UK regulatory initiatives: themes and issues

September 2022  |  FEATURE | BANKING & FINANCE

Financier Worldwide Magazine

September 2022 Issue

UK financial services firms are working under more complex regulation while facing tremendous external risks.

According to a recent survey by Kroll, for example, around a quarter of UK respondents expect bribery and corruption risks for their company to increase in 2022 and beyond, with the primary factor the impact of remote working and decentralised management. In terms of regulation, the main issues are increased enforcement activity, new global regulatory requirements and legislation, and an increased focus on supply chain risk and digital operational resilience.

As has become the norm for the UK in recent years, the country’s regulatory and legislative agenda is once again mired in internal political uncertainty following the resignation of the prime minister, Boris Johnson, in early July. The resignations of key cabinet members prior to Mr Johnson’s, including John Glen, City minister, was a blow to the country’s planned post-Brexit financial services reforms. It is unclear exactly what kind of legislative and regulatory agenda will be pursued by a newly structured administration, but financial services is sure to be an area of considerable focus.

In June, the Financial Conduct Authority (FCA) said it had renewed its data strategy to address online scams. The FCA hopes to tackle online fraud faster, proposing to scan the approximately 100,000 websites created daily to identify those that appear to promote scams.

The FCA also plans to invest heavily in data analysis in 2022-23. It intends to recruit a significant number of skilled roles across artificial intelligence, analytics and data science, as well as cloud engineering and digital technology. These hires will be responsible for a range of data and digital initiatives, including improving the quality of the data collected by the FCA.

Following Russia’s invasion of Ukraine, the FCA has developed and implemented a sanctions screening tool. This helps to monitor the effectiveness of the controls firms use to identify organisations or individuals that have been sanctioned. It has been vital in supporting the FCA’s ongoing work with domestic and international partners in response to the war in Ukraine.

The FCA will also provide its staff with a dashboard for all the financial companies it regulates and the sectors it oversees. This will make it easier to identify and focus on the highest risk cases. 

The UK government has also set out its stall for making Britain a global hub for crypto asset technology and investment. Under the plans, ‘stablecoins’ would be brought within existing government regulation, paving the way for their use in the UK as a recognised form of payment available to all. Measures include legislating for a ‘financial market infrastructure sandbox’ to help firms innovate, an FCA-led ‘CryptoSprint’, working with the Royal Mint on a non-fungible token, and establishing an engagement group to work more closely with industry.

In June, HM Treasury and the US Department of the Treasury also reaffirmed their commitment to cooperate in supporting safe innovation and strengthening regulatory outcomes for stablecoins. Recent events highlight the key role that stablecoins and crypto asset trading and lending platforms play in the digital asset ecosystem, the variance in their governance and operations, and the need for robust cross-border regulatory cooperation. The commitment, made at the third meeting of the US-UK Financial Innovation Partnership (FIP), also saw the two countries pledge to continue to cooperate on crypto and digital assets across the G7 Digital Payments Expert Group, the Financial Stability Board Crypto Assets Working Group, and Regulatory Issues of Stablecoins Working Group, among others.

Sustainability has been another area attracting the focus of financial regulators in the UK. Alongside the European Union’s (EU’s) Sustainable Finance Disclosure Regulation, the UK has been planning to consult on its new Sustainability Disclosure Requirements. In July, however, the FCA announced that the consultation, expected to occur in Q2 2022, had been delayed until the autumn to “take account of other international policy initiatives and ensure stakeholders have time to consider these issues”.

Previously, the UK Sustainable Investment and Finance Association had called on the FCA to carry out further work on a harmonised set of sustainable investing disclosures, warning that a “lack of clarity” would lead to delays in implementation.

The Financial Services and Markets Bill, introduced in the Queen’s speech, will also have a significant impact on UK financial services firms. The bill is intended to implement many of the tenets of the UK government’s Future Regulatory Framework Review and will overhaul post-Brexit financial services regulation. It also adds new secondary objectives for both the FCA and the Prudential Regulation Authority (PRA) on promoting economic growth and fostering the competitive position of UK financial services. Further, it will introduce new regulation for the UK’s capital markets, protect consumers’ access to cash, and encourage innovation.

Given the uncertainty caused by the pandemic, Brexit, the war in Ukraine and current political upheaval, predicting the future outcomes for the UK’s financial services sector is not easy. However, it is logical to assume that the direction of travel will be toward greater regulation in areas such as cryptocurrency and crypto assets, as well as a persistent focus on sustainability.

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Richard Summerfield