The Banking Regulation Review: United Kingdom
After the period of near constant regulatory change that followed the financial crisis, UK banks and their groups once again find themselves facing potentially radical changes to the business and regulatory landscape in which they operate.
The United Kingdom has now left the European Union, but the agreement of an implementation period to 31 December 2020 means that, for the time being, little has changed. Brexit does, however, present UK legislators and regulators with an unprecedented opportunity to reshape the UK regulatory framework, much of which derives from EU legislation. Whether they will choose to do so, and the extent to which this might benefit (or indeed harm) the UK banking sector, remains to be seen. In the meantime, persistent uncertainty as to the UK's future direction of travel, together with the anticipated loss of access to European markets, have conspired to create challenging business conditions for UK banks, diverting resources to contingency planning and limiting M&A activity in the sector. The extent to which this continues beyond 2020 depends in large part on the UK's future relationship with the EU, and on broader economic conditions. At the time of writing, in common with many other countries, the UK faces the unprecedented threat and disruption caused by the covid-19 virus, and equally unprecedented intervention by the UK government and the Bank of England attempting to limit the damage that the virus will cause to the UK economy.
The top five UK banking groups by market capitalisation are HSBC Holdings plc, Lloyds Banking Group plc, Barclays plc, Standard Chartered plc and Royal Bank of Scotland Group plc.2 Other than Standard Chartered plc, these banks, together with Santander UK plc (the UK subsidiary of the Spanish banking group), are the most prominent in the UK personal and business banking markets, although the market share of smaller challenger and digital banks continues to develop.
The regulatory regime applicable to banks
Regulatory and supervisory responsibility for UK banks is divided principally between the Bank of England (in its capacity as the Prudential Regulation Authority (PRA)) and the Financial Conduct Authority (FCA). The Bank of England exercises its role as the PRA through its Prudential Regulation Committee, while its Financial Policy Committee (FPC) has a macroprudential mandate to identify imbalances, risks and vulnerabilities in the UK financial system, and can direct the PRA and the FCA to take certain actions to mitigate those risks. The Bank of England also acts as the UK's resolution authority for banks, building societies and certain investment firms.
The authority of the PRA and the FCA derives from the Financial Services and Markets Act 2000 (as amended) (FSMA). The FSMA sets out objectives for each regulator and requires them to exercise their powers in a manner that they consider will advance those objectives.
The PRA is the prudential regulator of all UK banks and building societies, insurance companies and certain investment firms.
Under the FSMA, it is a criminal offence for a person to engage in regulated activities by way of business in the United Kingdom unless authorised (an authorised person) or exempt from the authorisation requirement. Firms that wish to carry on deposit-taking activities (i.e., prospective banks and building societies) are required to seek authorisation to do so from the PRA.
Banks authorised in jurisdictions outside the UK may seek authorisation to carry on business in the UK through a UK branch or subsidiary. If an overseas bank's UK retail deposit-taking activities are deemed by the PRA to be significant, or its wholesale banking activities are deemed to be systemically important, the PRA would generally expect that bank to carry on its business in the UK through a separately authorised UK subsidiary. Until 31 December 2020 (and subject to a temporary permissions regime that is expected to operate, subject to conditions, for a period after that date), banks authorised in the European Union may also carry on such activities in the UK on a cross-border basis and without the need for separate authorisation by the PRA.
The PRA's general objective is to promote the safety and soundness of the firms it regulates. The PRA is required to advance this objective by seeking to ensure that the business of PRA-authorised firms is carried on in a way that avoids any adverse effect on the stability of the UK financial system, and by seeking to minimise the adverse effect that the failure of a PRA-authorised firm could be expected to have on the stability of the UK financial system. Since the implementation of the UK's bank ring-fencing regime in 2019, the PRA has had specific responsibilities relating to ring-fenced banks and related ring-fencing requirements when advancing its general objective. The PRA also has a secondary competition objective.
The PRA has a general power under the FSMA to make rules, and to issue related guidance, that apply to the firms it regulates, provided that it considers such rules or guidance necessary or expedient for the purpose of advancing any of its statutory objectives. PRA rules are set out in a rulebook published by the PRA (the PRA Rulebook), and guidance is set out in associated supervisory statements and statements of policy.
The FCA is responsible for the regulation of the conduct of business of all authorised firms in the United Kingdom (including banks and other PRA-authorised firms) and the conduct of business in respect of wholesale and retail financial markets and market infrastructure. The FCA is also responsible for the authorisation and prudential supervision of firms that are not subject to prudential regulation by the PRA, which may include banks' subsidiaries or other entities within banking groups, such as dedicated consumer credit lenders and investment firms.
Under the FSMA, the FCA has a strategic objective to ensure that markets for financial services in the United Kingdom function well. This is supported by three operational objectives: consumer protection, enhancing the integrity of the market and promoting competition.
The FCA uses supervisory and enforcement work, thematic reviews and market studies to further its objectives. It also has powers to regulate competition in the financial services sector that are concurrent with those of the Competition and Markets Authority (CMA).
The FCA has the power under the FSMA to make rules, and issue guidance, that apply to all regulated firms, provided that it can only make such rules as it considers necessary or expedient for the purpose of advancing one or more of its statutory operational objectives. FCA rules and guidance are set out in the FCA Handbook.
The Bank of England
Alongside its roles as a microprudential regulator (exercised in its capacity as the PRA) and as the central bank of the UK, the Bank of England has specific regulatory functions relating to financial stability. In particular, it is the resolution authority responsible for the enforcement of the special resolution regime introduced by the Banking Act 2009 (as amended) (the Banking Act) (see Section III.v) and, acting through the FPC, has the macroprudential objective of protecting and enhancing financial stability and the resilience of the UK financial system. The FPC does this by monitoring threats and taking action where necessary to address any perceived or identified vulnerabilities and imbalances in the UK financial system. The FPC has the power to issue macroprudential recommendations and directions to the PRA and the FCA. It cannot, however, exert control over, or issue directions to, individual firms.
i Relationship with the prudential regulator
Consistent with its judgment-led approach to supervision, the PRA's supervisory approach focuses on the most significant risks to its statutory objectives. The PRA draws on a broad set of information and data in forming supervisory judgments and relies on banks – and other firms that it regulates – to submit that information and data. Periodically, the PRA may validate data through on-site inspections conducted either by its own supervisory staff or by third parties. To support its information-gathering and analysis, the PRA requires firms to participate in meetings with supervisory staff at senior and working levels, and expects to be kept informed of all material developments relevant to the prudential situation of a UK bank or its group. This includes, for example, details of proposed acquisitions, disposals and significant intra-group transactions.
ii Management of banks
The individual accountability of senior bankers became a key area of focus for UK legislators and regulators in the immediate aftermath of the financial crisis of 2007–2009. Post-crisis reforms intended to enhance individual accountability in the banking sector have ultimately evolved into a series of connected measures that now apply to all firms (including banks) that are authorised by the PRA or the FCA. These comprise a senior managers regime, a certification regime and a set of PRA and FCA conduct rules for individuals. These measures are accompanied by restrictions on the remuneration of the employees and directors of banks that largely derive from EU legislation.
Senior managers regime
Individuals intending to carry on certain specified senior management functions (SMFs) at UK banks require prior approval by the PRA or the FCA (depending on the SMF in question). SMFs are specified by either the PRA or the FCA, a distinction that reflects the difference in scope of each regulator's objectives. For SMFs specified as PRA functions, individuals are pre-approved by the PRA with the FCA's consent. For SMFs specified as FCA functions, individuals require pre-approval by the FCA only.
Banks are required to allocate overall responsibility for each of their activities, business areas and management functions to a person approved to perform an SMF, and to allocate certain prescribed responsibilities specified by the PRA and FCA (as relevant) to individuals holding SMFs. This is designed to ensure that there is individual accountability for every aspect of a bank's operations, and for the fundamental responsibility inherent in a particular function.
To support this, all applications for individuals to perform an SMF must be accompanied by a statement of responsibilities, which sets out the areas of business for which the individual will be responsible. Banks are also required to produce a responsibilities map, a document that describes the firm's management and governance arrangements.
The regulators will approve an individual to perform an SMF only if satisfied that the candidate is a fit and proper person. Both regulators are interested in the qualifications of applicants, and expect banks to carry out extensive referencing and due diligence before appointing new directors and other individuals performing SMFs, including assessing suitability for the role, conducting criminal record and credit checks and obtaining references from previous employers. The PRA and the FCA have, and frequently exercise, the power to interview prospective directors and other individuals proposing to perform SMFs.
The certification regime applies to individuals employed in positions where they could pose a risk of significant harm to a firm or its customers. Neither the PRA nor the FCA pre-approves these individuals, but banks are required to certify that the individuals are fit and proper for their roles, both at the point of recruitment and at least annually thereafter.
The FCA and the PRA have each issued high-level conduct rules that reflect core standards expected of individuals within their scope.
The FCA's conduct rules apply to all individuals approved as senior managers or covered by the certification regimes, as well as to:
- any non-executive directors (NEDs) who are not required to seek pre-approval from the PRA or the FCA (these are NEDs who do not chair the board or the risk, audit, remuneration or nominations committee or perform any other SMF, and are referred to as 'notified NEDs'); and
- all other employees (other than certain specified ancillary staff who perform a role that is not specific to the financial services business of the firm). The PRA's conduct rules apply to individuals approved as senior managers or covered by the certification regime, and to notified NEDs.
Both the FCA's and the PRA's conduct rules are set out in two tiers: those that apply to all individuals within the scope of the conduct rules (individual conduct rules) and those that apply only to senior managers (senior management conduct rules). In addition to the individual conduct rules, notified NEDs are subject to the senior management conduct rule requiring them to disclose to the PRA and the FCA any information of which the regulators would reasonably expect notice.
Duty of responsibility and individual liability
The senior managers regime is supported by a duty of responsibility. This allows the PRA or the FCA to bring a misconduct claim against the accountable senior manager if the authorised firm has contravened a relevant requirement, and the senior manager with the relevant responsibility did not take reasonable steps to avoid the contravention occurring or continuing. The burden of proof is on the regulator, which may suspend or limit the senior manager's approval, impose a penalty on the senior manager, impose conditions on the senior manager's approval or publish a statement of misconduct if it finds that the senior manager is in breach.
Relevant individuals who fail to comply with a conduct rule, or who are knowingly involved in a contravention by an authorised firm of any requirement imposed on it by or under the FSMA, or FCA or PRA rules, may also be fined or publicly censured, or both. Each regulator has the power to discipline an approved senior manager of a UK bank who has breached a conduct rule that it has issued, irrespective of whether it has approved the individual. Both regulators can also withdraw approval from individuals or issue a general or specific order prohibiting an approved person from carrying on any senior management function, or both.
A criminal offence applies under the Financial Services (Banking Reform) Act 2013 (as amended) (the Banking Reform Act) in respect of misconduct by a senior manager that leads to the failure of a bank, building society or PRA-authorised investment firm.
The remuneration requirements to which UK banks are subject are largely derived from the EU CRD IV package,3 and have been implemented in the UK by the PRA's CRR Remuneration Code and the FCA's Dual-Regulated Firms Remuneration Code. These are supplemented by guidance issued by the PRA and the FCA and, since 1 January 2017, guidelines issued by the European Banking Authority under CRD IV.
The provisions of the two remuneration codes apply to certain senior and risk-taking individuals in UK banks, staff engaged in control functions, and those earning in the same remuneration bracket as senior management and risk-takers. UK banks are required to apply the provisions of the remuneration codes to their subsidiaries and other members of their consolidation group, including such entities that are established in countries or territories outside the European Economic Area (EEA).
The remuneration codes prohibit guaranteed variable remuneration (other than in exceptional circumstances), and cap variable remuneration at 100 per cent of fixed remuneration, although this can be increased to 200 per cent with shareholder approval. The codes also require at least 50 per cent of variable remuneration to be paid in shares or equivalent instruments, and for at least 40 to 60 per cent of variable remuneration (depending on total remuneration) to be deferred for between four and five years. Variable remuneration must also be subject to clawback arrangements, which must cover specific criteria (such as a failure to meet appropriate standards of fitness and propriety).
Additional remuneration rules apply in relation to senior managers, including a mandatory deferral of bonus payments for at least seven years (for senior managers), five years (for risk managers) or three years (for other material risk-takers). The clawback period for bonuses paid to senior managers can also be extended to 10 years if, at the end of the seven-year period, there are outstanding investigations that could lead to clawback.
Certain smaller banks, building societies and investment firms are not subject to the full range of restrictions in the remuneration codes; for example, the smallest banks, smaller investment firms and asset managers may disapply the requirement to maintain ratios between fixed and variable remuneration.
In the event of a breach of the remuneration codes, the PRA or the FCA, or both, may (depending on the provision breached) prohibit a firm from remunerating its staff in a certain way, make void any provision of an agreement that contravenes such a prohibition, and provide for the recovery of payments made, or property transferred, in pursuance of such a void provision.
Since 1 January 2019, UK banking groups with 'core deposits' (broadly, any deposits other than those made by corporates that are not small and medium-sized enterprises, financial institutions or consenting high-net-worth individuals or taken by branches outside the EEA) in excess of £25 billion have been required to organise themselves such that their core deposit-taking business is legally and financially independent of other group entities that carry on various wholesale or investment banking activities.
The entities through which affected groups carry on their core deposit-taking business (referred to as ring-fenced banks) are subject to significant restrictions on their banking activities, including a prohibition (subject to exceptions) on dealing in investments as principal and on dealing in commodities; a prohibition (subject to exceptions) on incurring exposures to relevant financial institutions (e.g., non-ring-fenced banks, global systemically important insurers and investment firms); and limitations on the types of financial products and services that they may provide.
Since 1 January 2019, the FSMA has required the PRA to discharge its general functions in relation to ring-fenced bodies and ring-fencing requirements to ensure the continuity of the provision of 'core services' in the UK. These core services are broader than the core activity of accepting deposits and extend to facilities for making payments from, and overdrafts in connection with, deposit accounts. The PRA also has the power to require the restructuring or break-up of a group that, in the PRA's view, is failing to meet the ring-fencing objectives.
iv Regulatory capital and liquidity
At present, the capital requirements applicable to UK banks are set out under CRD IV (as defined in Section III.ii). This will remain the case during the implementation period (see Section VII.i), and immediately after the end of the implementation period, although at the time of writing it is not yet clear to what extent the UK may diverge from these requirements after that point. In particular, it is not clear to what extent the UK will apply those parts of the legislative package amending CRD IV and the Bank Recovery and Resolution Directive (BRRD)4 (referred to as the Banking Reform Package) adopted by the EU in June 2019 that will come into force or take effect after the end of the implementation period (see Section VII.i for further information).
CRD IV imposes capital requirements by reference to a bank's 'total risk exposure amount', which weights the accounting value of a bank's assets and credit exposures according to their potential to suffer loss. The minimum capital requirements (referred to as Pillar 1) currently applicable to UK banks under CRD IV can be summarised as follows:
- base regulatory capital of at least 8 per cent of the total risk exposure amount;
- Common Equity Tier 1 (CET1) capital of at least 4.5 per cent of the total risk exposure amount; and
- Tier 1 capital (comprising CET1 capital and Additional Tier 1 (AT1) capital) of at least 6 per cent of the total risk exposure amount.
CET1 capital is the highest quality of capital and generally comprises ordinary share capital and reserves, which must, in each case, meet eligibility criteria specified by the Capital Requirements Regulation (CRR). AT1 capital is the next highest quality of capital and comprises perpetual subordinated debt instruments or preference shares that meet the relevant eligibility criteria, chief among which is that the relevant instruments or shares must automatically be written down or converted into CET1 upon the bank's CET1 ratio falling below a specified level, which, in practice, the PRA expects to be at least 7 per cent. Tier 2 capital is capital of a lower quality and comprises subordinated debt or capital instruments with an original maturity of at least five years that meet the relevant eligibility criteria.
In addition to the Pillar 1 requirements, banks must hold capital against risks not adequately captured under the Pillar 1 regime (referred to as Pillar 2A) and in respect of the following regulatory capital buffers:
- the combined buffer, which is formed of a capital conservation buffer of 2.5 per cent of the total risk exposure amount, a countercyclical capital buffer (CCyB) (recently cut from 1 per cent to zero as part of a range of policy measures intended to combat the economic effects of the covid-19 pandemic), a buffer for global and other systemically important institutions and, for banks subject to UK ring-fencing requirements, the systemic risk buffer. The PRA has the power to restrict the payment of distributions (in the form of dividends, coupons and staff bonuses) by UK banks if the combined buffer is breached; and
- the PRA buffer (also referred to as Pillar 2B), which takes account of a bank's ability to withstand a severe stress scenario, any perceived deficiencies in its risk management and governance framework, and any other information deemed relevant by the PRA.
UK banks must meet the Pillar 2A requirement with at least 56 per cent CET1 capital, while both the CRD IV combined buffer and the PRA buffer must be met exclusively with CET1 capital. In practice, UK banks therefore need to maintain a CET1 capital ratio significantly in excess of the minimum 4.5 per cent CET1 ratio.
Regulatory capital requirements apply to UK banks on a stand-alone (solo) basis and to their groups on a consolidated basis. The basic principle of consolidated supervision is that banking groups must hold an amount of capital, on a group-wide basis, that covers the risk-weighted assets and off-balance sheet liabilities of members of the group calculated on a consolidated basis, whether they are regulated or not. Under the CRR, consolidated supervision generally applies at the level of the ultimate parent undertaking incorporated in the EEA. Following the end of the implementation period, and subject to PRA transitional measures, it is anticipated that in the UK this consolidation will instead apply at the level of the ultimate UK holding company.
The PRA has in recent years developed an increased focus on banks' capital structures, and a growing aversion to any features that it perceives as complex or non-standard. Following amendments to the CRR under the Banking Reform Package, this has crystallised in the form of recent changes to the PRA's pre-issuance notification regime, which took effect on 1 April 2020 and are expected to lead to increased regulatory scrutiny of instruments intended to qualify as CET1 capital.
Under the CRR, a UK bank must maintain a liquidity buffer equal to at least 100 per cent of its anticipated net liquidity outflows over a 30-calendar-day stress period. This will be supplemented by a binding net stable funding ratio requirement to be introduced in the CRR by the Banking Reform Package from 28 June 2021. It remains unclear whether and on what terms the UK government will decide to apply this to UK banks.
Liquidity requirements apply on a solo and consolidated basis. The PRA can waive the application of the requirements on a solo basis, but is unlikely to do so other than in relation to (sub-)groups of institutions authorised in the UK. UK banks are, therefore, generally not able to rely on liquidity from non-UK subsidiaries to satisfy UK liquidity requirements.
The UK leverage ratio framework, which applies to UK banks and building societies that have retail deposits equal to or greater than £50 billion, includes a minimum leverage ratio requirement of 3.25 per cent, a countercyclical leverage ratio buffer set at 35 per cent of the firm's countercyclical buffer, and, for UK global systemically important banks (G-SIBs) and domestic systemically important banks, an institution-specific supplementary leverage ratio buffer.
The Banking Reform Package will introduce a binding CRR leverage ratio of 3 per cent of Tier 1 capital to unweighted assets and off-balance sheet exposures, together with a leverage ratio buffer for global systemically important institutions. It remains unclear whether and on what terms the UK government will decide to apply this to UK banks, or whether it will amend the existing UK leverage ratio framework accordingly.
v Recovery and resolution
The Bank of England is the UK's resolution authority. Its resolution powers are derived from the Banking Act, which first introduced the 'special resolution regime' for UK banks in the immediate aftermath of the financial crisis of 2007–2009, and has subsequently been updated to give effect to the resolution regime under the BRRD.
The special resolution regime enables the Bank of England to exercise five pre-insolvency stabilisation options (transfer to a private sector purchaser, bridge bank or asset management vehicle; bail-in; and transfer to temporary public sector ownership), and includes modified insolvency and administration procedures for insolvent banks. The Bank of England is also able to exercise various pre-resolution powers (by directing the removal of perceived impediments to resolution or the mandatory conversion or write-down of certain capital instruments, or both) without placing a bank in resolution.
Exercise of the stabilisation options is subject to strict conditions, and the Bank of England must also have regard to certain special resolution objectives in exercising its stabilisation powers. Each stabilisation option is also subject to additional specific controls to ensure it is used only where the relevant authority considers it necessary having regard to relevant circumstances, such as the public interest in the stability of the UK financial system.
Bail-in has been a feature of the UK special resolution regime since 2015, when it was introduced by the Banking Reform Act (which implemented the bail-in provisions of the BRRD). Broadly speaking, the bail-in tool enables the Bank of England, during the stabilisation period of a failing bank, to impose losses on shareholders and, subject to limited exceptions, unsecured creditors of a bank by writing down liabilities or converting them to equity.
As the UK resolution authority under the BRRD, the Bank of England is also required to set minimum requirements for own funds and eligible liabilities (MREL) for UK banks, building societies and investment firms within the scope of the BRRD. MREL supports the bail-in tool and is intended to ensure that firms within the scope of the BRRD have sufficient own funds and eligible liabilities to facilitate the effective application of bail-in on resolution. Interim MREL requirements have applied to G-SIBs since 1 January 2019 and to all UK banks since 1 January 2020, and the Bank of England has committed to setting end-state MRELs (which will apply from 1 January 2022) before the end of 2020.
Since 27 June 2019, UK G-SIBs and material subsidiaries of non-EU G-SIBs have also been subject to a binding MREL requirement under the CRR, which implements the Financial Stability Board's total loss-absorbing capacity standard. The Bank of England has not yet updated its supervisory material on MREL to take account of this change, but expects affected banks to read it in compliance with the CRR requirements until it does.
Different requirements apply in relation to externally issued MREL (which is issued by resolution entities (i.e., the entity or entities in respect of which a group's preferred resolution strategy envisages that resolution action would be taken)) and internally issued (intra-group) MREL (which is issued by legal entities within a group that are not themselves resolution entities). The Bank of England generally expects to set internal MREL requirements as equal to an institution's capital requirements for those institutions that are not material in a group context. Material subsidiaries, however, are subject to an internal MREL requirement that is calibrated at 75 to 90 per cent of the external MREL requirement that would apply to that entity if it were itself a UK resolution entity. For material subsidiaries of non-EU G-SIBs (i.e., those firms or subgroups subject to an MREL requirement under the CRR), this scalar is set by the CRR at 90 per cent of the equivalent external MREL requirement.
MREL requirements can be met with compliant capital instruments or 'eligible liabilities', broadly, liabilities that are senior to capital instruments but subordinated to specified operating liabilities and meet certain other eligibility criteria set out in the Banking Act, subordinate legislation and supervisory material published by the Bank of England. In the case of eligible liabilities intended to qualify as internal MREL, those criteria include the inclusion of contractual triggers allowing the Bank of England to write-down or convert to CET1 the principal amount of such liabilities if capital instruments of the issuer have been written down or converted pursuant to any statutory or regulatory power relating to the financial condition of the issuer (the issuer viability trigger) or its resolution entity is subject to resolution proceedings in the UK or elsewhere (the group viability trigger). The Bank of England also expects non-CET1 capital instruments to include a group viability trigger, but not an issuer viability trigger.
A number of UK banking groups have issued senior non-preferred debt instruments that are intended to qualify as eligible liabilities, leading to the gradual emergence of a market for such instruments in the UK.
The Banking Reform Package introduced a number of changes to the BRRD, which must be transposed by 28 December 2020. Under the terms of the Withdrawal Agreement (as defined in Section VII.i), the UK will be required to implement these changes in domestic legislation, notwithstanding its withdrawal from the EU on 31 January 2020.
Conduct of business
The FCA is responsible for the supervision and regulation of the conduct of business of banks in the United Kingdom. There are certain overarching legal and regulatory principles that UK banks must consider in the conduct of their business, such as the FCA's Principles for Businesses, which include a principle that firms must treat their customers fairly (the TCF principle). The TCF principle applies to services provided to retail and professional clients, although it is recognised that these client types require different levels of protection. The principle extends beyond the direct treatment of those customers to all the activities of regulated firms that affect customer outcomes.
UK banks should also be aware that consumer protection legislation will render certain unfair or unreasonable terms in consumer and certain other contracts void or unenforceable. FCA rules also contain restrictions that effectively prevent regulated firms from seeking to exclude or restrict, or to rely on any exclusion or restriction of, certain duties and liabilities that they may otherwise have to customers under the UK regulatory regime.
Further, the FCA's Banking Conduct of Business Sourcebook contains a set of reasonably high-level FCA rules that apply in relation to deposit-taking activities, and relate to matters such as communications with customers, financial promotions, post-sale requirements and cancellation rights in relation to banking products.
The Financial Ombudsman Service operates an independent alternative dispute resolution service for certain customers of PRA and FCA authorised firms.
i Mortgage regulation
The Mortgage and Home Finance Conduct of Business Sourcebook (MCOB) contains FCA rules in respect of activities associated with regulated mortgage contracts. These rules apply to banks and other entities that carry on regulated activities associated with mortgages, including entering into regulated mortgage contracts as lender, and administering, arranging and advising on such contracts. A regulated mortgage contract is, broadly, a loan secured by a mortgage on land in the EEA where at least 40 per cent of that land is used, or intended to be used, as or in connection with a dwelling by the borrower where the borrower is an individual or a trustee. Since March 2016, this has included second charge mortgages and certain buy-to-let mortgages. The lenders of consumer buy-to-let mortgages have also been subject to a separate registration and conduct regime since that date.
MCOB sets out regulatory requirements relating to (among other things) advising and selling standards, disclosure obligations (both at the pre-application and offer stages of the negotiation of a regulated mortgage contract), arrears and repossessions, and equity release products.
ii Consumer credit
The FCA has been responsible for the regulation of consumer credit activities since 1 April 2014, when it assumed this role from the (now defunct) Office of Fair Trading. The regulatory framework is complex, and is split between requirements under the Consumer Credit Act 1974 (as amended) (CCA), secondary legislation made under the CCA and the FSMA, and the FCA's own consumer credit rules. As a result of the transfer of regulatory responsibility to the FCA, activities that were regulated under the CCA (which include consumer lending, credit broking and debt collection) are now regulated activities under the FSMA. Firms carrying out consumer credit activities are subject to various parts of the FCA Handbook (including the FCA's Principles for Businesses and its Consumer Credit Sourcebook).
iii Investment business
Investment business, in this context, includes activities such as dealing in investments (whether as principal or as agent), managing investments and providing investment advice. If a bank, or another entity within its group, intends to carry on these regulated activities in the UK, it must be appropriately authorised by the PRA or FCA (as applicable). These activities are subject to their own detailed conduct of business rules, including the rules in the FCA's Conduct of Business Sourcebook and its Principles for Businesses.
The provision of various investment services and activities in relation to certain financial instruments also falls under the ambit of the Markets in Financial Instruments Directive II (MiFID II),5 which came into force on 3 January 2018. The MiFID II regime has been implemented in the United Kingdom through various pieces of legislation and rules of the PRA and FCA. The regime imposes various additional organisational and conduct of business requirements on investment firms (for more information about MiFID II, see the European Union chapter).
iv Payment services
The Payment Services Regulations 2017 (as amended) (PSRs), which implement the revised Payment Services Directive (PSD2),6 set out an authorisation and prudential supervisory regime for payment service providers that are not banks, building societies or e-money issuers (each of which are required to be authorised under separate legislation); these businesses are known as authorised payment institutions. The FCA is the competent authority for the conduct of business aspects of the PSRs in relation to all payment service providers (including banks), and for the prudential aspects of the PSRs in relation to authorised payment institutions.
UK banks raise funding from a number of different sources. In addition to deposits, interbank lending and wholesale funding, receipts from securitisations are gradually becoming more important as the securitisation market continues to recover. The Bank of England also makes available certain liquidity facilities to UK banks, in particular through its discount window facilities and open market operations.
The ability of UK banks to rely on sources of funding from within their group to meet liquidity requirements is limited under the PRA's rules, as noted in Section III.
Control of banks and transfers of banking business
i Control regime
Outline of the regime
Any person who decides to acquire or increase 'control' of a UK-authorised person must first obtain the approval of the appropriate regulator (which is broadly the PRA in relation to control over UK banks and insurance companies, and the FCA in relation to control over other, FCA-authorised, firms).
The term 'control' is broadly defined, such that a person (A) will have control over a UK bank (B) for the purposes of the regime if A holds 10 per cent or more of the shares or voting power in B or a parent undertaking (P) of B, or holds shares or voting power in B or P as a result of which A is able to exercise significant influence over the management of B. Voting power held by a controlled undertaking of A (i.e., broadly, an undertaking in respect of which A exercises majority voting control) is also attributed to A.
A will be treated as increasing its control over B, and requiring further approval from the PRA (or the FCA, as appropriate) if the level of shareholding or voting power in B or P, as the case may be, increases through any threshold step. In addition to 10 per cent, threshold steps occur at 20, 30 and 50 per cent, and upon becoming a parent undertaking.
A controller's (or proposed controller's) shareholdings or voting power are aggregated with those of any person with whom it is acting in concert. There is no statutory definition of acting in concert for these purposes, although both the Joint European Supervisory Authorities (ESAs) and the United Kingdom have issued guidance indicating, broadly, that persons will be acting in concert when each of them decides to exercise his or her rights linked to shares acquired in accordance with an explicit or implicit agreement made between them.
It should be noted that, unlike many EEA regulators, the PRA and FCA do not apply the provisions of the ESAs 'Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector' relating to the identification of indirect qualifying holdings. As a result, a person may be identified as holding a qualifying holding in an EEA institution without also being a controller of UK-authorised entities within the same structure.
The approval process
The PRA is required to consult the FCA before finalising its determination in respect of an application for approval of a change of control, and the FCA is permitted to make representations to the PRA in respect of certain matters prescribed by the FSMA.
The PRA has an assessment period of 60 working days to make its determination, commencing on the date on which it acknowledges receipt of a complete change in control application. The PRA may, no later than the 50th working day of the assessment period, request further information to complete its assessment, and can interrupt the assessment period once for up to 20 working days while this information is provided (30 working days if the notice-giver is situated or regulated outside the EEA, or is not subject to supervision under certain EU financial services directives). The process can be completed well within the maximum time allowed, but it can never be assumed that this will be possible.
The PRA has published standard forms (available on its website) that must be used to apply for change in control approval. If a proposed controller proposes to become a parent undertaking of a UK bank, it must also prepare and submit a business plan that includes a strategic development plan, estimated financial statements and information about the anticipated impact of the acquisition on the corporate governance and organisational structure of the UK bank (and any other UK regulated firms) subject to the change in control. The PRA attaches great importance to the business plan in its assessment of a change in control application.
In assessing a change in control application, the PRA must take into account the suitability of the acquirer and the financial soundness of the acquisition to ensure the sound and prudent management of the UK bank. The PRA may object to an acquisition of a bank only if there are reasonable grounds for doing so on the basis of prescribed assessment criteria or if the information provided by the applicant is incomplete.
The PRA may impose conditions on its approval where it would otherwise object to the acquisition, but may not impose conditions requiring a particular level of holding to be acquired. The FCA can, where it has reasonable grounds to suspect financial crime, direct the PRA to object to an acquisition of control, or not to approve an application for the acquisition of control unless it does so subject to conditions that the FCA specified.
Acquiring or increasing control in a UK authorised person without prior approval from the appropriate regulator is a criminal offence, and may result in the acquirer's shareholding rights being restricted or a court ordering the sale of the shares.
An existing controller of a UK-authorised person that decides to reduce its control over that person is required to give notice of that intention to the appropriate regulator (although no formal consent is required for such a reduction).
Every UK bank is also required to take reasonable steps to keep itself informed about the identity of its controllers, and to notify the PRA as soon as it becomes aware that any person has decided to acquire, increase or reduce control of the bank.
It is important to note that the control regime described above also applies with respect to intra-group reorganisations in banking groups where there are intra-group changes in control of UK banks.
ii Transfers of banking business
It is possible to transfer banking business in the United Kingdom by way of a court-sanctioned banking business transfer scheme under Part VII of the FSMA (referred to as a Part VII transfer). This does not, however, prevent the use of other mechanisms for the transfer or assumption of assets and liabilities relating to banking businesses by other means, such as assignments or novations.
A Part VII transfer is, broadly speaking, a scheme whereby the whole or part of the business carried on by a UK bank is transferred to another entity and where the whole or part of the transferred business includes deposits. Deposit-taking must form an integral part of the business to be transferred under a banking business transfer scheme, but need not be the sole or predominant business carried on.
A Part VII transfer takes effect without the consent of the depositors or other counterparties, although any person who alleges that he or she would be adversely affected by the carrying out of the scheme may be heard in the court proceedings required to sanction the scheme. The court may require assurance that those persons have been fairly treated. Both the PRA and the FCA are entitled to be heard in the proceedings and typically participate in them by counsel.
FSMA also provides for a modified version of the banking business transfer scheme specifically for ring-fencing purposes, referred to as a ring-fencing transfer scheme (RFTS). A number of UK banking groups subject to ring-fencing requirements (see Section III.iii) used RFTS to effect the internal reorganisations necessary to comply with those requirements from 1 January 2019.
This, combined with a number of Part VII transfers made in anticipation of Brexit, has placed considerable pressure on the capacity of the regulators and the courts in recent years, which has in turn caused delays to the overall Part VII process. Jurisprudence in this area also continues to evolve, largely as a function of the number of Part VII transfers (and equivalent processes in the insurance sector) effected in response to Brexit, and it remains to be seen how this might affect future Part VII transfers pursued for entirely commercial reasons.
The year in review
Until very recently, it seemed clear that Brexit was the most significant event to have occurred for UK banks since the financial crisis of 2007–2009. While the UK has now withdrawn from the EU, for the time being little has changed; the UK remains in an implementation period until at least the end of 2020, and most of the rights and obligations arising from its former membership of the EU will continue to apply during that time. In the meantime, the developing covid-19 pandemic would appear to pose a more acute challenge to the UK banking sector, and may yet prove to be more significant than the 2007–2009 financial crisis.
Beyond these more unusual challenges, the key issues facing UK banks will be familiar to any seasoned observer of the sector: the mis-selling of payment protection insurance (PPI), the transition from the London Interbank Offered Rate (LIBOR), the phasing in of MREL requirements, operational resilience, and an increased emphasis on individual responsibility have all continued to be key areas of focus during the past year.
The remainder of this section sets out details of these developments, and other recent developments relevant to the sector, in more detail.
Nearly four years after the 2016 referendum in which the UK electorate voted to leave the European Union, the UK formally withdrew from the EU on 31 January 2020. This is subject to an implementation period that is expected to last until at least 31 December 2020, and during which the UK will continue to be required to apply EU law. Recent developments in this area are discussed in more detail below.
Political and legislative developments
Prior to 31 January 2020, the European Communities Act 1972 (as amended) (ECA): (1) required the UK to implement the requirements of EU directives in domestic law; and (2) provided for EU regulations and other directly applicable EU law to apply in UK domestic law without the need for further implementing measures.
The European Union (Withdrawal) Act 2018 (as amended) (the Withdrawal Act) repealed the ECA with effect from 31 January 2020. This is subject to an implementation period agreed between the UK and EU27 under the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (the implementation period and Withdrawal Agreement, respectively) and implemented in domestic law by the European Union (Withdrawal Agreement) Act 2020 (WAA).
The WAA preserves the effects of the ECA until the end of the implementation period (IP completion day), during which the supremacy of EU law continues and the UK continues to be required to implement and apply EU legislation. The Withdrawal Agreement and WAA provide for an implementation period until 31 December 2020. This can be extended by agreement between the UK and the EU, and while UK government ministers are prohibited by the WAA from agreeing to such an extension, the UK government is facing increasing calls to request an extension in response to the covid-19 pandemic.
During the implementation period, most of the benefits of EU membership continue to apply to the UK, and UK financial services firms can (for example) continue to carry on business in the EU in reliance on existing passporting rights (discussed further below).
From IP completion day, the Withdrawal Act will:
- preserve UK domestic legislation that has implemented non-directly applicable EU law (such as EU directives);
- convert directly applicable legislation (such as EU regulations, decisions and certain tertiary legislation) into UK domestic legislation; and
- preserve as UK domestic law any EU rights (such as directly effective EU treaty rights) that are not otherwise captured by the provisions referred to in points (a) or (b).
The Withdrawal Act also gives HM Treasury the power to remedy (by subordinate legislation) deficiencies in retained EU law arising from its domestication under the Act. HM Treasury has exercised this power in numerous statutory instruments that will come into force on IP completion day.
Following IP completion day, the UK government may decide to amend or disapply retained EU law. At the time of writing, it appears unlikely that the UK government will pursue any strategy of regulatory alignment with the EU, but the extent of any changes that may be introduced to the body of retained EU legislation remains unclear.
One significant area of uncertainty arises in relation to 'in-flight' EU legislation (i.e., legislative proposals that have not yet been enacted or those parts of EU legislation that have been adopted but are yet to come into effect (and would not, in either case, be enacted or come into effect before IP completion day)). Legislation proposed in the last session of Parliament would have given HM Treasury the power to adopt subordinate legislation to give effect to such measures, but this has not (as yet) been carried forward into the current parliamentary session.
As part of the Queen's Speech in October 2019, the UK government announced plans for a Financial Services Bill (the FS Bill), which it proposes to use to implement Basel standards in the UK independently of the CRD IV framework. Following the March 2020 Budget, HM Treasury published a policy statement confirming this, and implying that the UK government would not implement those parts of the Banking Reform Package that come into force after IP completion day. The policy statement also confirmed HM Treasury's intention to implement a revised prudential framework for investment firms, suggesting that this would be achieved independently through the FS Bill, and not by the adoption of the EU's Investment Firm Regulation and Directive,7 which do not take effect until after IP completion day.
Changes to regulatory rules and guidance
Subordinate legislation made under the Withdrawal Act gives the PRA, the FCA and the Bank of England (among other UK regulators) the power to make instruments (which must be approved by HM Treasury) correcting deficiencies in domesticated EU implementing technical standards and regulatory technical standards. The PRA and the FCA have also made or proposed a number of changes to their rules and guidance to reflect the UK's withdrawal from the EU and the legislative changes referred to above.
The Bank of England, the PRA and the FCA have also clarified that guidance issued by the ESAs before 31 January 2020 will continue to be relevant after that date unless the relevant regulator had, prior to that date, already notified the relevant ESA that it did not intend to comply with that guidance. This clarification has not been updated to reflect the conclusion of the Withdrawal Agreement or passing of the WAA, but it is reasonable to assume that UK firms will be expected to continue to apply ESA guidance both during the implementation period and immediately afterwards. The UK regulators, for their part, will continue to have regard to ESA materials as appropriate.
At present, UK banks and other financial services firms can carry on business in the EEA on a cross-border basis in reliance on passporting rights. EEA firms benefit from the same rights when carrying on business in the UK.
This is expected to end on IP completion day, such that UK firms active in the EEA will need to apply for authorisation in the relevant jurisdiction(s) or conduct business through a separately authorised EEA entity. A number of UK banking groups have engaged in significant internal reorganisations in recent years to ensure that they can continue to do business in the EEA notwithstanding these restrictions.
EEA firms (including EEA-authorised banks) active in the UK are expected to be able to benefit from a temporary permissions regime adopted by the PRA and FCA (TPR). The TPR will permit EEA firms that currently rely on passporting rights to carry on business in the UK to continue doing so for a period of up to three years following IP completion day, pending their authorisation under the FSMA. There is no EEA-wide equivalent for UK firms currently carrying on business in the EEA, although some jurisdictions have introduced their own domestic transitional measures.
The medium- to long-term impacts of the covid-19 pandemic on the UK banking sector will not be known for some time. In the short term, the pandemic has created challenging market conditions for UK banks, with the collapse of asset prices and increased volatility affecting their trading operations, while the threat of a broader recession is likely to affect retail and corporate banking activities.
The Bank of England has adopted robust macroprudential and monetary policy measures in response to the pandemic, cutting the CCyB to zero, cutting the Bank of England base rate to 0.1 per cent and launching a new term funding scheme to encourage lending, in particular to small and medium-sized enterprises. The Bank of England and HM Treasury have also announced a joint Covid Corporate Financing Facility, which aims to provide further funding direct to businesses by purchasing commercial paper issued by certain firms deemed to be making a material contribution to the UK economy.
The PRA, for its part, has cancelled its 2020 annual stress test and postponed the publication of the 2019 biennial exploratory scenario on liquidity to alleviate pressure on UK banks' core treasury staff. It has also published a statement making clear its expectation that firms subject to its supervision (including UK banks) do not increase dividends, other distributions or bonus payments in response to the cut to the CCyB and has reminded firms that the purpose of the PRA buffer and CRD IV buffer is to provide an additional layer of capital above minimum requirements that can be drawn down. The PRA's announcement on this makes clear that UK banks can use such buffers to continue to support the real economy during periods of stress, and a joint statement subsequently published by the Bank of England and the chairs of seven major UK banking groups proclaims that the UK's banks are in a strong position to provide further support to the economy and are ready and willing to do so.
Measures taken by the FCA in response to the pandemic focus primarily on consumer protection and the proper functioning of UK markets. These measures include guidance setting out the FCA's expectation that mortgage lenders offer payment holidays to borrowers who may experience difficulties as a result of covid-19, relaxed requirements for affordability assessments relating to borrowers participating in the UK government's Coronavirus Business Interruption Loan Scheme, the temporary restriction of short-selling in a number of financial instruments and revised expectations around transaction reporting for those working from home.
While the policy measures adopted by the UK government, Bank of England and the UK's regulators should help to alleviate some of the pressure on UK banks arising as a result of the covid-19 pandemic, they are predicated on the expectation that the UK banking sector will continue to support businesses and individuals throughout the crisis. Inevitably, therefore, the UK banking sector will bear its share of the burden imposed on the UK economy by the pandemic.
iii Regulatory change
Brexit aside, the past 12 months have seen fewer large-scale regulatory change projects in the UK than has been the case in recent years. There are still, however, a number of recent and future legislative and regulatory changes that continue to consume significant regulatory resources.
In particular, UK banking groups continue to grapple with issues relating to the transition from LIBOR. Following a number of reforms to LIBOR, the FCA announced in 2017 that it would no longer compel banks to submit rates to enable its calculation from the end of 2021. Sterling LIBOR will ultimately be replaced by the Sterling Overnight Index Average, a benchmark administered by the Bank of England. Non-sterling LIBORs will also be replaced by similar risk-free rates.
The PRA and FCA have for a number of years urged UK-authorised firms to proceed on the basis that LIBOR will be discontinued from the end of 2021, but UK banks' preparations for the transition from LIBOR have become a key area of regulatory focus as that deadline approaches. In January 2020, the FCA and PRA sent a joint letter to the senior managers of UK banks and insurers, which indicated that they should, among other things, stop issuing cash products linked to sterling LIBOR by the third quarter of 2020 and aim to significantly reduce the stock of LIBOR referencing contracts they hold by the first quarter of 2021. More recently, the Bank of England announced in February 2020 that it would increase haircuts on LIBOR-linked collateral that it lends against, imposing 100 per cent haircuts at the end of 2021, and that it would not accept any LIBOR-linked collateral issued after October 2020. This regulatory pressure, combined with the significant practical challenges of transitioning from LIBOR, is likely to ensure that LIBOR reform will continue to preoccupy UK banking groups and their senior managers in 2020 and beyond.
At an EU level, the introduction of the Banking Reform Package prompted a number of UK banks and their groups to reassess aspects of their group and funding structure prior to the introduction of a specific CRR MREL requirement for EU G-SIBs and material subsidiaries of non-EU G-SIBs on 27 June 2019. The majority of the amendments made to the CRR by the Banking Reform Package will not come into force until 28 June 2021 and, as discussed in more detail in Section VII.i, may not be adopted, or may be adopted in a different form, by the UK. The majority of changes made to the Capital Requirements Directive and BRRD by the Banking Reform Package will, however, need to be implemented under the terms of the Withdrawal Agreement. This may leave the UK with an incomplete, and potentially incoherent, implementation of the package.
HM Treasury also continues to consider changes to the UK regulatory framework through its ongoing Future Regulatory Framework Review, which was announced in 2019 and is expected to feed into legislative proposals in 2020. The stated aim of this review is to use the perceived opportunity that Brexit presents to develop a more coherent, agile regime that is better equipped to meet the specific regulatory needs of UK firms, markets and consumers. While the review is unlikely to result in any immediate changes to the regulatory requirements affecting UK banks, its key proposals (which include handing more rule-making powers to the PRA and FCA) may eventually result in broader changes to the regulatory environment in which they operate.
iv Conduct issues
The ongoing controversy surrounding the mis-selling of PPI by banks and other financial institutions came to some sense of an ending in 2019, although banks and other financial institutions continue to face liabilities relating to PPI complaints. In March 2017, the FCA imposed a deadline of 29 August 2019 for consumers to make complaints relating to PPI products sold before August 2017, and began a communications campaign to inform consumers of this deadline. This led to a short-term increase in the volume of PPI-related complaints to UK banks, and UK banks continue to make significant provisions to account for PPI mis-selling claims. The passing of the August 2019 deadline means that 2020 is, however, likely to be the last year in which UK banks make significant PPI redress payments.
No doubt informed by PPI mis-selling and other previous scandals, the UK government and FCA have both considered the introduction of a duty of care that authorised firms would owe to consumers under the FSMA. This crystallised with the introduction of a private members bill (the Financial Services (Duty of Care) Bill) in October 2019 that would empower the FCA to introduce such a duty of care. That Bill fell with the dissolution of Parliament in November 2019, but has subsequently been reintroduced in the House of Lords. This remains a controversial subject, with little industry support, but the apparent political desire to introduce a formal duty of care means that UK banks may soon be subject to an additional overriding duty of this nature.
v Climate change
Climate change, and the financial sector's response to it, has become a central concern of UK legislators and regulators in recent years. In July 2019, the UK government published its Green Finance Strategy, which set out the government's proposals to ensure that, among other things, climate-related risks are integrated into mainstream financial decision-making.
The PRA and FCA, together with the Financial Reporting Council and the Pensions Regulator, published a joint declaration on climate change on the same day as the Green Finance Strategy, advising firms to consider the consequence of climate change on their business decisions. The PRA has separately published a supervisory statement setting out its expectations for how banks address the financial risks from climate change.
At a macroprudential level, the Bank of England proposes to use its 2021 Biennial Exploratory Scenario to explore the financial risks posed by climate change, and the resilience of the largest UK banks to those risks. These supervisory and legislative actions, together with the broader political environment, mean that banks can no longer treat issues relating to climate change as an afterthought, and will increasingly have to place them at the centre of business and risk decisions.
UK banks, and UK retail banks in particular, remain under considerable pressure to innovate in their provision of services to customers. This has arisen as a result of both regulatory initiatives and market dynamics.
The opportunities presented by PSD2 and the CMA's Open Banking standard have spurred innovation in the sector, with a raft of new firms emerging to take advantage of the opportunities that these initiatives have created. While consumer uptake has perhaps been less widespread than some might have predicted, UK banks are nevertheless having to adapt to an increasingly innovative and agile marketplace, and to customers who are increasingly engaged with their personal finances.
Alongside a growing number of challenger banks and innovative financial technology companies, the introduction of retail banking offerings by established global players such as Goldman Sachs and JP Morgan is likely to increase competition, and drive innovation, in the sector.
For their part, the FCA and the PRA continue to be enthusiastic about the potential for innovation in the sector. The FCA, in particular, has recognised the benefit of new technologies in overcoming regulatory challenges in financial services. Its 'regulatory sandbox', which allows firms to test innovative products and services in a controlled environment, remains the most advanced programme of its kind in the EU, if not globally, and accepted its fifth cohort of businesses in April 2019. The New Bank Start-up Unit, a joint initiative of the PRA and FCA, has had perhaps more modest success, with only two new banks gaining licences in 2019.
Outlook and conclusions
The UK's banking sector is perhaps now facing its most significant challenge since the financial crisis of 2007–2009. The period of near constant regulatory change that followed that crisis, together with the many uncertainties created by Brexit, may have contributed to a challenging business and regulatory environment in recent years, but the developing covid-19 pandemic represents a far more acute challenge to the sector than either of these developments.
While the UK government, regulators and Bank of England have been quick to respond to the outbreak with a variety of fiscal, macroprudential and monetary policy measures and regulatory initiatives, the medium- to long-term effects of the covid-19 pandemic on the sector will not be known for some time.
Against this backdrop, the challenges posed by Brexit might seem more prosaic, perhaps even comfortingly familiar. Brexit will likely remain, however, a significant long-term issue facing UK banks in the years ahead. While most UK banking groups with operations in the EU have already implemented contingency planning arrangements based on worst-case assumptions, a degree of business and market interruption is still inevitable when the implementation period ends. This applies regardless of any trade agreement that is ultimately struck between the UK and EU. Whether there will be a place for UK financial services in that agreement also remains unclear, as does the manner in which and the extent to which the UK may subsequently choose to diverge from the EU regulatory framework.
Against this backdrop it is perhaps unsurprising that there has been relatively limited M&A activity in the sector in the UK in recent years. On the other hand, the relative weakness of sterling (against historic levels), combined with high levels of innovation in the UK financial technology sector may prompt a greater volume of acquisitions and strategic investments from overseas once broader economic conditions have settled.
In the meantime, UK banks and their groups will doubtless still be occupied with perennial issues such as remuneration, the alleged mis-selling of financial products and the sector's response to climate change. In contrast to the many areas of uncertainty, that, at least, seems certain.
1 Jan Putnis and Nick Bonsall are partners and David Shone is an associate at Slaughter and May.
2 As at 20 March 2020. The names stated here are the listed holding companies of the banking groups concerned. Royal Bank of Scotland Group plc has announced its intention to change its name to NatWest Group plc during the course of 2020.
3 Comprising Regulation (EU) No. 575/2013 (the Capital Requirements Regulation), Directive 2013/36/EU (the Capital Requirements Directive) and relevant implementing measures.
4 Directive 2014/59/EU (as amended).
5 Comprising Directive 2014/65/EU, Regulation (EU) No. 600/2014 and other implementing measures.
6 Directive (EU) 2015/2366.
7 Regulation (EU) 2019/2033 and Directive (EU) 2019/2034.