In our weekly round-up of UK financial services regulation, Gavin Stewart summarises the latest announcements and developments. Be sure to subscribe to receive our updates in your inbox every week.
This week's newsletter is less eclectic than previous editions of it but importantly, most items are concerned with the impact of responses to coronavirus ( COVID-19) on regulation. Gavin Stewart updates you on regulators' most recent activities.
All of the issues in the Prudential Regulation Authority’s (PRA) letter to independent Non-Executive Directors ( iNEDs) are related to this particular world event, apart from one point about climate risk; demonstrating the extent that both the regulator and firms are focused on it. The Financial Conduct Authority (FCA) has a wider remit than the PRA but also a much more disparate strategy, and it would struggle to maintain such a tight focus in this sort of letter.
Elsewhere, the IFRS 9 letter and, especially, the European Systemic Risk Board (ESRB) report is aimed at achieving a good post-COVID balance. Meanwhile, the new small and medium enterprise (SME) service seems a good idea, but there is a risk it may be overwhelmed by demand and come to be seen as 'too little too late'. Finally, the data-sharing agreement with the US Securities and Exchange Commission (SEC), critically, on a case-by-case basis, is an example of GDPR’s new regulatory importance. With the EU having just approved the transfer of data to the UK, this is only going to become a bigger issue.
This week's update covers:
PRA letter to iNEDs on issues and risks for boards
The PRA has written to iNEDs as a result of meetings during October and November 2020 covering those issues and risks on Boards’ agendas.
The letter sets out the key themes raised at these meetings, including:
the effect of the economic downturn on business models
operational resilience in light of the new working environment
governance and people challenges
climate-related financial risk
feedback on the regulatory landscape.
The PRA has asked iNEDs to share this summary with Board members.
PRA publishes Dear CFO letter on IFRS 9 disclosures
Meanwhile, the PRA has also written to Chief Financial Officers asking firms to voluntarily update them on their progress towards adopting recommendations in two reports from the ‘Taskforce on Disclosures about Expected Credit Losses’. In particular, the PRA would like to know:
how far firms have progressed in adopting the recommendations, including an assessment against each recommendation
firms’ plans for addressing outstanding recommendations.
The PRA request the information within six weeks of firms finalising their 2020/2021 year-end annual report.
New SME service launched to help resolve disputes with banks
Since 15 February 2021, small businesses have been able to make use of a new, free and independent service to assist them in resolving disputes with their banks.
It is hoped that the Business Banking Resolution Scheme (BBRS) will help SMEs struggling in the current circumstances. In particular, it is anticipated that this service will give SMEs added confidence when taking out banking products in the knowledge that they have an independent resolution service available if something goes wrong.
The service was developed after repeated concerns were raised by SMEs arguing the need for a means of resolving disputes as an alternative to litigation.
The Information Commissioner’s Office (ICO) has published a letter that it sent to the US Securities and Exchange Commission (SEC) during September 2020.
The ICO confirms that UK organisations regulated by the SEC will be able to rely on the Article 49(1)(d) public interest derogation under GDPR in the event of having to transfer personal data to the SEC. It further confirms that reliance on this should only be applied on a case-by-case basis if the transfer is truly necessary and proportionate for complying with regulatory requirements.
ESRB report on financial stability implications of support measures
The European Systemic Risk Board (ESRB) Working Group has published its report setting out the effects of support measures on financial stability to protect the real economy at this time
The report summarises how the financial stability implications put in place to support the real economy have so far stabilised lending overall. However, as the current circumstances continue, the tougher the economic recovery will become. As such, there is an increased need for authorities to balance liquidity and solvency support to improve resilience within the real economy.
Key findings and policy priorities include:
the effect of government support packages
the support credit markets from fiscal policy
the impact of coronavirus (COVID-19) on cross-border banking activities
the trade-off between supporting the economy and reducing government intervention
the uncertainty of the long term effects of the current circumstances.