Regulatory Roundup: March 2023
Market stability is very much back on the agenda following the failures of both Silicon Valley Bank and Credit Suisse. Although the UK’s Chancellor, Jeremy Hunt, has signaled that the Edinburgh Reforms will go ahead, the City is waiting to see whether some tightening of oversight around capital requirements might now be mooted.
The events of the past month will undoubtedly have given those against relaxation of current regulatory reforms a stronger dataset from which to base their arguments, particularly around liquidity rules – a major factor in the SVB collapse was the use of hold-to-maturity bonds and a run on the bank that required the sale of assets at a loss to meet. This comes on the back of Andrew Bailey issuing a reminder, in December 2022, of the lessons of the financial crisis, highlighting that the UK banking sector has been able to weather the recent economic downturn precisely because of the capital and liquidity buffers built up because of policies put in place after 2008.
The impact for firms in the short term is that the UK’s regulators will – understandably – have a keen eye on market stability over the coming months and are more likely to take action against those they view as posing a risk to the system. This might also mean that the “strong and simple” approach proposed for future regulation – where smaller firms are supervised in line with the probability of major harm – is given a raincheck as the regulators consider the impact of the new banking crisis and what it means for UK financial stability.
With the implementation well underway and the first waypoints expected in April, the Consumer Duty remains high on everyone’s agenda. There are some indications from the Regulator that it is impressed with the arrangements of some firms, but very concerned that others are aiming to implement only “superficial” amendments.
Feedback designed to get firms on track includes widening the net to capture customers on the periphery of the target market, and asking third parties to be clear about costs, fees, benefits and risks well in advance of July.
The provision of advice is another key area; given the changing nature of the economic situation, training staff to be able to give adequate advice in the face of the cost-of-living crisis and fast-changing interest rates is viewed as a key improvement that needs to be actioned before July.
Martin Lewis’ charity has also said that front line staff should receive mental health training to be able to fully adhere to the requirements of the Consumer Duty – being able to identify potential indicators of difficulties that result from mental health is a key starting point in the support of customers who are likely to have additional needs.
A thorough review of communications is likely to be another fundamental area for preparation. The aim is to invite the customer to read – and understand - information that is relevant to them. The FCA is concerned that many financial communications simply aren’t read at all, and when they are, include complex terms that the average customer needs to research further. Firms should concentrate on making communications concise - and so not overwhelming – easy to understand, and relevant to the customer’s own situation.
A well-timed reminder this month that whatever the future brings for data protection within the UK, information security must remain a priority. The end of March saw a class action lawsuit from around 14 million Australians after their personal information was exposed in what has been called Australia’s largest data breach. Dating back to 2005, the data breached includes just under 8 million drivers’ licence numbers, 53,000 passport numbers and financial statements. The records also include names, addresses, phone numbers and dates of birth, potentially risking the financial futures of over 14 million people. Currently the company – Latitude Financial – is co-operating with the Australian government before it decides the outcome.
Cost of Living Crisis and Consumer Support
Research from Nationwide Building Society suggests that as many as four in ten people are turning to credit cards to help cover essential costs, including bills, housing costs and food shopping. The research analysed credit and debit card transactions, with all except one essential spending category showing annual growth. The total amount spent showed a 12% increase on the same period last year with utility bills and food prices much higher than in 2022.
A separate Nationwide poll found that 63% of those asked were worried about their personal finances and their ability to cover those essential costs.
Fifty-seven percent of younger people – those between 18 and 34 – had to use their credit card for essential bills, whereas only 21 per cent of those aged 55 above had done so. Income from salary is not necessarily a clear factor here – 40 per cent of those earning below £25,000 have used credit to buy essentials, but the number rises to 44 per cent for those earning between £45,000 and £55,000.
The FCA will be keeping a close eye on firms acting in line with its expectations around customer support during the cost-of-living crisis. Their information for firms page sets out their guidance and letters to firms in one single area.
The FCA have highlighted a lack of training as a key finding resulting in poor outcomes for customers. Whether introductory or refresher training, RB Compliance can help firms here, we have a range of e-learning courses which can be reviewed here, including our Online Compliance Training.
You may find our range of resources on the Consumer Duty helpful too.