FCA published its annual report and accounts for the year ended March 31, 2020. The report presents work done by FCA to address the key sectoral and cross-sectoral priorities and planned initiatives for 2019-20. The key planned activities for 2019-20 were set out under seven priorities across multiple financial sectors, with culture and governance; operational resilience; climate change risks; exit from EU; and innovation, data, and data ethics being the key focus areas.
The following are the key highlights of the relevant updates presented in the report:
- During this period, FCA extended the Senior Managers and Certification Regime (SM&CR) to nearly all FSMA-authorized firms. FCA also made changes to the SM&CR and issued clarifications that firms had asked for. This included amending the scope of the client dealing function and clarifying how SM&CR applies to the legal function. FCA consulted on these in January 2019 and published final rules in July 2019. Firms that are newly subject to the SM&CR have a transitional period to deliver staff training on the Conduct Rules and certify relevant employees as fit and proper.
- In December 2019, together with BoE, FCA published a policy summary and consultation paper on how firms can strengthen their operational resilience. FCA plans to publish the final rules on this in a Policy Statement, which is likely to be published in the first half of 2021. FCA has completed its first round of assessments of the highest impact firms’ technology and cyber resilience. During 2019-20, FCA identified two key areas for further work: third parties and change management.
- FCA aims to better understand why change management is the greatest cause of reported technology incidents. The initial analysis of this data has helped FCA to better understand why firms have rated themselves as mature in this area. By the end of 2020, FCA plans to hold a roundtable with participants and leading technology firms to discuss the challenges identified in its analysis and to disseminate relevant best practices. FCA will also publish a report so that other firms can understand what was found and learn from this.
- To address cyber risks, together with BoE, FCA used CBEST regulatory tool to assess the highest impact firms in terms of their vulnerability to cyber attacks. FCA plans to test 88 firms over a five-year period and has collectively, with the PRA completed 18 CBEST tests to date. Timeline for testing has been impacted by the COVID-19 pandemic and the planned multi-firm work was put on hold to better understand firms’ weaknesses in identifying their key assets, detecting cyber attacks on these assets, and how they can improve resilience. FCA will be reviewing this decision once the demands on firms from the current pandemic have subsided.
- With respect to regtech, the previous work of FCA focused on the automation of regulatory reporting process. A project group has been setup to explore the potential for machine-executable regulatory reporting and the creation of common industry data standards and definitions. Common definitions between firms and the regulator could make regulatory interpretation more consistent and regulators could improve the quality of data from firms. During this period, FCA published a Viability Assessment of the technological and economic factors that may affect the move toward more automation in regulatory reporting. This assessment flagged up the many hurdles that need to be overcome to move to a more automated future. FCA is now working on a number of initiatives, using its data strategy to help transform the way it collects, stores, visualizes, and analyzes the data it collects from firms.
- For addressing climate change risks, in March 2020, FCA had proposed a new disclosure rule to improve premium-listed issuers’ climate-related disclosures, with consultation period for these proposals closing on October 01, 2020. FCA aims to publish a Policy Statement, the finalized rules, and Technical Note on this early in 2021. Additionally, FCA has been conducting policy research to better understand how sustainable investment products are designed and delivered and whether the disclosures that firms make on these products accurately reflect their climate-related (and wider sustainability) characteristics and are sufficient to enable consumers to make effective decisions. FCA will use these insights to inform ongoing work with the Treasury in line with the UK Government’s commitment in the Green Finance Strategy to match the ambition of the objectives of the EU Sustainable Finance Action Plan.
Keywords: Europe, UK, Banking, Insurance, Securities, Annual Report, Governance, SM&CR, Operational Risk, Regtech, COVID-19, Brexit, ESG, Climate Change Risk, Sustainable Finance, FCA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleOCC Bulletin Outlines Risk Management Principles for Loan Purchases
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).
BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.
FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.
EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.
ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).
HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.
APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.
PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).
US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).
US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.