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Our blog explores the latest issues in financial services risk and regulation.

21 February 2019

Insurance - resilience against a potential downturn

A general economic slowdown has led to negative market sentiment in recent months, with equities falling and credit spreads rising.  Risks of a further economic deterioration remain.One can envisage a downside scenario – not necessarily a central case - in which equities fall further, credit spreads widen, interest rates fall in response to a flight to quality, FX rates fluctuate, and property prices continue to stagnate, or fall.  Inflation might also rise in the short term, in response to currency movements, and short term interest rates may exhibit particular volatility in response.  Complicating matters further, it is possible that a downside scenario may reveal itself only gradually, with asset prices appearing stable for periods of time, despite being vulnerable to sell-offs.

20 February 2019

Test of relevance: Succeeding with consumers and society’s financial needs

As society, the economy and welfare change, so do people’s’ financial lives and responsibilities. As a result, expectations of the financial services sector are changing. The sector has a vital role in financial inclusion, ensuring access to financial solutions and in meeting evolving customer needs and expectations. In UK Life & Pensions: A roadmap to succeed in a fast-changing sector, PwC looks at why creating solutions capable of meeting these shifting demands is much more than a commercial imperative, rather it is a matter of relevance and trust, both critical in sustaining the industry’s licence to operate.

Taking accountability for operational resilience

The operational resilience of the financial services sector, and particularly the banking sector, has rarely been out of the news in recent years. How are senior industry leader feeling as yet another operational failure hits the front pages? What is clear is that the impact of outages on consumers means industry, regulators and other policy makers are increasingly prioritising the topic. At the heart of the regulators’ philosophy on operational resilience is a view that boards are responsible for ensuring the resiliency of their institutions but that senior individuals, in the form of senior manager function 24 (SMF24) should also be held to account for operational failings

13 February 2019

Four steps to a successful financial crime investigation

By Christian Butter and Harry Holdstock We often work with our Financial Services clients on internal investigations into allegations of financial crime. And we’re finding that several factors—including advancing technology, the rise of the corporate trust agenda and a stronger emphasis on project governance—are driving a subtle shift in how...

08 February 2019

Why should EEA banks ramp up their post-Brexit regulatory planning?

With Brexit now less than 50 days away, all firms are well advised to speed up their preparations for the UK’s exit from the EU. Much of the focus on the impact of Brexit on the financial services sector has been on those firms providing services from the UK into the EU-27 and what a loss of passporting will mean for them. But for those European Economic Area (EEA) banks that passport into the UK there will also be significant changes to the regulatory requirements they face. These include changes related to the Senior Managers and Certification Regime (SM&CR) and the Financial Services Compensation Scheme (FSCS), as well as a number of other regulatory reporting requirements for third-country branches

07 February 2019

"Seven Awkward Questions" - food for thought for new bank applicants

By Stephanie Henderson-Begg Last week Bank of England Deputy Governor for Prudential Regulation and CEO of the Prudential Regulation Authority (PRA), Sam Woods, gave a speech titled “Seven Awkward Questions” on how the PRA has been supporting it’s secondary competition objective since its inception in 2013. For us, working with...

Regulating cyptoassets: FCA’s next step towards promoting innovation

By Suddankumar Subbaroyan On 23 January 2019, the FCA published its first consultation paper (CP) titled guidance on cryptoassets. The PwC licensing team supports and welcomes the FCA’s initiative and finds it encouraging that there will be further consultations and guidance in this space. It shows that the UK regulator...

Lloyd’s Market Oversight: learning the lessons of 2018

Many people have asked me whether it was possible to foresee the significant change in approach that Lloyd’s took towards business planning in 2018. My initial response was a clear “no” - it was both unexpected and with a different level of focus and intensity than in any recent year.With the benefit of hindsight (and a bit of searching), I now conclude that it was possible, but that no-one that I have spoken to (outside of the Corporation) actually did.  I’ll explain why.

05 February 2019

Illiquid assets and open-ended funds: What are the big issues for firms?

The Brexit referendum result in June 2016 exposed some potential structural vulnerabilities in the asset management sector. It highlighted that open-ended funds invested primarily in illiquid assets can struggle to satisfy high demand for redemptions under stressed market conditions, at least without being forced to sell those underlying assets very quickly at a significant discount. While the existing liquidity management measures avoided major problems, the Financial Conduct Authority (FCA) has now consulted on proposals to mitigate the risk in case of a repeat event. While the industry supports the regulator’s focus on this, the more engaged firms have identified a series of challenging implementation issues among the proposed requirements. So which aspects of the proposals have triggered most debate across the industry so far and are likely to have the most significant impact?

Get set for hypertech: Why it’s time for life and pensions businesses to think bigger on technology

The life and pensions industry is being transformed by data and technology innovations. As PwC explores in UK Life & Pensions: A roadmap to succeed in a fast-changing sector, a combination of data analytics, artificial intelligence and increasing computational capacity are paving the way for simpler products, reduced costs and sharper risk pricing. These developments can also boost innovation by making it possible to tailor customer solutions with greater precision and build and deploy new offerings with increased agility and speed.

04 February 2019

Stress testing model risk management: New challenges for firms

2019 marks a major step forward in the regulation of model risk management (MRM), with the PRA beginning to assess firms’ stress testing MRM practices as part of their Supervisory Review and Evaluation Processes (SREPs).

29 January 2019

Technology Risk: Balancing innovation and risk

Today’s technology risk landscape is an intimidating one – sector disruption and emerging technologies are transforming the Financial Services (FS) industry – and it’s up to the technology risk function to make sure that the risks associated with that transformation are being managed and mitigated appropriately.

28 January 2019

How does the ECB guide to internal models differ from TRIM?

By Oliver Vincens In September 2018, the European Central Bank (ECB) published its draft version of the risk-type-specific chapters for the ECB guide to internal models, for consultation. The guide aims to promote a consistent approach to the implementation of internal models and the final version is expected to be...

23 January 2019

Bridging the care funding gap: Where purpose, opportunity and licence to operate align

As people live longer and pressure on welfare spending increases, the challenge of how to fund long-term care is one of the most critical issues facing our country.

18 January 2019

Brexit: Regulatory updates

The European Commission (EC) announced on 19 December 2018 a set of measures in case of a no-deal Brexit: UK Central Counterparties (CCPs) will be granted temporary equivalence under EMIR for 12 months UK Central Securities Depositories (CSDs) will be granted a temporary equivalence period of 24 months under Central Securities Depositories Regulation. The EC has also confirmed temporary 12-month measures to facilitate the novation of bilateral contracts between UK and EU-27 entities. Whilst this brings relief, a longer term arrangement such as a full equivalence decision, may be contingent on an agreement between the UK and EU on the wider future relationship. ESMA and the BoE have welcomed the announcement, with ESMA suggesting it expects to be able to conclude an agreement on information sharing by the end of January.

07 January 2019

How good is your CASS auditor?

In a recent speech to the ICAEW, Charles Randell, Chair of the Financial Conduct Authority (FCA) stressed that FCA rules require senior management to take reasonable steps to ensure that their CASS auditor has the required skill, resources and experience to perform its functions. However, the FCA remains concerned that some audit firms have not invested sufficiently in building their knowledge and understanding of the Client Asset Sourcebook (CASS) Rules and the FRC Client Asset Assurance Standard. In Mr Randell’s own words: “We continue to see Client Assets reports that are just not good enough”.

What firms should look out for in the FCA’s IPO review

Those involved in primary capital markets will have noticed that the FCA has been particularly active in this space in recent years, and the regulator’s 2018/19 business plan suggests this is set to continue. A core aspect of its wholesale supervisory agenda is to review how firms have implemented a series of new UK and EU-wide rules related to the management of securities offerings, as well as how those rules are impacting on market practice. But where is the FCA likely to focus its scrutiny, and how can firms prepare to meet the regulator’s expectations?

20 December 2018

Has Christmas come early for UK CCPs?

With 100 days to Brexit and no clear route to an agreement, it is perhaps unsurprising that the European Commission (EC) announced a number of measures should there be no agreement with the UK. In October we set out some of the risks from a no deal scenario to the centrally cleared derivatives market in this blog. So it is welcome that the EC has announced that UK Central Counterparties (CCPs) will be granted temporary equivalence under EMIR for 12 months in a no deal scenario. UK Central Securities Depositories (CSDs) will be granted a temporary equivalence period of 24 months under CSDR. The EC has also confirmed temporary 12 month measures to facilitate the novation of bilateral contracts between UK and EU-27 entities.

IFRS 17: A year in review

As a busy 2018 draws to a close, it seems only appropriate to reflect on the past 12 months and ask those key questions such as, what went well, what could’ve gone better and what lessons have we learned? In this short blog, I would like to revisit some of my personal highlights and take a look ahead into 2019 – and I would encourage you all to do the same!Let’s start at the beginning. From October 2017 to March 2018, PwC hosted a series of IFRS 17 Tech Showcases in 12 different cities, which attracted over 1,000 clients and a variety of technology vendors. These showcases were successful in initiating conversations around technology solutions, and gave attendees some ‘food for thought’ in terms of how best to plan for shortages in IFRS 17 SME resources. I personally gained a lot from these trips as they greatly enhanced my understanding of Asia’s general state of readiness for IFRS 17 in comparison with Europe and the America

14 December 2018

A CASS Reflection - Governance and oversight of CASS activities delegated to other parties

Firms are increasingly relying on a range of third parties to deliver their business objectives, accessing specialist skills and markets, while realising often sizable cost and operational efficiencies. The scale and complexity of these relationships, the pervasive nature of the risks they introduce, and the potential implications for market stability all combine to ensure that this has become a priority focus for regulators, especially the governance and oversight frameworks that firms have in place over these.