At a glance:

  • This blog explores the key regulatory themes identified in the Deloitte EMEA Centre for Regulatory Strategy’s Interim Regulatory Outlook 2020: “Hard Times”. This examines the latest areas of high supervisory priority following the COVID-19 disruption including financial and operational resilience, good customer outcomes and digitisation.
  • Firms should conduct stress and scenario testing to assess their ongoing financial and operational resilience in the rapidly changing circumstances, while demonstrating fairness and flexibility when dealing with customers throughout the COVID-19 pandemic.
  • The pandemic has been a profound and searching “stress test” of the regulatory framework created in response to the financial crisis; the lessons from the pandemic experience will strongly influence the future direction of travel for financial services regulatory policy and supervisory practice over the next decade.

Who should read this blog? Board members and senior executives across the insurance, asset management, banking and capital markets sectors, including for example CEO, CRO, CFO, CCO, Head of Regulatory Affairs, Head of Compliance and others.

Reading time: 3 minutes

Darkening economic prospects set the backdrop for our Financial Markets Regulatory Outlook 2020 (RO20), published at the start of the year, but for reasons then entirely unforeseen we are now in the midst of a global economic downturn. COVID-19 has crystallised and massively exacerbated multiple downside economic risks that were already present in the fragile global economy, prompting exceptional measures from authorities worldwide to try and offset some near-term damage.

Although the financial system has held up very well during the height of the pandemic, the outlook remains highly uncertain, with the potential for further financial stresses to come as the scale of the COVID-19 contraction becomes clearer. For an industry already feeling the squeeze at the start of the year, this is likely to prompt some difficult decisions about cost-cutting and consolidation.

Our new Interim Regulatory Outlook 2020 reflects on the regulatory themes of the RO20 from this mid-year point, and outlines our views on some of what remains in store for the rest of the year. We see five key themes as we look forward:

THEME

SUMMARY

Full steam ahead

Due to COVID-19 pressures, a number of issues identified in the RO20 have taken on even greater importance. With some exceptions, major regulatory initiatives, notably Brexit and IBOR, continue apace, and firms should therefore continue to allocate resource and investment into their regulatory change programmes.

Near-term supervisory focus

While still exploring supervisory tools available to respond as necessary, supervisory focus is shifting from immediate crisis responses to firms’ medium‑term financial resilience, including for example recovery and resolution planning. Firms should produce a broad range of different stress scenarios to test their financial resilience in the rapidly changing circumstances.

Operational resilience in the new normal

We expect greater supervisory scrutiny of any new operational or control risks arising from the mass shift towards patterns of remote working, in relation to which regulatory changes could follow. In light of this, firms should revisit and update their business continuity and disaster recovery plans to reflect the new normal.

Good customer outcomes

A number of jurisdictions have implemented extensive measures to provide relief to customers experiencing financial hardship due to COVID-19, and how firms respond to these to ensure good customer outcomes will inform supervisors’ evaluations of their cultures. Firms will therefore need to demonstrate fairness and flexibility in addressing the challenges that COVID-19 continues to pose to customers.

Digitisation: its necessity and its challenges

The pandemic has placed a premium on digitisation, although it is also clear that some of its existing challenges are accentuated in the current environment. Firms should be able to demonstrate that they are doing all they can to support customers, including by applying technological solutions.

COVID-19 can also be seen as a “stress test” of the financial services regulatory system built over the last decade, and the lessons learned during the pandemic are likely to influence the longer-term future of financial services regulation, as regulators and policy-makers reflect on the resilience of the current framework, and firms’ responses to the circumstances, and reach judgements on whether, or to what extent, the regulatory framework has passed its first major test.

We will be hosting a webinar on Thursday 23 July, to discuss these themes in more detail, with time for Q&A at the end. We do hope you can join us – please click here to sign-up.