Regulation & ComplianceSix regulatory changes to look out for in 2021

Six regulatory changes to look out for in 2021

As the pandemic has impacted treasurers in all sectors on a global scale, even the most pressing issues in finance have been overshadowed. With the transition period ending just before 2020 is out, and LIBOR drawing to a close in just under a year, we looked at the regulatory changes that treasurers should look out for in 2021, and how they should navigate them.

Libor to end
Financial regulators in the US urged market participants to make progress with LIBOR this month, with the benchmark due to end in December 2021. LIBOR based transactions have decreased since the financial crash in 2008, with investigations in the US and the UK leading authorities discover that traders had been manipulating it, resulting in banks being fined billions of dollars. In 2014, the Alternative Recommended Rates Committee (ARRC) developed the Secure Overnight Finance Rate (SOFR). SOFR is entirely based on actual transactions as opposed to “expert judgement.” There is a risk, however, that banks may refuse to lend, meaning that transactions won’t occur. The Federal Deposit Insurance Corporation (FDIC) and the Office of Controller Currency have said that banks should begin transitioning away from LIBOR right away. “Failure to prepare for disruptions to USD LIBOR, including operating with insufficiently robust fallback language, could undermine financial stability and banks’ safety and soundness,” the FDIC said in a statement.

Tax changes after Brexit
As the transition period for Brexit ends on 31 December 2020, there are expected to be a multitude of changes in tax. These include customs declarations- including all imports and exports- requiring formal declarations and documentation and changes to VAT, as purchases from and to the UK become imports and exports retrospectively.

Meanwhile, the EU had put several directives in place aimed at reducing tax burdens within the single market, including withholding taxes. The future of talent supply remains uncertain as the country continues to grapple with how it approaches immigration. While acknowledging that many of these changes will be outside of businesses’ control, EY has put together a checklist for 2021, and emphasised the importance of understanding the impact these changes will have on their firms.

Open banking implementation
The Competition and Markets Authority (CMA) final open banking implementation roadmap is due to end in early 2021, with the banking and finance industry then required to keep the OB function running.
Open Banking in the UK was implemented as part of the Open Banking Implementation Entity (OBIE), established by the CMA in 2016. It is also enclosed in the Second Payment Services Directive (PSD2) – a European legislation created in 2018 to offer third party providers the access of bank account information of consumers and payments requests to provide innovative services.

Open banking has been divisive, with slow adoption and security acting as concerns. The Financial Conduct Authority, however, hopes that by making it simpler for businesses and consumers to compare prices and products, open banking could benefit a range of areas.

Recommendations for fintech strategic review announced
Led by Ron Kalifa, chairman of Network International, the fintech strategic review was launched in July 2020 to support growth in the sector. The HM treasury confirmed that they would provide recommendations on five areas; skills and talent, investment, international attractiveness, connectivity and policy. The review has been carried out independently, with the recommendations expected to be brought back to the treasury at the start of next year.

Retirement outcomes review
The conclusion of the Retirement Outcomes Review for non-advised customers is set out in the regulator’s Policy Statement PS19/21. The main change is the introduction of mandatory, governed investment retirement pathways from February 2021. Direct-to-consumer providers must offer retirement pathways to their customers. Platforms that are both advisory and direct-to-consumer must offer retirement pathways to both their advised and non-advised customers; and advisers need to consider retirement pathways when assessing suitability for their clients considering drawdown.
The purpose of this policy intervention is to deliver better retirement outcomes for non-advised investors, who may not have the confidence to make informed investment decisions. PWC has highlighted the importance of giving consumers guidance on the reforms without offering “advice”.

Operational resilience policy
In 2018, the Bank of England, the Financial Conduct Authority and the Prudential Regulation Authority published a joint discussion paper on the importance of upholding the operational resilience of firms.

The paper sets out the regulator view that business continuity is essential to operational resilience. It’s designed to shake up how firms think about disruption, from cyber security incidents, to operational events, and more.

The UK financial services regulators have called on the sector to change the way they anticipate the potential impact of failures in their systems, or those of third parties, on customers, firms and market infrastructure.

After some setbacks due to the pandemic, regulatory policy is expected to be finalised in Q1 2021.

Subscribe to get your daily business insights

Whitepapers & Resources

2021 Transaction Banking Services Survey
Banking

2021 Transaction Banking Services Survey

2y
CGI Transaction Banking Survey 2020

CGI Transaction Banking Survey 2020

4y
TIS Sanction Screening Survey Report
Payments

TIS Sanction Screening Survey Report

5y
Enhancing your strategic position: Digitalization in Treasury
Payments

Enhancing your strategic position: Digitalization in Treasury

5y
Netting: An Immersive Guide to Global Reconciliation

Netting: An Immersive Guide to Global Reconciliation

5y