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We bid farewell to 2022 with a Christmas present from the Chancellor where he announced and reinforced a spate of new and on-going initiatives for the financial services sector.

Continuing with the momentum, the first quarter of 2023 has been buzzing with regulatory updates around Conduct, Digital Payments, Re-alignment of EU regs to suit the UK markets in the aftermath of Brexit and the new regulatory initiatives grid, to name a few.

In this, the first of a quarterly series of blogs from the Cognizant GRC Advisory team, we look at the key updates from various UK Financial Services regulators that we think firms should keep eye on as they will have a significant impact. And we also highlight what key regulatory publications we are eagerly awaiting over the next quarter. Timeframe covered is 1 January 2023 to 9 March 2023. 

Regulatory updates in this quarter
Conduct Updates
  • New Consumer Duty: a top priority for the FCA

If there was any doubt, the FCA has now made it clear through its engagement with the industry that as the cornerstone of its three-year strategy, the new Consumer Duty is here to set and test higher standards between now and 2025 and is of utmost priority for the moment.  

In January, the FCA published its initial feedback on the implementation plans  received from the larger ‘fixed’ firms (i.e. firms with a dedicated FCA supervision team). In its feedback, the FCA urged firms to-

(1) prioritise appropriately, focusing on reducing the risk of poor consumer outcomes and assessing where they are likely to be furthest away from the requirements of the Duty

(2) carefully consider the substantive requirements of the Duty, as set out in the guidance/final rules

(3) share information with other firms in the distribution chain, wherever applicable.

The FCA also published a series of sector specific guidance letters reiterating feedback and outlining expectations. Specifically for the asset management sector, the FCA published a supervision strategy  highlighting the harms to consumers or markets that are most likely to arise from ‘Asset Managers’’ business models. It sets out how the FCA intends to supervise the portfolio to address these harms and supersedes the previous strategy letter of January 2020.

With the deadline less than 5 months away,  the FCA is continuing to engage with the industry for further understanding of the Consumer Duty requirements. Given the focus on the Duty, a lot of new proposals and rules within other areas of Conduct are also being designed to ensure firms put customers’ needs first, evident in some of the updates below.             

  • Consumer Duty influences the Value for Money framework for DC pension providers

In line with the price and value outcomes of the Consumer Duty rules, the FCA issued a consultation to standardise the Value for Money framework for Defined Contribution (DC) pensions providers. The consultation proposes a requirement to report on performance, cost and charges and services for comparisons.

  • The ‘consumer’ must come first even for Debt packagers

In a follow-up, the FCA issued the  Debt packagers: feedback on CP21/30 and further consultation on new rules and perimeter guidance. The original consultation was in response to an acute conflict of interest (inherent to the debt packager business model) between the need to have regard to the best interests of customers and the provision of advice which maximises revenue for the firm. This increases the risk that consumers receive debt advice that may not meet their needs.

  • Senior Managers Certification Regime (SMCR) gets a makeover

As announced in the Chancellor’s speech , the PRA published a consultation [CP2/23] proposing some legislative changes to the SMCR, including changing the length of employment history required for SMFs from 5 years to 10 years to make it consistent with MiFID. The consultation also proposes to include SMF forms and statement of responsibility to sit outside the PRA rule book in the interest of efficiency for any admin/non-material changes.

  • Buy-Now-Pay-Later (BNPL) under regulatory watch

In response to concerns about the potential for consumer detriment which were set out in the Woolard Review, the government announced its intention to bring currently exempt BNPL products into regulation in a proportionate way in February 2021. Since then the government has consulted and  published its response on this matter. This quarter, HMT issued a new consultation on the draft legislation that will look to bring in some of the areas of BNPL, exempt until now, under regulated territory. The focus of the draft legislation is on the agreements that are offered by third-party lenders.

  • Regulatory reform for Asset Management 

The FCA published DP23/2: Updating and improving the UK regime for asset management setting out ideas to improve asset management regulation with a more modern and tailored regime, better meeting the needs of UK markets and consumers. The discussion paper is intended to understand what impact potential changes might have on stakeholders. This ties in with what the Future Regulatory Framework means for the UK rules for asset management.   

Payments Updates
  • Digital dreams for the British Pound

Continuing with the theme of Digital payments explored in PSR’s round table  last year, the Bank of England together with HM Treasury issued a consultation with a view to introducing a digital pound. This was accompanied with a working paper that outlines the BoE's emerging thinking on Central Bank Digital Currency (CBDC) technology.

  • Crypto Assets under the regulatory microscope

Given the continued expansion of the crypto market, HMT issued a consultation to regulate a broad suite of crypto asset activities that are similar to traditional finance. The proposals outline admission/disclosure requirements for crypto trading venues as well as rules for financial intermediaries and custodians to make sure crypto exchanges have fair and robust standards.

  • Roadmap for the Real-Time Gross Settlement (RTGS) service beyond 2024

Following industry consultation in 2022 on a set of ambitious and innovative features that could be implemented in the renewed RTGS system, the Bank of England published the industry responses and outlining the way forward for leveraging investment in a modern and flexible RTGS service to meet the evolving needs of the UK payments industry beyond 2024. It includes new ways of connecting to RTGS, innovative and more flexible services (such as extended operating hours and synchronisation) and enhanced resilience.

  • Competitive constraints in card payment systems

As part of the card scheme and processing fees market review, the PSR issued a market review calling for evidence on initial stakeholder feedback it received on the competitive constraints that Mastercard and Visa face when setting these fees. The paper outlines four themes including, (1) intensity of competition and innovation in the payments ecosystem; (2) differences in the competitive dynamics on the issuing and acquiring sides of the market; (3) the impact of transparency on competitive pressure at all levels of the value chain and; (4) the must-take status of Mastercard- and Visa-branded cards (in many retail environments).

 Sustainable Finance Updates
  • Positive sustainable change through governance, incentives and competence in regulated firms

With so many initiatives taking place in sustainable finance, the FCA aims to help narrow this field and help with highlighting good, evolving practices if finance is to deliver on its potential to drive positive sustainable change. To this end, the FCA issued DP23/1: Finance for positive sustainable change: governance, incentives and competence in regulated firms ( to encourage an industry-wide dialogue on firms’ sustainability-related governance, incentives, and competencies.

Wholesale Markets Updates
  • Changes to reporting, data quality and registration of Trade Repositories (TRs) under UK EMIR

After a long wait finally and following in the footsteps of EMIR refit, the FCA and the Bank of England launched a joint policy document on EMIR UK based on their consultation paper closed in Feb 2022.  This paper sets out the changes to reporting requirements, procedures for data quality and registration of TRs to the derivatives reporting framework under UK EMIR.   The rules aim to ensure a more globally consistent dataset to enable authorities to better monitor systemic risk and financial stability risk. The regulatory go live date for UK EMIR is September 2024.

  • Agreement on a MoU for recognition of UK benchmark administrators

Earlier this year ESMA and FCA agreed on a Memorandum of Understanding (MoU) regarding cooperation and the exchange of information w.r.t. benchmark administrators that are based in the UK.  This comes on the back of the previous Benchmark Regulation, whereby a non-EU benchmarks administrator applying for recognition in the EU is subject to supervision in its home jurisdiction, ESMA must first establish an MOU with the relevant non-EU authority as a prerequisite for ESMA to be able to grant recognition to that non-EU administrator. Post this MoU UK Benchmark administrators will be recognised and will be able to operate within the EU.

  • Wholesale Data Market Study underway with a Terms of Reference

This March the FCA launched its terms of reference for the market study on wholesale data; setting its scope, the key issues to explore and the process for doing so. This was initiated on the back of several concerns raised about how well the market functions and how effective competition is for wholesale data. This study will focus on competition in the provision of benchmarks, credit ratings data and market data vendor services. The evidence from this study will be used to analyse what concerns exist in these markets. The findings and actions, if any, will be published within 12 months i.e., by 1 March 2024.

  • FCA outlines its findings on Data Reporting Service Providers service quality

FCA outlined its recent findings on the quality of service provided by Approved Publication Arrangements (APA) and Approved Reporting Mechanisms (ARMs), collectively known as Data Reporting Services Providers (DRSPs), to clients who use a DRSP to meet their MiFID II regulatory reporting obligations. These findings are of interest to the DRSPs, the investment firms, credit institutions and trading venues that are the client base of DRSPs.  FCA suggests good practices for these firms across the six themes they have grouped their finding namely - connectivity, data quality, fees, unregulated services, barriers to switching and overall customer experience.

 Data Updates
  • British Businesses to Save Billions Under New UK Version of GDPR

The Department for Science, Innovation & Technology introduced the new Data Protection and Digital Information Bill (DPDI) on 8 March. The proposed reforms look to provide businesses with additional opportunities for growth and legislative clarity, while maintaining the key principles of customer protection. One of the key elements of the bill is clarification of what constitutes the legitimate interest for business to process user data – notably data processing activities for marketing. Previously, many businesses interpreted that only user consent should be used as legal basis for such processing activities.

  • Concerns were raised by EDPB on EU-US Privacy Shield 2.0

In December 2022, the European Commission published a draft decision endorsing the adoption of a new EU-US data privacy framework adequacy decision (Privacy Shield 2.0). It was expected that the decision could be in effect by spring 2023. However, in an opinion issued by EDPB in March 2023, concerns were raised that the proposed framework does not provide data protection standards that are equivalent to those in EU. EDPB essentially suggested that additional commitments by US should be implemented before the framework moves forward – this means that corporates who carry out data transfer from EU to US will continue to rely on other transfer mechanisms such as standard contractual clauses (SCCs).

Regulatory Reporting Updates
  • Streamlining transparency rules on structured digital reporting of annual financial statements by companies

Structured digital reporting can enhance the transparency of existing market disclosures by applying digital ‘tags’ or ‘labels’ to the information, allowing it to be more easily extracted, compared and analysed by market participants using computer software. Therefore, the FCA  is proposing to simplify the structure of the current regulatory reporting rules which will involve, amongst other things, deleting an existing regulatory standard (the technical standards) onshored from EU law.

Operational Resilience Updates
  • The FCA, PRA and BoE’s views to managing systemic risks to their objectives posed by certain third parties

We await the publication of the responses to the joint FCA / PRA / BoE Operational resilience: Critical third parties to the UK financial sector Discussion Paper DP22/3 which closed at the end of 2022 and which sought views on potential ways to manage systemic risks to the FCA/PRA/BoE objectives posed by certain third parties as well as outline their views on the topic. The outcome of this is likely to have significant implications to critical third parties compliance roles at such firms increase significantly over the last 3 years.

  • Outsourcing and Third-party risk management: FMIs’ turn in the spotlight

The BoE has now issued the next phase of supervisory statements covering outsourcing and third-party risk management – this time covering FMIs – as well as an accompanying ‘code of practice’ and a single Policy Statement. Specific versions of the Supervisory Statements were issued for CSDsCCPs and then one for all other recognized payments systems operators. The updates focussed on addressing FMI’s rapidly evolving business models and industry practices that place increasing reliance on services and technologies provided by third parties. As with most of the other supervisory statements on outsourcing and Third-party risk management, the focus was on ensuring adequate substantiveness of expectations for firms rather than addressing the direction of the policy, which most of the industry agreed with.

Other Updates
  • Delayed but enhanced Regulatory Initiatives Grid

In February, the FCA and the Bank of England , alongside the other seven regulators, published the 6th edition of the regulatory initiatives grid. This was expected in November’22, but was delayed which has allowed the regulators to better consider how the opportunities provided by the Edinburgh Reforms (announced in December ’22), including the Government’s policy statement ‘Building a Smarter Financial Services Framework for the UK’, will impact the regulatory pipeline and initiatives over the coming years.

  • Synthetic data for innovation in financial services

In response to its Call for Input to further the understanding of the market maturity of synthetic data within financial services, and its potential to expand data sharing between market participants, the FCA issued a feedback statement setting out the responses and the next steps. In line with the regulator’s three-year strategy around digital markets, the next steps include further research and exploring potential partnerships to address key use cases in the future and leverage the Digital Sandbox and other firm-facing services to engage with industry and academia in this area.

Key highlights for the next quarter:
  • New Consumer Duty rules will come into force - From the end of July 2023, the Consumer Duty rules will apply to all new products and services, and all existing products and services that remain on sale or open for renewal. Whilst for closed products or services, the rules come into force on 31 July 2024.
  • Final goodbye to LIBOR - By mid-2023, it’s expected that the USD LIBOR settings will cease - they will be replaced by risk-free rates (RFRs) which are robust alternatives to LIBOR.
  • Ring-fencing reforms - Also planned for mid-2023 is the consultation on the near-term reforms of ring-fencing regime and propriety trading. The reforms aim to improve functionality of the ring-fencing regime which will be beneficial for the customers, financial services industry and economy.  There is also a call for evidence for aligning the ring-fencing and resolution regimes with the consultation closing mid of May.

With contributions from Ellora Roy, Deepshikha Mittal and James Jiang. 

David Coolegem

Director, Head of GRC Advisory, Consulting, Cognizant UK&I

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