NEDs talking about financial regulation

Knowing your ARGA from your elbow: An NED’s guide to keeping up-to-date with financial regulation

If you are an Non-Executive Director (NED) in the financial services sector you probably share my feeling of never being fully up-to-date with regulatory developments. 

Like me, you probably click around the FCA’s and PRA’s websites, but remain sure you’ve missed something you really need to know. You leap upon regulatory updates emerging from your own organisations, on the basis they should have highlighted the relevant changes. After all, following these changes could be a full-time occupation in itself. 

I find that law firms and “Big Four” accountants are another good source of information and provide easily readable summaries. Linklaters, for example, have produced a particularly helpful summary of the changing landscape in their recent Financial Regulation Horizon Report.

The challenge of keeping up to date isn’t going to get any easier, with 2022 promising to be a mega-year for consultations and regulatory change, for example:

  • Prudential regulation: 1st January 2022 saw the Investment Firms Prudential Regime come into force. Detailed guidance and a new handbook are yet to come.  
  • Consumer harm: The FCA finalised its guidance on the treatment of vulnerable customers, to apply across the industry and for which firms will need to provide evidence.
  • Future Regulatory Framework: The UK government’s consultation closed on 9th February.
  • Environmental, Social and Corporate Governance (ESG): The integration of ESG risk into prudential risk management frameworks.
  • Pre-paid funeral plans: Firms that enter into and administer funeral plan contracts (including those sold before FCA regulation) will be regulated from 29th July.

The role of an NED in keeping up to date with regulation

As an NED it has, therefore, never been more critical to stay abreast of the changes, so that you can be asking those “conceptual clarifying questions” that help your firm to respond to the changes. 

For example, if you’re with an IFPRU firm, you’ll know that Investment Firms Prudential Regime (IFPR) now applies. That means your firm needs to immediately transition its capital and liquidity models from the old ICAAP approach, to the new Internal Capital Adequacy and Risk Assessment (ICARA). 

Although the underlying aim of IFPR remains to ensure that firms have adequate capital and liquidity, the focus of the firm’s risk management framework is now based on harms to customers and markets, as opposed to categories of risk. So, for example, you could ask how this harms-led approach is being implemented by your firm: how are harms being identified, mitigated and monitored? And, critically, do the firm’s principles align with this harms approach?

Making sure you know the regulatory changes will help you ask the relevant questions.

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