The latest regulatory update – October 2021

 

In this issue we cover:

• Next steps in consumer credit
• OECD reports on ESG and climate transition
• PRA consultation on trading activity wind-down
• Remote and hybrid working
• LIBOR transition and the derivatives trading obligation

You can find these articles and a searchable archive of all our previous articles at https://objectivus.com

Next steps in consumer credit

In a speech last month, Nisha Arora, Director of Consumer and Retail Policy, outlined the FCA’s thoughts to improve outcomes for consumers using credit.

This remains a high priority for the FCA due to the ongoing impact and uncertainty of Covid. The FCA are once again emphasising the need of its members to focus on consumer vulnerability and are encouraging firms to be innovative, assertive and adaptive. There are several on-going consultations relevant to consumer credit, including consumer duty and ‘buy now and pay later’ product regulations. It is important that firms offering credit must make sure they are familiar with the FCA’s evolving expectations.

OECD reports on ESG and climate transition

The OECD has published two reports that form part of its work regarding sustainable finance and climate transition:

• ESG investing and climate transition, market practices, issues, and policy considerations, serving as a contribution to the 2021 G20 Sustainable Finance Working Group. It highlights the main findings from OECD research on ESG rating and investing and offers policy considerations to strengthen ESG practices.
• Financial markets and climate transition, opportunities, challenges, and policy implications. This explores the key elements that may factor into market pricing of climate transition risks and reviews the range of market products and practices. The report also puts forward policy options that can support this transition by helping markets incorporate price changes and address climate-related risks.

PRA consultation on trading activity wind-down

The PRA published a consultation paper CP20/21 setting out its proposed expectations in respect of firms’ engagement in trading activities that may affect the financial stability of the UK.

The PRA proposes that firms engaged in trading activities carry out a full or partial orderly wind-down of their trading activities in recovery and post-resolution restructuring, including

• A baseline set of factors when designing the scenario or scenarios use to develop and test the trading wind-down scenario
• Information provision and decision-making capabilities and refresh capabilities
• Maintenance of data which is consistent with the non-mandatory templates

The consultation closes on 21 January 2022, and the PRA proposes that the implementation date for the resulting changes would be 1 January 2025.

Remote and hybrid working

As we discussed in a recent posting the FCA has set out its latest expectations of firms for remote and hybrid working.

Firms must consider how they operate their business by taking into account their ability to meet threshold conditions and whether remote working prevents the FCA receiving information about a firm. In addition, firms should consider whether remote working may impair the accuracy of the Financial Services Register, increase the risk of financial crime or cause consumer detriment.

Firms must prove that there is satisfactory planning in place and may need to notify the FCA of any material changes in their operating model. Any form of remote or hybrid working must not risk or compromise a firm’s ability to comply with all rules, regulatory standards and obligations, or lead to a failure to meet them.

Firms must be prepared and take responsibility to ensure their employees understand the FCA has powers to visit any location where work is performed (including residential addresses) for any regulatory purpose.

LIBOR transition and the derivatives trading obligation

The FCA has published its policy statement on the LIBOR transition and the derivatives trading obligation (DTO) which sets out finalised amendments to the UK regulatory technical standards (RTS) on the DTO. The FCA has also published a set of FAQs on its new powers under the UK Benchmarks Regulation.

The policy statement, PS21/13 will affect both financial and non-financial counterparties that are, or may become, subject to the DTO.

The FCA has advised that it may propose further amendments to the scope of the DTO as the derivatives market continues to evolve with the interest rate benchmark reform.

RTS amendments come into force on 20 December 2021.