The following is a list of some regulatory publications or announcements from February 2024 affecting UK financial services.
The summary includes consultation/policy papers and speeches published by the regulators and other bodies, as well as articles that may be of interest. It is not intended to be an exhaustive list of all matters relevant to financial services.
Please refer to the relevant organisations’ website for a complete record of their publications and news releases.
HM Government
Bank of England / Prudential Regulation Authority (PRA)
On 12 February the Governor gave an overview of the state of the banking sector. The Governor discussed four issues with a focus on changes since the 2007/09 global financial crisis:
1) the factors affecting the puzzling valuation of bank equity which for major UK banks has fallen to 0.7 from 3.4 pre-crisis (measured as average price to tangible book-equity). The Governor disputed the suggestion that post crisis reforms required banks to hold too much capital;
2) the trends in net-interest margin which has returned to pre-crisis levels at around 3.2%. It was noted that the introduction of the regulatory net stable funding ratio has potentially incentivised a shift to term deposits, where there has been a larger increase in the rates paid (+3.7% percentage points);
3) that the better regulatory response to the potential for faster bank runs, as revealed by SVB last year, should be a balance between reforming banks’ self-insurance (eg, the LCR which was calibrated on the global financial crisis) and enhanced liquidity insurance by the central bank. This is to ensure banks can continue to provide effectively credit creation in support of the real economy; and
4) that the steady state level of central bank reserves will likely fall from its current £467bn to a level somewhat determined by financial stability needs.
On 21 February the Bank announced that UK bank notes carrying a portrait of King Charles III will be issued for the first time on 5 June 2024.
On 22 February the PRA published its final Statement on the review of its rules, as required by an amendment in FSMA 2023. The Statement sets out the PRA’s framework for reviewing its rules and supervisory statements. The framework comprises four activities: how the PRA monitors its rules; selects rules for review; chooses review methods; and then conducts the review and takes follow-up actions. An accompanying policy statement indicates that respondents to the consultation on the Statement did not raise fundamental concerns with the approach, but that some changes were made in response to their suggestions. The Statement’s implementation date was 21 February 2024.
On 28 and 29 February the PRA published feedback to two consultations on Solvency II reform: (PS2/24: Adapting to the UK insurance market) and (PS3/24: Reporting and disclosures phase 2 near final). The PRA also published near final rules, updated supervisory statements and statements of policy affected by the consultations, as well as confirming deletion of other supervisory statements. There may, however, be further changes to some of the proposals as a result of ongoing Solvency II reform consultations (eg, CP19/23).
The feedback suggests that there was some pushback of the reporting proposals (the PRA should be more ambitious in reducing the volume of reported information, and avoid changes to existing templates), but otherwise there was general support for the proposals albeit subject to clarifications and various suggestions. In response, the PRA has modified a number to its proposals, including to not proceed with some reporting templates.
On 28 February the Bank announced the opening of a free exhibition on The Future of Money, being held in the Bank of England Museum (worth a visit). The exhibition will run until September 2025.
Financial Conduct Authority (FCA)
On 2 February the FCA and Practitioner announced the launch of a survey to gather feedback on the FCA’s performance. The findings will be presented to the Practitioner panel and published in the summer 2024. The main areas to improve from last year’s survey were for the FCA to act proportionally, to be forward looking and transparent, and to be adaptable to innovation and challenges.
On 9 February the FCA announced that multiple firms had paused sales of guaranteed asset protection insurance. The FCA requested the pause and that firms make changes to the insurance product, due to concerns that the product did not provide good value to some consumers. The FCA notes that only 6% of premiums is paid out in claims. The FCA will work with firms to resolve the issues.
On 14 February the FCA announced it had stopped over ten thousand misleading adverts and promotions in 2023. This was a 17% increase on 2022 and included a new focus by the FCA on illegal cryptoasset promotions. A particular concern of the FCA is the rise of social media influencers promoting financial products.
On 27 February the FCA committed to carrying out enforcement cases more quickly, and launched a consultation on its plans to be more transparent about open investigations. The FCA indicates it will focus on a streamlined portfolio of cases where it can deliver greatest impact – possibly meaning it will launch fewer cases. The FCA notes, however, that it will not usually announce investigations into individuals. The consultation closes 16 April 2024.
On 29 February the FCA published the findings from its wholesale data market study. This study examined competition in three markets: for credit ratings data, for benchmarks and for market data vendor services. The FCA found areas where competition did not work well but ruled out significant intervention due to the risk of unintended consequences. Nevertheless, the FCA will consider, as part of the ‘repeal and replace’ of EU laws, what can be done to provide wholesale data on air, reasonable and transparent terms.