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Climate change: BoE speech on course to net zero
The Bank of England (BoE) has published a speech by Sarah Breeden, Executive Director, UK Deposit Takers Supervision in which she talks about how financial services firms in the UK can act as stewards in the move to a "net zero" economy. Ms Breeden considers the important role of climate scenario analysis in helping to plot the best course to net zero, and she shares her experiences of designing climate scenarios and offers some guidance to users of scenarios.
Quantifying culture and its implications for bank riskiness: Bank Underground article
The BoE's Bank Underground has published an article on "Quantifying culture and its implications for bank riskiness" in which the authors refer to a Staff Working Paper on organisational culture and bank risk. Staff working papers set out research in progress by Bank of England staff, with the aim of encouraging comments and debate.
Among other things, the authors explain that it is often said that a bank's culture is a leading indicator of its risk. While this claim has often been made, it has been far less frequently substantiated. The authors' research provides evidence to support this claim and explains how they quantified the cultural health of the UK banking sector and explore how this links to bank risk.
PRA update CP9/21 - Remuneration: Correction to the definition of "higher paid material risk taker"
The Prudential Regulation Authority (PRA) has published an update to CP9/21 "Remuneration: Correction to the definition of 'higher paid material risk taker'". The PRA has discovered that past responses to this consultation have not been received. The issue with the mailbox has since been resolved, therefore the PRA requests that responses sent before 19 May 2021 are re-sent to the following mailbox: CP9_21@bankofengland.co.uk. This consultation has also been extended until 2 June 2021.
New Consumer Duty: FCA CP12/13
The Financial Conduct Authority (FCA) has published a consultation paper, CP21/13, on a new consumer duty, which would set clearer and higher expectations for firms' standards of care towards consumers. We have published a separate briefing on this: FCA proposals for a new Consumer Duty.
The FCA is holding a webinar on the proposals on 10 June 2021.
Comments can be made on CP21/13 until 31 July 2021. The FCA expects to consult on the proposed rule changes by 31 December 2021 and will make any new rules by 31 July 2022.
Outsourcing: FCA clarifies its expectations regarding firms' review of legacy outsourcing arrangements
The FCA has updated its webpage on outsourcing and operational resilience to clarify its expectations regarding firms' obligations to review their legacy outsourcing arrangements for the purposes of complying with the European Banking Authority's (EBA) guidelines on outsourcing.
The EBA's guidelines require firms to review their existing critical or important outsourcing arrangements entered into before 30 September 2019 to ensure they are compliant with the guidelines. Where firms have not finalised this review by 31 December 2021, the guidelines require them to inform their competent authority of that fact, including the measures planned to complete the review or the possible exit strategy.
The FCA has updated its webpage to confirm that, while it expects firms to continue to comply with the guidelines following the UK's departure from the EU, it does not expect them to report to it on their progress towards meeting the 31 December 2021 timeline in the guidelines regarding their legacy outsourcing arrangements. It states that firms should aim to review any outstanding critical or important outsourcing arrangement at the first appropriate contract renewal following the first renewal date of each existing outsourcing arrangement or revision point. Where critical or important outsourcing arrangements have not been finalised by 31 March 2022, firms should inform the FCA.
The FCA states that this timeframe is aligned with its own final policy statement on operational resilience (PS21/3) and its approach to the EBA guidelines is aligned with that of the PRA, as set out in PRA PS7/21.
Preventing claims management phoenixing by financial services firms: FCA CP21/14
The FCA has published a consultation paper, CP21/14, on preventing claims management phoenixing by individuals in financial services (FS) firms.
The FCA explains that claims management phoenixing occurs when an individual connected with a wound-up FS firm reappears in connection with a claims management company (CMC), seeking to benefit from the former FS firm's poor conduct by carrying on claims management activities against it. The FCA states that, of the 250 CMCs it regulates with permission to manage FS claims, at least 18 (7%) have connections to former FS firms which could allow individuals from those firms to benefit from the firms' poor conduct. This is a concern because it could undermine public confidence in the regulatory system and the integrity of the market, potentially incentivise FS firms to act against the interests of their customers, and potentially put other CMCs at a competitive disadvantage.
To stop claims management phoenixing, the FCA proposes to:
- prohibit CMCs from carrying on any regulated claims management activity in respect of a claim or potential claim to the FSCS in circumstances where the CMC has a relevant connection with the claim; and
- require CMCs to notify it of direct and indirect connections they have or had with FS activity and with persons involved in FS activity, and to attest annually to the accuracy of these notifications.
The FCA proposes that both requirements will take effect one month from the date the proposed rules are made. It considers this will strike a reasonable balance between allowing firms to prepare and adjust, and mitigating harm caused by phoenixing activity that is already occurring.
The consultation closes on 21 June 2021.
Financial Services Culture Board
The Banking Standards Board (BSB) has relaunched as the Financial Services Culture Board (FSCB) with an expanded membership scope. The BSB website is no longer available, having been replaced with the FSCB website.
On its "Our history" webpage, the FSCB explains that it took this step given the growing interest in its work from firms outside banking. While the BSB worked primarily with banks, its work and approach was never bank-specific because good organisational culture matters to firms in all industries and in both the private and public sectors. The expansion of membership allows the FSCB to work individually and collectively with a wider range of firms, to the benefit of their customers, clients, employees and other stakeholders.
The FSCB will continue to work with firms and organisations not eligible for membership (that is, firms and organisations operating in other sectors or outside the UK) on a one-to-one basis through its commercial arm. This is explained more fully on the FSCB's "Our work outside membership" webpage.
EU Supervisory Data Strategy: European Commission consults on roadmap
The European Commission is consulting on its roadmap on a strategy for supervisory data collection in EU financial services (Supervisory Data Strategy). The strategy aims to improve the collection of supervisory data (that is, data reported to EU and national authorities for the supervision of the financial system) and make it fit for the future.
Comments can be made on the roadmap until 15 June 2021. The Commission intends to carry out further work relating to the Supervisory Data Strategy in Q3 2021.
EU AML and CTF action plan reforms: European Commissioner speech
The European Commission has published a speech by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability, and Capital Markets Union (CMU), in which she outlines elements of the reforms that the Commission intends to present further to its May 2020 anti-money laundering (AML) and counter-terrorist financing (CTF) action plan.
The presentation of a package of legal proposals to deliver the proposed new EU AML and CTF framework was initially planned for Q1 2021. Commissioner McGuiness explains that, due to technical issues and the volume of the package of measures, they will now be presented in July 2021.
In the meantime, Commissioner McGuiness shares some further elements of the Commission's plans, which cover, among other things, the single AML and CTF rulebook and the role of the new AML and CTF authority. Commissioner McGuiness also comments on the non-legislative areas of work covered by the action plan, including the Commission's plans to shortly consult on information exchange and public-private partnerships.
Sustainable finance taxonomies: ICMA overview and recommendations
The International Capital Market Association (ICMA) has published an international overview of official and market-based taxonomies for sustainable finance. It summarises the various approaches that have been taken and the different objectives being pursued. The paper aims to help market participants and stakeholders better understand existing taxonomies and their usage. It is also intended to inform interested parties involved in in future developments relating to taxonomy-related initiatives. With this aim, ICMA recommends that taxonomies should be:
- targeted in their purpose and objectives;
- additional in relation to existing international frameworks;
- usable by the market for all intended purposes;
- open and compatible with complementary approaches and initiatives; and
- transition-enabled incorporating trajectories and pathways.
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Authored by Yvonne Clapham
