Late last year the FSC welcomed Jonathan Herbst, Global Head of Financial Services Regulation at Norton Rose Fulbright LLP, to present to members on Global Perspectives on Regulatory Themes.

Following the informative session, we spoke to Jonathan and asked him to outline his Top 3 most important global trends to pay attention to in 2020.

1. Individual accountability revolution

Partly a political response to the global financial crisis but also appearing in regions where the crisis passed it by. Originally led to reforms for banks but, in the UK at least, being extended to non-banks.

Since the global financial crisis in 2008, individual accountability (IA) regimes have started to appear in some shape or form in jurisdictions that were not as significantly impacted by the crisis, e.g. across APAC.

It has become an accepted international regulatory theory that vulnerability from poor misconduct may be of such a scale in a financial institution that it has the level to potentially create systemic risk and undermine trust in financial institutions and markets.

Individual accountability regimes are not the only piece of the puzzle when dealing with senior misconduct though – dealing with incentives to align with desired behaviour is also important.

Moving forward, a tone from the top is important, with heightened emphasis on senior individuals and their conduct. Firms must exercise judgement and  pro-actively report misconduct or rule breaches.

So what is desirable in the IA space?

  • Clearer responsibilities;
  • Ownership of risks in a given area;
  • Duty/presumption of responsibility;
  • Greater difficulty in ‘deflecting’ blame; and
  • Higher number of individuals held to account.


2. The behavioural philosophy and its impact on regulation

The end of the rational person? - Asymmetric information and lack of rationality in decision making: Retailisation of regulation impacting the three themes: (i) Internationalisation of standards (FSB, ISOCO etc) verses localisation of regulation; (ii) technology generally; and (ii) acceptance that it is not just the banks that impact financial stability but the buy and sell-side too and moving to higher prudential standards

There will be a large spotlight on advice and a focus on transparency of costs and charges disclosure. With regards to the Product Governance theme the outlook includes:

  • Moving on from a disclosure-based regime; and
  • Attempts to reduce the likelihood of consumers taking ‘bad deals’ – even where adequate information has been provided.
  • Product governance moving away from the pure “advised” vs “non-advised” distinction
  • Greater need to account for market segmentation;
  • Increased volumes of non-advised products;
  • Target Market Analysis is a key theme;
  • This concept is different to suitability (i.e. it is not just about the situation of a single investor); and
  • Is this a slippery slope of intervention.

What is Product Intervention’s role? Will we see a backlash to the general professional/retail continuum? What about a move to outcomes based regulation? Is the pendulum beginning to swing?

Jonathan outlined the Financial Conduct Authority’s (UK) approach to this issue as an interesting one, which reflects the growing industry clamour against current regulatory trends:

  • The first wave of post-crisis regulation is done. Firms are better capitalised and the personal responsibility of their leaders is more embedded;
  • There is a change in consumer need and attitude. Long-term low interest rates mean the search for return is stronger, just as the tolerance for loss lessens;
  • The financial system is safer. Consumer credit is better controlled. And conduct, culture and customer outcomes are increasingly recognised and understood around Boardrooms; and
  • We are moving from a narrower compliance with the rules, to a focus on delivering the outcomes we want for the users of financial services.


3. The challenge of new products and technology

Enhanced need to protect data. The new world of technology, products like crypto-assets presenting problems as to where they sit in the existing regulatory architecture.

From the need to protect data, to consent under the GDPR and the tension between GDPR and Blockchain, there are future challenges and developments still to be realised. Movements in the Exchange Traded Funds (ETF) eco-system as well as the impact of new products and players will mean more regulatory tension is to come.

New entrants to the financial services space including FinTech firms and large technology companies could alter the universe of financial services providers. Greater competition and diversity can lead to a more efficient and resilient financial system and offer greater choice for consumers.

But even with a growing number of fintech related international principles and standards, the application of them at the national level remains uneven and inconsistent. Also, the problem of regulatory requirements keeping pace with technological advances is proving ever challenging.

The regulatory response is taking many forms including changes to the regulatory perimeter, setting rules or guidelines that focus on ensuing that boards have enough awareness and understanding of fintech applications being used by the firm so that the risks can be managed effectively.


Jonathan Herbst is the Global Head of Financial Services Regulation at Norton Rose Fulbright LLP.

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