Further updates from the regulators, in addition to FCA’s Dear CEO letter to retail investment firms, include:
- PRA welcoming the agreement by the boards of large UK banks to suspend dividends and buybacks on ordinary shares until the end of the year, and to cancel payments of any outstanding dividends for 2019. It also expects banks not to pay cash bonuses to any senior staff and consider any appropriate action on the accrual, payment and vesting of variable remuneration. It says banks should be able to withstand the current severe shocks and hopes it will not need the capital it is saving in order to maintain capital adequacy, but sees the amounts as “headroom” for 2020. PRA had written to HSBC, Nationwide, Santander, Standard Chartered Bank, Barclays, RBS and the Lloyds Banking Group asking for their urgent agreement to this;
- PRA writing to insurers on distribution of profits, saying that boards considering any distributions to shareholders or payouts of variable remuneration should pay close attention to policyholder protection and safety and soundness of them, and of the real economy. The letter notes the essential safety net insurers provide because of the products they sell, and their important role as long-term investors in the UK economy. As a result, they must manage their financial resources prudently and ensure that each distribution is prudent and consistent with their risk appetite;
- FCA has added to its guidance on expectations on insurance firms: there is now more guidance in the renewals section, noting not only that firms making changes to policies at renewal must consider product design requirements and making any exclusions clear, and all communications clear, fair and not misleading, but also stressing the need for firms to consider the needs and circumstances of individual consumers. FCA notes firms may have trouble contacting consumers which may make it harder to comply with demands and needs requirements and, if this is so, firms should continue to try to meet the requirements, and to act honestly, professionally and fairly and in the best interests of the customer. It may be reasonable to rely on information firms already hold, and it may also be reasonable for firms to decide that providing continuity of cover is in the customer’s best interests – if there are no indications that this would not meet the customer’s demands and needs or otherwise be unsuitable;
- ESMA has set clarifications on best execution reports under MiFID 2, confirming that execution venues that are unable to publish their RTS 27 reports by the end of March should publish them as soon as reasonably practicable, but not later than 30 June, and firms may only be able to publish the RTS 28 reports due by 30 April also by 30 June. ESMA encourages supervisors not to prioritise any supervisory action for best execution deadlines and use a risk-based approach to exercising their powers;
- EBA has also clarified its expectations on:
- dividend and remuneration policies – confirming banks should not distribute dividends or engage in share buybacks to remunerate shareholders, and should look at their remuneration policies in line with the current economic risks;
- supervisors allowing leeway on reporting dates – EBA suggests offering one month flexibility for reports due before the end of May, and flexibility in assessing deadlines of Pillar 3 disclosures; and
- supervisors helping banks to minimise money laundering and terrorist finance risks by sharing information on emerging risks, setting clear expectations and using supervisory tools flexibly;
- EIOPA has also encouraged insurers and intermediaries to continue to take action to mitigate the impact of Covid-19. It also stresses the need for clear and timely information, keeping consumers informed about contingency measures, continuing to apply product oversight and governance requirements and being flexible in treatment of consumers. It also notes that despite this, imposing retroactive coverage of claims that were not envisaged could actually create material solvency risks and ultimately threaten policyholder protection;
- the Single Resolution Board, while publishing its expectations on banks in respect of operational risk following its consultation last year, also wrote to them on potential operational relief measures. It notes that it wants to keep working to its 2020 resolution plan deadlines, but will postpone less urgent information or data requests. However, it notes that certain reports are essential; and
- FATF encourages regulators and firms to work together to be alert to new risks. It also calls for the fullest possible use of responsible digital customer onboarding and delivery of digital financial services.