PRA has added a clarification on the business lines and trade structures in scope of the ICAAP expectations, and how to assess the materiality of contingent leverage risks to a firm’s business.
In other news, the PRA has made strides in advancing its data strategy. In a speech delivered by Rebecca Jackson, Director of Authorisations, RegTech and International Supervision, on May 16, 2023, the PRA outlined its data utilisation and collection methods. The PRA is leveraging technological advancements to deliver more efficient, tailored data collection processes, with initiatives such as the watchlist process and the single supervisory dashboard. The PRA is also exploring the use of AI to enhance supervision.
Lastly, the PRA has published its 2023-24 business plan, setting out its strategic priorities, workplan, and budget for the year ahead. The PRA confirms a number of existing areas of focus, including financial and operational resilience, climate risk, and the implications of technological change such as AI.
Next, we shift our focus to the Financial Conduct Authority (FCA), which has emphasised its concerns about fair value in relation to the upcoming Consumer Duty. On May 10, 2023, the FCA published the results of its review into firms’ fair value assessment frameworks, identifying areas of improvement ahead of the July 2023 Consumer Duty implementation deadline. The review highlighted several shortcomings, including firms’ inability to demonstrate that a product or service offers fair value, and a lack of consideration for non-financial costs, profit margins, and information from other firms in the distribution chain. The FCA has also underscored the importance of monitoring fair value and addressing any data gaps.
In the regulatory framework, the Financial Conduct Authority (FCA) has outlined its approach to embed its new secondary international competitiveness and growth objective. The FCA has identified seven key drivers of productivity that will shape its work, including operational efficiency, proportionate regulation, effective competition, innovation, trust and reputation in UK markets, market stability and effectiveness, and international markets. The FCA plans to set metrics to assess each of these drivers and report progress against these metrics in July 2024.
In the realm of remuneration, the FCA has proposed changes to increase the proportionality of the remuneration regime for small banks and building societies operating in the UK. The FCA aims to align its Dual-regulated Firms Remuneration Code (SYSC 19D) with the changes proposed by the PRA. The consultation period runs until June 9, 2023.
In the reporting sector, the FCA has confirmed the creation of a baseline financial resilience regulatory return (FIN073) for solo regulated firms. Firms will need to report FIN073 from January 2024 onwards. The UK Government has also launched a call for evidence in relation to a review of non-financial reporting for UK companies in their annual reports.
Cryptoassets and Non-Financial Reporting
In the realm of cryptoassets, the International Organization of Securities Commissions (IOSCO) has unveiled a global standard. On May 23, 2023, IOSCO proposed 18 recommendations to regulate cryptoassets, covering six areas consistent with IOSCO Standards. These recommendations aim to ensure similar regulatory outcomes for investor protection and market integrity as those in traditional financial markets, thereby reducing the risk of regulatory arbitrage. The consultation period will close on July 31, 2023, with IOSCO planning to finalise its recommendations by year-end.
European Union Developments
In other news at the European Union, a provisional agreement has been reached on the European Single Access Point (ESAP) on May 23, 2023. The ESAP, part of the Capital Markets Union package, aims to centralize financial and sustainability-related data on European companies, thereby facilitating decision-making for a broad range of investors. The platform is expected to be launched in the summer of 2027, with a phased implementation. The first phase will include information published through the Short Selling Regulation, Prospectus Regulation, and Transparency Directives. Subsequent phases will cover disclosures made via the Sustainable Finance Disclosure Regulation, Credit Ratings Agencies Regulation, and the Benchmarking Regulation, among others .
In sustainability news Sustainability On the topic of sustainability, the three European Supervisory Authorities have put forward proposals for ESG (Environmental, Social, and Governance) disclosures for securitisations. The joint report, submitted on May 25, 2023, covers Regulatory Technical Standards (RTS) on ESG disclosure for Simple, Transparent, and Standardised (STS) securitisations under the Securitisation Regulation.
The proposed ESG disclosures would be relevant to all STS securitisations where the underlying exposures are residential loans, auto loans, and leases. These proposals have been crafted to align with the technical standards developed for the Sustainable Finance Disclosure Regulation.
The European Commission is anticipated to endorse these proposals within three months of the publication date. The new standards will become effective 20 days after their publication in the Official Journal. However, even after the implementation of these standards, originators will have the option to adhere to the original disclosure requirements instead of using the RTS.
That concludes our update on the latest regulatory developments. Stay tuned for more insights in the world of finance.