Blog: Financial institutions general regulatory news, May 2021 # 3 | Hogan Lovells – JDSupra – JD Supra


  • US-UK financial regulatory working group joint statement
  • Bridging climate-related data gaps: NGFS progress report
  • Identification of material risk takers: PRA statement
  • PRA 2021/22 business plan
  • Countering cyber risks: PRA speech
  • PRA’s 2019/20 firm feedback survey results
  • Change of firm’s legal status: FCA new process
  • Operational resilience and the switch to digital phone lines: FCA Regulation round-up
  • FOS annual complaints data and insight 2020/21
  • Functioning of ESAs: ESMA responds to European Commission consultation

US-UK financial regulatory working group joint statement

HM Treasury has published a joint statement by the US-UK Financial Regulatory Working Group following its fourth meeting, which was held virtually on 20 May 2021. The Working Group meeting focused on seven themes: (1) international and bilateral cooperation; (2) sustainable finance; (3) updates on domestic initiatives and priorities; (4) benchmark transition; (5) cross-border regimes; (6) operational resilience; and (7) banking and insurance.

Participants reflected on the US-UK financial regulatory relationship and recognised the continued role of the working group in supporting and deepening this relationship. Participants will continue to engage bilaterally on the topics discussed and other topics of mutual interest before the next working group meeting, which is expected to take place in autumn 2021.

Bridging climate-related data gaps: NGFS progress report

The Network for Greening the Financial System (NGFS) has published a progress report on bridging climate-related data gaps. In the report, the NGFS notes that reliable and comparable climate-related data is crucial for financial sector stakeholders to assess financial stability risks, properly price and manage climate-related risks and take advantage of the opportunities arising from the transition to a low-carbon economy. However, persistent gaps in climate-related data impede the achievement of these objectives.

The report sets out the issues that need to be considered going forward and lays the groundwork for a comprehensive assessment of climate-related data needs and gaps. It states that, to ensure the availability of reliable and comparable climate-related data, a mix of policy interventions is needed to catalyse progress. Three building blocks are paramount: (i) rapid convergence towards a common and consistent set of global disclosure standards; (ii) efforts towards a minimally accepted global taxonomy; and (iii) the development and transparent use of well-defined and decision-useful metrics, certification labels and methodological standards.

Identification of material risk takers: PRA statement

The UK Prudential Regulation Authority (PRA) has published a statement on its approach to updating requirements on the identification of “material risk takers” (MRTs) and its position concerning applications for exclusion of MRTs in the current performance year. It should be read in conjunction with Chapter 3 of the Remuneration Part of the PRA Rulebook and Supervisory Statement, SS2/17, on Remuneration.

There is a discrepancy between Commission Delegated Regulation (EU) 604/2014 (RTS), which continues to apply in UK law, and a revised draft of the MRT regulatory technical standards (draft RTS), which applies in determining the application of the Remuneration Part of the PRA Rulebook (as explained in PS26.20). The PRA intends to consult on updating this position later this year.

However, during the intervening period, the PRA is of the view that the current position is as follows:

  • the RTS continue to apply and are binding in their entirety (together with technical changes made as part of the onshoring process);
  • firms must also apply the revised draft RTS when determining the individuals to which the requirements of the Remuneration Part of the PRA Rulebook apply;
  • in general, the application of the draft RTS will result in the identification of a broader scope of individuals, implying compliance with the RTS also;
  • however, in cases where the RTS require firms to identify individuals who do not meet any of the criteria under the revised draft RTS, the PRA considers that firms do not need to apply the requirements of the Remuneration Part of the PRA Rulebook to those individuals solely on the basis that they meet the criteria of the RTS if the firm does not consider that the professional activities of said individuals have a material impact on the firm’s risk profile;
  • the revised draft MRT RTS are a minimum standard. Firms need to assess whether an individual’s professional activities have a material impact on the firm’s risk profile, even if they do not fall within any of the mandatory criteria;
  • firms with a fiscal year end of 31 December may require additional time to submit remuneration policy statement tables. For the 2021/22 remuneration round, firms can submit them by 30 September 2021.

The PRA plans to consult on this issue later in 2021. The statement also explains the PRA is reviewing the templates that firms can use to communicate MRT information to the PRA. Amended templates will start to be published in summer 2021. The PRA will also provide more information on how firms can apply to the PRA for a waiver if they want to exclude an MRT.

PRA 2021/22 business plan

The PRA has published its business plan for 2021/22, which sets out its strategy and work plan for each of its strategic goals for the coming year, together with an overview of the PRA’s budget for the period 1 March 2021 to 28 February 2022. It also details some of the PRA’s highest-level actions to mitigate the impact of COVID-19 on PRA-regulated firms and on the UK economy.

The PRA explains how it intends to deliver its strategic goals for 2021/22 under the following headings:

  • robust prudential standards and supervision;
  • adapting to market changes and horizon scanning;
  • financial and operational resilience;
  • recovery and resolution;
  • competition;
  • EU withdrawal; and
  • efficiency and effectiveness.

Countering cyber risks: PRA speech

The PRA has published a speech by Lyndon Nelson, PRA Deputy CEO and BoE Executive Director, Regulatory Operations and Supervisory Risk Specialists, on cyber risk. In the speech, Mr Lyndon considers the role of simulation exercises, penetration testing, and international collaboration, as well as setting out details of the PRA’s future plans relating to cyber risk.

PRA’s 2019/20 firm feedback survey results

The PRA has published the aggregated results of its 2019/20 firm feedback survey. The purpose of the survey is to assess the effectiveness and quality of the PRA’s supervisory framework and approach. On its supervision webpage, the PRA has set out a summary of new issues raised in 2020 and the details of policy decisions it has taken in response to feedback, including:

  • senior managers and certification regime (SMCR) approvals: firms raised the issue of the length of timescales of approvals for the SMCR. The PRA states that a large increase in the number of applications received by the FCA has contributed to the delays and that the FCA has increased resourcing to address the issue. The PRA is considering ways of helping firms improve the quality of their applications, such as engaging with larger firms and trade bodies.
  • PRA information requests: the PRA acknowledges that it has increased demand for data during the COVID-19 pandemic. However, it has taken steps to increase notice and to reduce the volume of requests where possible. The PRA also intends to develop more consistent data to be used in times of stress, so that firms can be better placed to respond and, in the longer term, it intends to invest in better data capability to reduce the burden on firms.
  • PRA website: the PRA has enhanced the search function on its website and used reference numbers for papers to generate more streamlined results. The PRA intends to introduce a “mega-menu” to improve navigation and is considering additional methods to upgrade usability. It is also considering ways in which to enhance the PRA Rulebook.

The PRA notes that, as a consequence of the pandemic, it has suspended the follow-up meeting it usually holds with large firms and the roundtable discussions with small firms.

Change of firm’s legal status: FCA new process

The FCA has updated its webpage for firms applying to change their legal status. The FCA explains that, from 1 June 2021, it will no longer accept change of legal status applications. Instead, a firm wishing to change its legal status must submit either a new authorisation application (and cancel the previous entity’s permissions) or a SUP 15 notification, depending on the legal structure of the previous entity and the new entity. A table on the updated webpage indicates when a new authorisation application is required to be submitted and when a SUP 15 notification will suffice.

The FCA states that it is making these changes because submissions for a change in legal status application are often incomplete, causing delays in the assessment process. The FCA therefore intends to improve the process for firms changing their legal status, minimising any delays to the assessment process.

When submitting an application for the new legal entity, the firm must sign a deed poll declaration. This requires the firm to deal with any complaints from existing customers in the same way it would deal with complaints from customers of the new legal entity. This requirement is imposed to prevent firms leaving behind their customer obligations by changing their legal entity.

A firm that has any ongoing contractual agreements with their customers must contact them and agree either to amend their existing contracts or to agree new contracts to take into account the change in the firm’s legal entity. Where this is not the case, the firm should inform customers about the change in the legal entity as and when it next deals with them.

Operational resilience and the switch to digital phone lines: FCA Regulation round-up

The FCA published its Regulation round-up for May 2021. Among other things, the FCA highlights that the current analogue phone network will be switched off across the UK at the end of 2025, transferring to a digital phone network delivered through Voice over IP. This is a major change to the UK’s telecoms networks and will affect anything that currently plugs into existing analogue telephone wall sockets. In the context of operational resilience, the FCA advises that firms should be making plans to ensure there is no disruption to the services they provide.

FOS annual complaints data and insight 2020/21

The Financial Ombudsman Service (FOS) has published its annual complaints data for 2020/21, together with an article analysing the data.

In its analysis, the FOS highlights some of the key issues in the complaints it saw during 2020/21, how it resolved them fairly, and how they might have been prevented. It notes that, while the COVID-19 pandemic is unlike anything businesses and their customers have previously encountered, it is clear the fundamentals of customer service matter more than ever. Many complaints could have been avoided with better communication as managing customers’ expectations effectively can help generate goodwill and pragmatism, rather than distrust and frustration. Attention to individual circumstances is also essential and even more vital in view of the potential for detriment generated by COVID-19.

Digital finance: ESMA call for evidence

The European Securities and Markets Authority (ESMA) has published a call for evidence on digital finance. The call for evidence aims to gather relevant information on issues including value chains, platforms and groups’ provision of financial and non-financial services. ESMA is requesting information on three topics:

  • more fragmented or non-integrated value chains, arising as a result of financial firms increasingly relying on third parties for the delivery of their services and of technology companies entering financial services;
  • digital platforms and bundling of financial services; and
  • mixed activity groups providing both financial and non-financial services.

The call for evidence is likely to be of interest to financial firms who rely on third parties to fulfil critical or important functions, technology firms, digital platforms, and mixed activity groups.

The call for evidence closes on 1 August 2021 and the feedback received will contribute to ESMA’s technical advice to the European Commission which is due by 31 January 2022.

Functioning of ESAs: ESMA responds to European Commission consultation

ESMA has published a letter it has sent to the European Commission setting out its response to the Commission’s targeted consultation on the functioning of the European Supervisory Authorities (ESAs). The annex to the letter sets out ESMA’s general recommendations, which it believes merit further consideration by the Commission in the context of the consultation. These recommendations focus on:

  • reinforcing ESMA’s approach to supervisory convergence;
  • considering the merits of EU-level direct supervision;
  • building ESMA’s data capabilities;
  • ensuring the single rulebook remains fit for purpose; and
  • alleviating funding issues.

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