This week, the pace picks up with a string of announcements around innovation and future regulation.
The EU’s decisive step in regulating AI is an important milestone, the result of lengthy discussions between legislators and a deliberate signal of the bloc’s ambition to become the global hub of trustworthy AI. However, many in the industry will have concerns that this may have unintended negative consequences for innovation and the onerous cost of compliance. In notable contrast, back in the UK, the recent King’s Speech included a brief mention of the new government’s intention to “harness the power of AI” but the jam-packed legislative agenda fell short of committing to a dedicated AI bill.
Technology and regulation also combine in our second item as regulators look to assess the benefits and risks that digital wallets bring to people and businesses, as this payment type continues to proliferate our daily lives.
In our third item, we cover latest developments from The Basel Committee in the disclosure framework for banks’ cryptoasset exposures and other targeted amendments to its cryptoassets standard, both taking effect from 1 January 2026.
We round off with insights on vulnerability, and outcomes from the FCA’s review of firms’ treatment of PEPs which hit the headlines last summer.
The European Union (EU) has introduced the world’s first comprehensive AI law, the EU AI Act. Proposed by the European Commission in April 2021, this regulatory framework aims to ensure better conditions for the development and use of AI, while safeguarding users from potential risks.
The EU AI Act follows a ‘risk-based’ approach, classifying AI systems according to the risk they pose to users. AI systems deemed to pose an unacceptable risk, such as those that manipulate cognitive behaviour or engage in social scoring, will be banned. High-risk systems, which could negatively affect safety or fundamental rights, will be subject to stringent regulations. The Act also emphasises the importance of human oversight, transparency, traceability, non-discrimination, and environmental friendliness.
This groundbreaking legislation sets a global standard, highlighting the EU’s commitment to fostering the development of safe, trustworthy AI that respects fundamental rights.
In collaboration with the Payment Systems Regulator (PSR), the Financial Conduct Authority (FCA) is seeking insights from stakeholders on the benefits and risks posed by digital wallets. With digital wallet usage growing rapidly in recent years, the two regulators are gathering information to better understand the impact of this growth on consumers and businesses alike.
As a collaborative initiative, the respective regulators share common interests with regards to digital wallets, notably including consumer protection considerations. Given their differing remits, however, each holds particular interest in differing aspects. The PSR, for example, seeks to understand how digital wallets impact the consumer’s choice of payment options at checkout, and the subsequent implications for competition between payment systems. The FCA, meanwhile, is interested in how digital wallets may impact competition in the supply of financial services and the operational resilience of the financial services sector.
The Call for Information can be found below and outlines the scope of the information requested. The regulators will be seeking submissions until 5pm on 13 September 2024.
Read more on the PSR and FCA joint call for information on big tech and digital wallets
Read more on the call for Information from the FCA
The Basel Committee on Banking Supervision has published a final disclosure framework for banks' cryptoasset exposures and targeted amendments to its cryptoasset standard. The framework includes standardised tables and templates for banks to disclose qualitative and quantitative information on their cryptoasset-related activities. The amendments aim to promote a consistent understanding of the standard, particularly regarding the criteria for stablecoins to receive a preferential regulatory treatment.
Both standards are to be implemented by 1 January 2026.
Read more on Basel Committee published final disclosure framework
Read more on cryptoasset standard amendments
A recent study by Fair4All Finance, Trajectory, and CACI reveals that 20.3 million people in the UK are now financially vulnerable, a 16% increase from 2022. Key findings include:
The study underscores the urgent need for a more inclusive financial system to support vulnerable groups, such as implementing action plans based on the existing evidence of what works, which firms may already be aware of through customer outcomes assessments.
Read more on the study by Fair4All Finance
The FCA has published the findings from its multi-firm review of the treatment of politically exposed persons (PEPs), and has launched a consultation on amendments to its guidance in this area.
The review identified a number of issues in firms’ handling of PEPs and their relatives and close associates (RCAs), including:
The FCA confirmed that it has appointed a small number of Skilled Person reviews as a result of its work.
The draft guidance changes under consultation include clarifying that non-executive board members of civil service departments aren't PEPs; clarifying the sign-off requirements for PEP relationships; and reflecting changes to UK regulations that firms should begin from the basis that UK PEPs are a lower risk than overseas PEPs; as well as other “minor and mostly non-substantive changes,” such as removing outdated references to EU guidance.
Read more on the FCA calls on firms to improve treatment of politically exposed persons
Read more on the treatment of politically exposed persons
Read GC24/4: Proposed amendments to Guidance on the treatment of politically exposed persons
UK Regulatory Handbook 2024
An essential guide to the regulatory landscape for financial services
