UK Regulatory Landscape: Regulators show signs of sympathy, but for how long?

Regulatory coordination in Financial Services has never been more important. The impact of the pandemic, coupled with the UK exiting the EU, has only heightened the need for having a single view of the UK regulatory landscape. Industry participants have been struggling with the uncertainty involved in regulatory compliance for decades. The requirements for compliance continue to be difficult to decipher, let alone implement within the expected deadlines.

Is this about to change?

UK Regulators have listened to industry participants and are now seeking to remove uncertainty from the equation through the introduction of the Regulatory Initiatives Grid (the Grid). The following sections explore the purpose of the Grid, the key themes on the regulatory radar and finally, what this means for regulated firms.

What is the Regulatory Initiatives Grid?

The Regulatory Initiatives Grid is one of the main outputs of the Financial Services Regulatory Initiatives Forum (the Forum). The Grid was first published in May 2020 with a second edition announced in September 2020 as part of a pilot programme. It was brought forward to assist regulated firms stretched by the impact of coronavirus by introducing clarity and transparency to the regulatory pipeline.

The Forum is comprised of representatives of the Bank of England, Financial Conduct Authority, Prudential Regulation Authority, Payment Systems Regulator, Competition and Markets Authority, Information Commissioner’s Office, The Pensions Regulator and recently joined by the Financial Reporting Council (FRC). The FRC has been included as its work has a considerable impact on the industry, however, the Forum has already indicated there is no intention to expand membership further, to prevent the Grid from becoming unmanageable.

In May 2021, a third edition of the Grid was published, marking the completion of a “successful one-year pilot”. The Forum has taken feedback on board to ensure the format is more user-friendly, added an indicator showing where regulatory initiatives are expected to be of interest to consumers and consumer organisations, and included sub-categories to some of the larger industry themes.

The two-year horizon view, provided by the Grid, has proven valuable to regulated firms and the Forum’s decision to continue with its publication twice per annum is very welcomed, as it provides a clear direction and helps firms prepare for changes.

What themes are on the Regulators’ radar?

In May 2020, the first publication of the Grid, the UK financial regulators disclosed that nearly two-thirds of the planned initiatives for 2021 were delayed by coronavirus, with Brexit preparations and bank capital rules taking priority. The second edition of the Grid presented a cautious increase in the number of regulations, but nothing drastic. In this third edition, the total number of initiatives has increased from 111 in September 2020 to 128 in May 2021. This increase is due to the addition of FRC initiatives, new initiatives and those that had been delayed or paused due to the pandemic. Nonetheless, the Forum is clear that this latest publication charts a steady course for ensuring a “controlled return to normality” is achieved. In other words, the regulatory landscape will soon be back to normal, which means that the Regulators’ sympathetic and accommodating approach may soon come to an end, and firms need to be prepared.

Several themes have emerged through the three publications of the Grid to date. The view below presents the key multi-sector initiatives on the regulatory radar.

• Financial Resilience: The most impactful initiative in this sub-category is, without a question, the LIBOR Transition. The decision to transition away from LIBOR, largely triggered by the manipulation scandal that came to light in the global financial crisis, will become a reality for industry participants by the end of 2021. The planned timelines for the initiative have stayed largely the same throughout the pandemic, with the regulators being clear that “the transition from LIBOR remains an essential task that will strengthen the global financial system”. So far, the assumption that firms will not be able to rely on LIBOR post the end of 2021 has not changed and should remain the target for all firms to meet.
• Operational Resilience: Being ‘operationally resilient’ means being able to prevent, respond to, recover from and learn from operational disruptions to minimise impact to consumers, the market and the financial stability of firms themselves. Following the initial discussion paper (July 2018), the consultation period was extended from March 2020 to October 2020 to give firms more time to respond. The PRA and FCA released their final policy statements in March 2021. All regulated firms now have until 31^st March 2022 to implement the requirements, followed by a transition period of up to three years. By March 2025, firms will need to demonstrate they have the processes in place to deliver ‘resilient’ important business services and, in the event of severe disruptions, that they can remain within impact tolerances.
• Environmental, Social and Governance (ESG): Initiatives from this category have been the most notable change from the second publication of the Grid, with eight new items added to the sub-category. Most of the newly included initiatives are still in their consultation phases, but firms should expect the focus and timelines for these to become known in the following publications of the regulatory grid and should keep this topic on their radars. Given that the ESG regulatory theme is largely driven by the EU, it will be particularly interesting to see how closely the UK will align its efforts in this space to its old partner.

Conclusions

It is evident that UK Regulators are spending an increasing amount of effort keeping the regulatory landscape as transparent as possible during the pandemic. The two-year horizon set in the Regulatory Initiatives Grid provides a clear roadmap for firms to plan initiatives that impact their sectors and has proven a valuable publication for industry participants. It is also evident that the latest edition of the Grid presents a careful preparation for returning to normality and hints at a stable stream of initiatives to be reflected in the following publications. Although the regulators attribute this increase to several factors, it should be clear to firms that the regulatory landscape is returning to its strict nature and delays to important initiatives will soon be an image of the past.

At BCS Consulting, we leverage our deep expertise across a number of regulatory topics, including the LIBOR transition, Operational Resilience and ESG, combined with extensive programme delivery experience, to create and build effective and smooth routes to compliance. We are expertly positioned to support with analysis of the regulatory landscape and to ultimately transform it into a manageable portfolio of work for your organisation. Please contact us for more information on our experience in supporting clients in this space.