Greg Kilminster
Head of Product - Content
FCA updates Consumer Duty resource
As the 31 July 2024 deadline for applying the Financial Conduct Authority's (FCA) Consumer Duty to closed products approaches, the regulator has updated its Consumer Duty page to ensure it is fully up to date with key speeches, podcasts and news. The latest update includes the Dear CEO letters sent to all firms earlier in May regarding the implementation of the Duty for closed products.
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Christopher Waller speech on payments innovation and technical standards
In a speech at the International Organization for Standardization (ISO) Technical Committee 68 Financial Services 44th Plenary Meeting, Governor Christopher J Waller addressed the importance of technical standards in the evolving payments landscape and the Federal Reserve’s multiple roles in fostering a safe, efficient, and innovative payment system.
Waller began with a brief historical overview to emphasise the long-standing benefits of standardisation within the payment system. He referenced the free-banking era (1837-1863) and the national banking era (1863-1913), highlighting issues of fragmentation and inefficiency due to the lack of standardisation. The creation of the Federal Reserve in 1913 brought significant improvements, including the establishment of a national check-clearing network, which facilitated more efficient and secure payments.
Evolution and innovation in payments technology
Waller discussed the rapid technological advancements in the payment system, particularly post-9/11, which led to the Check 21 Act. This act enabled electronic check processing, highlighting the necessity for common technical standards to support innovation. The current landscape sees similar rapid advancements, including instant payments, digital wallets, mobile payment apps, and digital assets. These innovations present opportunities to enhance payment systems but also pose risks of increased fragmentation if not properly managed through standardisation.
Importance of technical standards
Technical standards act as a common language for payment system participants, ensuring interoperability and efficiency. Standards like ISO 20022 allow systems to communicate effectively, reducing friction and promoting consistency across different payment technologies.
Development and adoption of technical standards
Waller emphasised that technical standards need to be:
- Technically sound: Robust and capable of supporting a range of functions.
- Implemented consistently: Adopted uniformly across the industry to maximise benefits.
- Timed appropriately: Introduced at a stage where they do not stifle innovation but prevent inefficiencies from delayed adoption.
The development of these standards should be voluntary, open, and consensus-based, ensuring they are credible and widely accepted. Waller highlighted the importance of involving a broad range of stakeholders to achieve this consensus.
Challenges and considerations
Waller noted that implementing technical standards effectively requires substantial coordination, especially among competitors. Timing is crucial; premature standards may hinder innovation, while delayed standards can result in higher compliance costs. Consistent implementation across the industry is also necessary to achieve the desired network effects.
The Federal Reserve’s roles
Waller outlined three primary roles of the Federal Reserve in the context of technical standards:
- Neutral convenor: Facilitating discussions and consensus among industry stakeholders, as demonstrated by the current conference and similar initiatives.
- Expert contributor: Leveraging its expertise as a payment system operator to inform standards and broader improvements. The Federal Reserve’s 2015 paper, "Strategies for Improving the US Payment System," exemplifies this role by calling for enhanced payment security and efficiency through standardisation.
- Standards adopter: Implementing standards within its own payment services. For instance, the FedNow Service and the planned adoption of ISO 20022 for the Fedwire Funds Service demonstrate the Federal Reserve’s commitment to incorporating robust technical standards to improve operational efficiency and support global interoperability.
Waller concluded by stressing that, while the pace of technological change in payments is faster today than in the past, the fundamental dynamics and the role of technical standards remain consistent. He called for continued collaboration among private and public stakeholders to develop and adopt open, transparent, and technically sound standards. This approach will ensure the payment system remains safe, efficient, and capable of supporting responsible innovation.
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FATF updates evaluation procedures
The Financial Action Task Force (FATF) has published revised assessment procedures and methodology for assessing compliance with the FATF Recommendations and the effectiveness of AML/CFT systems.
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ASIC warns of enforcements if hardship failures are not addressed
The Australian Securities & Investments Commission (ASIC) has published a report critical of ten of the largest Australian-based lenders and their approach to customers.
The report highlights four particular concerns:
- Lenders do not make it easy for customers to give a hardship notice.
- Assessment processes are often difficult for customers.
- Lenders do not communicate effectively with customers.
- Vulnerable customers often are not well supported.
The report goes on to highlight a number of concerning statistics including the following.
- High dropout rates: More than one-third (35%) of Australians abandoned the financial assistance application process due to its complexity.
- Post-assistance arrears: 40% of customers who received hardship assistance fell into arrears immediately after the assistance period ended, indicating insufficient or poorly structured support.
- Inadequate response to hardship notices: Some lenders ignored hardship notices, leaving customers without necessary support.
- Standardised approaches: Many lenders employ 'cookie-cutter' solutions that fail to address the unique circumstances of each customer, leading to inadequate support.
- Onerous assessment processes: The processes for assessing and approving hardship requests are often overly complex and burdensome for customers.
- Support for vulnerable Australians: Lenders have inadequate arrangements for supporting particularly vulnerable groups, such as those experiencing family violence.
ASIC Chair Joe Longo noted in the reports accompanying press release that: “ASIC has made this a priority focus area, and where appropriate, we will not hesitate to take enforcement action to protect consumers”.
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EBA consults on risk exposure to property
The European Banking Authority (EBA) has published a consultation on its draft Guidelines (GLs) under the Capital Requirements Regulation (CRR3) regarding acquisition, development and construction exposures (ADC) to residential property. The Guidelines specify the credit risk-mitigating conditions that allow institutions to assign a risk weight of 100% instead of 150% for ADC exposures to residential property. The Guidelines also address the specificities of institutions’ lending to public housing or not-for profit entities.
The deadline for comments on the proposal is 19 August 2024.
Click here to read the full RegInsight on CUBE’s RegPlatform