FS News Brief—11 March 2019

Welcome to the second bulletin of the LexisPSL Financial Services 'News Brief'. This weekly update gives you a quick insight into some of the biggest stories from the past week, and highlights some of the stories that may have gone under your radar. 

See our full Weekly Highlights here.

 

News brief
Brexit report
Best of the rest
You may have missed
The week ahead

 

News brief

 

FCA publishes Handbook Notice No 63

The FCA published Handbook Notice No. 63, which includes changes to the FCA Handbook made by the FCA board on 24 January and 28 February 2019. Handbook Notice No 63 also provides feedback on CP18/34. The Handbook Notice includes the following instruments (1) Conduct of Business Sourcebook (Retirement Outcomes Review) Instrument 2019 (FCA 2019/4), entering into force on 1 November 2019 (2) Fees (Devolved Authorities Debt Advice Levies) Instrument 2019 (FCA 2019/8), entering into force on 1 March 2019 (3) Fees (Miscellaneous Amendments) (No 13) Instrument 2019 FCA 2019/10), entering into force on 1 April 2019.

Council of the EU adopts Cross-border Payments Regulation

The Council of the EU announced that it adopted the Regulation amending Regulation (EC) 924/2009 as regards certain charges on cross-border payments in the EU and currency conversion charges. Most of the provisions of the new Regulation will take effect on 19 December 2019. The amendments to Regulation (EC) 924/2009 were proposed by the Commission in March 2018 and are intended to reduce the cost of intra-EU payments within the entire EU and unify the single retail payments market, as well as improving the transparency of currency conversion charges.

BCBS and IOSCO guidance on final implementation of margin requirements for non-centrally cleared derivatives

The Bank for International Settlements (BIS) published a joint statement by the BCBS and IOSCO on the final implementation phases of the framework for margin requirements for non-centrally cleared derivatives. The statement provides guidance to support timely and smooth implementation of the framework, published in 2015, and to clarify its requirements. The statement notes that the BCBS and IOSCO realise that derivative contracts may need amending in response to interest rate benchmark reforms. However, amendments to legacy derivative contracts pursued solely to address interest rate benchmark reforms do not require the application of the margin requirements for BCBS/IOSCO framework purposes, although the position may differ under relevant implementing laws.

ECB announces launch of its annual validation reporting on internal models for credit risk

The ECB published a letter it sent to ‘significant institutions’ relating to validation reporting on internal models used for calculating own funds requirements for credit risk. Internal validation by significant institutions plays a key role in the ECB’s assessment of the reliability and accuracy of their internal models and is an important input to the ECB’s assessment of quality and regulatory compliance of internal models. It launches its validation reporting on internal models for credit risk each year in order to obtain the information it needs to make the required assessments. The letter is available in full on the ECB website.

PRA consults on liquidity risk management for insurers

The PRA issued a consultation paper (CP4/19) seeking views on a draft supervisory statement ‘Liquidity risk management for insurers’ and the consequential supersession of a legacy supervisory statement (SS2/13) on collateral upgrade transactions. The proposals are relevant to all UK Solvency II firms, including in respect of the Solvency II groups provisions, the Society of Lloyd’s and its managing agents, and non-directive insurers. Feedback is sought by 5 June 2019. Legacy SS2/13 ‘Collateral upgrade transactions and asset encumbrance: expectations in relation to firms’ risk management practices’ sets out the PRA’s expectations of banks and insurers engaging in collateral upgrade transactions and describes a number of considerations in their management of the associated risk. Upon publication, it is proposed that the new SS would supersede the legacy SS, including the expectation therein to notify the PRA in advance of significant transactions.

FCA and BoE set out regulatory plans in case of no Brexit implementation period

The Treasury Committee published correspondence received from the CEO of the FCA, Andrew Bailey, and from the BoE deputy governors Sir Jon Cunliffe (Financial stability) and Sam Woods (Prudential regulation). The letters discuss aspects of the financial services legislation under the EU(W)A 2018 and how the FCA and BoE intend to regulate the sector if the UK leaves the EU without an implementation period. The FCA intends to publish rules, binding technical standards and directions under the Temporary Transition Power in final form in late March 2019, to take effect from exit day. The BoE deputy governors set out in their letter details of a package of materials the BoE published updating firms on the BoE’s regulatory and supervisory approach in relation to its work on EU withdrawal.

Commission welcomes agreement on new rules to improve access to capital markets for smaller businesses

The European Commission issued a press release on 6 March 2019 in which it welcomed the political agreement reached by the European Parliament and Member States on new rules that will further help small and medium-sized enterprises (SMEs) to finance their growth, innovate, and create jobs. The rules need to be formally approved by the European Parliament and Council. The new rules represent a key factor in the Capital Markets Union (CMU) agenda and are designed to ensure that smaller businesses in the EU can access to diversified sources of financing at each stage of their development. The revised rules will make it cheaper and simpler for SMEs to access public markets through the so-called 'SME Growth Markets', a new category of trading venue dedicated to small issuers.

Presidency of the Council and Parliament reach political agreement on sustainable finance transparency rules

The Romanian presidency of the Council and the European Parliament reached a preliminary agreement on a proposal introducing transparency obligations related to sustainable investments and sustainability risks. The agreement was welcomed by the European Commission. First proposed by the Commission in May 2018 as part of the Sustainable Finance Action Plan and the Capital Markets Union, the agreed rules are an integral part of the EU efforts, under the EU's sustainable development agenda and the carbon neutrality agenda, to connect finance with the needs of the real economy and set out a harmonised EU approach to the integration of sustainability risks and opportunities into the procedures of institutional investors.

FCA reveals findings from research into consumer attitudes and awareness of cryptoassets

The FCA published two pieces of research looking at UK consumer attitudes to cryptoassets, such as Bitcoin or Ether. The research, carried out with consumers to better understand the potential harms of cryptoassets, includes qualitative interviews with UK consumers and a national survey. The qualitative research indicated that many consumers may not fully understand what they are purchasing. For example, several of those interviewed talked of wanting to buy a ‘whole’ coin, suggesting they did not realise they could buy part of a cryptoasset. Despite this lack of understanding, the cryptoasset owners interviewed were often looking for ways to ‘get rich quick’.

European Commission amends Solvency II capital requirements

The European Commission adopted a delegated regulation amending Delegated Regulation (EU) 2015/35, which supplements Directive 2009/138/EC (Solvency II), in order to make it easier for insurers to invest in equity and private debt and to provide long-term capital financing. The new rules introduce prudential criteria that allow reducing the capital charges in the standard formula for insurers’ unrated debt and unlisted equity investments. Based on technical advice from EIOPA and in-depth analyses by the Commission, the new delegated act allows lowering the shock factor by up to 56% for the spread risk and by 20% for the equity risk.

FCA raises Financial Ombudsman Service compensation limit

The FCA confirmed that the Financial Ombudsman Service (FOS) will soon be able to require financial services firms to pay significantly more compensation to consumers and businesses. From 1 April 2019, the current £150,000 limit will increase to £350,000 for complaints about actions by firms on or after that date. The limit will rise to £160,000 for complaints about actions before 1 April 2019 that are referred to the FOS after that date. Both award limits will be automatically adjusted every year from 1 April 2020 onwards to ensure they keep pace with inflation, as measured by the Consumer Prices Index (CPI). The new award limit will come into force at the same time as the extension of the service to larger SMEs.

FCA publishes final rules for Directory of financial services workers

The FCA announced the final rules on the Directory, a new public register that enables consumers, firms and other stakeholders to find information on key individuals working in financial services. The final rules require firms to report timely and accurate information about their Directory Persons. Firms will need to take all necessary action to gather the required information and ensure its accuracy prior to submission. The FCA consulted on draft rules in consultation paper 18/19, which was published in July 2018. The final rules are set out in policy statement 19/7, which also summarises the feedback the FCA received to CP18/19 and its response. The FCA made some changes to its proposals in light of the feedback received.

ESAs propose PRIIPs amendments to clarify application to investment funds

The European Supervisory Authorities (ESAs) submitted to the European Commission draft regulatory technical standards (RTS) proposing to amend Delegated Regulation (EU) 2017/653 covering the rules for the key information document (KID) for packaged retail and insurance-based investment products (PRIIPs) in order to clarify how the KID applies to investment funds. In a letter to the Commission dated 7 March 2019, the ESAs propose a ‘quick-fix’ amendment to clarify the application of the KID to investment funds where these are offered as underlying investment options to a PRIIP (so-called ‘multi-option products’). 

 

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Brexit report

 

Government delays vote on proposed amendments to Financial Services (Implementation of Legislation) Bill

Andrew Bailey gives Brexit evidence to Lords EU Committee

FCA outlines workings of the MiFID transparency regime if no Brexit implementation period

Mark Carney discusses potential impact of Brexit

ESMA statement on MiFID II/MiFIR and BMR provisions in event of no-deal Brexit

PRA and FCA agree MoUs on supervisory co-operation and insurance with EIOPA and EEA NCAs

EPC approves UK Finance’s application for the continued participation of UK PSPs in the SEPA schemes after Brexit

FCA FIRDS to open for testing from 14 March 2019

PSR onshores RTS for the Interchange Fee Regulation to prepare for no-deal Brexit

 

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Best of the rest

 

FCA publishes final findings on motor finance

BoE unveils bank stress test scenario for 2018

FCA to introduce rent-to-own price cap

Access to Cash publishes final report and calls to protect cash as it declines

FCA review on fees for credit card customers

New report looks at FinTech opportunities in Islamic finance

Council returns draft list of high-risk money laundering and terrorist financing countries to the Commission

Treasury Committee report on anti-money laundering supervision and sanctions

 

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You may have missed

 

Financial Guidance and Claims Act 2018 (Naming and Consequential Amendments) Regulations 2019

RTS on assessment of the impact of an institution’s failure under BRRD published in OJ

PRA publishes PS7/19 on Credit risk: definition of default and updates supervisory statement regarding IRB approaches

PRA updates supervisory statement SS1/16 on written reports by external auditors

FCA finalises guidance on statement of responsibilities and responsibilities maps

Sustainable Finance: Commission expert group calls for feedback on EU Green Bond Standard

EBA consults on updated guidelines on harmonised definitions and templates for funding of credit institutions

 

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The week ahead

 

DateSubjectEvent

 

11 March 2019

 

Sustainable finance

 

The deadline for responses to the International Organisation of Pensions Supervisors (IOPS) public consultation on its draft supervisory guidelines on the integration of environmental, social and governance (ESG) factors in the investment and risk management of pension funds is 11 March 2019.

 

11 March 2019Brexit

The FCA will host a briefing on 11 March 2019 in Central London. The briefing will be for regulated firms in preparation for the UK leaving the EU. At the briefing Nausicaa Delfas, Executive Director of International, will explain how the FCA is preparing for Brexit and its expectations of firms. The session will also include a panel Q&A session where firms can discuss concerns.

 

12 March 2019Mortgages and home finance

As part of its live and local series the FCA will host its ‘Ask the regulator’ Q&A roundtable discussion with FCA and industry panel on 12 March 2019 in Manchester.

 

13 March 2019Prudential requirements

The first weekly operation of the BoE’s liquidity facility in Euros (LiFE), under which it will offer to lend euros on a weekly basis, will be on 13 March 2019.

 

13 March 2019Financial services and competition

The deadline for responses to the Competition and Markets Authority’s consultation on extending the scope of its proposed market investigation reference in relation to the supply of funeral services to include funeral services supplied by funeral directors in the UK arising from the redemption of pre-paid funeral plans is 13 March 2019.

 

13 March 2019

Investment funds

Asset management

The deadline for representations to be made to the Competition and Market Authority on its draft Investment Consultancy and Fiduciary Management Market Investigation Order 2019 is 10 a.m on Wednesday 13 March 2019.

 

13 March 2019Retail investments

As part of its live and local series the FCA will host its interactive workshop on defined benefit pension transfers on 13 March in Preston.

 

13 March 2019

Investment funds

Asset management

The statutory deadline for the CMA to publish its final report of its investment consultants market investigation.

 

13 March 2019Prudential requirements

The deadline for feedback to the BCBS’s consultative document entitled 'Revisions to leverage ratio disclosure requirements' is 13 March 2019.

 

13 March 2019Risk management and controls

The deadline for responses to the EBA’s consultation on draft guidelines on ICT and security risk management (which seek to establish requirements for credit institutions, investment firms and payment service providers on the mitigation and management of their ICT risks and aim to ensure a consistent and robust approach across the single market) is 13 March 2019.

 

14 March 2019Brexit

The FCA will host a briefing on 14 March 2019 in Edinburgh. The briefing will be for regulated firms in preparation for the UK leaving the EU. At the briefing Nausicaa Delfas, Executive Director of International, will explain how the FCA is preparing for Brexit and its expectations of firms. The session will also include a panel Q&A session where firms can discuss any concerns.

 

14 March 2019Payment services

Paragraphs 3 and 5 of Article 30 of Commission Delegated Regulation (EU) 2018/389 (in relation to the RTS supplementing the revised Payment Services Directive with regard to strong customer authentication and common and secure open standards of communication) will apply from 14 March 2019.

 

14 March 2019MiFID IIThe deadline for the European Commission to endorse ESMA’s final report in relation to amending the tick size regime under Commission Delegated Regulation (EU) 2017/588(RTS 11) is 14 March 2019.

 

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