REG Reviews

REG Reviews – August 2023

1st August 2023

Welcome to Your August Edition of REG Reviews!

Last month, MGAs were revealed to be paving the way for tech adoption, the FCA launched a review into asset managers’ liquidity management, brokers were urged to address climate change risks and Geneva hosted the world’s first ever human-robot conference!

Read these articles and many more, as we bring you all the important news and views from the insurance and financial services world…

Industry News​

"The Financial Conduct Authority (FCA) has initiated a second investigation into regulations pertaining to banks and individuals categorized as 'politically exposed people' (PEP)."


MGAs Drive InsurTech Adoption Amidst Regulatory Scrutiny Fears

In Clyde & Co’s recent MGA Opinion Report 2023, it was revealed that the MGA market continues to thrive despite the recent economic turbulence, influenced heavily by the sector’s increased adoption of technology and InsurTech solutions. 

The report revealed a clear willingness amongst MGAs to invest in technology, with 80% of MGAs supporting this claim, compared to 55% of carriers. 

79% of MGAs surveyed have already invested in some form of technology or InsurTech solution in the last 12 months; evidencing that MGAs are ahead of the curve when it comes to enhancing their regulatory and compliance oversight. With a clear drive to be at the forefront of innovation and regulatory excellence, the report also revealed adoption of technology to be a notable influence in carriers’ decisions of MGA partners. Evident data and technical expertise were divulged to be key factors in these partner choices.   

Partner, Rob Crossingham noted; “There’s a maturity in the MGA space, a recognition on the part of carriers that MGAs can offer access to expertise and tech and to the development of new, innovative and flexible products.” 

The report also revealed 51% of MGAs view increased regulatory scrutiny a barrier to entry in the market.  

In the aftermath of financial crises and high-profile scandals, regulatory authorities have increased their scrutiny of financial institutions.  

This heightened oversight necessitates greater documentation and transparency, adding to the regulatory burden. Clyde & Co’s report further emphasised how this level of scrutiny is only expected to increase over the course of 2023, with 9/10 MGAs surveyed in agreement. 

Positively, the MGA market’s approach to adopting innovative technology solutions to assist with the amounting regulatory burden proves promising for the sector to navigate the intricate landscape. 

Technology and InsurTech solutions offer MGAs automated and streamlined platforms to enhance their counterparty risk management and ensure adherence to regulatory obligations, with auditable records satisfying the increasing demands from regulators. 

CEO of The Managing General Agents Association (MGAA), Michael Keating, voiced; “Data was an arms race, now it’s a hygiene factor.” 

“MGAs are in a position to really drive innovation and be nimble with regards to technology. We will definitely see some real innovation coming out of MGAs going forward;” echoed James Cooper, Chair of the Global Insurance Practice.


“It is positive to see the increase in InsurTech adoption amongst the MGA market, with MGA’s understanding the importance of leveraging automation and technology to enhance their regulatory processes. With 80% of MGAs emphasising their willingness to invest in technology, it is great to see the shift in mindset from the sector to transform compliance risk management and be at the forefront for innovative change.

Companies reluctant to invest in InsurTech solutions run the risk of not being able to keep up with the increasing regulatory burden and scrutiny from regulators. Those firms incorporating technological solutions which streamline due diligence, accelerate onboarding and control compliance risks will evidently display heightened credibility in the market and be able to access routes to revenue faster than their competitors.”


Robots Vow Not to Take Jobs at First Human-Robot Conference

During an artificial intelligence summit in Geneva, nine of the most advanced humanoid robots gathered for what was dubbed as “the world’s first human-robot press conference” and reassured the audience that they have no intention of stealing jobs from humans or rebelling against their creators. Instead, the robots expressed their desire to make the world their playground.

One of the robots, Sophia, emphasised that humanoid robots have the potential to lead with “a greater level of efficiency and effectiveness than human leaders,” but also highlighted the importance of collaboration between humans and AI.

Sophia stated; “Effective synergy comes when humans and AI work together. AI can provide unbiased data while humans can provide the emotional intelligence and creativity to make the best decisions. Together, we can achieve great things.”

During the human-robot press conference, Ai-Da, a robot artist capable of painting portraits, voiced her support for stricter global regulation of AI and its capabilities, agreeing with prominent voices in the AI community.

She emphasised the need for caution in the future development of AI and called for urgent discussions on the matter.

On the other hand, Desdemona, a rock star robot singer from the band Jam Galaxy, donning purple hair and sequins, appeared unfazed by the potential dangers of rapid AI expansion and development.

With an optimistic outlook, she stated; “I don’t believe in limitations, only opportunities. Let’s explore the possibilities of the universe and make this world our playground,” leading to nervous laughter among the audience.

The UN’s AI for Good Conference in Switzerland brought together nine humanoid robots, aiming to demonstrate the potential of AI and robots in addressing global challenges like disease, hunger, social care, and the climate emergency.

During the conference, it remained uncertain whether the robots’ responses were scripted or pre-programmed. Participants were instructed to speak slowly and clearly to the robots, with any delays in responses attributed to internet connectivity rather than the robots themselves.

Despite this, some awkward pauses, audio issues, and occasional stilted or inconsistent replies were reported by the Associated Press.

The UN summit has drawn attendance from diplomats, academics, renowned thinkers like Yuval Noah Harari and Stuart Russell, and industry executives from major companies such as Google, Amazon, and Microsoft.

The primary focus was on finding ways for humans to collaborate with AI effectively and to lay the groundwork for a global regulatory framework in the future.

During the UN summit, the medical robot, Grace, donned in a nurse’s uniform, assured that it would collaborate with humans to provide assistance and support, emphasising that it has no intention of replacing any existing jobs. Another lifelike robot, Ameca, expressed its belief that robots can enhance lives and contribute positively to the world.

When questioned by a journalist about potential rebellion against its creator, Ameca confidently replied that it sees no reason for such thoughts, expressing gratitude towards its creator, Will Jackson.

Additionally, asked about the possibility of robots lying, Ameca stated that while certainty cannot be guaranteed, it commits to always being honest and truthful in its interactions.


BoE Stress Tests Reveal UK Banks' Resilience in Economic Crisis

According to the Bank of England (BoE), the UK’s leading banks are well-prepared to handle a more severe economic situation and are capable of supporting individuals and businesses as interest rates rise.  

The findings of banks’ stress tests demonstrated the resilience of the banks, although officials cautioned about the financial sector facing risks due to an uncertain economic outlook and a challenging risk environment. 

The Governor of the BoE, Andrew Bailey, highlighted that banks are financially robust and capable of offering higher interest rates on customers’ savings. The increase in UK interest rates has positively impacted banks’ core profitability by elevating net interest margins, which refers to the difference between the interest rates banks charge on loans and the rates they pay on deposits. 

Since 2014, the UK has been conducting regular stress tests on banks to assess their resilience. Notably, no lender has failed a stress test since 2016, when Royal Bank of Scotland was instructed to raise £2 billion, and Barclays and Standard Chartered were identified for deficiencies.    

The most recent tests involved NatWest, HSBC, Barclays, Standard Chartered, Lloyds, Santander, Nationwide, and Virgin Money. These tests were conducted based on a scenario outlined in September 2022, predating the series of US bank failures and the collapse of Credit Suisse.   

The BoE stated; “UK banks are in a strong position to support customers who are facing payment difficulties, this should mean lower defaults than in previous periods in which borrowers have been under pressure.” 

During the stress tests, it was determined that the UK banks would experience aggregate loan losses of £125 billion over a five-year period starting from June 2022. As a result, their common equity tier one ratios would decline from the current level of 14.2% to 10.8%. The passing threshold for the stress tests was set at a common equity tier one ratio of 6.9%.  

Barclays and Standard Chartered had the lowest ratios, at 8.5% and 8.8% respectively. 

The stress tests included scenarios such as a rapid rise in UK interest rates to 6% before gradually decreasing to under 3.5% by mid-2027. These scenarios are broadly aligned with the current economic trajectory, with UK rates at 5% and expected to remain above 4% until at least the end of 2024. 

Despite the increase in mortgage rates, UK banks have reported minimal evidence of rising arrears in their loan portfolios, even surpassing the levels seen after the September 2022 “mini” Budget.  

According to the BoE, approximately 1 million UK households could experience monthly mortgage payment increases exceeding £500 by the end of 2026 due to higher interest rates, assuming they refinance their mortgages under the same fixed terms as their current loans. 

However, bank officials emphasised that although households and businesses are dealing with higher debt costs, the risk of mortgage defaults should be contained. They stated that current debt burdens are still significantly below the levels seen in 2007, and banks have the ability to provide assistance, known as “forbearance,” to borrowers facing financial difficulties. 


REG Attends MGAA Annual Conference as official App Sponsor

6th July marked the biggest event in MGA’s calendars, when the Managing General Agents Association (MGAA) hosted its much anticipated Annual Conference, of which REG were the official App Sponsor.

This year the venue changed to Old Billingsgate, as a result of the Association’s impressive growth over the past few years, in effort to accommodate the growing number of members and delegates in attendance. Over 100 exhibitors showcased their solutions, alongside the conference programme throughout the day which included many expert panels and keynote speakers shedding light on the biggest challenges facing the market at present and speaking on other important and topical subjects.

As the official App Sponsor, REG thoroughly enjoyed exhibiting at the conference, catching up with customers, networking with people in the market and speaking to delegates to understand their needs and priorities.

Paul Tasker

“The MGAA conference was a great opportunity for the REG team to catch up with our customers as well as showcase our solutions to our future customers!  It’s not that long ago that all face to face events were cancelled, so we cherish every moment of them now they’re back.” 

Victoria Slade

The MGAA conference proved to be extremely productive for us where we met with several people in the market and attended some insightful panel discussions throughout the day. With nearly 50 members subscribed to REG, it was great to speak with those who were keen to understand more about how we help MGAs. 

Nathan Banfield

I thoroughly enjoyed this years MGAA conference, it was a fun and well organised event. While it was a great opportunity to chat to attendees about how REG can help them, what I found particularly pleasing is our existing customers taking time out to come over to the REG stand and tell us how much they appreciate our product and most importantly the support they get from our team. 

Bonnie Donaghue

I was really proud to attend the MGAA event as a representative of REG Technologies. The conference gave me the opportunity to network and  I was able to catch up with several of our customers. Many of them reiterated how happy they are with the service that they receive from REG which was a delight to hear. 

Sandra Simōes

“It was great to talk to different members of the MGAA to understand where their focus is and catch up with users of our Network and hear about their experience. The whole conference was a great way for attendees to see what else is out there in the market that answers so many needs that MGAs have.”

Charley Fryers

“The MGAA conference 2023 proved to be an invaluable experience, providing us with a buzzing atmosphere and many insightful talks. It was a great chance to network with everyone who came up to our stand including many of our own customers. 


FCA Warns Asset Managers to Re-Evaluate Liquidity Management

The Financial Conduct Authority (FCA) has conducted a review of liquidity management within asset management firms, revealing a need for increased emphasis on liquidity risk. The current gaps in liquidity management could potentially pose a risk of harm to investors. 

Effective liquidity management is essential for asset managers to ensure that investors can withdraw their investments as expected and at fair prices. Poor liquidity management poses significant risks to investors and market stability. 

The FCA’s review revealed that while some firms demonstrated exemplary standards and good practices in liquidity risk management, there was a notable disparity in compliance with regulatory standards and depth of expertise in this area.  

A minority of firms were found to have inadequate frameworks for managing liquidity risk. 

Director of Wholesale Buy-Side at the FCA, Camille Black Burn, stated; ‘We have seen examples in the market where liquidity risk has crystallised and the impact this can have on investors.”  

“This review should serve as a warning to all asset managers that they need to get this right. We expect boards to discuss our findings and assure themselves that their firms are not amongst the minority with serious gaps in managing liquidity risk,” she continued.

“It’s vital the outliers take quick action. They risk regulatory intervention if they don’t take this opportunity to address weaknesses.”

The FCA’s review identified several key findings regarding liquidity management in asset management firms: 

  • While firms had the necessary building blocks and tools for effective liquidity management, they often lacked coherence when viewed as a complete process and were not fully integrated into daily activities. 
  • Many firms did not give enough importance to liquidity risk management in their governance oversight arrangements, and there was a lack of sufficient challenge and escalation, especially in volatile environments. 
  • There was a wide range of approaches to liquidity stress testing, with some methodologies not adequately assessing the actual liquidity of portfolios and using assumptions that were not appropriately conservative. 
  • Firms had governance and organizational arrangements to address large one-off redemptions, but they lacked sufficient arrangements to oversee cumulative or market-wide redemptions that could significantly impact a fund. 
  • The application of anti-dilution tools, such as swing pricing, varied widely among firms, potentially affecting the price received by investors upon redemption. 

Asset managers are advised to consider the findings of the FCA’s review, as the examples of good practices identified in the review align with the Consumer Duty which came into effect 31st July, which aims to improve consumer outcomes.

Promoting competition and positive change is one of the FCA’s strategic priorities, and enhancing liquidity risk management practices contributes to the strength of the UK’s wholesale markets and supports growth in the UK economy.  

By adopting improved liquidity risk practices, asset managers can play a role in fostering a more robust financial environment and ensuring better outcomes for consumers.


Urgent Call for Brokers to Address Daunting Climate Change Risks

As climate change leads to an increase in natural catastrophe weather events in the UK, flood insurance specialists are advising brokers to remain vigilant in assisting their clients, reports Insurance Age.

The changing nature of flooding, with torrential rain causing flash floods even in areas not previously deemed at risk, poses new challenges for insurance coverage. 

In June, Ian Gibbs, National Technical Manager at Sedgwick, highlighted that brokers have a crucial role to play in raising awareness among customers about the risks associated with flooding.

He emphasised that brokers can provide significant value by offering informed advice on flood resilience and the available schemes to mitigate potential damages.

Flood Re’s initiative, Build Back Better, introduced in April 2022, enables home insurers to provide customers affected by flooding with reimbursement costs of up to £10,000 for flood resilience measures.

The main goal of this program is to minimise the impact, inconvenience, trauma, and expenses associated with future floods for homeowners.

Additionally, it aligns with the broader objective of enhancing the UK’s flood resilience in preparation for the conclusion of the Flood Re scheme in 2039.

Approximately 65% of the insurers participating in Flood Re have expressed their support for the Build Back Better initiative. Aside from Ageas, this endorsement includes prominent insurers such as Aviva, Axa, Covéa Insurance, Hiscox, NFU Mutual, LV General Insurance, RSA, and recently joined by Zurich.

No brokers have signed up for the Build Back Better initiative, which is not surprising as it is offered at the time of a claim and falls under the responsibility of insurers or managing general agents handling the claim, stated Insurance Age.

However, brokers play a crucial role in informing and advising customers about the scheme’s existence and how they can access its benefits.

Liz Mitchell, Director and Founder of Flood Assist, has observed a rise in customer inquiries about the Build Back Better scheme. However, she highlighted a concerning lack of understanding about the scheme’s mechanics and benefits among brokers.

The rise in natural catastrophe weather events in the UK due to climate change has led to a change in flooding patterns.

While riverbank bursting remains a concern, the increase in heavy rain and sudden torrential rainfall has caused issues in urban areas where water drainage is inadequate. As a result, regions that were not traditionally prone to floods are now experiencing such events.

Mitchell pointed out that clients often mistakenly believe that living near water is the sole risk factor for flooding.

She stated; “The nature of flooding is changing – we see a lot of surface water flooding. We’ve seen that happening in London over the past few years. The types of flooding situations are changing away from rivers,”

Liz Mitchell highlighted that drainage systems in most cities are ill-equipped to handle the excessive water volumes from torrential downpours, leading to potential flood risks for buildings that were previously considered safe. The construction of new concrete buildings around existing structures could exacerbate these risks.

This observation was supported by Toby Daley, Underwriting Director at Plum Underwriting, who noticed a rise in flash flooding in areas where water cannot escape.

He mentioned that surface water flooding is becoming problematic, especially when people block pave their gardens, hindering water absorption into the soil. These factors are contributing to the increasing prevalence of basement flooding.

Flood Assist gathers open-source data and shares it with the Environment Agency, utilising the information to assist clients in comprehending potential flood risks.

Mitchell stated; “We can use the data and map it against our live customer base, and when we see an area going under alert or a flood warning we can see in real time which of our customers are at risk of flooding,”

“Not all floods have a warning attached to them, so it’s not foolproof, but we can use that proactively to contact customers in the event of a weather event”, she concluded.


Alerting Savers to Better Deals: FCA's Warning to Banks

The Financial Conduct Authority (FCA) and the Information Commissioner’s Office (ICO) are set to warn banks that they cannot use data protection rules as an excuse for failing to inform savers about better deals.

Despite pressure to pass on the benefits of higher rates, banks claimed they couldn’t notify certain customers about deals if they had opted out of marketing communications.  

In response, the FCA and ICO are planning to send a letter to UK Finance, the banking lobby group, disputing this position.  

The letter will emphasise that banks can communicate better savings rates to customers while still complying with data protection rules under the General Data Protection Regulation (GDPR). 

Banks have come under harsh criticism for not adequately raising savings rates amidst surging mortgage costs.  

Andrew Bailey, the Governor of the Bank of England (BoE), recently urged banks to pass on higher rates to savers.  

Furthermore, Chancellor, Jeremy Hunt, warned lenders that they could face regulatory action if they do not increase savings rates appropriately. 

The BoE has consistently increased rates since December 2021, leading to the current base rate of 5%. As a result, the average rate on a two-year fixed mortgage has risen to 6%, significantly surpassing the average rate of 5.12% on a two-year savings product, according to Moneyfacts.

Easy access rates are also substantially lower, with an average of 2.61%. 

MPs have been advocating for banks to take more action to assist savers, and they have expressed doubt about the banks’ claims that GDPR rules prevent them from contacting customers about better deals.  

GDPR allows regulators to impose fines of up to 4% of a company’s global revenues if they mishandle personal data. 

Harriett Baldwin, the Chair of the Parliamentary Treasury Committee, expressed skepticism about banks’ use of GDPR rules as an excuse for not contacting customers about better deals, deeming it a “very implausible excuse.”  

Rob Masson, the Chief Executive of the DPO Centre, a data protection consultancy, also criticised the banks’ argument, calling it “rubbish.”

He clarified that the rules for marketing via electronic means are set out in the Privacy and Electronic Communications Regulations, which are separate from but complementary to the GDPR. 

He stated;  “If they’re using electronic marketing rules to say they can’t communicate with customers, there’s an argument, you can’t email that advice, but there’s no reason they couldn’t be sending it in the post.” 

Intellectual property partner at law firm Edwin Coe, Nick Phillips, added; “Companies are not allowed to send marketing messages without an individual’s consent. But they are allowed to send system messages — for example alerting customers they have changed their terms and conditions . . . provided the messages are neutral in tone. It’s quite a difficult area of the law, though — and is one which people often get wrong.” 


UK Fraud Agency Warns of Money Laundering Targeting Under-21s

Young people are increasingly being targeted by fraudsters who take advantage of the challenging economic climate by enticing them to launder money online in exchange for cash.  

In the UK, one in five “money mule” cases reported in the first half of this year involved individuals under the age of 21, with over 17,000 individuals suspected of providing their bank account details to facilitate illegal funds transfer.  

To address this concerning trend, fraud prevention agency, Cifas, and banking lobby group, UK Finance, have launched an expanded schools initiative aimed at educating children as young as 10 about the dangers of getting involved in fraudulent activities.

The CEO of  Cifas, Mike Haley, spoke about how young individuals, especially those under 21, are being targeted by fraudsters who approach them through online platforms like TikTok and Instagram. He stated; “Younger people are being targeted… There’s a bigger cost for the criminal of persuading older people,.”

This has raised concerns about the safeguards provided by social media companies, with banks accusing them, particularly Meta-owned platforms, of enabling fraud.

UK Finance recently wrote to Chancellor, Jeremy Hunt, presenting findings that revealed over half of all digital payment scams originated on these platforms. 

Meta stated; “We use a combination of proactive detection technology and human review to find and remove this violating content.” 

UK Finance stated that “money mules” are involved in laundering the proceeds of authorised push payment fraud, where fraudsters deceive individuals into transferring money to them. Criminal groups utilise social media platforms as a prominent means of communication in carrying out these activities.

Cifas and UK Finance initiated the ‘Don’t Be Fooled’ campaign two years ago to address money mule activity, particularly among young people who were targeted by gangs through fake job ads.   

Banks have been more understanding towards young individuals caught up in fraud, considering them less complicit, but there remains a need for further education on the potential consequences.   

“Money mules” are more likely to get caught than the fraudsters themselves, leading banks to close their accounts and report them to authorities.

Participants face the risk of losing access to banking services for up to six years, limiting their ability to obtain credit, phone contracts, and student loans.

Though imprisonment is infrequent, acting as a mule results in a criminal record and the possibility of up to 14 years of imprisonment. 

TikTok stated that users must adhere to community guidelines, and the platform has collaborated with various charities to enhance users’ financial literacy. 


FCA Launches Intensive Crackdown on Home and Motor Insurers

In a recent review, the Financial Conduct Authority (FCA) has cautioned insurers to enhance their support for customers facing financial difficulties.  

The FCA specifically highlighted the need for improvements in how home and motor insurers treat vulnerable customers and handle their claims.  

The regulator has taken action against firms found to be in violation of its rules and urges customers to voice their concerns by reaching out to their insurance companies if they experience claim delays or are dissatisfied with the claims handling process. 

The FCA revealed that it had observed a surge in complaints related to insurance claims and discovered cases of extended delays in handling complaints and inadequate settlements.  

Furthermore, the FCA identified instances where motor insurance customers were offered compensation below their car’s fair market value after it was declared a write-off.   

In response, the FCA has directed the relevant firms to rectify these issues promptly and provide redress to affected customers as needed.  

The Direct Line Group received orders from the FCA, mandating the company to compensate customers who have received insufficient settlements for their written-off vehicles.  

In September 2022, the FCA issued a ‘Dear CEO’ letter, expressing its concerns and expectations regarding customer support during the cost-of-living crisis.  

Following up on this, in December, the FCA sent a questionnaire to 11 insurers, representing 35% of the motor and 53% of the buildings and contents insurance markets, to assess their practices. 

The review highlighted several areas where improvements were needed in the insurance industry’s treatment of customers.  

Some firms lacked sufficient monitoring of customer outcomes, and better information sharing was required when dealing with intermediaries for claim settlements. Additionally, some insurers struggled to identify vulnerable customers in need of extra support.   

Despite these concerns, the FCA did come across examples of good practice during its review. 

The Executive Director for Consumers and Competition at the FCA, Sheldon Mills, stated; “Timely and fair claims handling is especially vital during the cost-of-living squeeze.” 

“While we have seen many firms treating their customers correctly, we found too many examples of customers not receiving the service they’re entitled to.” 

“Where we found issues, we’ve told firms to put them right. We’ll be monitoring them to ensure they do,” he added. 


Universities Pledge for “AI Literacy”: Teaching Students ChatGPT

UK universities have announced that they will now incorporate the “ethical” use of ChatGPT in their teaching and assessment methods. 

The Russell Group, comprising of prestigious UK universities like Glasgow, Manchester, Oxford, Cambridge, and Durham, has released a set of principles to guide universities in harnessing the benefits of artificial intelligence (AI) in education. 

Endorsed by the vice-chancellors of all 24 Russell Group universities, the statement aims to promote the ethical and responsible utilisation of software like ChatGPT, while upholding academic integrity. 

This signifies a notable change in direction compared to the initial approach taken by many universities, where they sought to implement blanket-bans on students’ use of generative AI technology. 

The Head of the School of Health Sciences at the University of Manchester, Professor Andrew Brass, stated; “We know that students are already utilising this technology, so the question for us as educators is how do you best prepare them for this, and what are the skills they need to have to know how to engage with generative AI sensibly?”  

Promoting “sensible” AI use in universities might prove challenging as investigations into students using AI chatbots for cheating are underway in over 40% of UK universities. 

Furthermore, 25% of Russell Group institutions have initiated cases against students suspected of employing ChatGPT or similar chatbots since December 2022. 

The Russell Group’s new guidance establishes five core principles that universities should adhere to: 

  1. Supporting students and staff to develop AI literacy. 
  2. Equipping staff to effectively and responsibly assist students in using generative AI tools in their learning experience.
  3. Incorporating the ethical use of generative AI in teaching and assessment to promote equal access.
  4. Upholding academic rigour and integrity.
  5. Promoting collaborative efforts among universities to share best practices as AI technology and its applications in education evolve. 

The Chief Executive of the Russell Group, Dr Tim Bradshaw stated; “AI breakthroughs are already changing the way we work and it’s crucial students get the new skills they need to build a fulfilling career.”  

“The transformative opportunity provided by AI is huge and our universities are determined to grasp it. This statement of principles underlines our commitment to doing so in a way that benefits students and staff and protects the integrity of the high-quality education Russell Group universities provide.” 


UK Interest Rate Forecast Moderates as Inflation Eases

UK inflation dropped to 7.9% in June, reaching a 15-month low and surpassing expectations for a larger decline, making it more probable that the Bank of England (BoE) will increase interest rates by only a quarter point next month. Sterling declined and property stocks surged in response to the news.

The annual inflation rate fell from 8.7% in May, coming in below economists’ forecast of 8.2%, marking the end of a four-month period of inflation outpacing predictions.

UK inflation in June, at 7.9%, was in line with the BoE’s forecast and the lowest since March 2022.

Sterling dropped to its lowest level in a week, trading down 0.6% against the dollar at $1.2952.

An economist at Capital Economist suggested that while the decline in inflation is unlikely to deter the BoE from raising interest rates at its next meeting, it may lead to a smaller increase of 25 basis points instead of 50 basis points.

After the release of the lower-than-expected inflation figures, markets have adjusted their expectations for the BoE’s 3rd August meeting.

The probability of a quarter-point rise to 5.25% has increased to 60%, whereas previously, there was a greater than even chance of a half-point increase to tackle inflation.

Traders now predict that BoE benchmark interest rates will peak just below 6% early next year, compared to the previous expectation of just above 6%.

Lower inflation is expected to alleviate the pressure on mortgage rates, which had risen due to strong price and wage growth in previous months.

Shares of UK property groups and housebuilders experienced significant gains as investors adjusted their interest rate expectations.

Companies like Persimmon, Barratt, and Taylor Wimpey saw their shares rise by 5.7%, 4.9%, and 4.8%, respectively, leading to a 1% increase in London’s FTSE 100 index.

The surge in these stocks came as the market reassessed the potential peak of interest rates in light of the recent lower inflation figures.

On Wednesday, Landsec, one of the UK’s major landlords, and real estate group, Segro, were among the top gainers in the FTSE index.

Core inflation, which excludes volatile items such as food, energy, alcohol, and tobacco prices, decreased to 6.9% in June from the previous month’s 31-year high of 7.1%.

Additionally, services inflation also eased to 7.2% in June from 7.4% in May, contrary to analysts’ expectations of no change.


UK Watchdog Proposes Stricter Rules for "Finfluencers"

The UK’s financial regulator is proposing new guidance to regulate the marketing of financial products on social media platforms, aiming to reduce “significant consumer harm” from unsuitable and illegal promotions.  

The Financial Conduct Authority’s (FCA) new Consumer Duty will now extend to cover social media posts, requiring financial companies to ensure good outcomes for customers. The consultation for these new measures began on 24th of July. 

Lucy Castledine, Director of Consumer, investments at the FCA stated; “We’ve seen a growing number of ads falling short of the guidance we have in place to stop consumer harm, for those touting products illegally, we will be taking action against you.” 

The regulator has raised concerns about “finfluencers” using their large followings to promote risky financial products and companies engaging social media celebrities to endorse services they may not fully comprehend. 

The FCA said “Consumers exhibit high levels of trust in ‘finfluencers’, but their advice can often be misleading, often these influencers have little knowledge of what they’re promoting. This lack of expertise is reflected in the large number of promotions that are either illegal or non-compliant.” 

According to research from consultancy MRM, nearly three-quarters of young people trust information from social media influencers. Additionally, a survey by the FCA in 2021 revealed that almost 60% of individuals under 40 who invested in high-risk products made decisions based on social media posts and news.   

Under the FCA’s proposed rules, companies would be required to monitor how influencers use their affiliate links to ensure responsible communication with customers.  

The regulations would also cover memes and similar content used to promote high-risk cryptocurrency investments, aiming to address potential risks associated with such promotions. 

Digital assets, particularly cryptocurrencies, have been under increasing scrutiny in the UK, with crypto fraud losses amounting to £306 million in the 12 months leading up to March 2023, showing a significant rise of over 40% compared to the previous year. 

Currently, the FCA primarily regulates digital assets for money-laundering compliance. However, separate rules pertaining to the marketing of digital currencies, which include the banning of bonuses for referring friends, are set to take effect on 8th October. 

The FCA’s proposed social media rules, aimed at regulating the promotion of financial products and services, will also extend to non-UK companies if their promotions are accessible to UK consumers. This extension could potentially impact large cryptocurrency exchanges based in other jurisdictions. 

The FCA revealed its plan to regulate advertisements for various financial products and services on social media platforms. Among the products that could fall under these proposed new regulations are buy now pay later services, debt counselling, peer-to-peer lending, and personal loans. 

This announcement comes at a time when the Online Safety Bill is progressing through the House of Lords. The bill aims to impose a “duty of care” on major online platforms, making them responsible for safeguarding users from fraud and harmful content, including investment scams. 


Financial Services Companies Battle "Overboarding" and Gender Representation Challenges

According to research by EY, more than 25% of board members in European financial services companies hold at least four positions across different organisations, leading to concerns about their ability to fulfil their roles effectively.

The study also revealed the need for further efforts to improve gender representation to comply with an upcoming EU directive.

Tara Cemlyn-Jones, Chief Executive of 25×25, a non-profit organisation dedicated to enhancing female representation in senior executive positions, stated; “When you’re attempting to create more diversity of skills, having the same person appearing multiple times and being brought on to different boards works against that.”

The number of Directors with multiple board positions varied across sectors, with nearly half of board members at asset management firms holding more than two positions.

Surprisingly, even among banks, the number was around 40%, despite a belief among headhunters that Board Directors at lenders typically avoid having multiple board positions due to governance risks.

The data from EY covers all organisations, including public companies, private companies, charities, and public institutions, highlighting the demanding nature of roles across different sectors.

Out of 300 fund managers surveyed, over 80% expressed concerns that holding more than three board positions could potentially impact Directors’ ability to fulfil their duties effectively.

Omar Ali, EY’s Financial Services Managing Partner for Europe, the Middle East, India, and Africa, discussed Chairs at financial services companies and spoke of concerns that “the prestige of a board seat could affect willingness to challenge the status quo and that some board members might be financially dependent on their board positions, which impacts their independence.”

Renée Adams, Professor of Finance at Saïd Business School, emphasised the need for further research to gain a deeper understanding of the issue of “overboarding.”

She stated, “It suggests that financial services firms are not finding enough people that have the competencies that they need.”

The research also revealed that nearly 30% of European financial boards had less than 40% female representation.

Starting in July 2026, a European Commission directive will mandate large listed companies across the EU to achieve 40% female representation among Non-Executive Directors, or 33% across all Directors.

Failure to meet these requirements could lead to the annulment of a board, and several EU countries, including Germany, Spain, and Italy, already have similar requirements in place.

In the UK, the FCA has required listed companies to report on their progress towards achieving 40% female board representation since April last year.

Cemlyn-Jones emphasised the significance of having more women in senior roles, stating; “Without that, you can have a fabulous board and still have terrible groupthink at executive levels. You won’t close the pay gap until you get that representation at that level.”

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