Consumer Duty: a cultural change not a tick-box exercise
In a speech at the Deloitte: Consumer Duty – Next Steps event in London, Nisha Arora, Director of Cross Cutting Policy and Strategy at the Financial Conduct Authority (FCA), spoke on the significance of the Consumer Duty, its progress since its enforcement, and the responsibilities of financial firms in continuously improving customer outcomes.
Here are the key points from the speech.
- Importance of the Consumer Duty: Arora stressed the importance of the Consumer Duty, now in effect for three months. The positive practices observed during this period suggest its significance for consumers, firms, and the UK as a whole.
- Ongoing commitment: Arora stressed that the Consumer Duty is not a one-time exercise. Firms must continuously learn and improve, with a particular emphasis on being able to evidence these improvements in their annual board reports.
- Closed products deadline: Firms with closed products and services were urged to ensure they are on track to meet the 31 July 2024 implementation deadline.
- FCA’s commitment: Arora reaffirmed the FCA’s commitment to making the Consumer Duty a top priority. The FCA will continue working across all sectors to assess firms’ implementation and share best practices.
- Vulnerability and customer support: Findings from the Financial Lives survey highlighted that individuals with characteristics of vulnerability were more likely to report that customer support services did not help them. This underscores the need for the Consumer Duty.
- Consumer trust: The speech pointed out that just 41% of adults have confidence in the UK financial services industry, reinforcing the urgency of enhancing consumer trust through the Consumer Duty.
- Benefits for all: Meeting consumer needs and delivering better outcomes not only benefits consumers but also elevates industry standards, fosters healthier competition, and enhances the UK’s global standing.
- Firms’ efforts: Arora expressed appreciation for firms that have made changes to meet the Duty’s requirements and deadlines.
Arora stressed that the Consumer Duty is not a checkbox on a to-do list but should become an integral part of firms’ culture and business practices. It should permeate every aspect of an organisation, from the board to front-line operations, product design, and customer support.
Firms need to align their purpose and values with delivering good consumer outcomes, update internal materials to reflect this, and review reward and incentive structures accordingly. This shift in culture should be continuous and enduring.
Moreover, monitoring and assessing outcomes for different customer groups, particularly those in vulnerable circumstances, is crucial. Firms must identify poor outcomes and take corrective action, whether it involves making communications more understandable or adapting products and services.
What comes next for firms?
Three months have passed since the initial implementation deadline, and firms were advised to review their implementation plans, data, and monitoring processes. This assessment will be essential for the annual board report, which is required under the Duty’s rules.
Boards must review and approve this assessment, including the results of monitoring and evidence of poor outcomes. Actions to address identified risks or poor outcomes must be agreed upon, and any necessary changes to the firm’s future business strategy should be considered.
Expectations from the FCA
The FCA is fully committed to the Consumer Duty and has integrated it into all regulatory processes, including authorisations, policy development, supervision, and enforcement. The Duty enables swift market interventions and robust actions when consumers do not receive good outcomes.
The FCA will continue to work across all sectors, monitor firms’ implementation of the Duty, and address issues of concern. They will provide guidance to firms in different sectors to ensure consumers are at the center of their processes.
Additionally, the FCA will focus on addressing problems that consumers face across multiple sectors, including poor support and inadequate communication.
Arora’s speech highlighted the ongoing importance of the Consumer Duty to the regulator and for the financial services industry. Firms were reminded that this Duty is not a one-time obligation but a fundamental shift in culture and behaviour.
HKMA speech on regulation at home and abroad
In a speech at the Bloomberg Global Regulatory Forum 2023 Eddie Yue, Chief Executive of the Hong Kong Monetary Authority (HKMA) delivered a broad review of the regulatory challenges ahead and HKMA’s response to them
Yue began by highlighting the significant regulatory developments in 2023, emphasising the need to enhance the resilience of the banking sector and address challenges posed by changes in technology and customer behaviour. He noted that the Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS), along with global authorities like the HKMA, have been analysing lessons learnt from recent banking turmoil, focusing on areas such as prudential frameworks, interest rate and liquidity risks, and deposit runs.
He then discussed the regulatory priority of cryptoassets, noting that global regulators are working together to address vulnerabilities in these markets. Various jurisdictions in Asia have strengthened their regulatory regimes for cryptoassets. Yue emphasised the importance of globally-consistent regulations due to the borderless nature of crypto service providers.
The third key area highlighted in the global landscape was climate change. Yue stressed the need for coordinated action to tackle the global impact of climate change. He pointed out the challenges faced by emerging market economies in Asia, where climate financing is scarce, and where policymakers must navigate the trade-offs between socio-economic development and climate transitions.
Yue commended the active involvement of Asian and emerging markets in international policy forums and the positive response of international institutions. He mentioned his role as the chair of central bank governors from major emerging market economies and regional consultative groups under the FSB, emphasising the importance of Asian contributions to international standard-setting and policy-making.
Approach in Hong Kong
Yue then shifted the focus to Hong Kong, acknowledging that the region faces similar issues as other international financial centres but must balance regulatory quality with market development.
Mainland China opportunities
He highlighted Hong Kong’s role as the gateway between Mainland China and the rest of the world, stressing the importance of the “one country, two systems” institutional arrangement that allows cross-boundary cooperation while maintaining a familiar market environment. Hong Kong has actively collaborated with Mainland authorities to expand product offerings, such as the various “Connect” initiatives, Renminbi products, and services offerings.
Yue argued that Hong Kong’s robust regulatory regime plays a crucial role in the city’s success as a China gateway. Mainland authorities have trust in Hong Kong’s regulation, which allows investors not directly under their purview to access the Mainland market. This trust extends to international investors, who invest in the Mainland market through Hong Kong without directly connecting to Mainland authorities.
Technology and innovation
Yue discussed the importance of regulation in the tech and innovation sector, particularly in the context of virtual assets. He noted that the early perception that virtual assets could escape government regulation has shifted. Failures in the industry, coupled with mainstream investor interest, have led to a demand for robust regulation.
Hong Kong’s approach to virtual asset regulation involves aligning the requirements for Virtual Asset Exchanges with anti-money laundering, counter-terrorist financing, and investor protection standards applied to traditional financial institutions. Yue stressed the importance of robust regulation in building trust and underpinning Hong Kong’s success in this sector.
Yue highlighted the contrasting approach of the sustainable finance and virtual asset industries to regulation. While sustainable finance recognised the benefits of regulation early on, the virtual asset industry took a more “libertarian” stance. He acknowledged the tremendous progress in regulating sustainable finance, particularly in disclosure and risk management.
Yue emphasized the need for a consistent definition of what is considered “green” or sustainable across jurisdictions to avoid confusion. He mentioned Hong Kong’s effort to develop a local green classification framework based on the Common Ground Taxonomy jointly developed by China and the EU.
The speech also addressed the challenges of transition finance and the need to operationalize it, especially in hard-to-abate sectors and emerging markets.
Yue concluded by emphasising the symbiotic relationship between regulation and market development. While regulation cannot solve all problems, it provides a strong foundation for markets to prosper. He expressed hope that the forum would provide further insights into this relationship and contribute to ongoing discussions in the regulatory landscape.
Australia consults on sustainable finance
The Australian Treasury department is consulting on its sustainable finance strategy to help the transition to net zero. The proposed strategy is based on three pillars:
Establish a framework for sustainability-related financial disclosures
- Standardised disclosure: The government will require businesses to disclose climate and other sustainability-related information in a standard format to make it easier for investors to compare different investments and make informed decisions.
- Sustainable finance taxonomy: The government will develop a classification system for sustainable investments to help investors to identify investments that align with their sustainability goals.
- Climate transition planning: The government will support businesses to develop climate transition plans and set ambitious emissions reduction targets to help businesses to manage climate risks and opportunities.
- Sustainability labelling: The government will improve the labelling of sustainable investment products to make it easier for investors to identify investments that meet their sustainability criteria.
Financial system capabilities
- Supervise and enforce rules on sustainability for businesses. This will help to ensure that businesses are following the rules and that investors are protected.
- Identify and manage risks related to climate change and sustainability for the Australian financial system. This will help to keep the financial system safe and sound.
- Work with other government agencies to make it easier for businesses and investors to understand and manage sustainability issues. This will help businesses and investors to make better decisions.
- Ensure that the rules on sustainability for businesses are appropriate for different sectors of the economy. This will help to ensure that businesses are taking sustainability seriously and that investors are able to invest in sustainable businesses.
Australian Government leadership and engagement
- Issuing green bonds to attract investment for sustainable projects.
- Making it easier for sustainable finance to flow between different countries.
- Encouraging the development of new sustainable finance products and markets, especially in key areas such as renewable energy and climate adaptation.
- Working with other countries to promote sustainable finance and investment.
The executive summary notes: “The range of policies recommended in this strategy would provide a strong foundation for sustainable finance in Australia and align Australia’s capital markets with emerging international standards.”
The closing date for comments is 1 December 2023.
HKMA’s fintech initiatives from Hong Kong fintech week
During the course of the eighth Hong Kong FinTech Week 2023, the Hong Kong Monetary Authority (HKMA) announced several various initiatives to enhance Hong Kong’s fintech capabilities:
1. FPS x PromptPay QR Payment:
- The HKMA is collaborating with the Bank of Thailand to establish “FPS x PromptPay QR Payment,” scheduled for launch on 4 December.
- This service will allow users to scan and pay at over 8 million PromptPay merchants in Thailand using their mobile phones.
- Thai visitors to Hong Kong can use PromptPay to pay at around 50,000 FPS merchants, enhancing retail payment options and fostering economic development in both economies.
2. Tokenisation in the Bond Market:
- Following the successful issuance of the world’s first tokenised government green bond, the HKMA is exploring further uses of distributed ledger technology (DLT) in capital markets.
- Discussions are ongoing regarding a second tokenised government green bond, building upon the blueprint established by the inaugural issuance.
3. e-HKD Pilot Programme:
- Phase 1 of the e-HKD Pilot Programme has been completed, with an assessment published.
- Phase 2, planned for the next year, will explore new use cases for e-HKD and expand on select Phase 1 pilots.
4. “Fintech 2025” Strategy:
- The HKMA continues to encourage fintech adoption across the banking industry, promoting Wealthtech, Insurtech, Greentech, AI, and DLT.
- Centralised datasets on physical branches and ATMs of 20 retail banks were made available to the public via Open API.
- The HKMA is actively exploring the use of “Suptech” to enhance supervisory processes with new technologies.
5. Central Bank Digital Currencies (CBDCs):
- Progress continues in the development of wholesale CBDCs, with “Project mBridge” reaching the Minimum Viable Product (MVP) phase, aiming for a production-ready system next year.
6. Next-Generation Data Infrastructure:
- The Commercial Data Interchange (CDI) is flourishing, with an increased number of participating banks and data providers.
- CDI is being used to digitalise and streamline various banking processes.
7. Fostering Fintech Talent:
- The HKMA supports fintech talent through initiatives such as the Fintech Career Accelerator Scheme and the Industry Project Masters Network.
8. Nurturing the Ecosystem:
- The Fintech Supervisory Sandbox (FSS) 3.0 and FSS 3.1 Pilot provide funding for fintech projects.
- Regulatory measures for stablecoin issuers and digital asset-related activities are being formulated to ensure responsible development in the virtual asset (VA) sector.
HKMA CEO Eddi Yue added: “It is essential for our financial services sector to adapt to these changes so that we can continue to be at the forefront of development and achieve the vision set out in the ‘Fintech 2025’ strategy.”
SafeMoon executives charged with fraud in $200 million crypto scam
The Securities and Exchange Commission (SEC) has charged the executives of SafeMoon, a cryptocurrency company, with fraud in a $200 million scam. The SEC alleges that the executives, Kyle Nagy, John Karony, and Thomas Smith, promised investors that the price of the SafeMoon token would skyrocket, but instead they wiped out billions in market capitalisation and withdrew millions of dollars for personal use.
The SEC’s complaint alleges that the executives made false claims about the SafeMoon liquidity pool, which is a collection of investor funds that provides liquidity to facilitate trading in the asset. The executives claimed that the liquidity pool was locked, but in fact, large portions of it were not. This allowed the executives to misappropriate millions of dollars to purchase luxury cars, homes, and other items.
The SEC’s complaint also alleges that the executives used market manipulation tactics to prop up the price of SafeMoon. For example, they allegedly made large purchases of SafeMoon with misappropriated assets and engaged in wash trading, which is the practice of buying and selling an asset to create the illusion of market activity.
A selected summary of key developments for regulated financial institutions
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