Greg Kilminster
Head of Product - Content
Driving growth: UK’s vision for financial services innovation and inclusion
In a speech at the CityUK’s National Conference in Birmingham, Economic Secretary to the Treasury Tulip Siddiq outlined a forward-looking agenda for the UK’s financial services sector. Siddiq discussed reforms to enhance competitiveness, regulatory balance, and inclusivity while leveraging innovation and international partnerships.
The challenge of balanced regulation
Acknowledging the sector’s limited growth since the 2008 financial crisis, Siddiq highlighted the unintended consequences of post-crisis regulatory frameworks. “While we have been regulating for risk, we have not always been regulating for growth,” she said. She called for proportionate and effective regulation to encourage responsible risk-taking and innovation, while safeguarding economic stability.
Reforms to facilitate progress include a consultation to abolish the Certification Regime, which Siddiq described as a step towards reducing costs for businesses and boosting innovation. Additionally, the government has issued new remit letters to regulators, urging them to support ambitions for inclusive and sustainable growth.
Strengthening investment and capital markets
Siddiq outlined measures to revitalise capital markets and increase investment opportunities. These include finalising reforms to Solvency II, enabling insurers to invest in a wider range of assets, and launching consultations to consolidate the defined contribution pension market. These initiatives aim to “strengthen insurers’ ability to make productive investments,” supporting economic growth and savers alike.
The government is also pushing forward with PISCES, a regulated private share market to improve transparency and efficiency for private companies, while supporting the pipeline for future IPOs. Legislation is expected by May 2025.
Harnessing the potential of fintech and digital innovation
Siddiq announced steps to lay the groundwork for Open Banking and Open Finance through the Data Bill currently in Parliament. These frameworks are expected to drive the next wave of innovation in financial services.
The government’s plans include piloting a Digital Gilt Instrument (DIGIT) using distributed ledger technology. Additionally, efforts to regulate stablecoin issuance reflect, she said, the government’s recognition of cryptoassets’ evolving role in financial services.
Promoting inclusivity and financial resilience
Siddiq reaffirmed the government’s commitment to financial inclusion. The commitment of banks to rollout 350 banking hubs will ensure underserved communities retain access to cash and face-to-face banking services. “This is just a first step in my mission to ensure everyone has access to the financial services and products they need,” she said.
She also drew attention to economic abuse, citing the 5.5 million women affected this year. Siddiq pledged to prioritise financial inclusion efforts that meet the needs of all users, particularly those made vulnerable by abusive practices.
Global collaboration and trade
Siddiq highlighted the importance of partnerships with key international markets, including the United States, India, and the European Union. She also stressed the UK’s commitment to free and open trade as essential for maintaining its position as a global financial hub. Upcoming dialogues with India and other major markets are expected to deepen ties and expand opportunities for UK financial services.
A vision for sustainable growth
Looking ahead, Siddiq revealed plans for a 10-year Financial Services Growth and Competitiveness Strategy, to be published in spring 2025. Designed as a co-created framework, the strategy will focus on regional growth, regulatory innovation, international partnerships, and skills development. A Call for Evidence is open until 12 December, inviting industry participation.
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BoE publishes CCP stress test results
The Bank of England has published the results of its 2024 Central Counterparty (CCP) Supervisory Stress Test, which assessed the resilience of UK-based CCPs under severe market stress scenarios. The tests are critical for evaluating the ability of CCPs to manage significant credit and liquidity risks that could impact the financial system.
Key findings
- Credit stress testing: The assessment confirmed that CCPs could absorb losses from extreme market scenarios combined with the simultaneous default of their largest clearing members (cover-2 standard). The study also explored alternative scenarios with multiple clearing member defaults to evaluate systemic resilience.
- Liquidity stress testing: CCPs demonstrated sufficient liquidity to meet their obligations, even under heightened stress, including restricted access to foreign exchange markets. Liquidity demands largely fell on larger clearing members, with smaller non-bank clearing members also facing notable, though manageable, challenges.
- Market stress scenarios: The baseline scenario simulated extreme shocks, including geopolitical tensions, commodity price surges, and shifts in economic expectations. Additional exploratory scenarios tested broader and more severe conditions to ensure comprehensive resilience analysis.
- Broader implications: The exercise highlighted the importance of robust service agreements for liquidity management and called attention to the concentration of key liquidity service providers. Additionally, the findings noted the need for transparency in margin practices and the role of innovation in enhancing risk management.
The results will inform the Bank’s supervisory practices and provide a benchmark for CCPs to address identified vulnerabilities.
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FCA updates Financial Crime Guide
The Financial Conduct Authority (FCA) has published Policy Statement 24/17, outlining significant updates to its Financial Crime Guide (FCG). The changes aim to strengthen firms' financial crime controls, aligning with the FCA’s strategic objectives for 2022-2025. This follows Consultation Paper 24/9, in APril 2024 which gathered extensive feedback on proposed updates across various areas including sanctions, proliferation financing, and transaction monitoring.
Some context
The FCA’s FCG serves as a practical resource for firms to enhance their systems and controls against financial crime. The latest updates reflect evolving risks, regulatory expectations, and lessons learned from supervisory work and industry feedback. A key focus is ensuring firms integrate financial crime controls with broader obligations, such as the Consumer Duty, which emphasises delivering good outcomes for retail customers.
Key takeaways
- Sanctions: The FCG update incorporates lessons from the Russia-Ukraine conflict, clarifying expectations for sanctions screening and reporting. New examples of good and poor practices have been added.
- Proliferation financing: The Guide now highlights mandatory risk assessments under the Money Laundering Regulations 2017, although the FCA declined to separate proliferation financing guidance from sanctions chapters.
- Transaction monitoring: Revisions encourage responsible use of AI and technology while introducing new best practice examples. Firms are advised to tailor monitoring systems to their specific risks and keep robust records.
- Cryptoasset businesses: The Guide emphasises firms’ obligations under financial crime regulations and introduces targeted guidance for transaction monitoring and anonymity risks.
- Consumer Duty alignment: The FCA has added cross-references to help firms balance financial crime controls with the Consumer Duty’s expectations, particularly in protecting consumers from fraud.
- Other updates: The revisions address data security, refresh outdated references, and improve the accessibility of case studies, including naming firms in enforcement examples.
Next steps
The updated FCG took effect on 29 November 2024. Firms are expected to review their financial crime controls, identify gaps, and implement necessary changes. The FCA will continue to refine guidance based on supervisory findings and future consultations. Firms are encouraged to provide feedback on further improvements.
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HKMA confirms new supervisory policy
The Hong Kong Monetary Authority (HKMA) has written to all its authorised institutions to confirm the introduction of a new Supervisory Policy Manual (SPM) module, TM-C-1, Supervisory Approach on Cyber Risk Management. The module formalises HKMA’s expectations and guidelines for authorised institutions to manage cyber risks effectively, reflecting the growing importance of cybersecurity in safeguarding financial stability.
Some context
The HKMA developed this module following consultations with industry associations to address escalating cyber risks and their potential systemic implications. The new guidance consolidates existing practices and supervisory processes without introducing additional requirements. It also encourages stronger collaboration between banks and other stakeholders within the financial ecosystem to enhance cyber resilience.
Key takeaways
- Focus on systemic stability: The HKMA underlines the need for robust cyber risk management to mitigate the potential systemic effects of severe cyber incidents on Hong Kong’s financial sector.
- Holistic approach: TM-C-1 outlines the HKMA’s overarching principles for managing cyber risks and its supervisory expectations, offering a comprehensive framework for authorised institutions.
- Stakeholder collaboration: The guidance promotes enhanced cooperation between the banking industry and stakeholders, aiming to build a cohesive and resilient ecosystem.
- Accessibility and transparency: The SPM module is publicly available via the HKMA website, ensuring transparency and accessibility for all relevant parties.
Next steps
The HKMA urges authorised institutions to review the TM-C-1 module and align their practices with the outlined principles. Institutions should also focus on fostering collaboration within the industry to strengthen their collective cyber resilience. Further queries can be directed to HKMA’s Banking Supervision division.
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FCA proposes changes to regulatory fees and levies for 2025/26
The Financial Conduct Authority (FCA) has released Consultation Paper CP24/25, outlining its policy proposals for regulatory fees and levies for 2025/26. The adjustments reflect the FCA's objectives to recover costs equitably across fee-payers and align fees with regulatory requirements and evolving market dynamics.
Some context
The FCA operates an annual fees cycle to update its fee structures, with consultations held in November and subsequent policy decisions in March. The proposals address various areas, including fee increases for specific firm categories, changes to fee structures, and updates to facilitate cost recovery for regulatory oversight. The consultation also incorporates feedback from previous discussions on fees and seeks views from impacted stakeholders before finalising the changes.
Key takeaways
- Revised fees for small payment institutions and Annex 1 financial institutions: Registration fees for Small Payment Institutions (SPIs) and Annex 1 financial institutions will increase to reflect the complexity of processing applications. SPIs will move to a higher fee category (£1,090), representing 68% of the processing cost.
- Validation Order fees: The FCA proposes a two-stage fee structure for Validation Orders, aligning fees with the complexity and scope of applications. Firms will pay a preliminary fee based on third-party involvement and a project fee determined by the assessment's actual cost.
- Appointed Representatives (AR) fee model: The flat-rate fee for principal firms overseeing ARs will transition to a variable-rate model. This change ensures fees correspond to the FCA's actual costs, reducing the risk of over- or under-recovery.
- Minor technical updates: The FCA intends to clarify provisions in the Fees Manual to enhance readability and remove outdated references, particularly within FEES 5 (Financial Ombudsman Service funding) and FEES 6 (Financial Services Compensation Scheme).
- Ombudsman Service levy changes: Implementation of an expanded definition of "relevant business" for levy calculations will be deferred to April 2026. This allows further consideration of its impact on firms conducting non-consumer business.
Next steps
The consultation closes on 24 January 2025. Firms are encouraged to provide feedback via the FCA’s online survey or by email. Finalised rules will be published in March 2025, with changes taking effect from April 2025 unless otherwise specified.
The FCA emphasises that these updates aim to ensure proportional cost recovery, reduce cross-subsidisation, and align with its strategic objectives to protect consumers, promote competition, and enhance market integrity.
Click here to read the full RegInsight on CUBE's RegPlatform.