E-scooters at a crossroads
E-scooters at a crossroads

Posts Tagged ‘financial services’

Government pushes on with plan for cryptoassets regulation – but questions remain for business

The Government’s response this week to the consultation on the future regulatory regime for cryptoassets represents a significant, positive step forward – matching other markets around the world – in establishing a regulatory framework to allow crypto and blockchain to flourish as a driver of growth in the UK fintech sector.

The document released this week set out the Treasury’s plan to implement, following industry feedback, many of the proposals for the future regulatory framework of the sector outlined in April this year. The areas covered by the consultation range from fundamentals like the definition of cryptoassets and the broad legislative approach; to plans to regulate core activities such as custody and lending; and to bring centralised cryptoasset exchanges into the financial services regulatory perimeter for the first time.

What the Government is aiming to do with the proposed framework is manage clear tensions in designing policy that improves consumer outcomes; encourages investment and international competitiveness, all the while protecting against market failure – driven by high profile examples like the collapse of FTX. This is a tricky balance to strike. Heading into an election year, the plan outlined this week still has a number of unresolved questions that will need to be worked through with industry and addressed before implementation.

Lack of clarity on timescales

The Treasury was keen to make clear the consensus that exists across the industry for the plan presented earlier this year – highlighting that nearly 80% of respondents were in ‘broad agreement’ – indeed, many of the proposals set out in the original framework earlier this year were taken forward without any modification. This has seen a number of the issues that were raised by critics unaddressed – for example how crypto gambling will be dealt with under the new regime.

In addition, the document was relatively light on detail in terms of when the critical ‘phase 2’ secondary legislation, that will give the Financial Conduct Authority (FCA) its new powers to regulate the sector, can be expected, nor on the exact mechanisms for how this will be added to the statute. It was confirmed that legislation would be “laid in 2024” subject to Parliamentary time. This timescale, while offering a general idea of when we can expect forward movement, becomes murkier when you consider the political uncertainty (and crucially, the loss of Parliamentary time) that will occur due to the general election expected next year. Given the state of the polls, it certainly makes Labour’s position on the future regulatory framework equally as important as that of the current Government.

Where Labour stand

Speaking of the Opposition: shadow Treasury ministers were keen to stress to businesses at Party Conference last month that they would not be ripping things up and starting afresh with the Treasury’s current proposals for crypto and the wider fintech sector. Some concerns were raised by shadow ministers as to whether proposals go far enough on consumer protections regarding the promotion of cryptoassets – reflecting Labour’s focus on this issue across many policy areas.

As it stands then, the consensus is that the direction of travel on crypto will remain broadly the same. However, should an incoming Labour government, with this added focus on protecting consumers, inherit a half-finished regulatory regime in late 2024, there remains the risk that the checks and balances on firms contained within the proposals could be made more stringent.

Any additional measures placed upon the FCA in the name of consumer protection (on top of the already greatly expanded powers handed to the regulator as part of this plan) would run the risk of overburdening an already-stretched regulator and adversely impact all firms in the space – not just those who are subject to the specific consumer-facing measures that Labour may seek to introduce. This is a risk firms should consider highlighting to the Labour Treasury team as they consult with business on the future of fintech.

Further friction between innovators and traditional players to be expected

From a wider industry perspective, there remains questions around how new and innovative financial products would be prioritised and onboarded into the proposed framework as they emerge. The lack of detail here is critical in terms of how it relates to recent issues such as de-banking of assets, with its highly charged political debate and subsequent scrutiny from the FCA. De-banking is an example of an issue that is known to disproportionately affect cryptoasset businesses – both those in the DeFi space and beyond. Other markets around the world – including the US and the EU with their Markets in Crypto-Assets (MiCA) framework – are making changes that seek to resolve this issue, encouraging growth and cross-sector collaboration. The Treasury’s plan set out this week does not yet address this issue – leaving the door open for suggestions from business to prevent the UK from falling behind its international competitors.


Therefore, while its clear that the measures outlined in the Government response this week are, overall, the right approach, the timeline put forward for when this will become a reality remains somewhat unclear, especially given the uncertain year we are anticipating from a political perspective, and factoring in positive progress in other markets around the world. For fintechs and the wider sector, there is still a significant amount of work to be done in making the case to both the current Government and Labour in advance of the next election for a swiftly implemented and proportionate future regulatory framework.


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Tom Frackowiak joins WA, heading financial services practice

We’re delighted to welcome Tom Frackowiak to WA, who joins as a Partner and Head of Financial Services.

Tom brings more than twenty year’s experience across the financial sector, and has played a leading role in shaping and developing the communications industry.

He moves to WA from Cicero, where he worked for more than twelve years, including a decade spent leading the firm’s UK public affairs business, he’s advised financial services clients ranging from high street banks and insurers, to investment and wealth management businesses, fintechs and trade bodies – including Accenture, AXA, Barclays, BlackRock, e-Toro, Just Group, Klarna, St. James’ Place, and The City UK.

He previously worked for Halifax Bank of Scotland, the Institute of Chartered Accountants in England and Wales, and for the Financial Secretary to the Treasury, Mark Hoban MP and Shadow Business Minister, Iain Wright MP, through his work on the Business & Finance Parliamentary group.

In addition, he has been a member of the PRCA Public Affairs Committee’s Executive Committee, took part in the first CIPR & Taylor Bennett Foundation Diversity and Inclusion Reverse Mentoring Scheme, and participates in the Speakers for Schools programme.

At WA, Tom will lead and grow our dedicated financial services practice – building on our existing work across the sector, where a team including Natasha Egan-Sjodin, advise clients including global cryptocurrency network Ripple, leading accountancy firm KPMG, and Brink’s-owned ATM operator NoteMachine.

His appointment follows former Times Transport Correspondent Philip Pank joining us in August; and former Permanent Secretary Sir Philip Rutnam, who joined the WA advisory board in May,

Commenting on his appointment, Tom Frackowiak, Partner and Head of Financial Services, WA, said:

It’s an exciting time to join WA. I’ve long admired its integrated strategic communications offer, and I’m looking forward to drawing on this expertise from across the agency, to help more firms in the financial services sector achieve their policy and reputational outcomes”.

Dominic Church, Managing Director, WA, added:

I’m delighted to welcome Tom to WA. As one of the leading communications consultants in the UK, he’s well positioned to help us expand our financial services work and build a truly unique, market-leading practice in the sector”.

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Hope for The City… or just agreeing to talk?

Amidst the challenging economic picture facing Rishi Sunak’s government, from mortgage rates to food inflation, any potential good news story has been seized upon by Downing Street. The latest of these came on Tuesday with the announcement from the Treasury that Chancellor of the Exchequer Jeremy Hunt had signed an agreement on post-Brexit regulatory cooperation with his counterpart on the EU Commission, Mairead McGuinness.

As a signal of intent for those within the industry, this is undoubtedly a positive step – indicative of a thawing of relations and a commitment to regulatory cooperation that will be critical if the City is to move on from the temporary arrangements that have hung over the sector for the last few years. It is also a clear reflection of the Government’s desire to woo industry leaders ahead of the next General Election; a charm offensive being mirrored by Shadow Chancellor Rachel Reeves MP and her team. Reassuringly for the City, this is one area of policy in which businesses and investors can expect a degree of continuity – Labour have been consistent in calling for a deepening of ties between the UK and EU on financial services in particular.

Amongst other things, the deal includes a commitment from both sides to work to improve transparency; reduce uncertainty; solve cross-border regulatory issues; and where appropriate, improve interoperability of standards. There is enough meat on the bone here to shape conversations with regulators and use as a springboard to push for the all-important conversations around UK-EU market equivalence.

That said, it’s important not to overstate the deal as it stands. While key players have welcomed the direction of travel, nearly all of the praise has been tempered by the fact that an announcement of this ilk has been long overdue – and still fundamentally amounts to an agreement to talk to one another.

The new Forum is committed to meeting “at least” twice a year. With the current arrangement on equivalence set to expire in June 2025, you would expect that regulators – along with their political masters – would need to meet much more frequently than the minimum 4-5 sessions mandated in the MOU in order to hash out what would amount to a landmark regulatory agreement.

Moving from voluntary cooperation on these relatively small-scale issues to a broader agreement on UK-EU equivalence remains the ball game, though. This leaves significant room for industry to inform policy and regulatory decisions going forward. We know from our research that MPs particularly value both data and consumer case studies when considering their views on financial services policy or regulatory reform.

Demonstrating where closer cross-border alignment will help achieve party economic growth ambitions will be critical – as well as how industry can help drive the UK’s global economic competitiveness. This will help strike the right chord between the regulation-light approach of the Tories and Labour’s focus on consumer outcomes.

Overall, Tuesday’s announcement was an indication that with 2 years remaining of temporary equivalence, the government is keen to pursue closer alignment with Europe on financial services. How this will be received by the harder-line MPs within the Conservative Party will be one to keep an eye on going forward – but given that this is a position shared by Labour, it will provide welcome continuity for the markets and industry.

With the signing of this MOU and the Financial Services and Markets Bill about to become law, an important window of dialogue between regulators on both sides of the Channel is about to open up. There’s a long way to go before the long-term future of UK-EU financial services is decided, and it remains a critical time for industry to be engaged in the process.

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Girls just wanna have funds

“It’s OK if you don’t know.” 

Ahead of International Women’s Day, WA hosted an all-female panel of financiers to discuss how firms are better engaging with women to improve financial understanding and awareness, and where the industry, policy and the media narrative around women in wealth needs to evolve 

On the panel, Etiksha Patel, Lead Private Banking Director, Metro Bank; Karen Kerrigan, COO, Moneybox; and Elizabeth Caley, Independent Financial Adviser, Aegis Financial Planning Limited discussed what makes women tick when it comes to money and financial products, and how they can better engage with their finances for themselves and for their friends, children and colleagues. 

Women make up 49.6% of the global population and are widely predicted to control 60% of the UK’s wealth by 2025, yet 72% of us feel like we’re not understood by the finance industry.  

This feeling of exclusion is perhaps why only 10% of women prioritise making long term investments which, when women’s pensions on average are £100,000 less than men’s due to the gender pay gap and childcare commitments, seems a very low proportion.   

Elizabeth Caley, who focuses on supporting women, reassuringly said that it’s OK if you don’t understand something relating to your finances: “no one said you should have this knowledge. There seems to be shame attached to it but it’s OK if you don’t know, that’s why we’re here.” 

Similarly, Etiksha Patel believes that having someone to talk to and trust in the bank makes a huge difference to women’s confidence and attitudes towards their finances. She said: “women benefit from in-person contact because we like to ask questions. Financial knowledge becomes accessible if you can ask in-person questions.” 

The sector can’t shy away from the fact that it has, for too long, been dominated by men, and Etiksha crucially said: “It’s important to have women representing women who need answers because it makes asking the questions easier. This is where the change is going to come from.” 

However, women are playing catch up on the education, word-of-mouth advice and knowledge they missed out on growing up because most of the time. There is a question over where responsibility for financial education lies – across all genders – and whether regulatory or policy reform is needed to ensure knowledge and access is instilled early.   

With products such as Lifetime ISAs, women are likely to buy into the goal that the ISA can help with, such as buying a home, rather than simply having the product to make more money. Interestingly, Karen Kerrigan said that MoneyBox’s Lifetime ISAs are held by an equal split of both men and women, but that’s not because they’re marketed differently.  

Reform of the ASA standards for financial products, or the introduction of the consumer duty, will go some way in shaping how products are marketed and communicated to consumers going forward. We’re seeing a greater focus on firms needing to ensure their comms are “socially responsible”, and the last’s years decision by the ASA to sanction irresponsible “influencers” has marked a firmer stance on how products are communicated.  

Though work is still needed to shape the financial services world to meet the needs of women, much has changed in the last 20 years. At the end of the discussion, each panellist was asked what advice they’d give their younger self. Elizabeth said reap the rewards of compound interest early and learn the value of not rushing to spend, but saving to have more. Karen highlighted the importance of creating a habit early, and Etiksha said she would tell herself that it’s OK to ask questions and to feel confident doing so. 

Hopefully, as more of us chat about our money and what we do with it, we’ll help each other, break down the stigma and put ourselves and younger generations on the same starting line as men.  

Because who run the world? Girls. 

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Consumer Duty regime – what is it and why should you care?

The Consumer Duty regime seems to be the hot topic on the financial services industry’s lips. A quick Google search delivers 51,400 news results and nearly every conference, webinar or forum has a session on readiness for this new regulation. However, what is it, really? And why should you care? 

First things first, the Consumer Duty regime is a significant piece of regulation, coming into effect on 31st July this year. It sets high expectations and clear standards of consumer protection across financial services and means that consumers should receive communications they can understand; products and services that meet their needs and offer fair value; and that they get the customer support they need, when they need it. 

Surely, I hear you cry, putting the customer first, ensuring they are being sold appropriate products and have access to full support is already at the heart of the industry? Well, in theory, yes of course. In fact some of you will recall the FCA’s “Principles” – notably Principle 6 (a firm must pay due regard to the interests of its customers and treat them fairly) and 7 (a firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading). The Consumer Duty imposes higher standards for both these principles and underlines the fact that firms should focus on the impact of their actions on consumers, and not simply on processes. 

So far so good, but what does this mean in practice? And how is the industry responding to the ever-closer Summer deadline? 

Firstly, firms need to know exactly who their end customer is. It’s no good to know that a firm has products aimed at “the retail investor” – businesses must consider the appropriateness of their products vis a vis this “investor” so more detail on their financial understanding and wider situation is critical.

Secondly, businesses need to clarify responsibilities both internally and across the wider distribution chain. We all know there can be several intermediaries between, for example, an asset manager and the man on the street – those intermediaries need to know what their role is, what details they need to have and how they can feed their intel across the rest of the distribution channel.

Thirdly, policies and customer communications will have to be reconsidered and likely amended to ensure they fit in with the new requirements and are easily understood.

And finally, firms will need to implement a framework to ensure they know what “good” looks like, can monitor outcomes and identify any risk areas in line with their longer term objectives. 

It is a very tall order and, from conversations we’ve been having across the industry, no-one seems to be quite there, yet. Some argue that this regime calls for a much needed shake up of the wider industry and a huge shift in mindset, engagement and protocols; others claim that the combination of Consumer Duty regulation and the additional burden of the SDR is simply too much for any player in the market; yet more, worryingly, are aware of the challenge yet still unsure how they’re going to meet it without considerable external support (and expense). Whatever your stance, what is clear is that the regulator isn’t going to rest on its laurels – it wants to see better consumer outcomes and a fairer financial services industry – and those who fail to comply will be held to account.  

With that said, it’s essential to bear in mind what the goal is of this new regulation – an industry which works for the customer, not the other way around. Amongst all the discussion of the difficulties, risks and extra admin, we need to remember that if implemented correctly, this regime will ultimately deliver better results for the consumer and, we hope, build back trust in the financial services industry. Those who successfully demonstrate they are fully embracing this Consumer Duty (or in fact going further) will be in a tremendously strong position to showcase their efforts and set the bar for what “good” looks like.  

I don’t deny that this new regulation will be a challenge, but the benefits of doing it properly and using this as an opportunity to really examine functions, communications and end outcomes – for a common goal – surely mean it’s a challenge worth taking on. 

At WA we’re here to help firms use this new regulation as an opportunity to raise their profile and offering in the market; to share their experiences of making sure they comply (the good, the bad and the ugly); and to leverage the new rules to show that yes, the end customer really is at the heart of their operations. Drop us a line if you want to find out more. 

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The key trends shaping 2023 across Financial Services

We may only be 13 days into 2023, but it’s already on track to be a very busy one in the financial services industry. Whether you’re an adviser, asset manager, bank, fintech, pensions provider or in fact provide any financial services proposition, you’re in for a challenging, but exciting year.  

Looking ahead, here are the key themes we see shaping 2023 – will they be obstacles or opportunities? 

The conversation around sustainability is only gaining more ground – with Scope 3 emissions disclosure on the horizon, SDR finally being implemented and Net Zero targets tightening. In particular, we expect stewardship to come to the fore, with wealth and asset managers being held to account regarding their previous commitments and asset owners seeking clarity around the concrete outcomes of stewardship activities. With better stewardship leading to improved investment outcomes and real-world sustainability achievements, this is a movement which can’t come quickly enough.  

Consumers across nearly every sector are becoming increasingly demanding and discerning. The old adages “the customer is always right” and “fortune favours the bold” are holding fast with new innovations tailored to meet consumer expectations gaining traction and market share. Our recent consumer research showed that over half of 18-34 year olds are often on the lookout for the newest and most advanced financial technology apps and if those apps don’t work for them, they’ll vote with their feet. It’s a jungle out there but firms who can successfully innovate and communicate their new offerings, will reap the rewards.  

Of course, the financial services industry has always been a highly regulated sector, even more so with the additional duties and responsibilities heaped on the FCA through the Financial Services and Markets Bill. However, recently the regulator has grown teeth and firms who aren’t complying won’t just face a slap on the wrist but instead steep fines and penalties. 

The Consumer Duty is a case in point. Consumer protection has consistently been at the heart of regulation, but the requirements of the new Consumer Duty demonstrate that ticking a box is no longer enough. All firms which distribute or manufacture products or services to retail customers now need to demonstrate good value, consistent and clear communications and appropriate support to their customers – essentially Treating Customers Fairly, on steroids. 

With the Government heralding Open Banking as a success earlier this week and businesses and industry groups piling in to make recommendations on what comes next, all eyes are on the EU review of PSD2 regulations and what this could mean for data and tech enabled products in the UK. Will HM Treasury and the FCA follow suit with the reforms being proposed in Brussels? Or will the temptation to ease regulatory burdens win over additional data protections?  

In either scenario, more work is needed to iron out the remaining kinks in Open Banking – from tougher compliance rules to an improved consumer UX – before the blue sky thinking of Open Finance can begin.  

2022 was the sixth-most volatile year since the Great Depression and most economists are forecasting markets to “get worse before they get better”. That said, the continued desynchronisation between the US, Euro area and China presents a range of investment opportunities for those who are shrewd enough to find them. It will be a bumpy ride, but long-term investors are likely to be rewarded if they can sit tight and we know both the media and consumers will be hungry for a good news story for those who can successfully weather the storm. 

At WA, we’ll be watching these areas closely, making sure we are one step ahead of the next developments on the horizon and supporting firms who want to leverage these trends for their own market position. If that sounds of interest, we’d love to chat. 

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How to take advantage of AI data-analysis tools in the financial sector

The article below was written by Pauline Guénot as part of her work experience placement with WA’s Investor Services practice.

According to a study published in 2017, over 50% of the activities currently undertaken in the global economy could be replaced by automation within the next 40 years. To some, this will be a startling estimate, but the Covid-19 pandemic has undoubtedly accelerated some trends for automation and catalysed the adoption of data-driven solutions.

With the availability of data continuing to expand, and ever more sophisticated analytical tools available, the financial sector is well placed to capitalise on the potential benefits offered by artificial intelligence.

Potential applications

The potential applications of AI are wide-ranging, and often rest on the ability of the methods to harvest, manipulate and analyse data beyond the capacity of traditional techniques. AI tools can, for instance, enable higher loan approval rates with fewer credit losses for lenders. Building accurate predictive models on the basis of large data sets can help banks to identify and assess borrowers considered “at-risk” of default like millennials or small business loan applicants. Such models naturally rely on the quality of their input data; the dataset must be large and representative enough to return accurate predictions.

AI could offer significant benefits to the industry given its capacity to improve anti-money laundering and anti-fraud detection management. The traditional risk documentation process is expensive and time-consuming, while an approach based on both pattern recognition and intelligence-based models could diminish the administrative burden. Ayasdi, a US-based predictive analytics platform, declared that one of its clients saw a 20% reduction in financial crime investigation cases after having used their services.

According to the UK Payment Markets Report 2020, while 58% of all payments in 2009 were in cash, this proportion was only 23% in 2019. Since the beginning of the pandemic, there has been a 60% decline in cash usage. With more and more transactions proceeding electronically, identifying fraud and other illegal activities with rapid, real-time techniques will become all the more important.

Potential risks

Whilst these techniques – implemented well – can reduce exposure to credit risk and increase confidence in the financial system, they undoubtedly come with their own risks. The most obvious is that poor input data will, almost certainly, yield poor results – the classic “garbage in, garbage out” refrain – and this is all the more relevant for AI techniques, which might be expected to proceed with comparatively less supervision than traditional methods. A further risk is that, if consumers learn how the model works, they may then seek to mimic “correct” behaviour to get a loan or achieve their objective under false pretences.

The current regulatory landscape and the future outlook

Given these risks, investors and financial services providers will want to take a close interest in a potentially changeable regulatory environment for AI.

Companies must build the right data partnerships to develop unique products, insights and experiences that differentiate them from their competitors. However, big tech companies remain critical sources of data and customer experience. As they anchor their financial value, smaller firms are left at a disadvantage. Earlier this month, the government announced the launch of a new regulator, the Digital Markets Unit, based in the Competition and Markets Authority to enforce a “new pro-competition regime to cover platforms with considerable market power”. Companies such as Google or Facebook, designated as having “strategic market status” and funded by digital advertising, will be monitored by regulators.

Financial firms could use alternative data, as mentioned during the second Artificial Intelligence Public Private Forum last March, but they must have clear due diligence processes to ensure that data is still from a trusted source. Financial services can also find inspiration in data standards developed in the open banking regime to apply existing data standards to AI. They must align with existing requirements like the European Banking Authority’s guideline on outsourcing, ensuring that their system is transparent and explainable.

The government has finally announced that “a new plan to make the UK a global centre for the development, commercialization and adoption of responsible AI will be published this year”, as AI could deliver a 10% increase in UK GDP in 2030. The European Commission will also propose new EU regulations on AI on 21 April 2021. Embracing Artificial Intelligence is therefore a priority for financial firms, but the prospect of reforms means that they must monitor it to ensure continuity of services globally.

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