Financial Markets Regulatory Outlook 2020
Consensus no more?
Deloitte’s EMEA Centre for Regulatory Strategy has released its flagship annual publication – the Financial Markets Regulatory Outlook 2020. The report explores how major regulatory trends will shape the financial services industry in 2020 and how firms can respond to them effectively.
The 2020 edition identified four medium-term trends, ten cross-sector themes of strategic significance, as well as a number of additional themes specific to each of the Banking, Capital Markets, Insurance and Investment Management sectors.
As the end of 2021 grows ever closer, supervisors will increasingly scrutinise firms’ progress in transitioning away from IBOR and how they are managing conduct risks.
Climate change and sustainability
A growing number of regulators will issue supervisory statements on managing financial risks from climate change, and efforts to achieve greater global coordination will intensify.
Building operational and cyber resilience
Firms will need to prove they can manage the full range of technology and resilience risks they face, especially as some supervisors will deploy new means of evaluating and understanding firms’ approaches and resilience.
Culture, governance, and accountability
Regulators and supervisors will focus on firms’ governance and culture, individual accountability, diversity and inclusion, the “tone from above”, whether employees feel safe to “speak up”, and corporate purpose.
Good customer outcomes
Conduct regulators will increasingly focus on customer outcomes, including value for money and the treatment of vulnerable customers.
AI governance and model risk management
To meet corporate governance and individual accountability obligations, board members will need to demonstrate the necessary capabilities to consider, challenge, and manage AI models.
Regulating firms’ use of customer data
Firms must be ready to demonstrate the value that data-driven use cases will bring to users and society, how they are providing “value for data”, and how they are complying with conduct, data protection and equality requirements.
Current regulation will need to be adapted to make it relevant for crypto-assets classed as financial instruments – this will happen mostly at national level until the overarching EU approach is clarified.
Regulators will focus their efforts on awareness of anti-money laundering, counter terrorist financing and suspicious transaction reporting requirements, and the application of anti-money laundering standards to virtual assets.
New requirements on stress testing will pose challenges for existing risk management frameworks and capabilities, especially the emerging requirements for banks and insurers to assess the financial risks from their exposure to climate change.
Banks will need to focus on preparing for compliance with CRD 5/CRR 2, preparing to implement the output floor, regulatory reporting, resolution planning, and providing evidence of regulatory barriers to market consolidation.
Firms will need to focus on managing the impact of Brexit in terms of market access, risk management of back-to-back booking models, oversight of intra-group outsourcing, the internal model approval process, and legal entity optimisation. Other priorities will include FRTB reporting, transaction reporting, and the implementation of IFR/IFD.
Regulators and supervisors will focus on how insurers respond to continued low interest rates, the Solvency 2 review, non-life insurers’ pricing and reserving models, and the regulatory framework for retirement products.
Investment managers will face heightened supervisory scrutiny on fund liquidity management, fund governance and conflicts of interest.