UK Regulatory Radar

The 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.

• Banking
• Capital Markets and Asset Management
• Insurance
• Retail Conduct 
• Payments
• Pensions
• ESG and Sustainable Finance
• Digital innovation
• Cross Sector 

Review of recovery planning for non-systemic firms': The PRA has published a letter for CEOs and for the attention of the Board containing feedback from its thematic review of recovery planning capabilities in non-systemic UK banks and building societies. The findings show that, although many firms understand the basics of recovery planning, there are significant areas for improvement, particularly in relation to the development of recovery scenarios and the calculation of recovery capacity. PRA-regulated international banking subsidiaries operating in the UK are also advised to consider the actions identified. 

Private equity related financing activities review: The PRA has written to Chief Risk Officers summarising its thematic review of risk management frameworks that govern private equity (PE) financing activities. The PRA expects banks to employ better group-wide risk data aggregation tools, stress testing capabilities and consolidated management information reporting processes. Boards must be fully involved in overseeing firm-wide strategy and combined business initiatives relating to the PE sector and be properly informed of aggregate exposure trends in associated credit and counterparty risks. Banks are expected to benchmark their current practices against the findings and set out how they plan to remediate any gaps to the PRA's expectations by 30 August 2024. 

Overseas Funds Regime roadmap: The FCA and HM Treasury (HMT) have published a joint roadmap to help EEA fund managers prepare for the implementation of the Overseas Funds Regime (OFR). This includes a timeline and more information on the application process. The FCA's final rules to operationalise the OFR are expected to come into effect in July 2024, with the OFR opening in September. The government will consult on extending the FCA's Sustainability Disclosure Requirements to overseas funds in Q3 2024.

FCA Market Watch 79: In Market Watch 79, the FCA discusses: 

• Failures of market abuse surveillance caused by issues with factors such as data and automated alert logic
• Its recent peer review of firms' testing of front-running surveillance models

To avoid surveillance failures and ensure that issues do not go unidentified for prolonged periods, the FCA suggests that firms should have comprehensive surveillance data governance and model testing, including before implementation and when models are amended. 

Securitisation Regulation: The PRA has published PS7/24 — Securitisation: General requirements and the FCA has published PS 24/4 — Rules Relating to Securitisation which explain how the regulators have moved the onshored EU Securitisation Regulation from legislation into their rulebooks. Existing requirements are largely preserved but there are some targeted changes to address known issues.

UK EMIR BTS 2016/2251: The FCA and PRA are consulting on amendments to BTS 2016/2251 — the technical standards for risk-mitigation techniques for OTC derivative contracts not cleared by a CCP. The amendments are necessary to reflect the expected changes to UK EMIR that will be made in the Securitisation (Amendment) Regulations 2024. 

Final Solvency UK taxonomy v 2.0.0: The PRA has published Insurance Taxonomy v2.0.0, setting out the technical implementation of the requirements outlined in PS3/24 — Review of Solvency II: Reporting and disclosure phase 2 near-final. The taxonomy is largely as per the PS, with some minor corrections. An updated XBRL filing manual has been published to help firms and software vendors when preparing to report. Reporting and disclosure policy reforms come into effect on Friday 31 December 2024.

Industry expert group on Matching Adjustment sandbox: Consultation paper (CP) 19/23 (Review of Solvency II: reform of the matching adjustment) set out the PRA's proposed reforms that will enable broader and quicker investment by insurers within their matching adjustment (MA) portfolios, while ensuring appropriate risk management. Following feedback provided as part of the consultation that PRA should consider establishing 'sandboxes' within MA portfolios, the PRA is convening a subject expert group to consider these or similar proposals. Organisations interested in sending a representative to the group should contact SandboxSEG@bankofengland.co.uk.

Statutory Instrument (SI) on Matching Adjustment: The UK government has published this SI as a further step towards Solvency UK implementation, paving the way for widening the number of assets eligible for inclusion in MA portfolios from 30 June 2024. 

Consumer Duty — closed products and services: Ahead of the 31 July deadline for closed products, the FCA has issued Dear CEO letters to firms across the consumer investments, consumer finance, life insurance, retail banking, and asset management sectors, and a letter to all other firms. The letters explain how the Duty applies to closed products and services, and priority actions to be addressed. They also provide prompts to help firms prepare and a recap of the relevant rules. The letters indicate that areas that the FCA is likely to supervise first — impacted firms should benchmark their programmes accordingly as they finalise preparations to meet the upcoming deadline.

Complaints data H2 2023: The latest half yearly complaints data (1 July and 31 December 2023) from the FOS shows a 20% increase in complaints, driven largely by banking and consumer credit products. 40% of these complaints concerned current accounts and credit cards with dominant themes being disputes over fraud and scams and unaffordable or irresponsible lending. Whilst other products showed a small decrease in complaints volumes, general insurance/pure protection complaints rose by approximately 18%, with the sharpest rises relating to motor insurance. The FOS cites customer concerns over delays and claims valuations for these products. Vehicle valuation is an area where the FCA has focused attention, with its recent review raising concerns about some motor insurers' valuation practices.

Consumer Credit Sales Data reporting: The FCA's final rules for Consumer Credit Sales Data reporting introduce three new quarterly product sales data (PSD) returns on sales, performance, and back books. The FCA has revised the reporting thresholds and increased the implementation period for firms, alongside other minor revisions to the original proposals. 

Approach to supervision: The PSR is consulting on its proposed approach to supervision. Under the plans, the PSR's recently established Supervision and Compliance Monitoring division would have regular supervisory engagement with payment system operators (PSO), assessing them against a set of principles that describe its regulatory expectations in line with its strategic priorities and statutory objectives. These principles would drive an evidence-based approach with PSOs assessed against these priorities over established review cycles. 

Rule extension or exemption guidance: The PSR is consulting on draft guidance on how it proposes to make decisions on whether to grant an extension or exemption to a specific direction or requirement to give firms more clarity. The PSR proposes to use four factors to guide its decision making (i) impact, (ii) context, (iii) burden and (iv) risk mitigation. Whilst recognising that there may be circumstances when an extension or exemption may be appropriate, the PSR intends to set a high bar for granting an extension or exemption to ensure that the intended outcome of the requirement is delivered. Given this high bar, the PSR expects to use them in very limited circumstances.

Wholesale cash distribution: The Bank of England (BoE) has published its final codes of practice on wholesale cash distribution (WCD) market oversight. The codes cover i) information, (ii) third-party arrangements, and (iii) cash centre closure and market exit. They are binding on firms and will be implemented broadly as consulted upon subject to some minor clarifications. The codes are accompanied by a WCD data catalogue detailing how firms should report data required by the BoE. The codes will apply only to firms recognised as having `market significance' in respect of their WCD functions and activities, following HMT's completion of the statutory recognition process earlier this year.

APP fraud and CHAPS payments: The PSR is consulting on proposals for how it intends to direct CHAPS participants to reimburse authorised push payment (APP) scam victims, placing requirements on firms to comply with the BoE's draft CHAPS reimbursement rules — the BoE is consulting on the reimbursement rules in parallel. The reimbursement rules and Specific Direction (SD21) have been designed to mirror, as closely as possible, the Faster Payments System (FPS) reimbursement requirement rules and Specific Direction (SD20). To ensure that scam victims have the same level of protection regardless of payment system, the BoE and PSR propose that the CHAPS reimbursement rules and SD21 come into force together with SD20 on 7 October 2024. 

Pensions dashboards: The FCA has updated its pensions dashboard rules for pension providers (PS22/12) to reflect DWP's recently issued staged dashboard connection guidance. The FCA is making available a modification by consent for firms that enables them to connect to the MaPS (Money and Pensions Service) pensions dashboards digital architecture before 31 October 2026, even where they are unable to connect and comply for 100% of their relevant pension scheme members' data. For FCA regulated pension providers, the relevant connection dates in DWP's connection guidance are 30 April 2025, for firms with 5,000 or more relevant pension scheme members, and 31 January 2026, for firms with fewer than 5,000 relevant pension scheme members. 

Annual funding statement: TPR has released its Annual Funding Statement (AFS) which shows material improvements in funding levels for most defined benefit (DB) schemes with valuation dates between 22 September 2023 and 21 September 2024 (T19 schemes). Analysis indicates that around 50% of T19 schemes are projected to surpass their estimated buy-out funding levels, exceeding expectations from three years ago. However, 25% are expected to remain in deficit on a technical provision basis. TPR expects DB scheme trustees, even if they do not have a T19 valuation, to review their funding and investment strategies, and long-term targets, to ensure these remain in the best interests of members. For schemes in deficit, TPR expects specific focus on achieving a recovery plan that has as short a timescale as reasonable, based on the employer's affordability.

TPR corporate plan: TPR has published its 2024 to 2027 corporate plan, setting out actions for the next three years to achieve its vision of a landscape of fewer, larger pension schemes that deliver good outcomes for savers from joining a pension through to retirement. Key challenges for the TPR in 2024/25 include embedding the new regulatory funding regime for Defined Benefit (DB) schemes while also increasing attention on Defined Contribution schemes (DC), ensuring value for money, good governance and administration. 

UK government sustainability disclosure framework: Following through on the commitment set out in the 2023 Green Finance Strategy, the government has published an update on the implementation of its economy-wide Sustainability Disclosure Requirements (SDR) framework, not to be confused with the FCA’s SDR for asset managers. The framework has five components: (i) endorsement of IFRS Sustainability Disclosure Standards and creation of UK Sustainability Disclosure Standards (SDS) (ii) transition plan disclosures, (iii) the aforementioned FCA SDR and investment labels (iv) the UK Green Taxonomy and (v) nature-related disclosures. The government expects to launch a consultation on the UK Green Taxonomy in 2024 and plans to consult on draft UK SDS in Q1 2025. The update also welcomes the final recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD) and the ISSB’s recent announcement that its future standards could reflect nature-related risks and opportunities.

Nature-related financial risks: The Green Finance Institute (GFI), with input from other scientific and financial experts, has published a report quantifying the impact of nature degradation on the UK's economy and financial sector. It estimates a 12% loss to GDP and up to 4-5% loss in the value of banks' domestic portfolios `in the years ahead'. The GFI notes that these estimates are likely to be conservative, indicating that nature-related risk will impact not just the economy but potentially also financial stability.   

Sustainable finance and FinTech: The UK and Singapore have published a joint declaration of strategic priorities, which includes (amongst other political issues) commitments for scaling sustainable finance, including transition planning, ESG data and ratings, and sustainability reporting, alongside FinTech and digital innovation initiatives such as the development of AI, CBDCs, DLT and cryptoasset policy. An update on payments connectivity and non-bank financial intermediation (NBFI) is also included. 

Big Tech firms: The FCA has published a feedback statement on the potential competition impacts from data asymmetry between Big Tech firms and firms in financial services. The FCA finds overall that there are currently no significant effects. However, it highlights three risks that could adversely affect competition in the future:

1. Increased data asymmetry creating barriers to access and expansion
2. Big Tech firms' platforms becoming a `gatekeeper' for retail financial services
3. Concentration risk limiting bargaining power of firms

The FCA will continue to monitor this area, including working with Big Tech firms to examine whether data from their core digital activities would be valuable in certain retail financial markets, especially in the context of Open Finance. Alongside this, the FCA and PSR will work closely together to understand the risks and opportunities related to digital wallets.

The FCA has decided not to extend the scope of its analysis to include wholesale markets at this point. 

Financial crime guide updates: The FCA has published a consultation on updates to the Financial Crime Guide on sanctions, transaction monitoring, proliferation financing, cryptoassets and the Consumer Duty. The proposed changes do not impose any new requirements on firms however, the FCA expects firms to consider the proposed revisions in the context of their financial crime systems and controls to ensure that these remain effective. 

Appointed representative oversight: The FCA has published the findings of its assessment of principal's oversight of Appointed Representatives (ARs) who undertake credit broking. The FCA assessed the key harms and drivers of harm caused by credit broking ARs, observing varying practices in their appointment, firms' ongoing monitoring practices and approaches to ending AR relationships. The report also shares examples of good practice and highlights FCA expectations for principal firms in the appointment and oversight of ARs. The FCA expects all principal firms, regardless of sector, to consider these findings and address any gaps.

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.

The KPMG Financial Services Regulatory Insight Centre monitors and tracks the evolving regulatory landscape. If you would like to discuss any of the topics covered in more detail, please contact a member of the team below.

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