Financial Crime World

Here is the article in markdown format:

Firms Must Demonstrate Effective Customer Outcomes as Governance and Oversight Intensify

======================================================

In a bid to boost consumer protection, the UK’s Financial Conduct Authority (FCA) has issued new guidelines requiring firms to assess, test, and demonstrate that customers are achieving good outcomes. The move is part of a broader effort to enhance governance and oversight in the financial sector.

Operational Resilience Takes Center Stage

Recent global events have highlighted the importance of robust operational resilience within UK firms. The PRA, FCA, and Bank of England have introduced a new regime requiring firms and financial market infrastructures to identify and set impact tolerances for each important business service. By March 2025, firms must demonstrate they can remain within each impact tolerance in the event of a severe disruption.

  • Regulators are also consulting on proposed rules to mitigate systemic risks posed by critical third parties (CTPs), such as cloud service providers.
  • The new framework will enable the identification and designation of CTPs, subject them to fundamental rules and operational risk requirements, and empower regulators to direct, investigate, and discipline these entities if necessary.

Crypto Regulation Takes Shape

The UK government’s enthusiasm for fintech has been tempered by concerns about consumer protection and market integrity. The collapse of crypto firms like FTX has brought the need for regulation into sharp focus.

  • FSMA 2023 establishes a framework for cryptoassets to be subject to comprehensive financial services regulation, with phase one focusing on fiat-backed stablecoins and phase two extending the perimeter to include other cryptoassets.
  • In the meantime, the existing regulatory framework has been expanded piecemeal to cover various corners of the crypto ecosystem.

Artificial Intelligence and Big Tech Under Scrutiny

The UK government is taking a sector-by-sector approach to AI regulation, empowering the FCA and PRA to oversee its use by financial services firms.

  • Regulators have launched no new initiatives since their joint discussion paper in October 2022 but senior FCA figures are warning of the risks posed by AI, including fraud, cyberattacks, and biased decision-making.
  • The FCA is expected to publish an update on its strategic approach to AI by April 30, while a call for input on Big Tech’s entry into financial services has raised concerns about data asymmetry and potential barriers to entry.

Duty Champion Appointed

In another move aimed at enhancing governance and oversight, firms are expected to appoint a Consumer Duty champion to ensure they are meeting their customer outcomes obligations. The FCA will be monitoring progress closely, with firms required to report annually on their efforts to achieve good outcomes for customers.

Note: I’ve reformatted the text to use markdown headings, subheadings, and bullet points, while keeping the original content intact. Let me know if you have any further requests!