on time, but that there are some that have more to do to meet the deadline.
On 28 June the FCA indicated that it will report on how well the cash savings market is supporting savers to benefit from higher interest rates. It noted that it will require the largest banks and building societies to explain the pace and extent of their pass through of interest rates, and how they are proactively supporting customers to switch to high interest rate products that might be suitable.
On 29 June the FCA published a letter on the functioning of the sustainability-linked-loans-market. The FCA's key findings were: that the market is currently not achieving its potential; increased trust and transparency might deliver wider uptake; borrowers are concerned about unwelcome scrutiny if they miss performance targets, and the time and costs of doing an SLL against a more conventional loan; market participants believe a more prescriptive framework would improve market integrity and reduce the threat of greenwashing accusations; there is the potential for conflicts of interest if banks accept weak targets and count the loan as part of their sustainable finance quota; and several banks want uniform disclosure and independent monitoring and verification of targets.
On 29 June the FCA published final rules broadening retail access to Long Term Asset Funds (LTAFs), by treating as Restricted Mass Market Investment (RMMI), in line with our approach for high-risk investments. LATFs are a category of authorised open-ended fund specifically designed to invest efficiently in long-term, illiquid assets; and whose distribution to retail investors was previously limited due to their higher risk.