2018 was another long, hard year, and the Christmas/New Year break was a natural pause, a chance to reflect on a few of the things a regulator might be thinking about, hoping would be better in 2019. In a loose chronological order, one per month (and moving from internal to external), here’s a regulator’s potential wish list for 2019.
January - A reliable timeline for deciding our future relationship with the EU: Regulators are typically good at dealing with known crises. But Brexit has a waiting for Godot element to it that eats away at this qualities. Clarity would be great but seems optimistic and the consequent problems are likely to dominate the year.
February – FCA and PRA budgets reflect the expectations of external rhetoric: It’s not irrelevant that the financial crisis was preceded by two years when the FSA first took on increasing responsibilities - Mortgage & GI - while underestimating the resources needed, and then undertook to cut its headcount by 10%. Greater efficiency is important but over-promising benefits no-one.
March - Business Plans that the industry understands: There’s often an element of Kremlinology to reading a regulatory business plan. Regulators try to cover all the issues, with too many “priorities” meaning the real ones can be hard to spot.
April – Normal levels of resignations: Good regulators have always commanded a significant premium in the industry, and the FCA’s move to Stratford, coupled with the strains of Brexit, could lead to a rash of resignations. However, unusually high turnover at the FCA/PRA is bad news for the industry as well as the regulators.
May – Successful restructurings: The last time I looked, the research suggested the likelihood of restructurings achieving their aims was well south of 50%. These usually take effect from the start of the financial year (1 April for FCA and PRA), and by late May the early indicators will be fairly clear.
June – Better coordination: A too frequent problem – for regulators as well as firms – is an apparent lack of coordination, either between FCA and PRA or between different areas of the FCA. In each case structure is the primary culprit but it remains a frustration for everyone.
July – Orderly firm failures: Used as a regulatory term, “orderly” covers the idea of control around firm failures, e.g. with transactions settled and little or no call on the compensation scheme (FSCS). Even small failures that are “disorderly” have large negative implications.
August – Fewer summer consultations: A regular industry complaint is that the regulator issues consultations, often shorter than three months, which cut across summer holidays. Brexit has the potential to overload the schedule, so in 2019 this phenomenon could be worse than usual.
September – A clear strategy for Regtech: Technology will transform the practice of regulation over the next few years, and the FCA and PRA have a window of opportunity to establish a long term model of engagement with the industry (including vendors).
October – A healthy consumer credit market: Relied on by many of the most vulnerable consumers, credit has been a top FCA priority since it took on the responsibility in 2014. However, its approach is still developing, and it hasn’t yet established a strategy for the sector as a whole. Household debt, meanwhile, continues to rise.
November – A coherent approach to pension regulation: This is far from a solely FCA challenge, with TPR (about to change CEO) and the DWP also intimately involved. The recently announced strategy will need fleshing out and putting into practice, neither remotely easy. And the next corporate /pension freedom scandal is always just round the corner.
December – No economic crisis: Stock markets wobbled last month, central banks are bound to continue trying to rebalance interest rates, and the US-China trade war simmers. I clearly recall the Asian banking crisis of late 1997, and any sort of repeat would likely have a far bigger impact given the global economy is now more interconnected. The PRA has had a relatively easy ride since its 2013 formation. Hopefully it stays that way.
If the UK leaves the EU on 29 March 2019 without an Implementation Period, EEA firms currently operating through passporting in the UK under the existing European passport framework will require a Part 4A permission under FSMA to be able to continue carrying out regulated activities in the UK.