FT Advisor | Victoria Hickman | Jan 5, 2022
Looking ahead to 2022, the financial services regulatory agenda seems to be dominated by three topics: first, environmental, social and governance themes, reflecting the importance of the financial sector to the transition to net zero; second, fintech and the development of the crypto-assets market; and third, a focus on consumer harm headlined in the UK by the introduction of a new ‘consumer duty’.
COP26 was the springboard for an avalanche of sustainable finance initiatives, including the UK’s Greening Finance Roadmap. That momentum is set to continue. While new rules are emerging around the world, the EU sustainable finance programme is in the comparatively most advanced state.
More of its ESG legislative package comes into effect next year. Compliance with this represents a complex programme of work for financial institutions with an EU footprint, who also grapple with legislative frameworks emerging in other regions, the complexities of their own (multi-jurisdictional) organisational structures, as well as the possibility of being headquartered somewhere that does not heed the EU’s rules as the prevailing standard.
Lack of harmonisation globally is likely to become a key contributor to ESG-related headaches for global institutions over the next few years.
With the focus on greenwashing, asset managers, who have grappled with new disclosure obligations under the EU’s disclosure framework since March, have a lot more to come in 2022.
The line between traditional finance and fintech continues to blur as financial institutions increasingly engage in markets for crypto-assets. This crossover presents risks for regulated companies, especially while the regulatory approach is being developed. Fintechs may be caught in a pincer movement as prudential, conduct, anti-money laundering, competition and data standards tighten.
Further clarity on the UK’s approach to regulating stablecoins and other crypto-assets is anticipated in 2022. Crypto-assets amounting to security tokens or e-money tokens are already regulated, as are derivatives and exchange-traded notes that reference crypto-assets.
A concept devised by the FCA from ongoing work into the treatment of vulnerable customers, the consumer duty springs from the principle that a company must act to deliver good outcomes for, and in the best interests of, retail clients. The duty will apply where a company can influence the design, target market or performance of a retail product or service, even where that company has no direct relationship with the retail client.
With a focus on positive outcomes for retail, the FCA sets out expectations for communications with clients, for the customer service provided and on whether the price of the product or service represents fair value. The rules are expected to apply from next summer.