August Compliance Roundup:
In the ever-evolving landscape of financial regulation, it’s crucial for financial services providers to stay informed about the latest developments. This month’s roundup brings you key updates from both sides of the English Channel.
UK:
The Financial Conduct Authority (FCA) has announced new measures to enhance the resilience of the UK’s payment systems. Strong Customer Authentication (SCA) and Secure Communication requirements under the Revised Payment Services Directive (PSD2) are set to come into force in September 2019. The FCA is urging firms to prepare for these changes, which aim to reduce fraud and increase consumer protection. Additionally, the Financial Ombudsman Service has published a new policy statement on unauthorized financial advice, outlining its approach to handling complaints where consumers have received unauthorised advice.
EU:
The European Banking Authority (EBA) has published its Annual Risk Assessment for the EU banking sector. The report highlights the potential risks to financial stability, including non-performing loans, credit risk, and cybersecurity threats. Furthermore, the European Securities and Markets Authority (ESMA) has updated its guidelines on markets in crypto-assets. The new guidelines aim to provide a regulatory framework for initial coin offerings (ICOs) and crypto-asset trading platforms, while ensuring investor protection.
Importance of Regulatory Compliance in Financial Services Industry
In the fast-paced financial services industry, regulatory compliance plays a crucial role in maintaining trust, protecting investors, and ensuring fair business practices. Failure to adhere to regulations can lead to severe consequences, including hefty fines, reputational damage, and even criminal charges. With the ever-evolving regulatory landscape, it’s essential for financial institutions to stay informed and compliant.
August Compliance Roundup: A Necessary Resource
Each month, the August Compliance Roundup provides a valuable and timely overview of key regulatory developments impacting the financial services sector. The August Compliance team meticulously curates this monthly digest, highlighting recent regulatory updates and offering expert insights to help businesses navigate the complex regulatory landscape.
Brief Recap of August 2022’s Compliance Roundup
In the August 2022 edition, the Compliance Roundup covered several essential topics for financial institutions. One highlight was a deep dive into the link‘s new climate disclosure proposal, which could significantly impact reporting requirements for public companies. Additionally, the team discussed recent updates to the Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) regulations, emphasizing the importance of strengthening internal controls and risk management processes.
More Than Just a Newsletter: A Valuable Resource for Financial Professionals
The August Compliance Roundup is more than just a monthly newsletter; it’s an invaluable resource for financial professionals seeking to stay informed and ahead of the curve. By offering expert analysis, practical insights, and actionable recommendations, this essential tool empowers organizations to effectively manage their regulatory risk and maintain compliance in the ever-changing financial services industry.
UK Regulatory Updates
In the ever-evolving world of business and finance, it is crucial to stay informed about the latest regulatory updates in the United Kingdom. Here’s a brief overview of some significant changes that have recently taken place or are upcoming:
Brexit and Financial Services
With the UK having left the European Union (EU) on January 31, 2020, there have been numerous changes to financial services regulations. The link provides valuable information on how the UK’s regulatory framework has adapted to Brexit.
Data Protection and Privacy
The General Data Protection Regulation (GDPR) has been the standard for data protection in Europe since May 25, 2018. However, the UK’s link (DPA) 2018 has its unique aspects, particularly concerning the ICO’s role and enforcement powers. The UK GDPR comes into force on January 1, 2021, and is expected to bring further changes.
Tax Laws
The Finance Act 2020 brought significant changes to the UK’s tax laws, including measures addressing the digital economy, off-payroll working rules, and the introduction of the Coronavirus Job Retention Scheme. Additionally, the link is set to increase from 19% to 25% for companies with profits above £250,000 starting April 1, 2023.
Immigration and Work Permits
The Points-Based Immigration System (PBIS) has been introduced to replace the previous work permit system. This change aims to attract talent and streamline the process for employers, with a focus on skills and qualifications.
Money Laundering Regulations
The 5th Anti-Money Laundering Directive (AMLD5) came into force on January 10, 2020. The UK’s link have been updated to reflect these changes, with further amendments expected in 2022.
Staying informed about these updates is essential for businesses and individuals to ensure compliance and maintain a competitive edge in the UK market.
I FCA Updates:
In August, the UK Financial Conduct Authority (FCA) announced several key updates and consultations. Below is a summary of these announcements and their potential impact on UK financial services firms.
Summary of Key FCA Announcements and Consultations:
Update on the FCA’s Approach to Competition in the Retail Banking Market
The FCA published its interim report on the retail banking market investigation. The regulator plans to address issues like competition in current accounts, SME banking, and business and personal savings markets. Firms can expect a more competitive market with potential changes to pricing, switching processes, and transparency.
Consultation on Changes to the Regulatory Framework for Mortgage Contracts
Bold: The consultation proposes new rules to help mortgage customers who are in or at risk of arrears. Firms could face stricter requirements for affordability assessments, early intervention measures, and clearer communication with customers about mortgage options.
Final Rules on the Implementation of the Senior Managers and Certification Regime (SM&CR)
The FCA released final rules on the implementation of SM&CR for solo-regulated firms. The new regime aims to improve individual accountability in financial services, requiring senior managers to certify the competence of their staff and take responsibility for conduct issues.
Analysis of the Potential Impact on UK Financial Services Firms:
These updates may bring significant changes to various aspects of the retail banking and financial services sectors. Firms should stay informed about the potential impact on their operations, including:
- New pricing structures and increased competition in current accounts
- Stricter affordability assessments, communication standards, and intervention measures for mortgage contracts
- Revised conduct rules and increased individual accountability under SM&CR
PRA Updates
In August 2021, the Prudential Regulation Authority (PRA) announced several important updates that will impact PRA-regulated firms. Below is a summary of these announcements and consultations, along with their potential implications.
Summary of key PRA announcements and consultations:
(1). link: The PRA has launched a consultation on its proposed approach to implementing the transition out of IMOD for Solvency This move aims to simplify the current regulatory framework, reduce complexity and increase transparency. The proposed changes include removing the requirement for firms to submit IMOD returns and implementing a new simplified reporting regime.
(2). link: The PRA has published the final rules for implementing its expectations on how firms should identify, assess, manage and disclose climate-related risks. This includes requiring firms to produce a standalone report on their climate risk management framework and setting out expectations for the quality and content of that report.
Discussion on how these updates will affect PRA-regulated firms:
The August announcements and consultations from the PRA have significant implications for regulated firms. The consultation on IMOD for Solvency II may result in simplified reporting requirements, but it also highlights the need for firms to ensure they are prepared for this transition. Firms will need to review their current risk models and assess whether they meet the PRA’s proposed simplified reporting regime.
The final rules on the PRA’s approach to climate risk will require firms to have robust frameworks for managing and reporting on climate-related risks. This will necessitate significant investment in data collection, analysis and reporting capabilities, as well as a clear understanding of the potential financial impacts of climate change on their businesses.
Overall, these updates reflect the PRA’s continued focus on risk management and transparency. Firms should therefore review these announcements carefully and consider how they can adapt to the changing regulatory landscape to ensure compliance and long-term success.
Bank of England (BoE) Updates:
Key Announcements in August 2021
The Bank of England (BoE) made significant announcements in August 2021, shaping the future financial landscape of the UK. Let’s delve into the critical updates:
Monetary Policy Report and Interest Rate Decision
In August, the BoE published its Monetary Policy Report (MPR), accompanied by an interest rate decision. The MPR outlined the Bank’s economic analysis and inflation outlook. Simultaneously, the BoE kept the interest rate unchanged at 0.1%, reaffirming its commitment to maintaining the current stance until substantial progress is made in reducing unemployment and achieving the 2% inflation target.
Consultation on BoE’s Approach to Climate Risk
The second crucial update came with a consultation paper on the BoE’s approach to climate risk. This move signifies the Bank’s intention to better understand and manage the financial risks posed by climate change. The consultation includes proposals for enhancing the BoE’s supervisory expectations on how financial institutions should assess and disclose their exposure to transition and physical climate risks.
These updates are expected to bring about substantial changes in the UK financial services sector and their regulatory landscape. By focusing on climate risk, the BoE aims to ensure that financial institutions are prepared for a future where sustainability plays an increasingly important role. Meanwhile, the interest rate decision maintains current conditions, giving stability and certainty to businesses and consumers alike. These announcements underscore the BoE’s commitment to fostering a robust economy that is adaptive, sustainable, and resilient.
VI. EU Regulatory Updates: Staying informed about the latest
European Union (EU)
regulatory changes is crucial for businesses operating within its jurisdiction. The EU regulatory landscape is dynamic, and updates can significantly impact operations. One of the most notable recent developments is the
General Data Protection Regulation (GDPR)
. Enacted in May 2018, GDPR set a new standard for data privacy across the EU.
Businesses
worldwide had to adapt to these regulations or face hefty fines. Another significant update is the
European Medical Devices Regulation (MDR)
. This regulation, which took effect in May 2021, replaces the previous Medical Devices Directive. The MDR aims to enhance patient safety and modernize the EU’s medical device regulatory framework. Additionally, the
Sustainable Finance Disclosure Regulation (SFDR)
introduced in March 2021, requires financial market participants to disclose the extent to which they consider sustainability risks when making investment decisions. This regulation is part of the EU’s broader efforts to promote sustainable finance and align financial markets with the Paris Agreement goals. Keeping track of these updates requires a dedicated effort, but it is essential for ensuring compliance and staying competitive in the EU market.
V ESMA Updates
The European Securities and Markets Authority (ESMA) has announced several key decisions and consultations in August 2023, which are expected to have a significant impact on financial services firms in the European Union (EU). Here’s a summary of the major updates:
Summary of key ESMA announcements and consultations
Guidance on the application of MiFID II rules for non-equity instruments: ESMA has issued new guidance clarifying the application of Markets in Financial Instruments Directive II (MiFID II) rules for non-equity instruments, such as bonds, structured products, and derivatives. The guidance aims to ensure consistent application of MiFID II across the EU and improve transparency and efficiency in non-equity markets.
hConsultation on proposed changes to the prospectus regulation and related technical standards:
Proposed changes to the prospectus regulation and related technical standards: ESMA has launched a consultation on proposed amendments to the Prospectus Regulation and related technical standards. The changes aim to simplify and improve the prospectus regime, particularly for small and medium-sized enterprises (SMEs) and crowd funding initiatives.
Assessment of how these updates will impact financial services firms in the EU
These updates by ESMA are expected to have a profound effect on financial services firms operating in the EU. Let’s discuss each update in detail:
h4.1 Impact of MiFID II guidance on non-equity instruments:
MiFID II rules for non-equity instruments: The new guidance on the application of MiFID II rules for non-equity instruments could lead to increased transparency and efficiency in these markets. Firms will need to review their current practices and ensure they comply with the updated rules, potentially requiring additional resources and investments.
h4.2 Proposed changes to the prospectus regulation:
Simplification of prospectus regime for SMEs and crowd funding initiatives: The proposed changes to the Prospectus Regulation could simplify the process for SMEs and crowd funding initiatives, making it easier and more cost-effective to raise capital. This could lead to increased innovation and growth in these sectors.
h4.3 Potential challenges for financial services firms:
Resource allocation and compliance: Financial services firms will need to allocate resources to review their current practices in light of the new ESMA guidance and proposed changes. Compliance with these updates could require significant time, effort, and financial investment. Additionally, firms will need to adapt quickly to ensure they remain competitive in their respective markets.
h4.4 Opportunities for financial services firms:
Increased transparency and efficiency: The ESMA updates could lead to increased transparency and efficiency in financial markets, benefiting both firms and investors. Firms that can effectively adapt to these changes and leverage the new opportunities may gain a competitive edge.
VI EBA Updates
Summary of key EBA announcements and consultations in August:
Consultation on the EBA’s draft Guidelines for the implementation of the new prudential framework for investment firms
The European Banking Authority (EBA) launched a consultation on its draft Guidelines for the implementation of the new prudential framework for investment firms. This regulatory update, which is part of the Capital Requirements Regulation (CRR2), aims to strengthen the prudential framework for investment firms and enhance their risk management capacity. The EBA is seeking feedback on various aspects of the draft Guidelines, including the calculation of own funds requirements, the definition of trading book exposures, and the application of the market risk framework.
Final report on the assessment of the capital adequacy of EU banks under the transitional SREP methodology
The EBA also published a final report on its assessment of the capital adequacy of EU banks under the transitional Simple, Lean and Effective (SREP) methodology. The report provides a comprehensive analysis of the results obtained from the 2019 EU-wide stress test, which was conducted to assess the resilience of EU banks under various adverse economic scenarios. The findings indicate that the European banking sector has made significant progress in improving its capital and liquidity positions since the previous stress tests, although some banks still face challenges related to non-performing loans and other risk factors.
Evaluation of how these updates will affect the European banking sector and its regulatory environment
The EBA’s latest announcements and consultations are expected to have a significant impact on the European banking sector and its regulatory environment. The implementation of the new prudential framework for investment firms is likely to increase the transparency, consistency, and effectiveness of the regulatory regime for this sector. Additionally, the findings from the stress test indicate that EU banks are generally well-positioned to weather adverse economic conditions, but there is still a need for ongoing supervisory efforts and reforms to address lingering vulnerabilities and improve the overall health of the European banking sector.
Conclusion:
In summary, the EBA’s recent announcements and consultations highlight the ongoing efforts to strengthen the regulatory framework for investment firms and assess the capital adequacy of EU banks. These updates are expected to contribute to a more robust and resilient European banking sector, while also fostering greater transparency and consistency in the application of prudential regulations.
August Compliance Roundup: Key Regulatory Updates & Future Trends
In this edition of the Compliance Roundup, we have covered a range of significant regulatory updates impacting the financial services industry. Let’s briefly recap some of the key developments:
SEC & FINRA Updates
The Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) have issued several noteworthy updates. For instance, SEC adopted new rules on climate-related disclosures for investment companies and advisers (#ESG). FINRA, meanwhile, issued a regulatory notice on cybersecurity assessments (#Technology)).
FDIC Developments
The Federal Deposit Insurance Corporation (FDIC) has taken steps to address cybersecurity risks, including updates to its Cybersecurity Assessment Tool and guidance on incident reporting. Furthermore, the FDIC issued a proposed rule on “Regulatory Capital Rule: Revisions to the Definition of Tier 1 Capital and Total Regulatory Capital.”
ESG: A Growing Focus for Regulators
Environmental, Social, and Governance (ESG) initiatives are increasingly gaining the attention of regulators. As mentioned earlier, both SEC and FINRA have made strides in addressing ESG disclosures and requirements. The European Union’s Sustainable Finance Disclosure Regulation (SFDR) has also set new standards for financial institutions.
Technology: A Double-Edged Sword in Compliance
Technology continues to revolutionize the financial services industry, offering new opportunities and challenges. Regulators are increasingly focusing on technology-related risks, such as cybersecurity threats and artificial intelligence ethics. Moreover, advancements like blockchain, cloud computing, and automation are transforming regulatory compliance processes.
