FS weekly highlights—1 August 2019

In this issue

 

Brexit news
UK, EU and international regulators and bodies
Authorisation, approval and supervision
Prudential requirements
Financial stability, recovery and resolution
Risk management and controls
Financial crime
Consumer protection and claims management regulation
Competition in financial services
Enforcement and redress
Markets and trading
MiFID II
Regulation of capital markets and Capital Markets Union
Regulation of derivatives
Investment funds and asset management
Banks and mutuals
Regulation of insurance
Regulation of personal pension and stakeholder products
Payment services and systems
Fintech and cryptoassets
Sustainable finance
Islamic finance
Dates for your diary

 

Brexit news

 

FCA consults on STS notifications under the onshored Securitisation Regulation

The Financial Conduct Authority (FCA) published consultation paper CP19/26, setting out draft technical standards on the content and format of simple, transparent and standardised (STS) notifications under the onshored Securitisation Regulation. The consultation is part of the FCA’s preparation in case the UK leaves the EU on 31 October 2019 without an implementation period and the relevant EU technical standards are not brought into UK law as part of the EU Withdrawal Act. Feedback is sought by 27 August 2019.

BoE and PRA consult on changes following extension of Article 50

The Bank of England (BoE) and the Prudential Regulation Authority (PRA) published consultation paper 18/19, UK withdrawal from the EU: Changes following extension of Article 50 (CP18/19). The consultation covers some minor amendments needed to the BoE’s and PRA’s EU Exit Instruments because of the extension of the Article 50 period and change of exit day to 31 October 2019, and additional provisions in EU law that will now meet the definition of retained EU law and require amending. The consultation closes on 18 September 2019.

ESMA publishes feedback from EMIR 2.2 consultations

The European Securities and Markets Authority (ESMA) published the responses it received to its consultations on tiering, comparable compliance and fees under amendments to the European Market Infrastructure Regulation (EMIR 2.2), aimed at UK-based central counterparties (CCPs) after Brexit.

UK Finance responds to CBI report on 'no deal' Brexit contingency planning

UK Finance published its response to the Confederation of British Industry (CBI) report on contingency planning for a ‘no deal’ Brexit. In the report, the CBI stated that, in relation to financial services, regulators are well prepared for the immediate impact of no deal. However, despite this activity, much of the business community will not be ready for no deal. For hundreds of thousands of small companies, diverting precious resource—both human and financial—to Brexit preparedness measures is out of reach. The change in the scheduled date for no deal also impacted business readiness.

BVCA update for July 2019 discusses Brexit developments and the Alison Rose review

The British Private Equity and Venture Capital Association (BVCA) published its July 2019 policy and technical update, which sets put the association’s responses to consultations on the review of the Social Investment Tax Relief and the EU State Aid framework. Also discussed are Brexit issues, and the BVCA’s involvement in the Alison Rose review on investing in women.

FCA extends its temporary power to make transitional arrangements in the event of a no-deal Brexit to 31 December 2020

The FCA announced that it intends to extend the proposed duration of the directions issued under its temporary transitional power to 31 December 2020. This is to reflect the extension of the period allowed for the negotiation of the UK's withdrawal from the EU under Article 50 of the Treaty on European Union (TEU). Other than allowing additional time for the exercise of its power, the FCA says its approach remains unchanged.

Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc, and Transitional Provision) (EU Exit) (No 2) Regulations 2019

SI 2019/Draft: This draft enactment is laid in exercise of legislative powers under the European Communities Act 1972 and the European Union (Withdrawal) Act 2018 in preparation for Brexit. This draft enactment proposes to amend UK primary and subordinate legislation and retained direct EU legislation in relation to over–the–counter (OTC) derivatives, CCPs and trade repositories (TRs) in order to ensure that the related legislation continue to operate effectively at the point at which the UK leaves the EU. It comes into force partly on the day after the day on which these Regulations are made and fully on exit day.

Insurance body calls for equivalence to meet no-deal Brexit

On 29 July 2019, the London Market Group released a Brexit update, stating Britain must secure mutual market access with the European Union for the insurance industry as a no-deal Brexit becomes more likely. 

 

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UK, EU and international regulators and bodies

 

FCA publishes Handbook Notice No. 68

The FCA published Handbook Notice No. 68, which includes changes to the FCA Handbook made by the FCA board on 11 and 25 July 2019. Feedback on the relevant consultation papers was published in separate policy statements (PSs). The Handbook Notice includes the following instruments:

 

FCA signs administrative arrangement for the transfer of personal data between EEA and non-EEA authorities

The FCA published a signed version of the International Organization of Securities Commissions and European Securities and Markets Authority administrative arrangement for the transfer of personal data between European Economic Area (EEA) and non-EEA authorities under the General Data Protection Regulation (EU) 2016/679 and the Regulation (EU) 2018/1725 on the protection of natural persons with regard to the processing of personal data by EU institutions, bodies, offices and agencies and on the free movement of such data.

FCA and Practitioner Panel publish results of 2019 survey of FCA-regulated firms

The FCA and its Practitioner Panel published a report on the 2019 joint survey of FCA-regulated firms. The survey gives views across the financial services sector on the FCA’s performance as a regulator. Firms gave the FCA an overall rating of 7.2 out of 10 this year, up from 7.1 last year.

Commission communication sets out its financial services equivalence policy with non-EU countries

The European Commission announced that it is taking stock of its overall approach to equivalence in financial services. A positive equivalence decision, which is a unilateral measure by the Commission, allows EU authorities to rely on third-country rules and supervision, allowing market participants from third countries who are active in the EU to comply with only one set of rules. The Commission’s communication also sets out how recent updates to EU legislation will ensure even greater effectiveness of the EU single rulebook, supervision and monitoring, while also fostering cross-border business in global markets. The Commission took over 280 equivalence decisions regarding over 30 countries.

Treasury Committee chair: election nominations expected to begin in September 2019

Following the appointment of the former chair of the Treasury Committee, Nicky Morgan MP, as Secretary of State for Digital, Culture, Media and Sport, the Speaker of the House of Commons, John Bercow, announced that there will be an election for the new chair of the Committee. Nominations are likely to open shortly after the House returns in September 2019, following an announcement by the Speaker.

TheCityUK responds to announcement of City minister reappointment

TheCityUK (the industry-led body representing UK-based financial and related professional services) responded positively to the announcement that John Glen MP will continue in his position as economic secretary to the Treasury and City minister. 

 

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Authorisation, approval and supervision

 

FCA issues final rules on extension of SM&CR

The FCA published policy statement 19/20, Optimising the Senior Managers & Certification Regime and feedback to CP19/4 (PS19/20) with final rules on the extension of the SM&CR to FCA solo-regulated firms, including claims management companies. PS19/20 also confirms that the Head of Legal function will be excluded from the requirement to be approved as a Senior Manager, but that it is still subject to the Certification Regime.

 

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Prudential requirements

 

EBA consults on determining weighted average maturity of contractual payments due under the tranche of a securitisation transaction under CRR

The European Banking Authority (EBA) launched a public consultation on draft guidelines on the methodology to determine the weighted average maturity (WAM) of contractual payments due under the tranche of a securitisation transaction, in accordance with the Capital Requirements Regulation (EU) 575/2013 (CRR). The consultation closes on 31 October 2019.

EBA publishes interest rate risk guidelines compliance table

The EBA published a table setting out the competent authorities that comply or intend to comply with the EBA’s guidelines on the management of interest rate risk arising from non-trading book activities (IRRBB) under the Capital Requirements Directive (CRD IV) (Directive 2013/36/EU).

PRA publishes banking supervisory disclosures required by CRD IV

The PRA, as a competent authority, published information on rules and guidance, options and discretions, the SREP, and aggregate statistical data, alongside submitting the information to the EBA, in line with requirements set out in Article 143 of CRD IV and Commission Implementing Regulation 650/2014. The purpose of publishing such information is to enable a comparison of the approaches adopted by the competent authorities of the different Member States and foster a uniform level of transparency and accountability between supervisory authorities.

ECB publishes assessments of six Bulgarian banks

The European Central Bank (ECB) published the results of its comprehensive assessment of six Bulgarian banks, following Bulgaria’s request to establish close co-operation between the ECB and the Bulgarian National Bank. A comprehensive assessment is required as part of the process of establishing close co-operation between the ECB and the national competent authority of an EU Member State whose currency is not the euro. The exercise comprised an asset quality review and a stress test, both of which were based on the methodologies applied by ECB Banking Supervision in its regular comprehensive assessments of banks that were recently classified as significant or could potentially become significant.

EBA will not object to Finnish macroprudential risk measure under the CRR

The EBA published an opinion following the notification by the Finnish Financial Supervisory Authority of its intention to extend a measure introduced in 2017 regarding the use of Article 458 of the CRR. The EBA says the measure is primarily driven by persistent macroprudential risks in the Finnish economy related to residential mortgage loans and residential mortgage indebtedness. Based on the evidence submitted, the EBA does not object to the extension of the proposed measure, which will be applied from 1 January to 31 December 2020.

EBA maintains view on Estonia’s proposed IRB risk measure

The EBA published its response to a letter received from the European Commission regarding an EBA opinion on the intention by Eesti Pank, the Estonian Central Bank, to introduce stricter national measures for credit institutions in Estonia using the internal ratings based approach, in accordance with Article 458 of the CRR. 

 

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Financial stability, recovery and resolution

 

US Federal Reserve Board and FDIC announce several resolution plan actions

The US Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) (the agencies) announced several resolution plan actions, including completing their evaluations of the 2018 resolution plans for 82 foreign banks and extending the deadline for the next resolution plans from those firms, as well as 15 domestic US banks. The extensions will give the banks additional time to prepare their plans in light of resolution plan rule changes proposed by the agencies in April 2019.

ESRB annual report sets out risks to EU financial stability

The ESRB published its annual report for 1 April 2018 to 31 March 2019. The report argues that the four main risks in the EU financial sector remain the same as last year, with the repricing of risk premia in global financial markets being the most prominent one, followed by persistent weaknesses in balance sheets of EU banks, insurers and pension schemes, debt sustainability challenges in EU sovereign, corporate and household sectors and, finally, vulnerabilities in the investment fund sector and risks from shadow banking activities.

BoE and PRA finalise resolvability assessment framework

The BoE and the PRA confirmed their proposals to further protect the economy and taxpayers from bank failure by putting in place the resolvability assessment framework (RAF), which they describe as ‘the final major piece of the UK’s resolution regime for banks’. The RAF is implemented by the BoE’s statement of policy on its approach to assessing resolvability, as well as a new Resolution Assessment Part of the PRA Rulebook set out in policy statement PS15/19 and its accompanying supervisory statement SS4/19. The new rules in PS15/19 will take effect on 1 August 2019. 

 

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Risk management and controls

 

EIOPA consults on supervision of remuneration principles for insurers and reinsurers

EIOPA published a consultation on its draft opinion on the supervision of remuneration principles in the insurance and reinsurance sector. The draft opinion is addressed to national supervisory authorities and aims to enhance supervisory convergence. The consultation closes on 30 September 2019.

CCP12 publishes position paper on third-party risk management

CCP12 published a position paper on effective third-party risk management processes for CCPs.

Treasury Committee hears further evidence on IT failures in financial services

The House of Commons Treasury Committee published further oral evidence, given on 24 July 2019, as part of its inquiry into IT failures in the financial services sector. 

 

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Financial crime

 

FCA further consults on recovering the costs of OPBAS

The FCA published consultation paper 19/24 (CP19/24): Recovering the costs of OPBAS: feedback on CP19/13 and consultation on fee-rate for 2019/20. The consultation paper provides feedback on the outcome of the consultation that the FCA conducted in March 2019 (CP19/13) on the structure of fees for recovering the costs of establishing and running the Office for Professional Body Anti-Money Laundering Supervision (OPBAS). The consultation paper also sets the fee rate for 2018/19 and consults on the fee rate for 2019/20.

FATF publishes procedures for its fourth round of mutual evaluations

The Financial Action Task Force (FATF) set out the procedures for the fourth round of mutual evaluations for its members based on the FATF Recommendations (2012), and the Methodology for assessing compliance with the FATF Recommendations and the effectiveness of anti-money laundering (AML) and counter-terrorist financing systems (2013).

FMLC highlights issues of legal uncertainty in relation to virtual currencies

The Financial Markets Law Committee (FMLC) wrote to HM Treasury regarding its consultation on the transposition of the Fifth Anti-Money Laundering Directive (5MLD). The FMLC highlights uncertainty in respect of 5MLD’s definition of virtual currencies, noting the definition in 5MLD seems to exclude the possibility of cryptoassets which qualify as money being caught within the regulatory perimeter, and therefore excludes some of the best-known cryptoassets. At the same time, the FMLC published a report entitled ‘Initial coin offerings: issues of legal uncertainty’.

FATF publishes follow up reports on AML/CTF regimes in Zimbabwe and Mauritania

FATF published follow-up reports on the AML and CTF regimes in Zimbabwe and  Mauritania.

Serious Fraud Office charges second individual in Global Forestry Investments investigation

The Serious Fraud Office (SFO) announced that Omari Bowers, a former director of Global Forestry Investments, was charged with conspiracy to defraud, forgery and misconduct in the course of winding up. The charges relate to alleged frauds concerning Global Forestry Investments between August 2010 and December 2015. Bowers is due to appear at Westminster Magistrates’ Court on 2 August 2019. He is a second individual charged in relation to SFO’s investigation into Global Forestry Investments. 

 

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Consumer protection and claims management regulation

 

AG opinion on national courts’ powers to save consumer contracts after removal of unfair terms

An opinion of advocate general (AG) Pitruzella of the European Court of Justice was published, in which the AG considered issues relating to a national court’s ability to save a consumer contract after terms held to be unfair under the Unfair Contract Terms Directive ( Directive 93/13/EEC) were removed. The opinion was given in relation to Dziubak and another v Raiffeisen Bank International AG (Case C-260/18).

EIOPA chair opens Consumer Protection Day 2019

EIOPA published the opening address delivered by its chair, Gabriel Bernardino, at the joint European Supervisory Authorities’ Consumer Protection Day 2019. Mr Bernardino said consumer protection was a key part of the regulators’ role as they sought to create ‘consumer-centric regulation and sound and preventive supervision’. 

 

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Competition in financial services

 

UK merger: Acquisition of Charter Court Financial Services Group by OneSavings Bank cleared

On 30 July 2019, the Competition and Markets Authority (CMA) announced its decision to clear the anticipated acquisition of Charter Court Financial Services Group plc by OneSavings Bank plc following a phase 1 investigation. The full text of the decision will be available shortly. 

 

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Enforcement and redress

 

FCA final notices for Cathay International and executives for listing, disclosure and transparency breaches

The FCA issued final notices against Cathay International Holdings Limited, its CEO, Jin-Yi Lee, and its finance director, Eric Siu. The firm and individuals decided not to refer the matter to the Upper Tribunal.

BoE speech on the PRA’s approach to enforcement

The head of the PRA’s legal, enforcement & litigation division, Miles Bake, gave a speech on the PRA’s approach to enforcement. Mr Bake addresses the rationale for PRA enforcement, the PRA’s track record and current portfolio, notes key themes, including in relation to individuals, and discusses the PRA’s enforcement agenda.

Andrew Bailey addresses Lendy Ltd and P2P lending

The chief executive of the FCA, Andrew Bailey, wrote to Lord Myners regarding the administration of Lendy Ltd (Lendy). Mr Bailey sets out information on peer-to-peer (P2P) firms, the FCA’s authorisation and supervision of Lendy, and the FCA’s rules for P2P firms. He notes the FCA is carrying out an enforcement investigation into the circumstances that led to Lendy’s administration.

Sussex Independent Financial Advisers Ltd v Financial Conduct Authority

The applicant company's application for suspension of the effect of a supervisory notice issued to it by the FCA depended on whether the condition in r 5(5) of the Tribunal Procedure (Upper Tribunal) Rules 2008, SI 2008/2698, was satisfied. The Upper Tribunal (Tax and Chancery Chamber) held that, having considered all the circumstances, there would be a significant risk of prejudice to the interests of existing and future consumers of the applicant company as well as its former consumers with the result that the condition in r 5(5) was not satisfied. Consequently, the application was dismissed.

FCA urges consumers to think back as PPI deadline closes in

The FCA issued a press release urging consumers to jog their memories back to the 1990s and 2000s when they potentially bought products and were mis-sold payment protection insurance (PPI) at the same time, ahead of the 29 August 2019 deadline for making a claim.

Preliminary plans for investigation into regulation of London Capital & Finance plc announced

Dame Elizabeth Gloster made a first announcement on how she will conduct the investigation into events relating to the regulation of London Capital & Finance plc and the role of the FCA. She aims to engage with bondholders, professional organisations and other interested parties in an organised and structured way. Details of the engagement programme and the best ways for bondholders and others to communicate with the investigation will be published on the FCA website, which will be updated as the investigation continues. 

 

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Markets and trading

 

ECB Guideline on the euro short-term rate (€STR) published in OJ

Guideline (EU) 2019/1265 of the ECB of 10 July 2019 on the euro short-term rate (€STR) (ECB/2019/19) was published in the Official Journal of the EU (OJ). The Guideline governs the euro short-term rate and establishes the ECB's responsibility for its administration and the oversight of the euro short-term rate determination process. The Guideline also establishes the tasks and responsibilities of the ECB and the national central banks in the Euro area with respect to their contribution to the euro short-term rate determination process and other business procedures.

Two implementing decisions on Benchmark Regulation equivalence published in OJ

Two Commission Implementing Decisions recognising the legal and supervisory framework of non-EU jurisdictions as equivalent to the requirements of the Regulation (EU) 2016/1011 (the Benchmark Regulation) were published in the OJ. The decisions recognise that the administrators of certain interest rates and foreign exchange benchmarks in Australia and Singapore are subject to legally binding requirements which are equivalent to the EU requirements set out in the Benchmark Regulation. The decisions published were:

Investment Association publishes addendum to industry guidance on benchmarks and performance

The Investment Association (IA) published an addendum to its industry guidance on benchmarks and performance. The addendum seeks to address concerns raised by firms regarding potential inconsistencies between March 2019 changes to the ESMA Q&As on the application of the UCITS Directive regarding how undertakings for collective investment in transferable securities (UCITS) disclose benchmarks, and the FCA’s position on the subject in its policy statement PS19/04.

IOSCO pushes for early transition to RFRs

The International Organization of Securities Commissions (IOSCO) published a statement on communication and outreach to inform relevant stakeholders regarding benchmarks transition, which seeks to raise awareness of the impact of LIBOR’s likely cessation and the need for relevant stakeholders to transition from the widely used USD LIBOR and other inter-bank offered rates (IBORs) to risk free rates (RFRs), particularly to the new US secured overnight financing rate (SOFR).

BoE policy statement on fees regime for financial market infrastructure supervision 2019/20

The BoE published a policy statement containing responses to its consultation paper ‘Fees regime for financial market infrastructure supervision 2019/20 and other related policy changes’, along with the fee rates for 2019/20. The BoE expects to issue invoices in August 2019 for the 2019/20 fee year which will include any rebate or shortfall from the 2018/19 fee year.

ISDA publishes results of consultation on supplemental benchmark fallbacks

The International Swaps and Derivatives Association (ISDA) published a summary of the preliminary results of its supplemental consultation on supplemental benchmark fallbacks. The adjustments would apply to fallback rates in the event that certain IBORs are permanently discontinued. The consultation set out options for spread and term adjustments if fallbacks are triggered for derivatives referencing US dollar LIBOR, Hong Kong’s HIBOR and Canada’s CDOR. 

 

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MiFID II

 

ESMA updates Q&As on MiFIR data reporting test

ESMA updated its Q&As on data reporting under the Markets in Financial Instruments Regulation (MiFIR).

ESMA publishes product intervention opinions for Germany, Hungary, Malta and Poland

The ESMA issued four opinions on product intervention measures taken by the national competent authorities (NCAs) of Germany, Hungary, Malta and Poland. The measures all relate to contracts for differences. 

 

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Regulation of capital markets and Capital Markets Union

 

PEPP Regulation published in OJ

Regulation (EU) 2019/1238 of the European Parliament and of the Council of 20 June 2019 on a pan-European Personal Pension Product (PEPP) was published in the OJ. It will enter into force on 14 August 2019 and apply from the date 12 months after publication in the OJ of the delegated acts referred to in Articles 28(5), 30(2), 33(3), 36(2), 37(2), 45(3) and 46(3).

Nine implementing decisions on CRA III regulatory equivalence published in OJ

Nine Commission Implementing Decisions recognising the legal and supervisory framework of non-EU jurisdictions as equivalent to the requirements of the Credit Rating Agencies Regulation (Regulation (EU) 1060/2009) (CRA Regulation), or repealing earlier equivalence determinations, were published in the OJ. The decisions recognise the regulatory frameworks of the United States of America, Mexico, Japan and Hong Kong as equivalent, and repeal previous decisions which recognised Australia, Canada, Singapore, Brazil and Argentina as equivalent to the CRA Regulation requirements. The implementing decisions published were:

CMU: new rules enter into force to foster cross-border distribution of investment funds

Regulation (EU) 2019/1156 of the European Parliament and of the Council of 20 June 2019 on facilitating cross-border distribution of collective investment undertakings and Directive 2011/61/EU (the Alternative Investment Fund Managers Directive) with regard to cross-border distribution of collective investment undertakings, came into force. The new rules are designed to make cross-border distribution simpler, quicker, cheaper, and increase choice for investors while safeguarding a high level of protection.

AFME publishes updated EEA and UK selling restrictions for equity transactions

The Association for Financial Markets in Europe (AFME) published revised selling restrictions for equity transactions. The selling restrictions were revised to reflect the application in full of the Prospectus Regulation EU 2017/1129 and speak as of 21 July 2019.

FCA consults on STS notifications under the onshored Securitisation Regulation

The FCA published consultation paper CP19/26, setting out draft technical standards on the content and format of STS notifications under the onshored Securitisation Regulation. The consultation is part of the FCA’s preparation in case the UK leaves the EU on 31 October 2019 without an implementation period and the relevant EU technical standards are not brought into UK law as part of the EU Withdrawal Act. Feedback is sought by 27 August 2019.

EBA consults on determining weighted average maturity of contractual payments due under the tranche of a securitisation transaction under CRR

The EBA launched a public consultation on draft guidelines on the methodology to determine the WAM of contractual payments due under the tranche of a securitisation transaction, in accordance with the CRR. The consultation closes on 31 October 2019.

ESMA updates practical guide to national rules on notifying major holdings under the Transparency Directive

ESMA published an updated version of its practical guide to national rules on notifications of major holdings under the Transparency Directive. The guide summarises the main rules and practices applicable in the EEA member states (except Lichtenstein) in relation to notifications of major holdings under national law in accordance with the Transparency Directive 2004/109/EC.

ESMA publishes feedback on SFTR reporting guidelines consultation

ESMA published the responses it received to its consultation on draft guidelines on how to report securities financing transactions. ESMA expects to publish a final report on the guidelines on reporting under the Securities Financing Transactions Regulation (Regulation (EU) 2015/2365) (SFTR) in Q4 2019.

ICMA briefing argues case for deepening the CMU

The International Capital Market Association (ICMA) published a briefing on integrated capital markets and capital markets union (CMU). ICMA says it continues to see significant value in the further development of the CMU concept, and that the idea of integration behind it is integral to much of ICMA’s own work, which ‘strives to avoid unnecessary market fragmentation and disruption given that such aspects run counter to the development of deep, liquid, efficient markets'. 

 

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Regulation of derivatives

 

Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc, and Transitional Provision) (EU Exit) (No 2) Regulations 2019

SI 2019/Draft: This draft enactment is laid in exercise of legislative powers under the European Communities Act 1972 and the European Union (Withdrawal) Act 2018 in preparation for Brexit. This draft enactment proposes to amend UK primary and subordinate legislation and retained direct EU legislation in relation to OTC derivatives, CCPs and TRs in order to ensure that the related legislation continue to operate effectively at the point at which the UK leaves the EU. It comes into force partly on the day after the day on which these Regulations are made and fully on exit day.

ESMA publishes feedback from EMIR 2.2 consultations

ESMA published the responses it received to its consultations on tiering, comparable compliance and fees under amendments to the European Market Infrastructure Regulation (EMIR 2.2), aimed at UK-based CCPs after Brexit.

ESMA publishes product intervention opinions for Germany, Hungary, Malta and Poland

The ESMA issued four opinions on product intervention measures taken by the NCAs of Germany, Hungary, Malta and Poland. The measures all relate to contracts for differences.

EACH welcomes IOSCO and BCBS decision on derivatives threshold

The European Association of Central Counterparty Clearing Houses (EACH) issued a statement on the work of the Basel Committee on Banking Supervision (BCBS) and IOSCO on margin requirements for non-centrally cleared derivatives. Despite the announced delay in the application of the final implementation of the margin requirements, EACH welcomes the authorities’ decision to maintain the threshold of €8bn of aggregate average notional amount of non-centrally cleared derivatives for covered entities to be subject to the requirements.

CCP12 publishes position paper on third-party risk management

CCP12 published a position paper on effective third-party risk management processes for CCPs.

John Glen updates European Union Committee on EMIR 2.2 proposals

The economic secretary to the Treasury, John Glen, wrote to the chair of the European Union Committee, Sir William Cash, updating the committee on the provision of information on EMIR 2.2 (10363/17 and 10850/17) and on the proposed Directive on credit servicers, credit purchasers and the recovery of collateral (7403/18). Mr Glen explained the UK’s worries about EMIR 2.2 potentially undermining consumer protection in the UK, and introducing impedimentary burdens.

 

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Investment funds and asset management

 

CMU: new rules enter into force to foster cross-border distribution of investment funds

Regulation (EU) 2019/1156 of the European Parliament and of the Council of 20 June 2019 on facilitating cross-border distribution of collective investment undertakings and the Alternative Investment Fund Managers Directive with regard to cross-border distribution of collective investment undertakings, came into force. The new rules are designed to make cross-border distribution simpler, quicker, cheaper, and increase choice for investors while safeguarding a high level of protection.

Investment Association publishes addendum to industry guidance on benchmarks and performance

The IA published an addendum to its industry guidance on benchmarks and performance. The addendum seeks to address concerns raised by firms regarding potential inconsistencies between March 2019 changes to the ESMA Q&As on the application of the UCITS Directive regarding how UCITS disclose benchmarks, and the FCA’s position on the subject in its policy statement PS19/04.

Association of Investment Companies proposes requirement for fund managers to explain plans for potential liquidity mismatches

The chief executive of the Association of Investment Companies, Ian Sayers, wrote to the chair of the Treasury Committee, Nicky Morgan MP, in relation to the Woodford Equity Income Fund suspension. In the letter, Mr Sayers sets out proposals to require fund managers to explain their plans to deal with potential liquidity mismatches and relate that to the commitments made to investors.

BVCA update for July 2019 discusses Brexit developments and the Alison Rose review

The BVCA published its July 2019 policy and technical update, which sets put the association’s responses to consultations on the review of the Social Investment Tax Relief and the EU State Aid framework. Also discussed are Brexit issues, and the BVCA’s involvement in the Alison Rose review on investing in women. 

 

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Banks and mutuals

 

BoE and PRA finalise resolvability assessment framework

The BoE and the PRA confirmed their proposals to further protect the economy and taxpayers from bank failure by putting in place the RAF, which they describe as ‘the final major piece of the UK’s resolution regime for banks’. The RAF is implemented by the BoE’s statement of policy on its approach to assessing resolvability, as well as a new Resolution Assessment Part of the PRA Rulebook set out in policy statement PS15/19 and its accompanying supervisory statement SS4/19. The new rules in PS15/19 will take effect on 1 August 2019.

UNEP FI publishes Principles for Responsible Banking and supporting framework

The United Nations Environment Programme Finance Initiative (UNEP FI) released the final official versions of its Principles for Responsible Banking and their supporting framework documents. They provide a single framework for the development of a sustainable banking industry. In doing so, the Principles set out the banking industry’s role and responsibility in shaping a sustainable future and in aligning the banking sector with the objectives of the UN Sustainable Development Goals and the 2015 Paris Climate Agreement.

Banking Standards Board publishes Consumer Framework

The Banking Standards Board (BSB) published the BSB Consumer Framework, which sets out five consumer principles, outcome statements for each of the principles, and examples of what those outcomes might look like in practice to consumers.

PRA publishes banking supervisory disclosures required by CRD IV

The PRA, as a competent authority, published information on rules and guidance, options and discretions, the supervisory review and evaluation process (SREP), and aggregate statistical data, alongside submitting the information to the EBA, in line with requirements set out in Article 143 of Directive 2013/36/EU (CRD IV) and Commission Implementing Regulation 650/2014. The purpose of publishing such information is to enable a comparison of the approaches adopted by the competent authorities of the different Member States and foster a uniform level of transparency and accountability between supervisory authorities.

Joint statement on secure open standards of communication between banks and third-party providers

The European Commission welcomed a joint statement by credit sector associations and third-party providers (TPPs), which it says contains ‘pragmatic mutual commitments by banks and TPPs showing that they work hand-in-hand to ensure business continuity in payments’.

Credit Suisse Securities (Europe) Ltd and other companies v Revenue and Customs Commissioners

The claimant companies' claim failed. The claimants, who were all members of the Credit Suisse group, challenged a tax (BPT), which applied to taxable companies between December 2009 and April 2010. The Chancery Division held that banks taxed under BPT and banks that were not taxed were not in a comparable situation. The imposition of BPT on Credit Suisse was therefore not selective for state aid purposes and was not unlawful. 

 

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Regulation of insurance

 

Regulation laying down Solvency II technical information published in the Official Journal

European Commission Implementing Regulation (EU) 2019/1285 of 30 July 2019 laying down technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 30 June 2019 until 29 September 2019, in accordance with Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II), was published in the OJ.

EIOPA provides update on change of data provider for RFR term structures

EIOPA published the list of Reuters Instrument Codes (RICs) of financial market data for the calculation of the technical information relating to the risk-free interest rates term structures. Stakeholders are invited to comment on the specific RICs chosen by EIOPA or submit any comment on the process by 16 August 2019.

EIOPA consults on supervision of remuneration principles for insurers and reinsurers

EIOPA published a consultation on its draft opinion on the supervision of remuneration principles in the insurance and reinsurance sector. The draft opinion is addressed to national supervisory authorities and aims to enhance supervisory convergence. The consultation closes on 30 September 2019.

EIOPA updates Q&As on templates for the submission of information to supervisory authorities

EIOPA issued an updated version of its Q&A document on templates for the submission of information to supervisory authorities under Commission Implementing Regulation (EU) 2015/2450.

EIOPA Risk Dashboard shows macro and market risks now at a high level

EIOPA published its updated Risk Dashboard based on the first quarter 2019 Solvency II data. The results show that the risk exposures of the European Union insurance sector remain overall stable, with macro and market risks now at a high level. This is due to a further decline in swap rates and lower returns on investments in 2018, which put strain on those life insurers offering guaranteed rates.

Replacement home insurance cover secured for customers of LAMP Insurance Company

The Financial Services Compensation Scheme announced that replacement home insurance cover was secured with Red Sands for home insurance policyholders whose policies were previously underwritten by LAMP Insurance Company. LAMP, a Gibraltar based insurer was placed into liquidation on 31 May 2019.

Association of British Insurers updates guidance on dealing with people with criminal convictions

The Association of British Insurers (ABI) published updated guidance on how to treat people with criminal convictions fairly and in compliance with the law. The guide was updated to reflect changes to the law, regulatory requirements and insurer market practice as well as to take account of recommendations made by Unlock, a charity supporting people with convictions. The guide is voluntary but ABI members are encouraged to regularly review their products and processes to ensure that their approach remains in compliance with relevant legislation and regulatory requirements.

Insurance Europe responds to EIOPA consultation on sustainability within Solvency II

Insurance Europe (IE) the European insurance and reinsurance federation, published its response to an EIOPA consultation paper on sustainability in Solvency II. In its response, IE says EIOPA should consider proportionality and flexibility in potential sustainability requirements in Solvency II.

EU sets two-month deadline for Solvency II capital compliance

The European Commission targeted five member states for incorrectly transposing capital requirements for insurers and warned six others about failing to implement market abuse rules designed to make benchmark manipulation a criminal offence, setting a two-month deadline for compliance.

Insurance body calls for equivalence to meet no-deal Brexit

On 29 July 2019, the London Market Group released a Brexit update, stating Britain must secure mutual market access with the European Union for the insurance industry as a no-deal Brexit becomes more likely. 

 

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Regulation of personal pension and stakeholder products

 

PEPP Regulation published in OJ

Regulation (EU) 2019/1238 of the European Parliament and of the Council of 20 June 2019 on a PEPP was published in the OJ. It will enter into force on 14 August 2019 and apply from the date 12 months after publication in the Official Journal of the delegated acts referred to in Articles 28(5), 30(2), 33(3), 36(2), 37(2), 45(3) and 46(3).

TPR consults on new guidance to support tougher rules on investment governance

The Pensions Regulator (TPR) is consulting on four draft guides to deliver the CMA's recommendation to TPR to produce guidance to trustees of occupational pension schemes on engaging with investment consultants and fiduciary managers. The consultation runs until 11 September 2019.

FCA publishes proposals to protect consumers transferring out of DB pension schemes

The FCA published a package of pension-related proposals aimed at improving the quality of pension transfer advice and helping consumers get better value from their pension. The package includes a proposed ban on contingent charging for pension transfer advice (in consultation paper CP19/25), an update on the FCA’s work on non-workplace pensions (in feedback statement FS19/5) and the final policy statement (PS19/21) for its Retirement Outcomes Review. The consultation period for CP19/25 ends on 30 October 2019 and the feedback period for FS19/5 ends on 8 October 2019. Rachel Pinto, partner at Herbert Smith Freehills, is generally pleased with the proposed changes. However, she notes that ‘the success of these measures will ultimately depend on how well advisers are policed by the FCA’. Alasdair Smith, managing associate at Linklaters, contends that the ‘question of whether to transfer out of a defined benefit (DB) pension plan is one of the most important financial decisions a person may make’. Consequently, he sees the removal of ‘a financial incentive for advisors’ as the right decision.

IE calls for pension products to be excluded from Financial Transaction Tax

IE called on the ten EU Member States participating in the European Financial Transaction Tax (FTT) to exempt all pension products from its scope. IE says it is convinced in general that an FTT at European level would lead to a negative impact on the real economy overall and does not support its inception. More specifically, IE says applying the tax to pensions could discourage long-term savings, especially those associated with risk coverage.

ACA calls for truly flexible savings product

In its response to the FCA’s discussion paper on intergenerational differences (DP19/2), the Association of Consulting Actuaries (ACA) called for the development of a truly flexible savings product that could facilitate both pension saving (with ability to benefit from tax relief and employer contributions) with the ability to also save to buy a house without incurring any penalty for withdrawing funds from the pension early.

Work and Pensions Committee seeks clarity on regulatory plans for defined benefit consolidation by ‘superfunds’

The chair of the Work and Pensions Committee, Frank Field MP, wrote to the Parliamentary under secretary of state for pensions and financial inclusion, Guy Opperman MP, warning of the risk of certain ‘superfunds’, which seek to consolidate DB pension schemes, going live with only ‘voluntary regulation’ in place. Mr Field said it was ‘clearly important to get the legislation right in this complex area’ and said leaving superfunds to operate in a regulatory system not designed to accommodate them ‘cannot be an option’. 

 

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Payment services and systems

 

PSR launches consultation on updated Powers and Procedures Guidance

The Payment Systems Regulator (PSR) published a  consultation document on its updated Powers and Procedures Guidance (PPG). This is the first update to the PPG since the PSR became operational in 2015, and sets out more fully how the PSR will use its powers under the Financial Services Banking Reform Act 2013 (FSBRA). The consultation closes on 17 October 2019.

EBA publishes clarifications to the fourth set of issues raised by its working group on APIs under PSD2

The EBA published responses to a fourth set of issues raised by participants of its working group on application programming interfaces under the second Payment Services Directive 2015/2366 (PSD2). These clarifications cover payment execution, biometrics and authentication on mobile apps, access to non-payment account information, stress testing, qualified electronic identification and trust services certificates for account servicing payment service providers , the four-times-per-day access by account initiation service providers, and the sharing of payment account number with payment initiation service providers.

European Cards Stakeholders Group issues bulletin on strong customer authentication

The European Cards Stakeholders Group issued a bulletin on the Single European Payment Area cards standardisation (SCS) Volume (SCS Volume) concerning the exemptions to strong customer authentication (SCA) for contactless transactions under Article 11 of Commission Delegated Regulation (EU) 2018/389 with regard to regulatory technical standards (RTS) for SCA and common and secure open standards of communication (RTS-SCA).

Joint statement on secure open standards of communication between banks and third-party providers

The European Commission welcomed a joint statement by credit sector associations and TPPs, which it says contains ‘pragmatic mutual commitments by banks and TPPs showing that they work hand-in-hand to ensure business continuity in payments’. 

 

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Fintech and cryptoassets

 

FCA sets out final guidance on its regulation of cryptoassets in PS19/22

The FCA published PS19/22: Guidance on cryptoassets, which aims to give clarity on the types of cryptoassets that fall within the FCA’s regulatory remit and the resulting obligations on market participants. The final guidance is published in response to the FCA’s consultation in January 2019 (CP19/3) which in turn followed publication of the Cryptoasset Taskforce’s report in October 2018.

ECB president responds to questions on stablecoin initiatives

The ECB president, Mr Mario Draghi, responded to  questions raised by Markus Ferber MEP, on how European central banks are monitoring stablecoin initiatives, such as Facebook’s Libra. Mr Draghi set out current monitoring activity by European central banks and stressed the need for technology-neutral regulation, which would prevent regulatory arbitrage and mean that technological innovation would not be inadvertently constrained.

FMLC highlights issues of legal uncertainty in relation to virtual currencies

The FMLC wrote to HM Treasury regarding its consultation on the transposition of 5MLD. The FMLC highlights uncertainty in respect of 5MLD’s definition of virtual currencies, noting the definition in 5MLD seems to exclude the possibility of cryptoassets which qualify as money being caught within the regulatory perimeter, and therefore excludes some of the best-known cryptoassets. At the same time, the FMLC published a report entitled ‘Initial coin offerings: issues of legal uncertainty’.

World Federation of Exchanges calls for harmonisation of global crypto regulation

The World Federation of Exchanges (WFE), the global industry group for exchanges and CCPs responded to IOSCO’s consultation report on issues, risks and regulatory considerations relating to crypto-asset trading platforms. The WFE welcomes the report, saying it is clear from IOSCO’s findings that a fragmented approach developed across jurisdictions in the regulation of crypto-assets trading platforms. 

 

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Sustainable finance

 

UNEP FI publishes Principles for Responsible Banking and supporting framework

UNEP FI released the final official versions of its Principles for Responsible Banking and their supporting framework documents. They provide a single framework for the development of a sustainable banking industry. In doing so, the Principles set out the banking industry’s role and responsibility in shaping a sustainable future and in aligning the banking sector with the objectives of the UN Sustainable Development Goals and the 2015 Paris Climate Agreement.

NGFS publishes an overview of climate-related impact assessments on financial stability

The Network for Greening the Financial System (NGFS) published a technical supplement ‘Macroeconomics and financial stability: Implications of climate change’ to the April 2019 NGFS Comprehensive report. The supplement provides an overview of existing approaches for quantitatively assessing climate-related risks and identifies key areas for further research. It also sets out a menu of options for central banks and supervisors to assess the risks.

 

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Islamic finance

 

IFSB issues Islamic financial services industry stability report 2019

The Islamic Financial Services Board (IFSB) published the Islamic financial services industry (IFSI) stability report 2019. The report examines the implications for the global IFSI of recent economic developments and changes in the global regulatory and supervisory frameworks, tracks developments, and examines the resilience of the three sectors of the IFSI: Islamic banking, the Islamic capital market and takāful. The report also considers regulatory and supervisory developments in the IFSI arising from blockchain technology. 

 

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Dates for your diary

 

DateSubjectEvent
29 July to 2 August 2019Financial crime

The FCA’s 2019 global AML and financial crime TechSprint, runs from 29 July to 2 August 2019.

 

1 August 2019

Banks and mutuals

Prudential regulation

 

The PRA’s Systemic Risk Buffer rates for ring-fenced banks and large building societies are applicable from 1 August 2019.

 

1 August 2019

Regulation of derivatives

MiFID II

 

Expiry date of ESMA decision 2019/509 which renewed and amended ESMA decision (EU) 2018/796 which imposes a temporary ban on the marketing, distribution or sale of binary options. The ban may be renewed for a period of no more than three months at a time.

 

1 August 2019

Conduct requirements

Payment services and systems

 

Firms must comply with the rules and guidance set out in FCA ‘PS19/3: General standards and communication rules for the payment services and e-money sectors’ from 1 August 2019, as set out in the Payment Services and Electronic Money (Principles for Businesses and Conduct of Business) Instrument 2019 (FCA 2019/5).

 

1 August 2019Investment funds and asset management

Regulation (EU) 2019/1156 on facilitating cross-border distribution of collective investment undertakings and amending Regulation (EU) 345/2013(the EuVECA Regulation), Regulation (EU) 346/2013 (the EuSEF Regulation) and Regulation (EU) 1286/2014 (the PRIIPs Regulation) will apply from 1 August 2019 (a small number of provisions will apply from August 2021). Directive (EU) 2019/1160 amending Directive 2009/65/EC (the UCITS Directive) and Directive 2011/61/EU (the AIFMD) with regard to cross-border distribution of collective investment undertakings, will enter into force on 1 August 2019.

 

1 August 2019

Banks and mutuals

Consumer credit, mortgage and home finance

Regulation of insurance

  

The deadline for responses to the FCA’s discussion paper on intergenerational differences (DP19/2: Intergenerational differences) is 1 August 2019.

 

1 August 2019

Conduct requirements

Payment services and systems

 

FCA rules amending the Principles for Business and BCOBS in relation to general standards on communication for the payment services and e-money sectors enter into force. The rules are set out in PS19/3: General standards and communication rules for the payment services and e-money sectors.

 

1 August 2019Payment services and systems

The deadline for responses to the PSR’s consultation MR18/1.6: Consultation on our proposed approach to the profitability analysis is 1 August 2019.

 

1 August 2019

Consumer protection and claims management regulation

Prudential regulation

 
Prudential resources requirement for claims management companies come into force (PS18/23).
1 August 2019

MiFID II

Regulation of derivatives

 

The FCA’s new rules restricting the sale, marketing and distribution of contracts for difference to retail customers will apply from 1 August 2019.

 

2 August 2019

Banks and mutuals

Financial stability, recovery and resolution

 

The deadline for responses to the FSB’s two discussion papers on (1)public disclosure of resolution planning and resolvability, and (2) solvent wind-down of derivatives and trading portfolios by global systemically important banks is 2 August 2019.

 

2 August 2019Enforcement and redress

Baroness Zahida Manzoor CBE will take up her role as chair of the FOS on 2 August 2019.

 

2 August 2019Prudential regulation

The deadline for feedback to the EBA’s consultation on four draft RTS on the standardised approach for counterparty credit risk is 2 August 2019.

 

5 August 2019MiFID II

NCA’s to which ESMA’s Guidelines, on the application of C6 and C7 of Annex 1 of MiFID II, apply must notify ESMA whether they comply or intend to comply with the Guidelines by 5 August 2019.

 

7 August 2019Consumer credit, mortgage and home finance

The deadline for feedback to FCA CP19/18: Overdraft Pricing and Competition Remedies is 7 August 2019.

 

7 August 2019Financial stability, recovery and resolution

The deadline for feedback to the FSB’s consultation on its evaluation of the effects of post-crisis financial regulatory reforms on the financing of small and medium-sized enterprises is 7 August 2019.

 

7 August 2019Regulation of insurance

The deadline for feedback to PRA CP13/19: Occasional Consultation Paper is 7 August 2019.

 

7 August 2019Authorisation, approval and supervision

The deadline for feedback to PRA CP12/19: Strengthening individual accountability: Resolution assessments and reporting amendments is 7 August 2019.

 

8 August 2019Regulation of insurance

Commission Delegated Regulation (EU) 2019/981 (the Solvency II Delegated Regulation) will enter into force on 8 August 2019. Certain provisions (points (50), (59) to (61), (66) and (74) of Article 1) will apply from 1 January 2020.

 

 

 

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