Looking to the year ahead, we explore the regulatory priorities that are likely to have a significant impact for firms in 2024.
- Consumer Duty Annual Report
Firms should be gearing up for their first annual report on retail customer outcomes, a key aspect of complying with the Consumer Duty. The inaugural report is due before 31 July 2024, but firms should already be investing in accurate management reporting, so time is of the essence.
The annual report should be looking at three main areas: (i) monitoring results; (ii) actions taken to address risks or enhance outcomes; and (iii) the influence of business strategy. The report needs to be informative, detailed and backed by solid evidence. You will need to be able to provide it, and the management information that sits behind it, on request.
We encourage firms to ensure their plans for delivering the annual report have clear roles and responsibilities, effective communication channels, and a reasonable delivery timetable. The Financial Conduct Authority (“FCA”) is expected to closely examine and compare reports from different firms. You want to stand out for the right reasons.
- EMIR Refit
The rules governing the reporting of derivatives in the EU and UK will change substantially in 2024. The new EMIR Refit reporting rules go live in the EU on 29 April 2024 and in the UK on 30 September 2024. Navigating and implementing these changes can be complex, especially for firms with a high volume of transactions. Consider the following challenges in your resource planning:
- collecting, validating, and maintaining the quality of the data required for reporting;
- integrating new reporting requirements into existing systems;
- additional resource requirements for training, technology upgrades, and ongoing monitoring;
- cross-border complexities where the firm and/or its clients are subject to both EU and UK EMIR Refit; and
- operational difficulties correcting historical issues after trade repositories have adopted the new reporting schema.
Firms should not underestimate the time-commitment needed to meet these obligations. If your EMIR Refit implementation project is behind-schedule, or you have known issues in your current reporting to address, act now to ensure you are ready by the relevant deadline.
- FCA ICARA Feedback
The FCA published its final report on IFPR implementation observations in November 2023. The regulator’s feedback highlighted the following areas for improvement: “group ICARA processes, internal intervention points, wind-down assessments, liquidity assessments, operational risk capital assessments and regulatory data submissions.”
We expect the regulator to ‘check-in’ with firms in 2024 and seek to understand how firms have used this feedback to improve their own ICARA process.
Looking ahead to 2024, we examine anticipated FCA enforcement trends. These are informed by a combination of FCA enforcement notices and our own experiences. The goal is to provide businesses with some insight into where they should be focussing their compliance resources.
- Financial Crime. We have observed a rise in enforcement cases, particularly in AML and fraud, a trend projected to intensify in 2024. Ongoing geo-political events have intensified global sanctions, further increasing financial crime risk for investment firms. The FCA once again emphasises financial crime as a significant priority in their 2023/2024 Business Plan. Anticipated measures include heightened use of data to identify firms vulnerable to illicit proceeds, increased proactive assessments of AML systems, and enhanced scrutiny of firms’ procedures for fraud detection and prevention.
- Consumer protection. The introduction of the Consumer Duty in July 2023 was designed to set higher and clearer standards of consumer protection across financial services and require firms to act to deliver good outcomes for customers. The FCA has said it “will invest £5.3m to ensure the Consumer Duty is embedded effectively”. Firms are likely to receive information requests from the regulator to assess the efficacy of their systems and controls in this area, including the quality of their annual board report. Where firms have substandard controls in this area, they should expect the regulator to act.
As firms look to finalise their compliance monitoring plans for 2024, it would be wise to ensure that these topics have a prominent place to the extent that they apply to the business.
- Crypto regulation
In 2024, the UK continues its phased approach to regulating cryptoassets. We have already seen significant developments relating to licensing, anti-money laundering and financial promotions in 2023. HM Treasury’s consultation in February 2023 contained extensive plans for further regulation to address issuance and disclosure standards, trading venue operations, intermediation activities, custody, market abuse prevention, and lending platform operations.
There are no definitive implementation dates at the time of writing, but firms looking to conduct cryptoasset activities will be eagerly awaiting news on the following requirements:
- Cryptoasset Issuance and Disclosures. Those introducing cryptoassets to trading venues or making public offers will trigger issuance and disclosure requirements. Issuers will be mandated to provide detailed prospectuses for public offers, promoting transparency and ensuring investors have sufficient information for informed decisions.
- Operating a Cryptoasset Trading Venue. The operation of cryptoasset trading venues will be subject to regulatory controls mirroring existing Regulated Activities Order (RAO) activities. This includes extensive requirements for prudential controls, consumer protection, governance, operational resilience, reporting, and resolution/insolvency planning. Firms operating these venues may need a UK subsidiary due to their critical role in the cryptoasset value chain.
- Intermediation Activities (Crypto Brokers and Market Makers). Crypto intermediaries engaging in market-making activities will face regulatory standards similar to traditional financial intermediaries. This involves managing conflicts of interest, best execution practices, and other established regulatory frameworks.
- Cryptoasset Custody. The government proposes adapting existing frameworks for traditional finance custodians to regulate cryptoasset custody activities.
- Market Abuse Prevention. Trading venues and regulated entities will be tasked with implementing systems and controls to detect and prevent market abuse.
- Operating a Cryptoasset Lending Platform. Cryptoasset lending platforms, often holding illiquid assets, will face prudential, governance, consumer protection, operational resilience, and resolution requirements.
Firms are eagerly awaiting further details on these initiatives so that they can begin shaping their regulatory strategies.
If these items are relevant to your firm, ensure that they have a prominent place in your compliance plans for 2024.
How can C&G help?
We assist firms in meeting their regulatory obligations, and actively monitor the development of financial services regulation. If you need assistance with your first Consumer Duty report, an ICARA health check, or general compliance advice, contact us today.
- Business Plan 2023/24. Financial Conduct Authority, available at: https://www.fca.org.uk/publications/business-plans/2023-24 (last accessed 15 January 2024)
- Future financial services regulatory regime for cryptoassets. HM Treasury, available at: https://www.gov.uk/government/consultations/future-financial-services-regulatory-regime-for-cryptoassets (last accessed 15 January 2024)