UK Regulatory Radar

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.

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

PRA 2024/25 business plan: The PRA has published its 2024/25 Business Plan setting out the workplan to deliver against its four strategic priorities — all of which remain unchanged from last year. This will be the first full year operating under the Financial Services and Markets Act (FSMA) 2023, which expanded the PRA's rulemaking responsibilities and gave it a new secondary objective to support the competitiveness and growth of the United Kingdom. The ongoing programme of work is intended to maintain the resilience of the UK's banking and insurance sectors. For more details, see the article above.

Financial policy summary and record: The Bank of England's (BoE's) March Financial Policy Summary and Record found that conditions remain challenging, with geopolitical risks high and continuing to increase. The risk of a sharp correction in a broad range of asset prices has increased. UK households and businesses have so far been resilient to the impact of higher interest rates. The UK banking system is strong enough to support households and businesses, even if the economy does worse than expected. The BoE also published an article on operational resilience from a macroprudential perspective, which provides an update on its approach to risk monitoring and building firm- and system-wide resilience.

Systemic risk survey: The BoE has published the results of its H1 2024 Systemic Risk Survey, which quantifies and tracks market participants' views of risks to, and their confidence in, the stability of the UK financial system. Firms reported a similar level of confidence in the UK financial system to H2 2023. Overall, the perceived probability of a high-impact event affecting the UK has fallen. Geopolitical risk and cyber attack remain the most frequently cited risks and are considered the most challenging to manage. However, the number of survey respondents highlighting inflation risk has decreased sharply.

BoE and PRA enforcement approach: The BoE is consulting on changes to its enforcement approach following the enactment of FSMA 2023 and the Securitisation Regulations 2024. The proposals would amend the BoE/PRA's Enforcement Statement of Policy and Procedures in connection with the Securitisation Regulations 2024, in relation to recognised payment systems (RPS) using digital settlement assets (DSAs), in connection with the wholesale distribution of cash, and with respect to critical third parties.

Fees and levies: The FCA is consulting (PDF 1059KB) on its 2024/25 fee and levy proposals. Following fee freezes last year, the FCA propose to increase the minimum, flat rate and application fees, and revert to staged increases of A-block and consumer credit minimum fees from 2024/25. These increases are in line with the 8.75% rise in its ongoing regulatory activities budget which has largely been driven by inflationary pressures and its expanding remit.

FOS plans and budget: The FOS has published (PDF 618KB) final plans and budget details for the next phase of its transformation, whilst confirming the increased caseload it expects in the upcoming financial year. Higher demand next is expected in the year ahead, with an anticipated caseload of 210,000 complaints (up from 181,000). Despite the higher caseload, FOS commits to resolving complaints faster with more stretching targets set for the year ahead. Lower case fees (down to £650) and levy charges will reduce the cost to industry by over £60m in real terms.

FCA Handbook Notice: The FCA has published Handbook Notice 117 (PDF 487KB) to communicate consultation feedback and final rules across several areas of the FCA handbook. These include updates to its supervision manual, forms for Data Reporting Service Providers, periodic fees, and the FSCS levy. Rule changes have also been finalised regarding financial promotions and high-risk investments, authorised funds, the Investment Firms Prudential Regime, and the sourcebooks for credit unions (CREDS) and the conduct of business (COBS). The changes touch on a wide range of areas but are relatively minor.

AI Strategies: UK regulators have now published their strategies for the regulation of AI within financial services. Across the board, no new regulation is proposed, with both the PRA / BoE and FCA (PDF 339KB) determining that they already have sufficient frameworks in place (e.g. leveraging the Principles for Business, Consumer Duty, Operational Resilience rulebook, Model Risk Management Principles and SMCR) to meet the government’s principles. However, they have acknowledged that this stance will need to be kept under review given the rapidly growing deployment of AI.

PRA 2024/25 business plan: See Cross Sector and article for more detail on implications of the PRA's business plan for banks.

Market Watch 78: The FCA's Market Watch 78 covers the FCA's supervisory observations on the completeness and accuracy of instrument reference data (IRD) under UK MIFIR RTS 23, including (i) data quality processes, (ii) invalid issuer LEI best practice, (iii) invalid instrument classification best practice, (iv) cancelled instrument reference data, (vi) use of dummy values, and (vi) breach notifications. Exchanges, trading venues and investment firms with systematic internalisers (SIs) should review the FCA's observations against their implementation of RTS 23.

FCA feedback on asset management authorisations: The FCA has listed common issues it has identified with asset managers' authorisation applications to help firms improve the quality of their applications. The FCA's examples touched on topics such as insufficient experience and qualifications of senior management, failures to identify conflicts of interest, and business models that expose clients to undue risk.

Investment research: The FCA has launched a consultation (PDF 1017KB) on giving asset managers greater freedom in how they pay for investment research. This would include permitting the bundling of third-party research and execution payments — which has been prohibited since the introduction of MiFID II apart from under specific circumstances. The FCA is proposing the changes to reduce operational complexity and expense for asset managers, and to improve the ability of UK asset managers to purchase research across multiple jurisdictions. The FCA is aiming to publish final rules on an accelerated timeline by the of June 2024.

Digital Securities Sandbox: The BoE and FCA are jointly consulting on their proposed approach to operating the Digital Securities Sandbox (DSS). The DSS will modify regulations in the UK to enable financial market participants to use new technology — such as DLT — in the trading and settlement of digital securities such as shares and bonds. Successful applicants to the DSS will be able to provide securities depository, settlement services and operate a trading venue under those modified regulations, including for the first time, from the same single legal entity. The DSS will last five years and may lead to a new permanent regulatory regime for securities settlement under which firms could operate in future. The consultation covers the potential models in the DSS and the approach to authorisation and supervision.

UK Accelerated Settlement (T+1): The UK Accelerated Settlement (T+1) Taskforce has recommended (PDF 544KB) that (1) the UK should commit to moving to a T+1 settlement cycle (2) this move should take place no later than 31st December 2027, (3) the UK and other European jurisdictions should collaborate closely to see if a coordinated move to T+1 is possible, and if other European jurisdictions commit to a transition date then the UK should consider whether it wishes to align with that timeline.

The government has accepted all the recommendations and has established a Technical Group to develop the technical and operational changes necessary for the UK to transition to T+1, and to set out how these should be implemented. The group will also determine the appropriate timing for mandating these changes, which should be a date in 2025, and the overall `go-live' date for T+1.

UK Technology Working group report on fund tokenisation: The asset management Technology Working Group's latest report on fund tokenisation built on its first report from November 2023. It summarised progress made on the first report's recommendations, explored further use cases and considered the next potential stages for fund tokenisation. The report also included a model fund prospectus of risk factors and discussed technical standards for interoperable tokens and networks.

FCA review of Host AIFMs: On 25 March, the FCA published the findings of its review of host Alternative Investment Fund Managers (AIFMs). It assessed how well they understand and comply with their regulatory responsibilities, including situations where secondees from an Appointed Representative are placed with an AIFM Principal firm. The FCA identified evidence of potential harm and stated it will continue to closely monitor firms with these arrangements.

Supervisory Stress Test of UK CCPs: The BoE has released details of the 2024 Supervisory Stress Test (SST) of UK Central Counterparties (CCPs). This is the BoE's third public CCP SST exercise and will focus on two analytical components: the Credit Stress Test and the Credit Reverse Stress Test. It will not include a liquidity stress test component as the BoE's view is that their supervisory reviews in 2024 and the BoE's ongoing system-wide exploratory scenario (SWES) exercise provide sufficient coverage. The BoE intends to publish the results and findings from the stress-test exercise in Q4 2024.

PRA 2024/25 business plan: See Cross Sector and article for more detail on implications of the PRA's business plan for insurers.

PRA Matching Adjustment implementation: The PRA has published an update on matching adjustment reform implementation considerations, in response to clarifications requested by firms in advance of final Matching Adjustment policy and final statement, expected in early June. The PRA has provided several helpful clarifications, including the grandfathering of existing approvals and confirmation that existing `fixed' cashflow assets will continue to be treated as such. The PRA has also indicated they are aware of the practical challenges for firms if the rules were to come into effect in their entirety on 30 June 2024, and will communicate, as part of the policy statement, the date(s) on which new requirements will take effect, and whether early adoption will be possible on a voluntary basis.

PRA – restatement of Solvency II assimilated law: The PRA has published a consultation on restating assimilated EU law into PRA policy materials.  This is the final PRA consultation needed to implement the conclusions of the Solvency II Review, and to finalise PRA rules and other policy materials that will replace Solvency II assimilated law which is being revoked by the Government under its Smart Regulatory Framework (SRF) programme. It represents an important step in completing the adaptation of the UK’s prudential regime for insurers inherited from the EU into a framework consistent with the UK’s approach to financial services regulation.

This CP proposes the restatement into PRA policy material of those parts of the Solvency II regime which have not already been subject to consultation as part of the Solvency II Review. It sets out how the PRA proposes to restate these Solvency II requirements from assimilated law into the PRA Rulebook and other policy material such as Supervisory Statements (SSs) or Statements of Policy (SoPs).  The include the removal of cross-references to the EU’s prudential framework, but there are also a few instances where this CP proposes to reform certain areas as part of their restatement.

Consumer lending Strategy: The FCA has written (PDF 338KB) to the CEOs of firm within the three consumer lending portfolios setting out its consumer lending strategy. The High-Cost Lending, Mainstream Consumer Credit Lending and Credit Unions portfolios have been combined due to the similarities in products, customer base and harms posed. The FCA has identified seven priority harms — affordable credit, responsible lending, fair value, financial crime controls, customers in financial difficulty, complaints handling, and governance and oversight. Unsurprisingly, the implementation of the Consumer Duty also features prominently. The FCA expect CEOs and their boards to proactively assess their firms' exposure to the risks set out in the letter and demonstrate steps taken to ensure that they are appropriately managed.

Social media financial promotions: The FCA has published (PDF 2.8 MB) Finalised Guidance for social media financial promotions confirming its expectations for firms that communicate or approve financial promotions on social media, and influencers and unauthorised persons who promote regulated financial products or services on these platforms. The guidance sets out how adverts across social media platforms must be clear, fair and not misleading, stand-alone compliant, contain the right balance of risks and benefits and carry the appropriate risk warnings so people can make well informed financial decisions. The guidance is largely unchanged from the consultation and replaces FG15/4: Social media and customer communications (PDF 857KB).

Mortgage Charter: The FCA has published the Mortgage Charter's uptake data. Introduced in 2023, the Charter contains several measures aimed at providing extra support to customers with residential mortgages. All lenders have agreed to measures for improved guidance, clearer communication, and the provision of more forbearance options. However, Charter signatories (representing, 90% of the mortgage market), have adopted more extensive commitments. Findings indicate the Charter is going some way to deliver on its objectives with data showing a minimum of 760,000 accounts benefiting from one or more of the measures.

Stronger protections for borrowers: The FCA has published a package of rules and guidance concerning the treatment of borrowers in financial difficulty — final rules (PDF 1027KB) incorporating aspects of the tailored support guidance for lenders into the Handbook, updated Finalised Guidance (PDF 91.2KB) for mortgage lenders reflecting these, and details of June 23 rule changes that enable the delivery of the Mortgage Charter commitments. These were published alongside the FCA's most recent cost of living research which shows that, despite an improving picture, many customers continue to struggle to meet financial commitments, with levels remaining higher than FCA historic data. This ongoing impact is driving the FCA's continued focus in this area, and its expectations that firms remain vigilant and responsive to customers in financial difficulty.

Improving access to travel insurance: The FCA has published (PDF 777KB) the findings from its review of rules improving access to travel insurance for consumers with more serious pre-existing medical conditions. The FCA conclude the rules have had a positive impact, estimating that the intervention has resulted in an additional 21,000 policy sales. The rules have been implemented as intended with the FCA only findings small pockets of non-compliance. The FCA proposes to raise the £100 premium trigger for signposting in response to increased risk prices and medical costs and claims leading to consumers with milder medical conditions being signposted unnecessarily. It will formally consult later this year. The FCA found that consumers purchasing through directories appeared to get comparable value to non-specialist purchases. However, the FCA re-emphasised the importance of firms ensuring that consumers are getting fair value, especially where premiums are high, and firms earn percentage commissions without an absolute cap.

Dear CEO letter: Motor Finance: The FCA published (PDF 111 KB) a Dear CEO letter to firms impacted by its work on legacy discretionary commission arrangement. The main thrust of the letter is to remind them of the importance of maintaining adequate financial resources. The letter also sets out a number of actions that it requires firms to undertake to satisfy themselves on issues including making accurate stakeholder disclosures, regulatory reporting, as well as suitably notifying the FCA where appropriate and maintaining an effective and appropriate complaints handling approach. The FCA will continue to monitor this activity and further data collection from firms may be required. For further details on `no regrets' action these firms should be undertaking, please read our recent article here. 

Mandatory requirements for enhanced data: The BoE has announced that it is deferring the mandated adoption of ISO 20022 enhanced data from November 2024 to 1 May 2025 in order to maintain sufficient time between the introduction of the new RTGS core ledger and settlement engine, and these enhanced data requirements. The BoE is also consulting on expand the scope of mandatory requirements, to CHAPS payments, originating from all channels, from November 2027.

PSR annual plan: The PSR has published (PDF 1925KB) its 2024/25 annual plan and budget. As this is the third year of its five-year strategy, there are, unsurprisingly, no new areas of focus. However, Year 3 importantly sees the PSR's focus on key initiatives shift from development and into delivery and implementation. This includes the introduction of mandatory APP fraud reimbursement, the expansion of confirmation of payee (CoP), advancing work on the new open banking entity, and the implementation of any proposed remedies on card market fees. The PSR also reconfirm its support for a National Payments Vision, which is currently being developed by the government. Later this year, marking the halfway point of the strategy, the PSR will review progress and assess whether its priorities remain relevant. Reflecting its recent growth, the PSR's budget is increasing by 3.7% to £28m.

Open banking: The Joint Regulatory Oversight Committee (JROC) has published a consultation (PDF 711KB) on the design for the future open banking entity (the Future Entity), including its corporate structure, roles and responsibilities and funding model.  Given implementation of the long term regulatory framework is expected to take up to two years, JROC is recommending Open Banking Ltd (OBL) establish an interim entity as soon as possible to lead the development of JROC's five open banking programme workstreams.

Pension Dashboard Service: In response to the operation of a pensions dashboard service (PDS) becoming a regulated activity, the FCA is consulting (PDF 1816 KB) on guidance for PDS firms. The new guidance, in the Perimeter Guidance Manual (PERG) details the scope of this regulated activity and when FCA authorisation and permission is required. In addition, the FCA proposes two substantive changes to the regulatory framework for PDS firms consulted on in December 2022: (i) requirements for firms to present the consumer with choices for their initial next steps after viewing pensions data, and (ii) delegated access as the route for consumers to share their dashboard data with an FCA regulated investment adviser.

Pensions dashboard connection timetable: The DWP has published guidance setting out a staged timetable for pensions dashboard connection, to manage the process of connecting in scope pension schemes and providers by 31 October 2026. The timetable prioritises connection of the largest pension schemes and providers, with the first cohort expected to have completed connection by end of April 2025. Whilst the timetable is not mandatory, DWP emphasises that adherence would put providers in a good position to achieve compliance and provide the Pensions Dashboard Programme with adequate time to assist and co-ordinate activities to support the connection of schemes and providers in advance of the deadline.

PRA focus on climate-related risks: The PRA's 2024/25 Business Plan reaffirms its commitment to managing the financial risks of climate change as part of its strategic priority to `be at the forefront of identifying new and emerging risks and developing international policy'. In 2024, the PRA will publish thematic findings on banks' processes to quantify the impact of climate risks on expected credit losses and will commence work on updating SS3/19 for banks and insurers.

Measuring climate-related financial risks using scenario analysis: The BoE has published a bulletin focusing on how firms can use scenario analysis to quantify physical and transition risks. The bulletin considers the extension of macro-climate scenarios to undertake granular asset-level analysis of financial risks, using sovereign and corporate bonds as well as residential mortgages as examples. It also explores how scenario analysis outputs can be applied to firms' existing financial modelling toolkits.

Transition plan resources: The Transition Plan Taskforce (TPT) has published its final set of sector-specific guidance including considerations for banks, asset owners, asset managers and insurers (the latter in a separate document covering several sectors) when disclosing their transition plans. The guidance is intended to be used as 'internationally recognised best practice'. The FCA will consult in 2024 on how to integrate the output into its disclosure requirements. Companies and firms will therefore want to consider how to apply the guidance to pre-empt any formal regulatory requirements.

Pension schemes' climate-related disclosures: The Pensions Regulator (TPR) has published a review of the climate-related disclosures made by occupational pension schemes with more than £1 billion in assets under management. It identifies examples of good practices as well as areas for improvement across the disclosure pillars of governance, strategy, scenario analysis, risk management, and metrics and targets. Pension trustees should review the findings and consider how to incorporate the suggested improvements in future disclosures.

Nature risk management at financial firms: The Global Association of Risk Professionals (GARP) has published its first global survey of nature-related financial risk management across financial services firms. 48 firms (37 banks, seven asset managers and four insurers) were surveyed — GARP found that there is increasing focus on the financial risks of nature, but that firms' maturity levels on strategic engagement are relatively low.

FCA — Extending the Sustainability Disclosure Requirements regime: Following its 2022 consultation, the FCA is now consulting (PDF 2.4 MB) on draft, reworked rules for portfolio management services including model and bespoke portfolios. Compared to the original consultation, the FCA has radically revised its proposed rules and has essentially aligned them with the final rules for fund managers that were set out in PS 23/16 (see a summary here). 

• Under the regime, portfolio management firms with retail and professional clients would be able to use the four sustainability labels if portfolios meet the required criteria. However, only firms with retail clients would be subject to the naming and marketing rules — services provided to professional clients would be exempt from this aspect of the regime. Importantly, the scope of the regime would be restricted to UK-domiciled clients and would exclude portfolio management services provided to funds or their management companies.
• In a departure from the rules for fund managers, the labelling regime will take effect from 2 December (aligned to the naming and marketing rules) rather than 31 July 2024. There are also some nuances for portfolio managers to consider in terms of assessing the eligibility of underlying assets and funds for a label, measuring KPIs, and on the stewardship approach. 
• The FCA will publish final rules in the second half of 2024, with the labelling regime, naming and marketing rules, and disclosure requirements expected to take effect on 2 December 2024, subject to feedback.

FCA anti-greenwashing guidance: 

The FCA has published final guidance (PDF 393KB) for firms to meet their obligations under the its anti-greenwashing rule. From 31 May, the anti-greenwashing rule will require all communications to clients in the UK made by FCA-authorised firms about sustainability-related financial products and services to be ‘fair, clear and not misleading’, and to be consistent with the sustainability characteristics of the product or service. The rule will only apply to communications to users in the UK, and financial promotions approved for communication to persons in the UK. Notably, since its original consultation, the FCA has clarified that firm-level disclosures and the claims firms make about themselves are outside the scope of the anti-greenwashing rule. However, these add to the overall picture of firms and, as such, should be considered by them when assessing how users are likely to understand their sustainability-related claims. Firm-level disclosures and claims are subject to other expectations and rules, including those of the CMA and ASA. 

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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