Finance Firms Face New UK Resilience Rules After COVID

By Martin Croucher
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Law360, London (March 30, 2021, 12:11 PM BST) -- Financial services companies in the U.K. will be required to make plans for dealing with market disruption under new regulations to protect consumers, which will be introduced following the COVID-19 pandemic.

The Prudential Regulation Authority and the Financial Conduct Authority said in a joint statement on Monday that the case for "operational resilience" among finance companies such as  banks and insurers was stronger than ever.

The rules, floated three years ago, will be implemented by companies in the sector by March 2022, the regulators said. They require businesses to consider how disruption to the services they provide could have an impact "beyond their own commercial interests."

"The disruption caused by COVID-19 has shown why it is critically important for firms to understand the services they provide and invest in their resilience to protect themselves, their consumers and the financial system from disruption," the PRA and FCA said.

However the watchdogs said that most companies had maintained continuity of service during the "period of significant stress" during the pandemic.

The rules require finance firms to look at their business and identify any weaknesses. They will be required to carry out "scenario testing" to examine how those vulnerable areas will be affected by a period of market disruption.

Based on that work, the PRA and FCA said, companies will have to have set so-called impact tolerances for each business function that deals with customers by the end of March 2022. The regulators define that as a "maximum tolerable level of disruption" to a business service.

"While the final policy is not overly prescriptive in terms of defining lists of important business services and setting specific impact tolerances, the supervisory authorities expect best practice will emerge over time, and will take a close interest as it develops," the regulators said.

The PRA and FCA started drawing up the policy in July 2018 and launched a consultation the following year. The rules should have been implemented in the second half of 2021, but that was pushed back because of the COVID-19 pandemic.

The regulators said that changes in working practices brought about by the coronavirus outbreak will have to be considered when the companies consider how resilient they are in the face of disruption under the rules.

The statement was welcomed by the Association of British Insurers.

"It's right that firms have a consistent approach across their organization to identify key business services and ensure that plans are in place to prevent, adapt, respond and recover from operational disruption to limit potential harm to customers and the market," Charlotte Clark, director of regulation at the association, said.

--Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

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