Back to School briefing 2023

A busy summer, especially for UK banks, with the FCA demonstrating how it will operate under the new Consumer Duty.

This year, we have combined two of our annual publications – the Interim Regulatory Outlook and the Back to School note. This document therefore serves a dual purpose: to provide the reader with an overview of developments over the summer months, and to look ahead to the remainder of the year.

Please click on the link at the end of this page to read the full back to school briefing.

Not withstanding five interest rate rises by both the BoE and the ECB in 2023, inflation remaining stubbornly above central banks’ targets and sluggish economic activity, credit quality has, so far, shown little sign of deterioration. But supervisors remain very vigilant – with the FCA, for example, publishing guidance on dealing with borrowers and insurance customers in financial difficulty, the UK Government updating the UK Mortgage Charter, and the ECB continuing to highlight that credit risks remain elevated in the eurozone.

By and large the predictions we made in our RO23 are playing out much as we expected. The one significant exception is in relation to banking, where we have seen three quite unexpected developments - one global and two specific to the UK.

The global issue is the banking market turmoil which began in March 2023 and saw the collapse of SVB and several smaller domestic banks, as well as the rescue merger of Credit Suisse by UBS. Although in some respects very different, these events shared some similarities, including very rapid liquidity outflows and underlying business model weaknesses. Even though the authorities involved did not use their resolution tools in the way that might have been expected, they were nevertheless able to limit contagion and restore confidence in the system quickly. Both the Basel Committee on Banking Supervision and the Financial Stability Board are undertaking “lessons learned” exercise. We do not detect much appetite for a significant rewrite of global standards. Instead, any significant regulatory responses will be more localised, in the US and in Switzerland. But we have seen increased supervisory vigilance across the board on liquidity risk and IRRBB.

The two UK issues are more recent and have dominated the summer months. The first relates to whether UK banks are passing on the benefit of interest rate increases to cash savers sufficiently quickly. The FCA published a review of the Cash Savings Market in 2023, and has asked firms offering the lowest rates to submit value assessments by the end of August. The way that the FCA has tackled this issue has given us an early insight on what we can expect the FCA’s approach to be under the Consumer Duty - it will aim to identify practices that may not be delivering good outcomes for customers quickly and pursue them through data requests, interventions and, where necessary, disciplinary action.

The second concerns the issue of “debanking” and whether UK banks are refusing to open or are closing the accounts of individuals or businesses because of expressions of political and/or other opinions and are thereby curtailing freedom of expression. The FCA has issued information requests on account closures and implementation of its 2017 guidance on Politically Exposed Persons – both of which are pre-cursors to near-term changes to the UK policy framework.