Financial Services: Regulatory Challenge 2024

Happy New Year to all! Now back to the real world! The Financial Services industry faces a year that holds some interesting challenges to the regulatory landscape. Please see the challenges that I see as central this year, below:

1. Financial Services and Markets Act 2023 (FSMA 2023): This act is a cornerstone in the UK's largest program of financial services regulatory changes since 2008. It introduces a "smarter regulatory framework" (SRF), replacing retained EU legislation with UK-specific rules. This change reflects the UK's departure from the EU and aims to tailor the regulatory framework more precisely to the UK context.

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2.?????? Sustainability and ESG Disclosures: The Financial Conduct Authority (FCA) plans to update its disclosure rules for listed companies to align with the UK-endorsed ISSB standards. These updates are expected to include consultation on implementing disclosure rules referencing IFRS S1 and IFRS S2. Additionally, policy statements on diversity and inclusion in financial services are anticipated in the second half of 2024.

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3.?????? Financial Crime Prevention: The fight against financial crimes like fraud, money laundering, and market abuse remains a top priority. The Economic Crime and Corporate Transparency Act (ECCTA) introduces new measures, including a corporate offence of failing to prevent fraud.

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4.?????? Operational Resilience and Technology: The FCA is focusing on enhancing the operational effectiveness of financial institutions. This includes improvements in authorizations processes and support for innovation through Sandboxes and the Global Financial Innovation Network.

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5.?????? Market Volatility and Economic Uncertainty: The FCA expects continued economic and geopolitical uncertainty. This includes potential volatility in interest rates and inflation, the risk of increased unemployment, and further market volatility due to geopolitical tensions.

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6.?????? Insurance Stress Test (IST): Conducted by the Prudential Regulation Authority (PRA), the IST assesses the resilience of the largest PRA-regulated life and general insurers to severe but plausible adverse scenarios. This is part of the broader focus on operational resilience in the financial sector.

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7.?????? Capital Markets and Asset Management Reforms: The FCA and Bank of England are working on reforms to strengthen the resilience of Money Market Funds (MMFs) and are considering a simplification of the equity shares listing regime.

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8.?????? Product-Level Disclosure Framework: The FCA's Sustainable Investment Rules include consumer-facing, pre-contractual, periodic, and on-demand disclosures. These rules align with the four pillars of the Task Force on Climate-related Financial Disclosures (TCFD).

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9.?????? Distribution Rules for Funds: The FCA's rules for distributors of funds to UK retail investors will come into effect in 2024, focusing on clear communication of labelling information and product-level disclosures.

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10.?? Regulatory Initiatives Grid: The Financial Services Regulatory Initiatives Forum has published a grid outlining planned regulatory initiatives for the next 24 months, offering a comprehensive view of the regulatory pipeline and its operational impact on financial services firms.

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These points reflect a dynamic and evolving regulatory landscape in the UK, influenced by both domestic developments and the broader global financial context. The focus on sustainability, operational resilience, and consumer protection highlights the sector's commitment to adapting to changing needs and challenges.

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The author is a very experienced Compliance and Anti-Financial Crime manager, speaker and coach in the financial services sector. Please reach out for help with any of these matters including an assessment of individual needs at no extra cost.