Greg Kilminster
Head of Product - Content
Nikhil Rathi’s Speech at Morgan Stanley European Financials Conference
In a speech at the Morgan Stanley European Financials Conference, Nikhil Rathi, Chief Executive of the Financial Conduct Authority (FCA), spoke about the FCA’s commitment to fostering a transparent and cooperative relationship with investors and analysts. He outlined the agency’s strategic objectives, including the focus on data-driven decision-making, operational efficiency, and outcomes-focused regulation.
Consumer duty and regulatory approach
Rathi discussed the implementation of the Consumer Duty, highlighting its objectives and the expected impact on regulatory practices. He stressed the importance of firms aligning with the Duty’s principles, focusing on fair value, transparent communication, and customer service. Rathi reassured firms that the FCA would adopt a pragmatic approach, prioritising significant breaches while acknowledging proactive efforts to address concerns.
Fair value and market dynamics
The speech underscored the FCA’s stance on fair value and market competition, Rathi stressing that the FCA is not a price regulator. He also emphasised the importance of firms delivering positive outcomes under the Consumer Duty, which could provide them with a competitive advantage. He cautioned against unintended consequences and overly burdensome regulation that could stifle innovation and investment, advocating for a balanced approach that considers both consumer protection and industry competitiveness.
Redress and prudential regulation
Rathi addressed the issue of redress for past misconduct, emphasising the FCA’s proactive stance in addressing historical grievances. He discussed ongoing investigations into motor finance claims and highlighted the agency’s collaboration with the Prudential Regulation Authority to assess the financial impact on regulated firms. Rathi also noted the importance of regulatory cooperation and proportionate prudential rules to support market stability and responsible risk-taking.
Supporting investment and innovation
The speech concluded with a focus on supporting investment and innovation in the financial sector. Rathi highlighted various initiatives, including the reform of the listing rules and the long-term asset funds regime, aimed at enhancing market infrastructure, promoting sustainability, and facilitating technological innovation. He emphasised the need for a balanced conversation between short-term shareholder returns and long-term investment to ensure the sector’s competitiveness.
Conclusion
In concluding, Rathi noted the mindset shift required to become an outcomes-based regulator, adding that the regulator needs to:
- Act proportionately and evidence-based.
- Gather additional data when necessary.
- Balance multiple objectives effectively.
- Anticipate and address unintended consequences.
- Identify and address issues promptly.
- Maintain integrity by fulfilling commitments.
- Respond swiftly to significant harms to prevent escalation.
- Create an environment conducive to investment and innovation.
- Contribute to a robust and competitive financial sector in the UK.
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The ECB – ten years on: Kerstin af Jochnick’s speech at the LBBW Fixed Income Forum
In a speech at the LBBW Fixed Income Forum and with a nod to the tenth anniversary of the establishment of a single banking regulator, Kerstin af Jochnick, Member of the Supervisory Board of the European Central Bank (ECB), spoke about the prevailing risks within the banking sector and the supervisory measures intended to mitigate these risks.
Resilience of the banking sector
Jochnick began her address by commending the resilience demonstrated by the banking sector in recent years. She attributed this resilience to the presence of solid capital and liquidity buffers, which have enabled banks to weather external shocks effectively. Despite the challenging environment characterised by high interest rates and sluggish economic growth, banks have maintained a degree of stability. However, Jochnick also noted the continued existence of risks, particularly in the realms of credit risk and internal governance.
Key factors contributing to resilience
Delving deeper, Jochnick elaborated on the pivotal factors that have bolstered the resilience of the banking sector. Firstly, she credited ECB Banking Supervision for its role in raising standards across the board. Through initiatives focused on capital requirements and risk reduction, supervisory bodies have instilled a sense of confidence in the sector. Secondly, Jochnick highlighted the proactive stance taken by policymakers in response to challenges. Swift action to support the real economy has, she said, indirectly benefited banks, contributing to their overall resilience.
Managing risks in leveraged sectors
A significant portion of Jochnick’s address was dedicated to examining the risks inherent in leveraged sectors, with a particular focus on commercial real estate. Jochnick underscored the challenges posed by declining profitability and looming refinancing risks within this segment. Moreover, she emphasised the importance of banks effectively managing their exposures to mitigate potential negative impacts on their balance sheets.
Supervisory scrutiny and expectations
Supervisors, according to Jochnick, are maintaining a vigilant stance on various risk fronts, including leveraged finance and counterparty risk. She highlighted concerns regarding deficiencies in risk control measures within these areas and stressed the importance of banks taking proactive steps to address these shortcomings. Furthermore, Jochnick expressed a commitment to employing enforcement measures where necessary to ensure compliance with supervisory expectations.
Green and digital transitions
Jochnick also turned her attention to the imperatives of managing climate-related and environmental risks (C&E) and adapting to digital transformation. Supervisors are setting stringent deadlines for banks to align with supervisory expectations in these areas, recognising the importance of resilience amidst evolving challenges. By embracing sustainable practices and embracing digital innovation, banks can position themselves for long-term viability in a rapidly changing landscape.
Conclusion
In conclusion, Jochnick reiterated the imperative of further strengthening the resilience of the banking system. She stressed the need to complete the banking union, refine crisis management frameworks, and address gaps in macroprudential frameworks to fortify the sector against future uncertainties.
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EBA releases RTS on complaint handling for ARTs under MiCAR
The European Banking Authority (EBA) has published the final version of the Regulatory Technical Standards (RTS), outlining requirements on complaints handling for issuers of asset reference tokens (ARTs) under the Regulation (EU) 2023/1114 on markets in cryptoassets (MiCAR).
Background
The EBA closely followed the JC Guidelines on complaint handling procedures in developing the draft RTS. The draft also aimed to align with the emerging European Securities and Markets Authority (ESMA) RTS under MiCAR on complaint handling for crypto-asset service providers (CASPs) to ensure consistency across the board.
The draft RTS was open for public consultation from July to October 2023, and the EBA made targeted amendments based on the responses received.
Content
The final RTS includes requirements related to the complaints management policy and function, the provision of information to ART holders and other interested parties, templates, recordings, the procedure to investigate complaints, communication of investigation outcomes, and provisions for complaints handling involving third-party entities.
Following the consultation, the EBA introduced a few amendments to align the initial draft with the related RTS on complaints handling for CASPs developed by ESMA. These amendments include language requirements, the provision of a copy of the complaint to the complainant where an electronic complaint form is filed, and a new section related to ‘complainant/legal representative’ in the template. The EBA also made additional amendments to align the draft RTS with the GDPR after receiving informal advice from the European Data Protection Supervisor (EDPS).
Next steps
The draft RTS will be submitted to the European Commission for endorsement by 30 June 2024. Then, it will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union.
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Australian regulators publish further guidance for Financial Accountability Regime
The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have published further information to help banks, insurers and superannuation trustees prepare for the commencement of the Financial Accountability Regime (FAR).
As well as a letter advising superannuation entities of the actions then need to take in advance of the new regime taking effect on 15 March 2025, the regulators have also published:
- a joint information paper, Financial Accountability Regime: Information for accountable entities (Information Paper);
- updated accountability statement guidance and template; and
- a consultation package for insurance and superannuation entities seeking feedback on the draft Financial Accountability Regime Regulator Rules Amendment Instrument No. 1 of 2024 (draft amendment instrument) and supporting descriptions for each proposed Insurance Key Function and RSE licensee Key Function.
The consultation deadline is 19 April 2024.
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