By Sian Herbert Having a robust financial crime risk appetite statement together with its associated financial crime risk assessment is fundamental to an organisation properly understanding, managing and mitigating its financial crime risks - and therefore limiting the opportunities for criminals to access and use the financial services industry for...

By Lucas Penfold, Catherine Crouch and Vasco Vicini The new product governance regime introduced under MiFID II has been a hot topic for asset managers in recent years. With the Financial Conduct Authority (FCA) now kicking off supervisory work on this - and given the links it has with wider...

By Arthur Marquis and Lucas Penfold 30 million. That’s the number of transaction reports the Financial Conduct Authority (FCA) processed on an average working day in 2018, following the introduction of MiFID II. The FCA has invested heavily in its capacity to process and make sense of this volume of...

With many insurers well progressed with their technical IFRS 17 accounting decisions and entering detailed design phases, attention is now being focused on how they will be viewed and judged externally once IFRS 17 goes live. Our first report on key performance indicators (KPIs) ‘New Measures, New Perspective’ analysed the current suite of KPIs insurers report to the market and assessed how these metrics were likely to be affected by IFRS 17. In our latest report, we explore the challenges and options insurers have when calculating Adjusted Operating Profit (AOP) under IFRS 17.

By Sarah Isted and Simon Chard On 9 July we gave evidence to the Treasury Select Committee (TSC) on its review of IT failures and the broader operational resilience challenges within financial services. We wrote about the experience here. The TSC published its final report on 28 October with a...

You’ve thought about repapering, market liquidity, exposure monitoring…But how about your clients? By now, most asset managers are beginning to embark on the LIBOR transition journey and wonder whether they will be ready to pull the plug at the end of 2021. As they ramp up progress though, they mustn’t forget to place client outcomes at the centre of their thinking. Conduct risk now features high on the regulatory agenda, and relevant investor protection obligations under MiFID II are likely to play an important role in helping to manage such risk. In this blog, we consider some of the key aspects of the MiFID II framework that firms should carefully consider in the context of their LIBOR transition programmes.

I have spoken about the importance of getting on the front foot with IFRS 17, in order to firstly ensure compliance with the standard come D-day, and secondly take advantage of the opportunity to transform the finance systems you already have to better serve your company. But what if you’re late coming to the IFRS 17 implementation process and are unsure about where to start? Or your company is not large or complex enough to run a dedicated finance transformation programme? Or even that you are busy developing your own bespoke solution, but want a ‘control’ against which to validate your results? We have identified that there is a significant gap in the market for such a solution and therefore have spent over a year developing our own software solution: PwC’s IFRS 17 In A Box.

Financial services is going through a period of technological disruption and change. The sector is responding to macro-trends such as climate change, changing demographics and the risks from economic protectionism. Technology is changing the way financial services firms operate and interact with customers. Incumbents are facing increased competition from challenger firms and, perhaps increasingly BigTech firms. Policymakers are starting to respond to these developments and the scope for a change in focus is perhaps most pronounced in the UK - and not just due to Brexit.

The asset management industry is going through a period of unprecedented change. Across the sector, competition, client demands and changing regulatory expectations are putting asset managers’ margins under severe pressure, forcing firms to review their strategy and related business model. As the industry strives to adapt and searches for new opportunities, we believe few firms have fully considered how their risk function will need to adapt to best support the business in achieving its strategic objectives. 

While 10 December 2019 marks the first anniversary of the SM&CR for insurers, it is easy to forget that it is also a deadline. As the senior manager element beds down, one year on insurers must also have concluded the assessment process for Certified Persons, and provided training in the conduct rules to all remaining staff.

It’s clear that climate risk is an issue the PRA wants firms to take seriously and address urgently. The prudential regulator wants firms to recognise that climate change, and society’s response to it, present financial risks. These could arise through physical risks such as increased instances of extreme weather events, but the regulator is also particularly concerned about the shorter-term transition risks that could impact the financial system as we move towards a lower-carbon economy.

PwC have submitted feedback to the recent consultation on changes to the FRC Client Assets (“CASS”) Assurance Standard . From our experience, we consider that the Standard has contributed to a significant improvement in the quality and consistency of CASS audits. We also believe that the application of the Standard has contributed to a significant improvement in the understanding and documentation of control processes within regulated firms. However, in order to provide a more effective framework to improve audit quality, to support CASS auditors and to underpin the disciplinary process, we believe the FRC can further improve the clarity of some of the proposed requirements.

As the public policy agenda for sustainable investing continues to unfold, asset managers are finding themselves under pressure to implement new requirements set out by incoming regulation. Various initiatives are nudging firms to integrate Environmental, Social and Governance (ESG) factors into their investment propositions and decisions, and to report on the sustainability performance of certain funds. With this comes changes to ESG policies, the controls and governance to implement those policies, and a more central role for ESG data on investee companies. In this blog, we consider these key operational impacts in further detail, together with some of the actions firms should take to respond.

It has now been three months since Switzerland lost equivalence under the Markets in Financial Instruments Regulation (MiFIR). What could have seemed liked a technical development, the expiry of a provision in EU law giving EU traders permission to trade in Switzerland, had become a political hot potato. In equity markets, which are all about increasing efficiencies, integrating markets and finding the best prices, such disruption was a big deal. The fact that parallels have been drawn with Brexit didn’t help to keep it quiet either.

Interest rates have been falling worldwide since November 2018, due to concerns about the global economy and trade (as illustrated in Figure 1). A low rate environment presents challenges to both banks and insurers, with a different impact on each industry.

‘The time for last orders is now’, said Sir Dave Ramsden, Deputy Governor for Markets & Banking at the Bank of England (BoE), in a speech on LIBOR earlier this summer. Time and time again, the BoE and FCA have reiterated that LIBOR will stop after the end of 2021 and that market participants should get ready for this. To reduce reliance on LIBOR, regulators and central banks from across the globe have set up working groups to develop new risk free rates (RFRs) and promote their use wherever possible

Reading the FCA’s supervisory review into research unbundling, firms could be forgiven for thinking this is a job well done. But beyond the positive headlines, there are some clear messages for firms to reflect on, and the FCA highlights areas where it plans follow-up work. It is clear that the FCA will continue to assess firms as they respond and bed in the changes. Firms may need to defend their research pricing decisions to the regulator and, as we explain below, look again at MiFID II research practices in a number of areas.

The UK supervisory authorities’ discussion paper on operational resilience in 2018 brought much-needed focus to what was previously a disparate discipline for firms. Of course, while managing disruption may not be new, the discussion paper did introduce some new concepts and terminology in the quest for consistency across the industry. After all, this is vitally important in helping the regulators themselves understand what is happening within many different firms, and where systemic risks may lie.

The high-cost credit market has had its fair share of change since the FCA took over regulation of the sector in 2014. As an ever present priority for the FCA, improvements to consumer outcomes in this market have been made through product interventions and by requiring better transparency, fairer collection practices and responsible lending. In tandem with these more immediate changes, the FCA has also been reflecting on longer-term solutions - alternatives to high-cost credit - to more sustainably protect the three million UK consumers using high-cost credit products. A shift towards cheaper, more sustainable alternatives could reduce instances of consumer harm and financial vulnerability, but a number of business model, legislative and consumer barriers currently stand in the way. What are these, and how can they be solved to improve the feasibility of alternatives to high-cost credit?

Publication of the regulatory consultation paper on operational resilience is imminent. The concept of setting impact tolerances for firms’ most important business services, introduced in the discussion paper, will be integral to this. Firms should not shy away from what can seem like a difficult question. There is a logical sequence of activities that can be undertaken to set tolerances, stress test them and monitor against them. PwC has been tackling this topic with firms across the financial sector and we will publish our approach to this challenge soon. In the meantime, we strongly encourage firms to start the groundwork by being clear what important business services you operate.