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

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Our items this week demonstrate the sheer breadth of the current regulatory agenda. 

There is a distinct air of positivity in our first item which picks up a recent FCA speech centred on the competitiveness agenda. 

At the polar opposite, a recent Treasury Select Committee report delves into the very much undesirable features of the industry and powerfully delivers some home truths, including concerns around the pace of progress. The findings here are complementary to the FCA’s own proposals to tighten expectations on firms to tackle misconduct. Understandably, regulators will expect firms to regard culture as a Board-level issue.  

In our third item, regulators look inwardly in the form of the NAO’s report on the Bank of England’s (BoE) management of its own compliance risks. This is a fascinating read for those wanting to learn more about the inner workings of the BoE. Ultimately, this conveys an acknowledgement that there is clear room for improvement. 

Within the fast-moving payments industry, our penultimate item demonstrates the trade-off between speed and risk in the form of pending legislation aligned to the current regulatory focus on APP fraud. 

To close this week, we look at emerging regulatory attention on the fairness of personal guarantees in small-business lending as broader consumer credit reform looms.

Hallmarks of a future-fit workforce 

Emily Shepperd, Chief Operating Officer and Executive Director of Authorisations at the FCA, has delivered a speech at TheCityUK and Financial Services Skills Commission Future Skills Conference. 

The speech emphasised the importance of tapping into skills markets outside London to ensure competitiveness and better reflect consumer demographics. Firms will need to build strong, healthy, and inclusive cultures to attract and retain talent. This will support a diverse, skilled, and agile workforce that is better able to respond and adapt to changing world events and new ways of working. It looks at the importance of creating the right environment to encourage the right behaviours while managing the emerging possibilities and challenges that artificial intelligence brings. 

The speech concluded that conversations on skills remain on the agenda but stressed that this needs to be accompanied by actions. From an FCA perspective, this includes policy and supporting firms to get to the right outcomes. 

'Sexism in the City' report 

The Treasury Select Committee’s report highlights progress in representation in financial services, but emphasises the need for faster advancement, noting persistent pockets of limited progress and significant cultural issues. The Committee considers regulators have a crucial role in driving diversity due their impact on competitiveness and firm performance. They advocate for greater responsibility for the leadership of firms.  

The regulators’ consultation on diversity and inclusion proposals stresses the importance of measurable data to drive change and welcomes the Committee’s feedback. Priorities for the upcoming year include addressing misconduct, such as bullying and sexual harassment, in line with the Committee’s recommendations. Reflecting on feedback, they will focus on tightening expectations on firms while considering strategies for fostering diversity and inclusion. Recommendations also include engaging with firms on cultural issues and promoting family-friendly policies.  

The regulators have committed to careful consideration of these recommendations.  

Legal, ethical, and staff risks 

The National Audit Office (NAO) has released a report detailing the BoE's management of legal, ethical, and staff compliance risks, marking considerable progress in enhancing non-financial risk management protocols since 2017. The report scrutinises the evolution of the BoE's risk management strategies, spotlighting significant improvements like the establishment of a Risk Directorate and the unification of risk registers into a singular system. 

Key findings from the report are structured around three main areas: 

  • Streamlined compliance risk management with clear governance and defined responsibilities 

  • Advanced identification, assessment, and monitoring processes for proactive risk management 

  • Improved mechanisms for swift and effective risk response, reflecting a strong commitment to risk mitigation 

The recommendations point towards ongoing enhancements in risk management, emphasising the need for the BoE to continuously adapt its strategies. The report showcases BoE's efforts to maintain financial stability and public trust through effective compliance and ethical governance, offering insights for similar institutions seeking to improve their risk management frameworks. 

Payment Services Regulations policy note: slowing down payments processing when fraud is suspected 

The Payment Services (Amendment) Regulations 2024 policy note has been published to further support the UK’s commitment to combat fraud and dishonesty in payment processing. This is the near-final version of legislation to slow down payments processing when there are reasonable grounds to suspect fraud. 

With a focus on Authorised Push Payment (APP) fraud, Payment Services Providers (PSPs) will have the power to delay payments for up to four business days when fraud is suspected, providing crucial time for investigation and prevention. This move aims to protect UK individuals and businesses from financial harm. The regulations are set to come into force alongside the Payment Systems Regulators rules on mandatory reimbursement for APP fraud on 7 October 2024.  

The Government has published the draft legislation for technical checks and has requested feedback before 12 April 2024.  

FCA investigation of the use of personal guarantees in small-business lending

The FCA has committed to investigate the use of personal guarantees by lenders to support loans to certain small businesses. The steps come in response to a super complaint from the Federation of Small Businesses (FSB).  

The FSB has raised concerns that a growing demand for personal guarantees by lenders has a detrimental impact on small businesses, which they believe dissuades them from borrowing funds to grow. It has concerns about small, limited companies. The FCA’s remit does not include lending to limited companies. However, the FCA has committed to investigate the issue to do what it can to support small businesses defined within its remit and it has agreed to share the outcome of its work with appropriate government departments, including the Treasury, as it considers reforming the Consumer Credit Act 1974.  

Financial services

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