“While change cannot always be predicted, what is predictable is change will come, and quickly.” 

–Nikhil Rathi, CEO, Financial Conduct Authority (FCA) 

In the UK/EU banking, financial services and insurance industry, 2022 has not seen any downturn in regulatory change, to say the least. Just a few of the challenges BFSI firms have had to grapple with this year are:  

More changes by MiFID and other regulatory bodies are expected by the end of 2022, and 2023 will almost certainly continue that trend. Next year’s regulatory changes may be even more complex and less predictable, because of a global and economic environment destabilized by the Russian invasion of Ukraine and a worldwide surge in inflation, among other factors. Slower growth is projected almost everywhere–except in cyber terrorism, where risk is rising rapidly.  

What’s going to change? Watch these areas

Although precise prediction is difficult, BFSI firms would be wise to start reviewing their policies and practices in these areas of current and reemerging interest:  

  • Fund Liquidity: Investment managers must ensure that fund redemption terms are aligned to the fund liquidity.  
  • Inter Bank Offered Rate (IBOR): Firms should focus on updating legacy contracts and ensuring clients have full clarity before contract expiration.  
  • PRA: International banks need to ensure they’re in compliance with the Prudential Regulatory Agreement priorities in a timely fashion if they wish to operate in the UK. 
  • Reporting: Companies need to ensure their internal reporting is at least as stringent as their external reporting.  
  • Resolvability: UK banks must prepare their first RAF return in time for the deadline of January 1, 2023.  

For next year and beyond, experts advise staying on top of these widely expected areas of growth:  

  • AI: As already mentioned in this series of articles, changes are expected to manage how AI is used in financial services. 
  • Digital assets, products and players: Change will focus on consumer protection, market integrity and systematic risks in the crypto market and platforms. 
  • Digital platform gatekeepers: Firms need to address the power of the “digital platform” gatekeepers, who can frustrate access to financial services across many suppliers at the same time.  
  • Future Regulatory Framework (FRF). This continually updated initiative seeks an “open, green and technologically advanced financial services sector” in the UK.  
  • Open finance: UK and the EU are committed to take forward Open Finance by extending Open Banking into new areas. (Timelines are not clear.) 
  • Third-Party Provider (TPP) schemes: There is ongoing pressure on firms to strengthen oversight of their critical third-party providers.  

Changing the change process: Speed up to slow down

Adding to the complexity of the landscape is a proposed modification of the change process itself. Regulators may soon be allowed to draft regulations themselves, without parliamentary involvement, which would make change faster and easier—at least at the onset. But political considerations are sure to be raised when regulations never seen or discussed before reach Parliament to be made into law. This would slow the pace back down and could even cause a backlog. So the UK, which has historically led other countries in regulatory change, could start to fall behind.  

Experts say such a slowdown wouldn’t be all bad. Slower timelines may delay the launch of new products in some areas, such as digital assets, but less change will likely bring benefits in lower costs and less risk of disruption. And a slowdown would give UK companies a chance to watch and learn from other countries.  

Whatever happens, “change will come, and it will come quickly,” in the words of Nikhil Rathi. Organizations need to be ready. Here are four ways you can stay ahead of the game:  

  • Even if you can’t predict exactly which changes are coming when, you’re already aware of the main areas of focus. Monitor activities of the major regulatory bodies through their websites, journal articles and social media posts.  
  • Make sure you have robust, up-to-date compliance software and that it is seamlessly integrated with your ERP systems, so your business can continue without disruption and your customer service remain error-free when changes are implemented.  
  • We know that 75 percent of changes fail, no matter how good they are, if adoption hasn’t been considered and provided for. Ensure that the changes you make are easy to adopt. Arrange for stakeholder training and UX testing as needed.  
  • Finally, plan your banking/financial services and insurance testing/QA activities well ahead of time to ensure all your changes are thoroughly proven before go-live.  

For in-depth background and actionable advice, be sure to read our timely series of articles on BFSI compliance challenges and solutions: 

We’ll help you embrace transformation with confidence by leveraging our customized quality engineering solutions. We help validate embedded banking through banks-fintech partnerships, personalized insights/virtual assistant-led banking implementations, payment modernizations and more. To find out more on how we can help you go to our Banking & Financial Services page or our Insurance page.

 

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