Greg Kilminster
Head of Product - Content
Consumer Duty: FCA highlights good and poor practices
The Financial Conduct Authority (FCA) has issued a notice providing valuable insights on good and poor practices in implementing the Consumer Duty (Duty).
The notice is divided into six sections:
- Culture, governance, and monitoring.
- Consumers in vulnerable circumstances.
- Products and services.
- Price and value.
- Consumer understanding
- Consumer support.
Examples of poor practice include:
- Failure to ensure understanding of good customer outcomes at all levels internally but also externally across the supply chain.
- Lack of robust systems and controls to protect consumers in areas such as fraud or cyber-attacks.
- Not giving enough thought to the assessment of vulnerability.
- Lack of consideration of the Duty in financial promotion approval.
As expected, the FCA urges firms to consider these findings and continue to make improvements in line with good practice. The FCA has also published headline conclusions and a snapshot of a related survey conducted by Ipsos UK in Autumn 2023 that firms may find interesting.
Click here to read the full RegInsight on CUBE’s RegPlatform
EBA issues consultations on regulatory framework for operational risk under CRR 3
The European Banking Authority (EBA) has issued three consultation papers (CP) relating to the new regulatory framework for operational risk under the Capital Requirements Regulation (CRR) 3, which implements the latest Basel III reforms. The revised framework for operational risk replaces all existing approaches for calculating own funds requirements with a single, non-model-based approach called the Business Indicator Component (BIC). The CPs clarify the composition of the new business indicator (BI) and consequent changes to Pillar 3 disclosures and include:
- Two CPs on draft Implementing Technical Standards (ITS) amending Pillar 3 disclosures and supervisory reporting requirements for operational risk.
- A CP focused on the new framework for the business indicator for operational risk.
Pillar 3 disclosures and supervisory reporting
These CPs are part of phase 1 in the implementation of the EU Banking Package, which also includes two consultations published in December 2023 covering the disclosure and reporting requirements for output floor, credit risk (also IP Losses), credit valuation adjustment (CVA), market risk, and leverage ratio.
The new data introduced in these draft ITSs will allow supervisors and users of reporting and disclosure data to monitor institutions’ compliance with the Basel III framework for operational risk.
The EBA aims to bring reporting and disclosure requirements for operational risk and broader Pillar 3 disclosures and supervisory reporting CRR3 changes under one document with these ITS to provide certainty to banks as soon as possible. The final version of the ITS will be published as a single package and is expected to be submitted to the Commission by the end of June 2024. If needed, any remaining impacts on operational risk disclosures to be further considered in the policy work development, specifically with respect to operational risk losses, could be incorporated in a second consultation paper in 2025.
New framework for the business indicator for operational risk
This consultation includes two sets of draft Regulatory Technical Standards (RTS) and one draft ITS that aim to clarify the composition of the BI. Specifically:
- The first draft RTS provides a list of typical items developed for each component of the business indicator line.
- The second draft RTS on business indicator adjustments requires institutions to use actual three-year historical data or a limited number of alternative methodologies following an operation. It also specifies the conditions under which permission to exclude business indicator items related to disposed entities or activities may be granted.
- The draft ITS maps, where possible, typical items of the business indicator to their corresponding reporting cells in FINREP.
In addition, the EBA will carry out a quantitative analysis based on data requested as part of the Basel III monitoring quantitative impact study (QIS) to assess the impact of the proposed amendments and inform the calibration of certain aspects of the new framework. The feedback received, and the QIS results will be taken into account in the finalisation of the draft technical standards. There is no timeline indicated in the CP.
Click here to read the full RegInsight on CUBE’s RegPlatform
HKMA issues guidance on digital asset custody and distribution
The Hong Kong Monetary Authority (HKMA) has issued a set of circulars providing guidance and supervisory standards for authorised institutions (AIs) regarding the distribution and custody of digital assets.
Supervisory standards regarding the distribution of tokenised products
This circular highlights the importance of applying supervisory requirements and consumer/investor protection measures for the sale and distribution of a product in its tokenised form. It also provides helpful illustrations to aid in understanding.
Additionally, the circular details the expected related measures, including due diligence, disclosure, and risk management.
Supervisory standards regarding the provision of custodial services for digital Assets
This circular focuses on the provision of custodial services for digital assets by AIs and their subsidiaries. It provides guidance on various topics such as governance, risk management, and anti-money laundering.
Click here to read the full RegInsight on CUBE’s RegPlatform