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    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    December 20, 2022

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers. Additionally, FCA published a firm-wide review on understanding the approaches to diversity and inclusion (D&I) in financial services, announced the next phase of the review on compensation framework, established a new advisory committee to work on Environmental, Social and Governance (ESG) issues, and imposed monetary penalties on Santander UK, Metro Bank PLC, and TSB Bank plc. Meanwhile, the working group of the Climate Financial Risk Forum (CFRF) published its third round of guides (or Session 3 guides) to help the financial sector develop its approach to addressing climate-related financial risks and opportunities. The Session 3 guides focus on the transition to net zero, scenario analysis, and climate disclosure, and data and relevant metrics.

    Below are the key highlights of these recent updates:

    • The draft guidance for mortgage borrowers sets out the flexibility firms have to support customers who have missed monthly mortgage payments or are worried they may not be able to make payments in future. It covers options such as extending the term of their mortgage, switching to interest-only for a temporary period, moving to a different interest rate, or making reduced monthly payments for a temporary period. The draft guidance notes that mortgage borrowers should carefully consider any steps, as making changes, even temporary ones, may result in higher monthly payments in the future or overall higher payment. The guidance is intended to ensure that the mortgage firms are clear about the effect of rules and the range of options they have to support their customers who are facing higher interest rates alongside other cost of living increases. FCA will closely monitor the mortgage market and will continue to engage with firms to monitor how they are providing the support borrowers need and the outcomes they receive.
    • The review on Diversity and Inclusion presents findings from the work undertaken by FCA to understand the state of diversity and inclusion approaches in regulated firms. The work involved a sample of 12 (generally larger) firms across multiple sectors and a pilot data survey. The key objectives were to give firms and others a picture of the current position, allowing leaders to consider where initiatives might be relevant in their own firms, encourage further industry action, and help FCA to develop a supervisory approach that can be used as a basis for future engagement with firms. The findings show that all firms are in the early stages of developing their approach on diversity and inclusion and many strategies of firms are generic and do not take a holistic view. On both gender and ethnicity, firms tend to focus most on improving representation at senior leadership level. However, firms with better diversity data had a better understanding of their position and were better placed to decide which actions to take. The findings also show that most firms do not have strategies that clearly linked diagnosis, action and measurement. The level of detail covered in strategies varies and often heavy reliance is on measures such as training courses and information hubs. The firms are making relatively little use of qualitative feedback, such as focus groups, using network/employee resource groups and exit interviews. FCA encourages all firms to consider the above findings in the development of their diversity and inclusion strategies and practices.
    • The document on the review on compensation framework sets out feedback on the compensation framework as well as the purpose, scope, and funding of the Financial Services Compensation Scheme (FSCS). This exercise is intended to ensure that the compensation framework continues to provide an appropriate level of consumer protection, with costs to industry distributed in a fair and sustainable way supporting innovation and growth. The feedback responses show a need for firms to be more financially resilient to address the underlying causes of high redress liabilities. As a next step, FCA plans to review compensation limits to consider whether they remain at an appropriate level for different types of claims, review funding class thresholds to consider whether the class thresholds remain at an appropriate level, and carry out consumer and firm research, in conjunction with the FSCS, to improve the FCA understanding of the impact of FSCS protection on consumer decision making, confidence, and behavior as well as on firm behavior and incentives.
    • The newly established ESG Advisory Committee will support the Board in executing oversight of ESG-related issues relevant to the FCA as a corporate entity and as a regulator. The Committee will provide guidance to the Board on relevant emerging ESG topics or issues and views on how FCA should develop its ESG strategy in keeping with the statutory objectives and regulatory principles of the organization. Members have been appointed by the Board in a personal capacity and will abide by a conflict-of-interest policy. The Committee will also include the FCA Chair, other Non-Executive Directors, and the Director of ESG.
    • With respect to imposing penalties, FCA has imposed a fine of GBP 107,793,300 on Santander UK Plc (Santander) after it found serious and persistent gaps in its anti-money laundering controls, affecting its business banking customers. FCA also imposed a fine of GBP 10,002,300 on Metro Bank PLC for breaching the listing rules by publishing incorrect information to investors. Moreover, FCA and PRA imposed a fine of GBP 48,650,000 on TSB Bank plc for operational risk management and governance failures, including management of outsourcing risks related to the information technology upgrade program of bank.

     

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    Keywords: Europe, UK, Banking, Mortgage Lending, Lending, Credit Risk, Diversity and Inclusion, ESG, Climate Change Risk, Net Zero Transition, Scenario Analysis, Disclosures, FSCS, Compensation Framework, Santander UK, Metro Bank, CFRF, TSB Bank, FCA

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