UK Regulatory Radar

October 2021

The UK Regulatory Radar is a regular publication from KPMG's EMA Financial Services Regulatory Insight Centre (RIC), providing a summary of the latest industry and regulatory updates impacting the UK.

Summary

Welcome to the October edition of the UK Regulatory Radar. We are continuing to see the output and guidance from UK regulators moving beyond responding to COVID-19 pandemic as we start to see the post Brexit-landscape taking shape. This version is our new digital format – we hope you like it and can access the content more effectively.

The last two months have been relatively quiet after a bumper set of announcements from the UK regulators in July. FCA announcements have been focused on the retail market with the launch of a new strategy for consumer investments and several letters outlining the supervisory strategy in different sub-sectors of the retail market. 

The PRA has emphasised its expectation that firms' regulatory reporting should be of the same standard as their financial reporting and has published findings from the recent thematic s166 reviews of credit and market risk regulatory returns. The PRA has also set out timelines and high level scope for the 2022 Insurance Stress Test for life and general insurers and is beginning to propose changes and collect data to inform further developments in the UK Solvency II regime.

In their annual Mansion House speeches, FCA CEO Nikhil Rathi emphasised that the FCA is investing to become as much a data regulator as a financial one, while PRA CEO Sam Woods reviewed the prudential toolkit citing continuing work on "ease of exit", a simpler prudential regime for smaller banks and building societies, the Solvency II review, diversity and inclusion and climate-related financial risk as key priorities.

The PRA wrote to the CEOs of the largest regulated life and general insurers setting out the timelines and high-level scope for the 2022 concurrent Insurance Stress Test. For life insurers the exercise will focus on economic stresses and the focus for general insurers will be on natural catastrophe perils and cyber underwriting risk.

The PRA is proposing to make changes to the Solvency II definition of an insurance holding company (IHC) and in particular to distinguish this from a mixed-activity insurance holding company (MAIHC). To inform further Solvency II policy development, alongside data gathered from the QIS, the PRA also launched a Qualitative Questionnaire to both life and general insurers.

On 10 August, changes to the listing rules that apply to special purpose acquisition companies (SPACs) came into force. The changes provide an alternative approach for SPACs that must otherwise provide detailed information about a proposed target to the market to avoid being suspended. 

The FCA issued its third consultation on Investment Firm Prudential Regime (IFPR) which aims to streamline the prudential requirements for MiFID investment firms. This CP should be read in conjunction with PS21/6 (June 2021) PS21/9 (July 2021) for a full picture of the previously agreed incoming changes.

Regulators are continuing to push forward their stated priorities for the pensions sector. The FCA and TPR have jointly published a discussion paper seeking views on how to establish a framework to consider value for money for defined contributions (DC) pension schemes. The FCA maintains its focus on defined benefits as it confirms that it will commence a review of its transfer redress guidance before the end of 2021 to ensure that it remains for propose and delivers good outcomes. The FCA has also taken the opportunity to clarify its existing guidance is to ensure that its interpreted appropriately.  

Finally, the Productive Finance Working Group published a series of recommendations which could facilitate greater investment in longer-term, less liquid assets. The Productive Finance Working Group is industry led, co-chaired by the Governor of the BoE, the CEO of the FCA, and the Economic Secretary to HM Treasury. The recommendations focus on supporting DC pension schemes to invest and developing the long-term asset fund structure.

The PRA has written to the CFOs of selected deposit-takers with thematic feedback from the 2020/2021 round of written auditor reporting and expectations for firms. This year’s letter focuses on findings related to IFRS9 expected credit losses (ECL) – in particular model risk, economic scenarios and recovery strategies – benchmark reform and climate change. A more detailed summary can be found here.