UK Finance’s latest must–read blogs??

Next Gen financial services operations?

Cost income ratios in banking are on the rise again due to increasing operating costs.?

The Bank of England lowered rates recently for the first time since 2020, and interest rates are expected to keep dropping in the short to medium term putting additional pressure on the income side as well. Consequently, banks are refocusing on cost discipline and non-interest income growth, with?85% of banking executives ?saying that cost management is a top strategic priority. ?

Adding to the cost challenge, regulatory pressure on operational resilience has intensified with both the UK?Operational Resilience ?and?EU DORA ?compliance deadlines looming in 2025. It is notable that one of the key drivers for these regulations was the blurring of lines between FinTech and traditional financial services. All financial services organisations are now technology organisations, with the costly engineering staff to prove it.??

It is no surprise then that one of the key cost drivers has been an increase in staff costs. In addition to the general recent pressure for wages to keep up with high inflation across industries, the increase in financial services has been primarily driven by the need for high skilled workers across key functions. From risk and finance to technology and HR, specialised expertise is required to build modern, digitised, customer centric and resilient financial services. And it doesn’t come cheap.?

Financial services leaders now find themselves having to precariously balance compliance, operational resilience, technology investment and cost efficiency. This begs the question; how can financial service executives walk this tightrope? They should, and most already are attempting to, identify how to best leverage technology to maximise the productivity of the high value humans who not only crave, but demand complex and impactful work.?

Read the full blog post from Andrea Petrovski , Principal Strategist, ServiceNow . ?

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Consumer Duty outcomes monitoring: What does good look like??

Consumer Duty Board Reporting has been at the top of many agendas during 2024 as the industry approached the deadline for the first report.?

During June 2024 the UK Finance Chief Compliance Officer discussion group shared thoughts and individual approaches during a virtual and in person session.?

These sessions were facilitated by Stuart O’Sullivan of Protiviti, a global business consulting firm and an associate member of UK Finance.?

As part of the discussions Protiviti shared a good practice approach to Outcomes Monitoring. The key elements of this are:?

1. Start with the end-to-end customer journey or product lifecycle and identify the key customer touch and decision points and the regulatory requirements along this?
2. For each key touch and decision point and regulatory requirement define what you want the intended good outcome to be and the contra poor outcome or risk to good outcome that the customer journey should prevent?
3. These defined good outcomes can then be broken into constituent parts or elements that can be tested and measured as part of a monitoring and testing framework?
4. The monitoring and testing will result in quality assurance, data collection, reporting and assurance for governance and oversight functions?
5. All of which should lead to relevant analysis and assessment, including – and this is really key – root cause analysis to deliver ongoing improvement activity.?

At the recent FCA event marking the anniversary of the first year of Consumer Duty the regulator confirmed that Customer Outcomes Monitoring would continue to be a focus area for it in its monitoring and supervision of the embedding of the Duty.? ?

Read the full blog post to learn more about Outcomes Monitoring and Testing. Authored by ?

Stuart O'Sullivan , Associate Director, Protiviti . ?

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Anatomy of a Consumer Duty enforcement action?

How will the FCA enforce the new Consumer Duty??

A pertinent question without an immediate answer. It’s tempting for financial services firms to assume it will depend on how the FCA assesses what is or is not a good outcome. However, that betrays a misunderstanding of how the Consumer Duty rules work and may leave firms focusing on the wrong areas when assessing the robustness of their implementation.?

FCA Principle 12 imposed a new obligation on firms to “act to deliver good outcomes for retail customers”. Principles are enforceable rules but Principle 12 is special: PRIN 2A.2.26 provides “The cross-cutting obligations (the rules in PRIN 2A.2) exhaust what is required under Principle 12.” This makes enforcing Principle 12 very different from enforcing other FCA Principles. For other Principles more detailed provisions in the FCA rules and guidance are?not?exhaustive of what is required by the Principles. The Consumer Duty is fundamentally different – it is the only Principle that cross-refers to another set of rules that we are told is exhaustive of what the Principle requires.??

This means that the interpretation and application of the words in Principle 12 itself will be largely irrelevant, or at most symbolic. This is because to establish a breach of Principle 12 the FCA will first?need?to prove a breach of the “cross-cutting” rules in PRIN 2A.2.?

These all important cross-cutting rules are themselves drafted at a very high level and in a principles-like fashion. They provide that firms must:?

• act in good faith towards retail customers (which includes honesty, fair and open dealing and?acting consistently with the reasonable expectations of retail customers);?

• avoid causing foreseeable harm to retail customers?(foreseeable harm may be caused by both act and omission, in a firm’s direct relationship with a retail customer or through its role in the distribution chain even where another firm in that chain also contributes to the harm); and?

• enable and support retail customers to pursue their financial objectives.?

Conversely, the much more detailed rules and guidance in the “outcomes rules”, on which much of the attention of firms was engaged during the implementation of the duty, are?not?exhaustive. “The outcomes rules at PRIN 2A.3 to PRIN 2A.6 help to define what is required by Principle 12 and PRIN 2A.2 but do not exhaust those rules.” (PRIN 2A.2.27 G) So it is the cross-cutting rules that will take centre stage in enforcement of Principle 12 itself.? ?

Read the full blog post from Martyn Hopper , Financial Regulation Partner, 年利达 .