Being better informed: September 2016

August kicked off with a package of measures from the BoE to mitigate the impact of the Brexit vote on the UK economy, including Monetary Policy Committee members indicated there may be a further rate cut before the end of the year, and the Chancellor might provide a fiscal boost to the economy in the autumn.
In the prudential space, the EBA issued a report on EU implementation of the leverage ratio in 2018. It recommended a level of 3% for CRR firms, with a potentially higher level for G-SIIs. Last month the UK chose to tweak its leverage ratio, with the PRA acting on a recommendation by the FPC to modify the leverage ratio to exclude certain central bank deposits from the exposure calculation to facilitate its monetary policy operations. To offset the impact of this, the FPC stated its intention to recalibrate the leverage ratio in its 2017 review.

Progress continues on the too-big-to-fail agenda for banks, CCPs and insurers. Ahead of the G20 meeting in early September, the FSB published several reports on RRP including final guidance on operational continuity and guiding principles on temporary funding. The Committee on Payments and Market Infrastructure (CPMI) and IOSCO released a monitoring report which identified gaps in CCPs’ recovery planning and credit and liquidity risk management. The organisations plan a follow-up review for early 2017, so firms should take a close look at this.

Also last month, the CMA revealed its final package of remedies to shake up competition in the retail banking sector. The CMA’s central remedy is for an open Application Programme Interface standard, which would allow consumers to access information from banks via a single interface or app. Its measures also include: requiring banks to publish service quality information, alerts and a monthly cap on unarranged overdraft charges (to be set by banks individually). The CMA will now begin work to implement the remedies, so banks should spend some time analysing what the proposals mean for their systems, strategies and business models.

In the insurance sector, the FCA confirmed the introduction of measures to improve transparency and consumer engagement when renewing policies. From 1 April 2017, affected firms will need to change their communication materials to encourage consumers to shop around.

Our first feature article this month looks at the FCA’s thematic review of dark pools. The main themes to emerge from the review – around identifying and managing conflicts of interest, monitoring and surveillance, and capabilities of second line staff – should sound familiar to firms as the FCA focused on these issues in its recent Forex, LIBOR and best execution reviews. So firms need to consider the messages of this thematic review in the context of all product and business lines. The second feature article takes an in-depth look at what this month’s G20 meeting means for financial services regulation.


Previous editions: