October 2023

Our new issue of UK Regulatory Radar brings you the latest industry and regulatory updates impacting financial service providers in the UK.   

Click on the images below for our latest insights and see the 'Further updates' section for other sector-specific developments.

ESG and Sustainable Finance

Diversity and inclusion (D&I): The PRA and FCA (PDF 1.63MB) are consulting on diversity and inclusion in regulated firms. The consultations follow on from the 2021 joint Bank of England (BoE), PRA and FCA Discussion Paper on diversity and inclusion and overlap significantly as the regulators worked closely to develop their parallel proposals. While specific requirements will be based on a firm's size and type, the overarching message is that the PRA and FCA expect firms to develop D&I strategies and targets, consider D&I in their board and firm-wide governance, and make relevant disclosures both externally and via regulatory returns. For more detail, see the article above. 


Banking sector resilience: the October FPC Financial Policy Summary and Record finds the UK banking system to be well capitalised, supported by strong recent profitability and with high levels of liquidity. The FPC therefore judges it to be able to continue to support households and businesses even if economic and financial conditions are worse than expected. The FPC has decided to maintain the countercyclical capital buffer at 2%. In 2024, the BoE will run a desk-based stress test, in place of the Annual Cyclical Scenario (ACS). The ACS will return in 2025, following a review of the framework for concurrent stress testing. The initial stress scenario for the system-wide exploratory scenario (SWES) will be published before the end of 2023. 

Basel 3.1: On 27 September, the BoE announced updates to the timeline for implementing the final Basel III standards in the UK, referred to by the PRA as Basel 3.1 implementation timeline. The start of the implementation period will now be delayed by six months to 1 July 2025, in line with the proposed US timeline. The transitional period for implementing the output floor will be reduced from 5 to 4.5 years to ensure completion by the original planned date of 1 January 2030. In addition, the publication of near-final policy will be phased across Q4 2023 and Q2 2024.

Ring fencing regime: HM Treasury (HMT) and the PRA are consulting (PDF 515KB) on amendments to the ring-fencing regime in the UK. The proposals — which seek to make the regime more flexible and proportionate — expand on the list put forward as part of the 2022 Edinburgh Reforms. In parallel, the PRA also published a consultation on changes to its rules that will integrate with HMT's proposals, particularly around the establishment and maintenance of third-country branches and subsidiaries. And finally, HMT also published a response to its Call for Evidence on aligning the ring-fencing and resolution regimes.

Review of liquid fixed income financing businesses: The PRA has written to CROs summarising its thematic review of regulated firms’ liquid fixed income financing (or ‘matched book’ repo) businesses. The PRA expects that firms extend enhanced credit due diligence principles, client disclosure standards, and counterparty risk management controls, beyond those that have been introduced for hedge fund clients in equity financing, to all client types in all secured financing and other relevant trading businesses. Firms should ensure that operational processes and margining platforms are sufficiently robust and scalable to cope with extended periods of heightened market volatility. The PRA also emphasised the need for enhancements to liquidity risk management controls. Firms must benchmark their operations against the PRA's expectations and share any remediation plans by 8 December 2023. 

Capitalisation of foreign exchange positions: The PRA is consulting on clarifications and amendments for capitalising foreign exchange exposures under the market risk capital framework. The consultation also sets out the process for seeking permission to exclude Structural Foreign Exchange (SFX) positions from the capital calculation. It is relevant to PRA-authorised UK banks, building societies and PRA-designated UK investment firms that hold FX positions or items held at historical FX rates. 

Amendments to PRA Rulebook and SM&CR Forms: The PRA has proposed updates to its Rulebook to enable faster pay-outs to eligible depositors of insolvent deposit takers under the Financial Services Compensation Scheme (FSCS) – this supports the BoE’s work on improving depositor outcomes. The PRA also proposes to update SM&CR Forms C and D to reflect the requirements of the FCA’s Consumer Duty. The proposed implementation date for both changes is December 2023. 

Credit Unions

Annual assessment of the credit union sector: The PRA has written to directors with its annual assessment of the credit union sector. The letters, for CUs with total assets between £10 million and £50 million (PDF 129KB) and those with total assets under £10 million (PDF 129KB), address the challenging macro environment, liquidity conditions, and corporate governance and succession planning. There is also a reminder to Boards that they must review SS2/23 by 31 October and agree a plan to ensure ongoing compliance with the outlined requirements and expectations.  

Capital Markets and Asset Management

 FCA supervisory priorities for corporate finance firms (CFFs): The FCA defines CFFs as firms that predominantly advise corporate clients seeking to raise funds or execute transactions. The FCA letter (PDF 265KB) to the CEOs of CFF firms outlines supervisory priorities as ensuring: clients are categorised correctly; Consumer Duty is applied were applicable; market abuse controls are robust; and firms are not holding regulatory permissions with no clear business purpose or in order to favourably influence public perceptions of their unregulated business. By end of November 2023, CEOs must have discussed with directors and their Board the contents of this letter, agreeing appropriate actions and next steps. 

FCA update on wholesale data market study: The study, launched in March 2023, is reviewing competition in the provision of benchmarks, credit ratings data and market data vendor services following persistent user concerns about how well wholesale data markets are working. Based on its work to date, the FCA is proposing (PDF 2.122MB) not to refer any of the markets in scope of the study to the CMA at this stage. The FCA believes there are reasonable grounds to suspect there are features of each of the relevant markets that prevent, restrict or distort competition in the UK. However, its provisional view is that it is most appropriate for the FCA itself to take forward further work to identify and address potential harm caused by these features.

Landing slots for EEA funds in the Temporary Marketing Permissions Regime (TMPR): The FCA published an update regarding funds in the TMPR. It stated that the process for exiting TMPR and being notified about a landing slot for the planned Overseas Funds Regime (OFR) remains under review. However, in the meantime, the FCA requested that fund managers check that the FCA holds the correct contact email address for them (as shown on the FCA register). The FCA is expected to consult on the OFR soon. 


Solvency II Reform of the Matching Adjustment: The PRA has published a consultation on its Solvency II review focused on the reform of Matching Adjustments. The PRA considers that the proposals will, ultimately, allow the life insurance sector to play a bigger role in productive investment in the UK economy. However, life firms will be weighing up this additional investment flexibility and streamlining of the approvals process against the increased complexity around modelling, risk management and reporting.

Insurance market priorities: The FCA has written separately to its insurance portfolios (personal & commercial lines (PDF 180KB), life (PDF 194KB) and wholesale (PDF 173KB)) setting out its market-wide, and portfolio specific priorities for the next two years. The market-wide priorities are: (i) firm governance and culture, (ii) embedding the Consumer Duty, (iii) operational resilience, and (iv) improving the oversight of Appointed Representatives. Value for money is a theme prevalent across all of the portfolio priorities and also includes the FCA's expectations around firms' handling of DEI and non-financial misconduct.  The timing and content of these letters comes hot on the heels of the Consumer Duty coming into force and highlights a number of failings the FCA has observed which are either explicitly fair value related or have an element of value for money (VfM) to them. Despite evidence of good intent, the FCA expects boards to ensure proactive action is taken throughout the firm to improve outcomes. 

Authorisation and supervision of branches: The PRA has published  a consultation on its approach to the authorisation and supervision of insurance branches. The proposals are in light of the PRA's experience of third-country insurance branch authorisation and supervision following Brexit. It is relevant to existing and future branches and will have a material impact. Proposed changes include factors that determine if a branch or subsidiary is more appropriate, including whether the home regime is 'broadly equivalent', whether UK policyholders receive adequate priority in case of insolvency, and the branch's size relative to that of the third-country undertaking.  The PRA has also stated its expectation for appropriate level of risk retention at branch level and has warned against over-reliance on intragroup and/or reinsurance arrangements.  

General Insurance value measures data: The FCA has published the first full year of general insurance value measures data (Jan-Dec 2022). The findings indicate some firms may be failing to comply with fair value rules under PROD4, and the delivery of good customer outcomes under the Consumer Duty. FCA concerns fall into three areas (i) rule implementation and embedding, (ii) fair value (iii) product governance and MI. In particular, the FCA calls out its findings on Guaranteed Asset Protection (GAP) products that indicates some may be failing to provide fair value to customers. The FCA has given GAP insurance manufacturers three months to take action to prove fair value, or it will intervene. The FCA also appears frustrated that firms have not taken action in response to concerns in its last report as the products highlighted appear to still have the lowest proportion of claims costs to premiums written. This the signals FCA's intention to take prompt action where it finds consumers are not receiving fair value.

Dynamic stress test for general insurers: The PRA has announced a dynamic general insurance stress test, to take place in 2025. The dynamic nature of the 2025 exercise represents a significant change and will involve simulating a sequential set of adverse events over a short period of time. The objectives of the exercise will be to: (i) assess the industry's solvency and liquidity resilience to a specific adverse scenario; (ii) assess the effectiveness of insurers' risk management and management actions following an adverse scenario; and (iii) inform the PRA's supervisory response following a market-wide adverse scenario. The PRA intends to engage with the industry including trade bodies over the next six months, and will provide more details (including participation, design, and timelines) in H1 2024. 

Leasehold buildings insurance: The FCA has released a Policy Statement (PDF 674KB) confirming reforms to leasehold buildings insurance. The new rules require insurers to act in leaseholders' best interests, treat leaseholders as customers when designing products and ban the recommendation of insurance policies based on commission or remuneration levels. Insurers will also be required to ensure that their insurance policies provide fair value to leaseholders and provide important information about their policy and its pricing, including the detail of any commission paid for leaseholders. The rules come into force on 31 December 2023.

Insurers in difficulty: The PRA has released a policy statement that provides feedback to responses to consultation paper (CP) 3/23 — Dealing with insurers in financial difficulties. It also contains the PRA's final policy. The policy gives effect to the PRA's implementation to the amendments contained in the Financial Services and Markets Act 2000 (FSMA). This includes new rules concerning how the FSCS should operate in connection with a write-down, notifications of affected persons and the PRA's approach in relation to write-down applications and the appointment of write-down managers. This is separate from the introduction of the Insurance Resolution Regime (IRR) and the upcoming PRA consultation on supervisory expectations on recovery and resolution planning.

Insurance Distribution Directive: The FCA has published a consultation (PDF 1.377MB) on proposals to transfer the Insurance Distribution Directive (IDD) requirements retained in EU delegated regulation into FCA rules in line with HMTs plans to repeal these acts. These changes provide continuity of the regulatory regime once the acts are repealed. The FCA is not proposing to introduce any new requirements, or remove any requirements which currently apply. Any consequential changes seek to improve clarity. 

Funeral plan portfolio priorities: The FCA has also written (PDF 173KB) to its funeral plan portfolio setting out its priorities for them over the next two years. It highlights similar themes to other insurance portfolios including Consumer Duty, operational resilience, culture and improving the effective oversight of ARs. Alongside these, the FCA calls out the need for firms offering insurance-backed products to keep in mind the need for investment plans to bridge any gap between insurance asset growth and the impact of inflation on funeral delivery costs.

Retail Conduct

Later life mortgages: The FCA has published the findings of its multi-firm later-life mortgage review. This review looked at the sales and advice processes, customer outcomes and financial promotions of intermediaries responsible for around half of all lifetime mortgage sales. The review identified concerns with the quality of advice including insufficient discussions around alternatives and incentivising sales potentially at the expense of quality advice and good customer outcomes. It also flagged issues with the appropriateness of financial promotions which has prompted the removal or amendment of 400 misleading promotions. There is a tone of frustration in the FCA's report as these findings come despite long standing financial promotion rules and the FCA's 2020 equity release market review which also found issues with advice quality. 

Financial Promotions for high-risk investments: The FCA has published findings from its review into how firms offering restricted mass market investments (RMMIs) have complied with new financial promotion rules.  Whilst the FCA identified examples of firms complying with the new rules, it also observed some bad practices. These included some risk warnings failing to meet FCA expectations for prominence, client categorisation processes where consumers were pushed or led through the process and some instances where firms had not properly considered the full range of incentives offered by the firm against the ban on incentives to invest.  

Financial promotions gateway: The FCA has confirmed new rules (PDF 1.220MB)on how they will operate a financial promotions gateway for firms approving financial promotions for unregulated firms. From 7 February 2024, these firms will need FCA permission, demonstrating they have the right expertise for the promotions they wish to approve. The application window will operate between 6 November 2023 — 6 February 2024, firms must apply during this period to continue to approve promotions ahead of the new rules coming into force. 

Bank account access/ closures: The FCA has set out its initial findings on bank account access and closures. The most common reasons reported for closure, suspending or declining an account were due to inactivity/dormancy or where financial crime concerns existed. The findings indicate that no firm closed an account between July 2022 and June 2023 primarily because of a customer's political views. The FCA will be doing further work with firms to verify the data and to better understand the reasons behind account closures. The FCA has reported the findings to HMT. HMT has confirmed plans to consult on changes to the Threshold Conditions for banks to ensure they uphold their current legal duties to protect freedom of speech.  

In a similar vein, the FCA has separately announced its review into the treatment of domestic Politically Exposed Persons (PEPs). This review has been driven by concerns the PEP regime rules may be being applied inappropriately by some firms, resulting in individuals being unfairly excluded from products or services. There is a particular concern that firms may not be treating customers individually as directed by both the legislation and FCA guidance.

Appointed Representative Regime: The FCA has published the findings of the 2021 and 2022 AR data requests, authorisation information collected from firms and insight gained from supervisory activities. The report highlights concerns regarding Introducer ARs (IARs), overseas IARs, IAR oversight and professional indemnity. For example, the FCA saw examples where IARs acted outside their scope, principals did not have adequate processes or resources to adequately monitor and oversee their firms, as well as holding inadequate professional indemnity cover. The FCA also used this opportunity to remind firms of their obligations under the new AR rules introduced in August 2022, and the Consumer Duty. 

Consumer credit product sales data reporting: The FCA is consulting on proposals to introduce three new product sales data (PSD) returns into Chapter 16 of the Supervision manual (SUP 16). These returns will allow the FCA to collect further data about the consumer credit market from providers of consumer credit lending products. The requirements would cover additional fields for the Sales and Performance PSD returns and consist of affordability data and back book data collection. 

Platform portfolio letter: The FCA has written(PDF 183KB) to its platform portfolio setting out its supervision strategy, providing an updated view on the key harms in this sector, its expectations and work planned. Whilst harms are broadly consistent with earlier FCA letters, there is a new significant focus on financial resilience. The other harms identified are (i) fair value, (ii) Information security (iii) transfer times (iv) Due diligence on non-standard assets and (v) operational resilience failures. The FCA also view interest payments on cash balances and the "gamification" of trading as key emerging risks of harm. Unsurprisingly, Consumer Duty is a focus throughout.

Digital Finance

Crypto marketing rules: The FCA's crypto promotion rules — which will regulate these products as Restricted Mass Market Investments — are set to come into force on 8 October 2023. However, the FCA has now announced that firms will be able to apply for a 3-month extension (until 8 January 2024) to implement certain changes that 'require greater technical development'.


Value for money: The Pensions Regulator (TPR) has updated its Defined Contribution (DC) code of practice, investment governance and communicating and reporting guidance. Updates have been made to help DC schemes comply with new regulations to ensure all investment opportunities available are considered to achieve the value for savers. 


App fraud mandatory reimbursement: The Payment Systems Regulator (PSR) has published a consultation on a proposed specific direction, which will require firms to follow new rules and reimburse victims of authorised push payment (APP) fraud. This new direction is one of three proposed legal instruments PSR will use to implement mandatory reimbursement. The PSR proposals include a clarification to the definition of PSPs to includes legal persons which are covered by the PSRs 2017 and are not exempted, removal of the limitations to reimbursement from the direction to the requirement rules.  Helpfully, the PSR has listened to feedback and extended the implementation time period, now proposing the rules come into force on 7 October 2024 than April 2024. 

Cross Sector

Financial stability: The BoE Financial Policy Committee (FPC) has published its latest Financial Policy Summary and Record, alongside a report entitled Financial Stability in Focus, which focuses on the FPC's approach to managing risks in market-based finance, and the results of the latest biannual Systemic Risk Survey. The FPC finds that the current risk outlook is challenging, due to more persistent inflation, higher interest rates and geopolitical tensions. It notes that UK household and businesses are facing costs of living pressures and higher borrowing costs, but that the UK banking system remains strong enough to support them, even if economic conditions are worse than expected. However, risks linked to non-bank finance remain. The majority of firms surveyed continue to find cyber attack, geopolitical risk and inflation risk the most challenging risks to manage.  

The post-Brexit Handbook: The FCA is reviewing its regulatory framework post-Brexit and has set out its objectives for streamlining and, where possible, reducing the current complexity in the existing handbooks. Their overarching remit is not to `rip up and start again' but to take a measured approach to amending or retaining the rules it believes are most appropriate for the UK. 

Sanctions systems and controls: The FCA has set out key findings from its assessments of firms' sanctions systems and controls relating to money laundering and sanctions evasion — exacerbated by the unprecedented size, scale, and complexity of sanctions imposed since Russia's invasion of Ukraine. The FCA's findings have been grouped into five key themes: (i) appropriateness of governance and oversight (ii) developing sufficient skills and resources (iii) calibration of screening capabilities (iv) quality of Customer Due Diligence (v) accuracy and timeliness of reporting breaches to the FCA. 

Useful information

The KPMG Regulatory Barometer helps firms identify key areas of pressure across the evolving UK and EU regulatory landscape and measure the impact of the likely change

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