Being better informed: June 2016

The financial services industry will no doubt be holding its breath over the coming weeks, as firms and investors hold off on key decisions until the outcome of the UK’s EU referendum is known. But regardless of the decision when the UK goes to the polls on 23 June 2016, what is certain is that regulatory change will continue apace, both in the UK and the EU. And in May, regulators were busy with measures on banking competition, the mortgage market and Pillar 2 liquidity.

The PRA moved a step closer to implementing its new Pillar 2 liquidity regime. It issued a consultation paper outlining its approach to Pillar 2 liquidity risk, intraday liquidity risk and two components of franchise viability liquidity risk: debt buyback and non-margined derivatives risk. The PRA intends to publish a second consultation in due course. It says the implementation of the entire regime will only take place once it has published its final approach following the second consultation.

In the insurance sector, EIOPA kicked off its EU-wide 2016 stress test for insurers. The exercise includes a higher number of small and medium-sized insurers than in previous years. Firms are due to submit their tests to national supervisory authorities on 15 July 2016, and EIOPA plans to publish the results in December 2016.

In the UK, the CMA’s retail banking market investigation is nearing its conclusion. In its provisional remedies published last month, the CMA stopped short of radical proposals such as breaking up banking groups or removing ‘free-if-in-credit’ current accounts. The CMA argues it is not the size or number of banks which is causing competition problems, but complex charging structures and unengaged consumers. It is proposing a number of measures to help facilitate shopping around, as well as grace periods and alerts for overdrafts. The CMA plans to publish its final report in early August 2016. 

There were a number of developments in the mortgage sector. The FCA published the findings of a thematic review of how firms are applying the responsible lending rules of the MMR. The FCA found reasonable outcomes in nearly all of the lending decisions it reviewed, although it said improvements could be made to some aspects of lenders’ affordability assessment processes, monitoring and record keeping. Also last month, the FCA published feedback on a call for inputs on competition in the mortgage sector, which identified commercial relationships as a potential cause of concern.

In our feature article this month, we analyse the FCA’s recently published interim report of its investment and corporate banking market study. The report indicates the FCA plans to concentrate on a few problematic market activities rather than identify fundamental competition concerns when it publishes its final conclusions in summer 2016. 

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