Greg Kilminster
Head of Product - Content
FOS publishes half yearly data
The UK’s Financial Ombudsman Service has published its latest data for the January to June 2023 period showing the number and outcome of the complaints dealt with regarding financial businesses.
The data shows an increase of 11% in the number of businesses that feature in the data with an increase in the number of complaints upheld in the consumers’ favour up from 34% to 37%.
The data shows an increase in banking and insurance complaints, with Barclays, Santander, HSBC, Lloyds and NatWest banks accounting for nearly 19,000 complaints of the 93,000 cases submitted. The single biggest category of complaints against one entity is Banking and Credit at Barclays with 4,616 new cases.
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BoE issues consultation paper
The Bank of England has issued CP22/23 setting out some minor amendment proposals to the Prudential Regulatory Authority Rules. The main changes involve:
Amending the Depositor Protection Part of the PRA Rulebook (DPP) to facilitate the ability of the Financial Services Compensation Scheme (FSCS) to pay compensation to eligible depositors of insolvent deposit takers via electronic transfer; and amending the Senior Managers and Certification Regime (SM&CR) Forms C and D related to the Financial Conduct Authority’s new consumer duty rules.
The consultation closes on 13 November 2023 with a likely implementation date for the changes being December 2023.
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Michelle W Bowman: financial stability in uncertain times
In a speech at the Reinventing Bretton Woods Committee and Policy Center for the New South Marrakech Economic Festival, Governor Michelle W Bowman discussed the role of central banks and financial regulators in promoting a stable global financial system. The speech covered key financial vulnerabilities and risks, particularly in the banking sector, commercial real estate, nonbank financial institutions, and US Treasury markets.
Summarising, Bowman identified the following risks.
- In the banking sector, concerns revolve around funding costs, deposit outflows, and asset quality due to tighter monetary policy.
- Commercial real estate may face declines in property values and loan quality due to changes in office usage patterns.
- Nonbank financial institutions like hedge funds and money market funds are identified as vulnerable to run risks.
- US Treasury markets face potential stress events, affecting market resiliency.
Bowman stressed the need for proactive supervision and regulation to mitigate financial stability risks, highlighting the importance of efficient bank supervision and prudent risk management. She cautioned against regulatory changes that could harm the long-term viability of banks and stressed the importance of allowing innovation in the banking sector while ensuring accountability.
Bowman went on to advocate for effective supervision and regulation of nonbank financial institutions to ensure consistent treatment of similar financial activities. She also discussed the importance of central bank liquidity provision and lending facilities to support market functioning during times of stress, while distinguishing between temporary central bank asset purchase programs and monetary policy actions.
Concluding, Bowman noted that “central banks, in collaboration with other financial regulators develop and use supervisory and prudential regulatory tools to promote financial stability. Effective supervision and regulation, in turn, will support the effective conduct of monetary policy in achieving central banks’ macroeconomic objectives.”
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APRA chair on Australian banking stability
In a speech at the Citi Australia and New Zealand Investment Conference, Australian Prudential Regulation Authority (APRA) chairman John Lonsdale discussed the 2023 banking crisis and its effect on the region.
Noting that Australia “barely felt a tremor” given the region has a prudential framework that “exceeds Basel requirements in some areas” Lonsdale did still suggest some weak spots had been identified around liquidity and interest rate risk.
Eleven banks have taken part in APRA’s latest authorised deposit-taking institution (ADI) stress test. The full results are out in 2024, but Lonsdale revealed that “no banks breached their prudential requirements on capital, all retained sufficient liquidity, and banks continued to provide credit to households and businesses.”
He went on to discuss the Silicon Valley Bank collapse and the factors that caused that noting that one significant change in customer behaviour since the 2008 crisis is mobile banking adding that instead of queuing around the block to obtain their money, customers hit their mobile phones hence increasing the velocity by which cash was withdrawn. He, therefore, said that: “Even the largest, most financially resilient and best-resourced banks would struggle to cope with deposit outflows of this volume and velocity. For smaller banks, it would be especially difficult” before outlining a forthcoming consultation on prudential standard bank liquidity.
A second issue APRA will be looking to improve upon is interest rate risk in the banking book (IRRBB) which will have a proportionate focus on smaller banks.
He added that APRA has “commenced a conversation with the banking industry and investors about how to improve their effectiveness as a crisis management tool”.
Lonsdale stressed the importance of proportionality for smaller banks but stressed that some risks – such as cyber security – have to be applied at a consistent level across all entities. He also noted the importance of prevention is better than cure adding that “APRA will continue to use its full suite of supervisory and enforcement tools to ensure poor risk management practices are addressed in a timely manner”.
Reiterating the point in his conclusion, Lonsdale added: “APRA will continue to press boards to lift their standards of risk management, and is prepared to act promptly, and forcefully if necessary, to rectify weaknesses ahead of serious problems emerging.”
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APRA speech: finding a better balance in general insurance
In a speech at the Insurance Council of Australia Annual Conference APRA executive Suzanne Smith spoke about increasing the strength and stability of the Australian insurance sector.
Smith highlighted the growing disparity between the rising premiums faced by policyholders and the profitability challenges encountered by general insurers. Notably, certain key business lines, such as public liability and commercial motor insurance, are facing significant struggles. The factors contributing to this dilemma are complex, involving climate-related events, inflation, higher reinsurance costs, and evolving operating environments driven by technological innovation.
She hence outlined some regulatory initiatives taking place.
Hazards Insurance Partnership (HIP)
The Hazards Insurance Partnership, a collaborative effort between the public and private sectors, aims to enhance resilience against natural disasters. The partnership seeks to create a national insurance data asset and encourages the sharing of insights and data. Regulatory bodies like APRA and ASIC actively participate, contributing to strategic discussions and leveraging industry data to understand insurance and risk better.
Insurance Data Transformation Program
APRA’s Insurance Data Transformation program aims to enhance regulatory insights by strategically collecting data. These collections will offer valuable information on how insurers respond to issues of affordability and availability, aiding in policy formulation and decision-making.
Climate Vulnerability Assessment
APRA has initiated a Climate Vulnerability Assessment specific to general insurance, focusing on the potential price response of major insurers under different climate scenarios up to 2050. This assessment aims to predict the impacts of physical and transition climate change on household insurance affordability, thus helping insurers and reinsurers prepare for these challenges.
Operational Resilience (CPS 230)
APRA’s new prudential standard on operational resilience (CPS 230) requires entities, including insurers, to proactively manage risks arising from their operations. This includes a consideration of material service providers, such as underwriting agents and claims management services, and emphasises governance and risk management.
Financial Accountability Regime (FAR)
The recently enacted Financial Accountability Regime (FAR) will affect the banking, insurance, and superannuation sector hence APRA and ASIC are actively engaging with the industry to provide guidance and ensure a smooth transition into this regulatory framework, underscoring the importance of strong, sustainable insurance businesses.
In conclusion, Smith noted the collaborative efforts of insurers, regulators, and other stakeholders, guided by prudent compliance practices, are essential in finding effective solutions to address the challenges and ultimately ensure the availability of affordable and appropriate insurance coverage for all.
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SFC consults on new guidelines around market sounding
The Hong Kong Securities and Futures Commission has published a new Consultation Paper on the Proposed Guidelines for Market Soundings. Sounding out the market prior to a private placement or potential transaction is a well-established process, but the SFC has noticed cases of trading ahead of placements in recent years which might suggest that the market sounding information gleaned has been taken advantage of.
Under the proposals in the consultation, intermediaries would have to implement robust governance and effective policies and internal control procedures to prevent the misuse and leakage of non-public information they are entrusted with during market soundings, keep records of their market soundings, as well as follow specific requirements based on their respective roles.
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