Insights
Regulatory Updates June 2024
In this issue we cover:
Operational Resilience Guidance
Market Conduct and Transaction Reporting in Market Watch 79
Potential Regulatory Framework Changes
Anti-greenwashing Impact on Compliance and ESG Accountability
Operational Resilience Guidance
The FCA released a new webpage to guide firms on operational resilience rules. This resource helps to bolster operational resilience in financial services by the deadline of 31 March 2025. The FCA advises firms to apply these insights to evaluate and adjust their strategies, ensuring compliance with impact tolerances for critical business services in challenging scenarios, with board-approved plans before the transition ends. Firms should regularly update their assessments of business services, impact tolerances, and mappings, especially after significant business or market changes, and integrate regular scenario testing as a standard operational practice. [UK DORA] These initiatives are underpinned by the European Union’s Digital Operational Resilience Act (DORA), which aims to strengthen digital operational resilience across the financial sector.
Market Conduct and Transaction Reporting in Market Watch 79
The FCA addresses issues related to market conduct and transaction reporting. The publication discusses failures in market abuse surveillance due to issues with data and automated alert logic. and it also reviews the testing of front-running surveillance models by peer firms. Under the UK Market Abuse Regulation (UK MAR), firms are required to detect and report potential market abuse through effective systems and processes.
The FCA has identified that some firms’ surveillance alerts are not functioning correctly due to inadequate testing or faults during the coding, design, and implementation phases. To prevent these issues from remaining undetected, the FCA advises firms to:
- Ensure data governance is strong enough to capture trade and order data accurately and comprehensively.
- Maintain robust, effective, and well-formalised governance around the testing of models.
- Perform thorough and formalised testing before implementing or modifying surveillance models.
The FCA emphasises the importance of vigilance against surveillance failures, especially considering potential future advancements in technology like AI.
Potential Regulatory Framework Changes
A shift in government to the Labour party could bring updates and modifications to the following areas of financial services:
- Open Banking and Finance: The party aims to enhance innovation and competition in the financial sector. Planned actions include:
- Accelerating the development of Open Banking and Open Finance systems.
- Advancing the rollout of a Central Bank Digital Currency (CBDC).
- Creating a regulatory sandbox to test innovative financial products safely.
- Consumer Protection: Strengthens consumer rights and financial security by:
- Enforcing regulations in the Buy Now Pay Later (BNPL) sector.
- Deploying comprehensive measures to combat financial fraud.
- Investigating the benefits of longer-term fixed-rate mortgages for greater financial stability.
- Regulatory Innovation Office: Establishing a new office to boost accountability and foster sector-wide innovation.
- Streamlining Regulatory Processes: They propose to condense the Financial Conduct Authority’s extensive regulatory handbook to simplify and reduce the compliance burden on financial institutions.
- Financial Services Act 2021: The introduction of a robust legislative framework aimed at boosting the resilience and competitiveness of the financial sector in the post-Brexit era, focusing on streamlined regulations and enhanced industry oversight.
Anti-greenwashing Impact on Compliance and ESG Accountability
The FCA’s new guidance (FG 24/3) streamlines compliance with anti-greenwashing rules effective May 31, 2024. Key points include:
- Clarity and Correctness: All sustainability claims must be factual, clearly articulated, and supported by robust evidence.
- Comparability and Completeness: Ensure fair comparisons and cover all lifecycle aspects without omitting critical data.
- Visual Compliance: Primarily impacts the visual presentation of claims, focusing on UK-based or approved communications.
Compliance Checklist:
- Documentation: Keep supporting evidence accessible.
- Deadline: Align marketing with AGR by May 31, 2024; adhere to new marketing rules by December 2, 2024.