Your guide to this week in regulation

Gavin Stewart Gavin Stewart

Welcome to our weekly round-up for UK financial services regulation. Gavin Stewart summarises the key announcements and developments. Be sure to subscribe to receive our updates in your inbox every week.

Preparations for Brexit dominate this week’s items, but this is essentially tidying up ahead of the end of the transition period. There may be more for the regulators to do once we know if there will be a deal, but they have done what they can for now. Perhaps more interesting is that any future decision the Monetary Policy Committee (MPC) takes on zero or negative interest rates is also likely to be in the context of any fallout from whether there is a deal on financial services with the EU.

Elsewhere, it’s worth carefully watching the effectiveness of the steps the Financial Conduct Authority (FCA) is taking to help protect customers in financial difficulty. This feels like a policy not necessarily designed for a second COVID-19 wave that may have very different impacts in different parts of the UK, and I suspect it will need revising. Whatever the eventual guidance, the results are unlikely to be consistent, either between firms or between different supervisory teams. This is not necessarily wrong – tailoring for specific circumstances might well be better – but it will be important to go into this next phase with our eyes open.

This week's update covers:

Brexit: PRA and FCA Dear CEO letter on final preparations

On 9 October 2020, the Prudential Regulation Authority (PRA) and the FCA published a Dear CEO letter sent to PRA-regulated firms on their final preparations for the Brexit transition period.

The letter outlines that, while the regulators have put in place temporary measures to maintain financial stability, such as the Temporary Permissions Regime (TPR) and the use of transitional powers there remains the possibility that market volatility and disruption to financial services will arise. As such, the regulators have stated that firms should continue with their preparations to minimise disruption at the end of the transition period at 11pm on 31 December 2020.

The letter refers to five key areas for firms to take action to ensure their preparedness:

1 Continuity of wholesale banking and business contracts

Firms should continue to take steps to facilitate the continuity of business contracts.

2 Data

Including the regulators’ considerations of how firms can comply with the EU’s cross-border personal data transfer laws after the end of the transition period.

3 Trading venues

Firms should consider how they will continue to meet their trading obligations in both the EU and UK under a range of scenarios at the end of the transition period.

4 Payments

Firms should continue to take all reasonable steps to avoid disruption to payments.

5 Retail banking services

Firms should have plans in place on their approach to servicing their existing contracts with EEA customers.


PRA Dear CEO letter on zero or negative rates

On 12 October 2020, the PRA published a Dear CEO letter requesting information from firms in order to understand their operational readiness and challenges they may face if the Monetary Policy Committee (MPC) were to decide to implement a zero or negative official bank rate. This request seeks to identify potential technical operational challenges so that consideration can be made as to how to prevent disruption, should the change go ahead.

This request follows the MPC’s continued assessment of the appropriateness of a negative policy rate, and the Bank of England and the PRA commencing discussion of the operational considerations of such a policy change in the September MPC.

The survey is voluntary and those who intend to respond should do so by 12 November 2020.


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FCA proposes further guidance on customers in financial difficulty

The FCA has published draft additional guidance for insurance and premium finance firms. This follows the measures published in August 2020, in which the expectation to grant payment deferrals under that guidance expires on 31 October 2020.

The guidance proposal sets out the FCA’s expectations for the tailored support that firms should be providing from 1 November 2020. Firms should consider the fair treatment of customers in financial difficulty due to circumstances arising from coronavirus and help customers, where possible, to reduce the impact of financial distress, and ensure that customers continue to have insurance that meets their needs.

In a change from the August guidance, firms are no longer expected to proactively contact all customers who miss payments, although firms should consider what other support might be appropriate, especially if the customer could be vulnerable.


Treasury response on UK prudential regime

On 16 July 2020 HM Treasury launched a consultation on updating the UK’s Prudential Regime before the end of the Brexit transition period. This publication consulted on how the government intends to implement the Capital Requirements Directive V (CRD V). The consultation closed on 20 August 2020. HM Treasury has now published the eight responses received from industry, alongside the government’s response.

The responses received were largely in agreement with the proposed approach, including the intention not to apply the CRD V to non-systemic FCA-regulated investment firms and the government’s approach to gender-neutral remuneration. However, additional clarification was sought in some areas relating to macro-prudential updates and the holding company approval regime.

The statutory instrument transposing the relevant provisions of CRD V was laid in parliament on 15 October 2020.


FCA update on directory of certified and assessed persons

On 12 October 2020 the FCA updated its webpage to clarify the data submission arrangements of certified and assessed persons for solo-regulated firms. The FCA explains that, from mid-December 2020, it will begin to display data from firms as that data is submitted. If necessary, firms can submit their information earlier than the deadline of 31 March 2021.

Firms with more than 10 directory persons will be assigned a timeslot to submit their details using the multiple add or amend submission form.


To discuss these or how any other regulations might impact your firm please get in touch.