Intense consumer protection supervision drives largest rise in regulatory pressure on financial services firms in 2024 says KPMG
Increased FCA scrutiny demands evidence of good customer outcomes, leading to significant pressure on firms.
Increased FCA scrutiny demands evidence of good customer outcomes, leading to significant
- Increased FCA scrutiny of how firms evidence good customer outcomes, driven by flagship Consumer Duty reforms, results in significant increase in regulatory pressure.
- Financial and operational resilience requirements continue to have the highest scores overall, while ESG and sustainable finance drops slightly.
- Regulatory pressure around digital finance and payments continues to intensify.
KPMG UK’s latest Regulatory Barometer – a biannual measure of the regulatory pressure* faced by financial services firms in the UK and EU – reveals that the greatest increase in regulatory pressure stems from requirements to comply with and embed consumer protection regulations. The regulatory impact score in this area has risen from 6.8 to 7.4 (out of 10) since March 2024.
This update comes as the FCA faces questions from the public about its latest annual report. The key focus areas of the report outline the work undertaken by the regulator to protect consumers and deliver good outcomes for them, via its Consumer Duty reform.
Philip Deeks, Head of KPMG’s Regulatory Insight Centre, comments:
“UK firms have really felt the weight of the Consumer Duty over the last six months as the reform has shifted from policy interpretation and implementation to high supervisory intensity. The uptick in regulatory pressure partly reflects the mammoth task firms faced as they raced towards the July deadline of compiling the first annual Consumer Duty board report and meeting obligations of their closed books.
“However, it is the pace and intensity with which the FCA has challenged firms for evidence of the outcomes they are generating that have driven most of the increase. The FCA has developed a keen appetite for data from firms. It has also moved quickly and been proactive in sharing its initial findings on how firms have implemented the Duty. Consequently, firms are feeling the pressure in responding to supervisory demands while simultaneously re-calibrating and enhancing their approach to the Duty.
“Now that the Duty has been fully implemented, some firms may be breathing a momentary sigh of relief. However, we do not expect intense supervisory pressure around consumer protection to ease off as the Duty and regulatory expectations around it evolve.”
Regulatory pressure is also building in other areas which impact consumers. The regulatory impact score for payments has risen from 6.8 to 7.1 since the last Barometer, driven by continued attention from policymakers and regulators on improving payment infrastructures in a bid to drive competition and innovation, and strengthen consumer protection.
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The score for digital finance has risen from 6.9 to 7.3. More stringent rules around the marketing of crypto assets, such as better risk warnings and 24 hour cooling off periods, have all contributed to the change. Firms also need to start preparing to meet the obligations of the EU AI act which will apply fully in less than two years.
Operational and financial resilience placing biggest regulatory burden on firms
Despite these developments, the most significant, and continuing, regulatory burden for financial services firms comes from requirements to maintain and strengthen financial and operational resilience – both score 8.1 in this edition of the Barometer. Across both themes, major policy initiatives are being finalised, implementation deadlines are approaching and there will be correspondingly high levels of supervisory intensity.
ESG and sustainable finance regulatory pressures are dropping year on year
While ESG and sustainable finance remain high on the regulatory agenda, KPMG sees a slight drop-off in regulatory intensity, with the regulatory impact score falling from 8.4 to 7.9. This reflects a slowing in publication of new policy, following several years of concentrated activity and while reviews of existing policy are progressed.
Notes to editor
KPMG’s analysis results in a single metric – a regulatory impact score – aggregated from individual theme scores. Each score is based on the volume of regulatory updates, the complexity of the underlying rules and the challenges of implementation. In addition, maturity indicators demonstrate progress made in each area of regulation, from ‘emergent’ through ‘developing’ to ‘implementing’ and ‘mature/BAU’, alongside views on where key EU:UK regulation is likely to align or diverge. Supporting data is drawn from KPMG’s Regulatory Horizon technology which scans the regulatory landscape over the past six months. This data is overlaid with expert views from the KPMG Regulatory Insight Centre. For more insights, sign up here.
ENDS
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About KPMG UK:
KPMG LLP, a UK limited liability partnership, operates from 20 offices across the UK with approximately 18,000 partners and staff. The UK firm recorded a revenue of £2.96 billion in the year ended 30 September 2023.
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