On 8 September 2023, the FCA published a letter to the wholesale banking sector, following its portfolio analysis and strategy forum.

The letter sets forth the FCA’s supervisory work programme over the next two years which will shape its engagement with the wholesale banking sector. The letter also sets out the FCA’s areas of supervisory focus.

The letter sets out the following:

  • The external environment – The FCA expects wholesale banks to contribute to high standards of market excellence and help strengthen the UK’s position as a global and vibrant financial centre. The FCA and wholesale banks have a shared objective in ensuring that markets work well, and while the FCA has arrangements in place to collect industry intelligence, it is always keen to hear from firms about their concerns of risks in markets.
  • Risk management – Many firms have put in place remediation programmes in response to the events of the last 18 months. Better firms will have done this whether they were directly affected or not by the events. The FCA will look to senior management to evidence how these remediation programmes have delivered better risk management and oversight across businesses and how they are comfortable that this is underpinned by a strong culture. The FCA will also look to Boards to evidence how they are ensuring that such improvements are lasting.
  • Maintaining high standards of control – The FCA is ramping up its testing programme to look at how banks are controlling conduct risks, including more in person supervisory assessments. Assessing how firms manage conflicts of interest will be a particular area of focus.
  • Operational resilience – The FCA will continue to review firms’ compliance with the requirements of PS21/3 Building Operational Resilience and their ability to remain within their impact tolerances as soon as reasonably practicable, but no later than 31 March 2025. The FCA will also use its engagement with relevant senior managers to assess how they have learnt the lessons of operational resilience events even if their firm has not been directly impacted.
  • Organisational changes – If a firm starts to consider changes to how they serve clients, their location, their booking model or risk management arrangements, the FCA expects this to be brought promptly to its attention before any change is made. Where the FCA sees proposed changes that are not consistent with its objectives, the FCA will intervene.
  • LIBOR transition -While USD LIBOR ceased on 30 June 2023, the FCA expects wholesale banks to continue actively transitioning the last of the contracts that reference USD LIBOR and not rely unnecessarily on synthetic LIBOR. Client and conduct considerations should remain at the core of the transition programme.
  • Implementation of the Consumer Duty – The FCA will test the robustness of assessments made and actions taken to implement the Consumer Duty as well as the effectiveness of the arrangements in place to identify any implications of compliance with the Consumer Duty that might result from changes in activity.
  • ESG – Wholesale banks have an important role in the transition to a more sustainable future. They should demonstrate that their financing activities are aligned with their own transition plans, and that product and public-facing commitments relating to ESG are delivered in practice.
  • Artificial intelligence – As set out in DP5/22, a discussion paper issued jointly by the FCA, Prudential Regulation Authority and Bank of England, artificial intelligence and machine learning are rapidly developing technologies that have the potential to transform financial services. The FCA will engage with wholesale banks on current deployment as well as plans for the future and the associated control infrastructure.
  • Diversity, equity and inclusion – Through the FCA’s engagement with wholesale banks, the FCA’s supervisory focus will be to understand how they are playing their role in helping to accelerate the pace of meaningful change on diversity, equity and inclusion in the sector.
  • Non-financial misconduct – The FCA expects firms to have effective systems in place to identify and mitigate risks of all kinds. Should allegations or evidence of non-financial misconduct come to light the FCA expects a regulated firm to take them seriously through appropriate internal procedures and act according to the established facts. The FCA will assess the reports we receive and will consider carrying out work to assess the effectiveness of these controls.

The letter notes that within two months, the FCA expects all CEOs to have discussed the contents of this letter with their fellow directors and/or Board and to have agreed actions and/or next steps.