FS weekly highlights—12 March 2020

FS weekly highlights—12 March 2020

In this issue

 

 

COVID-19
Brexit news
MiFID II
UK, EU and international regulators and bodies
Authorisation, approval and supervision
Prudential requirements
Financial stability, recovery and resolution
Risk management and controls
Consumer protection
Financial crime
Complaints, compensation and claims management
Investigations, enforcement and discipline
Competition in financial services
Markets and trading
Regulation of capital markets
Investment funds and asset management
Banks and mutuals
Consumer credit, mortgage and home finance
Regulation of insurance
Regulation of personal pension and stakeholder products
Payment services and systems
Fintech and cryptoassets
Sustainable finance
Dates for your diary

 

COVID-19

EU and UK organisations issue coronavirus advice, travel rules and support

A number of EU and UK financial authorities issued updates in response to the coronavirus epidemic. The European Banking Authority (EBA) cancelled travel and live meetings. The UK Financial Ombudsman published preliminary guidance to consumers on their rights related to cancellations etc, while UK Finance issued a statement saying UK banks, building societies and credit card providers are ‘ready and able to offer support’ to their customers who are financially impacted directly or indirectly.

Sources: EBA tightens measures to mitigate spreading of the coronavirusInformation for consumers and businesses about financial services complaints caused or affected by coronavirus and  Banking and finance industry announces support for customers and SME businesses impacted by COVID-19.

BoE announces measures and PRA issues supervisory guidance to address COVID-19 uncertainty

The three policy committees of the Bank of England (BoE)—the Monetary Policy Committee (MPC), the Financial Policy Committee (FPC) and the Prudential Regulation Committee (PRC)—announced a ‘comprehensive and timely’ package of measures aimed at helping UK businesses and households bridge across the economic disruption that is likely to be associated with COVID-19. The Prudential Regulation Authority (PRA) has also issued a statement to accompany the measures announced by the FPC.

Sources: Bank of England measures to respond to the economic shock from COVID-19Statement by the PRA accompanying measures announced by the Financial Policy CommitteeTerm Funding Scheme with additional incentives for SMEs (TFSME)—Market Notice and  Press conference following the announcement of measures to respond to the economic shock from COVID-19

European Securities and Markets Authority advises on action over coronavirus

The European Securities and Market Authority (ESMA) urged financial market participants to act over the potential impact of the coronavirus (COVID-19). Along with National Competent Authorities (NCAs), ESMA is monitoring the outbreak and announced that it is prepared to use powers to ensure the orderly functioning of the markets, investor protection and financial stability.

Source: ESMA recommends action by financial market participants for COVID-19 impact.

ECB sets out its expectations on preparedness for COVID-19

The European Central Bank (ECB) published a letter to significant institutions setting out the actions they are expected to take for preparing and responding to a potential pandemic.

Source: Contingency preparedness in the context of COVID-19.

ISDA publishes recording outlining the legal issues posed to members by coronavirus

The International Swaps and Derivatives Association (ISDA) published a recording of a call held to discuss the potential legal and documentation issues arising from the coronavirus outbreak. When developing responses to the outbreak, ISDA members may wish to consider the issues highlighted in the call.

Source: Recording: ISDA Call: COVID-19 update and discussion.

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Brexit news

Brexit Bulletin—round 1 of future relationship talks confirm ‘very serious’ differences

Following the first round of negotiations on the future UK-EU relationship, EU Chief Negotiator Michel Barnier gave an address. The first round of talks provided an opportunity to ‘exchange, compare and clarify’ the UK and EUs’ respective positions, and identify ‘points of convergence and divergence’. In his remarks, Mr Barnier spoke of constructive talks, but warned of ‘very serious differences’ between the UK and the EU on key issues, which he described as unsurprising, but very difficult. He also warned stakeholders on both sides to prepare for unavoidable 'future points of friction' which will arise at the end of transition whether there is a deal or not.

Source: Negotiations with the UK: Michel Barnier, the European Commission's Chief Negotiator, sets out points of convergence and divergence following the first round of negotiations.

Spring Budget 2020: Treasury consults on UK/Gibraltar financial services market access arrangements

HM Treasury opened a consultation seeking views on the government’s proposals to introduce a new long-term legislative regime enabling market access for financial services firms based in Gibraltar. The government has already introduced temporary arrangements to protect access, which will be in place until permanent arrangements are delivered. The consultation will run until 11 May 2020.

Source: Market access arrangements for financial services between the UK and Gibraltar: a consultation.

Decisions of EEA Joint Committee published in the Official Journal

Six decisions of the EEA Joint Committee dated 13 December 2019, amending Annex IX (Financial Services) to the EEA Agreement to incorporate financial services measures, were published in the Official Journal. The decisions cover (among others) level 2 measures under CSDR, MAR, AIFMD and IDD.

Sources:

BoE speech on post-Brexit framework for prudential regulation

The BoE’s executive director of prudential policy, Victoria Saporta, gave a speech setting out a framework for thinking about an ideal system of prudential regulation for the future based on an independent regulatory body with a clear mandate and strong accountability to Parliament.

Source: The ideal post-EU regulatory framework—speech by Victoria Saporta.

For information on the impact of Brexit on prudential regulation, see Lexis PSL:  Preparing for Brexit: CRR and prudential regulation—quick guide.

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MiFID II

ESMA consults on the transparency regime for non-equity instruments and the trading obligation for derivatives under MiFIR

ESMA launched a consultation paper reviewing the transparency regime for non-equity instruments and the trading obligation for derivatives under the Markets in Financial Instruments Regulation (MiFIR). It contains ESMA’s proposals for possible amendments to the transparency regime based on in-depth data analyses of the effects of the current regime since January 2018. Feedback is sought by 19 April 2020.

Source: ESMA consults on MIFIR transparency regime for non-equity instruments.

For further information on the trading obligation for derivatives under MiFIR, see Lexis PSL:  MiFIR—trading obligation for derivatives.

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UK, EU and international regulators and bodies

Spring Budget 2020: HM Treasury announces establishment of Financial Services Regulatory Initiatives Forum

HM Treasury published the responses to its call for evidence on regulatory co-ordination and announced the establishment of the Financial Services Regulatory Initiatives Forum. The Forum is a joint initiative put together by the regulators and HM Treasury. It is intended to help regulators identify and manage peaks in demand and give firms a clearer idea of the major upcoming initiatives across the main financial services authorities.

Source: Consultation outcome: Financial Services Future Regulatory Framework Review and Joint statement from the FCA, BoE, PRA, CMA, PSR on the launch of the Financial Services Regulatory Initiatives Forum.

Spring Budget 2020: Chancellor of the exchequer outlines annual remit for the FPC

HM Treasury published a letter from the chancellor of the exchequer, Rishi Sunak, to the governor of the BoE, Mark Carney, providing the remit and recommendations for the FPC for 2020. Sunak discusses the government’s economic policy; Brexit; the non-bank financial sector; climate change; and the FPC’s co-ordination with the MPC.

Source: Spring Budget 2020: Remit and recommendations for the Financial Policy Committee.

FCA publishes Quarterly Consultation Paper No 27 (CP20/4)

The Financial Conduct Authority (FCA) published Quarterly Consultation Paper No 27 (CP20/4), in which it consults on proposed miscellaneous amendments to the FCA Handbook.

Source: CP20/4: Quarterly Consultation Paper No 27.

FCA publishes list of non-legal corrections and clarifications in the FCA Handbook

The FCA published a list of non-legal corrections and clarifications in the FCA Handbook. This document lists minor corrections and clarifications that the FCA has made to the Handbook, other than those made by Handbook Administration instrument. These changes are regarded as having no legal effect. None of these changes represents a change in policy.

Source: Non-legal changes document 2020.

ESMA publishes newsletter number 12

ESMA published the 12th edition of its newsletter, containing a full list of ESMA published news items from 29 January to 9 March 2020.

Source: ESMA publishes newsletter number 12.

EBA seeks members for its Banking Stakeholder Group

The EBA launched a call for expressions of interest for membership of its Banking Stakeholder Group (BSG), as a consequence of the European Supervisory Authorities’ Review process that took place in 2019 and entered into force in January 2020. The mandate of the current members will expire on 30 June 2020. The call for expressions of interest is open to candidates representing stakeholders across the EU. The deadline for application is 3 April 2020.

Source: EBA launches call for expression of interest for its new Banking Stakeholder Group (BSG).

The Treasury Committee published its report on the appointment of Andrew Bailey as governor of the BoE. While it is satisfied that Bailey has the professional competence and personal independence to be appointed, and therefore unanimously approved his appointment, the Committee raised ‘a number of serious concerns’ regarding the performance of the FCA both before and during his time as its chief executive.

Source: Committees approves Bailey, but will keep an eye on FCA.

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Authorisation, approval and supervision

ESMA sets out priorities for the year ahead

ESMA published its 2020 Supervision Work Programme, detailing the areas of focus for its supervision of credit rating agencies (CRAs), trade repositories (TRs) and the monitoring of third-country central clearing counterparties (TC-CCPs) and central securities depositories (TC-CSDs). ESMA is also preparing for its new supervisory responsibilities under the Securities Financing Transactions Regulation (SFTR), the Securitisation Regulation (SECR), the Benchmarks Regulation and MiFIR.

Sources: ESMA’s supervision focuses on outstanding credit ratings, data quality and third country CCPs and  ESMA Supervision Annual Report 2019 and Work Programme 2020.

FCA discussion paper draws together industry essays on firm culture and purpose

The FCA published discussion paper DP20/1: Transforming culture in financial services—driving purposeful cultures. It is a collection of essays from industry leaders, professional bodies and culture experts which explores the role of purpose in driving a healthy, sustainable culture. The essays do not represent the FCA’s views, and it is not requesting formal feedback. The aim is to share a range of insights and highlight the importance of this topic, encourage discussion and ‘start a much larger conversation’.

Source: FCA encourages firms to develop purposeful cultures.

European Commission issues call for tender on disclosure, inducements and suitability rules for retail investors

The European Commission issued a call for tender entitled ‘Disclosure, Inducements and Suitability Rules for Retail Investors Study’. The current level of participation by retail investors in financial markets in the EU remains low by international standards. The European Commission issued this study to investigate how far the legal framework in the EU empowers consumers to participate in the market and take informed investment and insurance decisions, while providing adequate retail financial consumer protection to create a trustful investment climate.

Source: Disclosure, Inducements and Suitability Rules for Retail Investors Study.

ECB updates list of supervised entities

The ECB updated the list of the significant supervised entities, which it directly supervises (Part A) and the less significant supervised entities which it indirectly supervises (Part B). The list is compiled on the basis of significance decisions which have been adopted and notified by the ECB to the supervised entity and that have become effective up to the cut-off date of 1 February 2020.

Source: List of supervised entities (as of 1 February 2020).

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Prudential requirements

Spring Budget 2020: HM Treasury commits to implementing prudential standards through Financial Services Bill

HM Treasury published a policy statement on the government’s approach to implementing prudential standards through the Financial Services Bill. The policy statement confirms that the government intends to implement the internationally agreed Basel III banking standards in the UK, and announces that the government will take powers to enable the implementation of updated prudential rules for UK banks and investment firms.

Source: Prudential standards in the Financial Services Bill: policy statement.

For more information on the Basel III measures, see Lexis PSL:  CRD IV—essentials and for more information on the EU’s new prudential regime for investment firms, see:  Review of the prudential framework for investment firms.

PRA publishes feedback on regulatory capital instruments consultation and related updates (effective from 1 April 2020)

The PRA published policy statement PS5/20, Regulatory capital instruments: update to Pre-Issuance Notification (PIN) requirements, providing feedback to the responses to consultation paper CP20/19, of the same name. PS5/20 contains the PRA’s final policy as follows: amendments to the Definition of Capital Part of the PRA Rulebook; an updated supervisory statement SS7/13 ‘Definition of capital (CRR firms)’; an updated PIN form; an updated Common Equity Tier 1 (CET1) compliance template; and a summary table showing the PRA’s final clarification of ‘sufficiently in advance’ notification and ‘substantially the same’ terms (as defined in updated SS7/13). PS5/20 takes effect from 1 April 2020.

Sources: Regulatory capital instruments: update to Pre-Issuance Notification (PIN) requirementsPolicy statement 5/20—Regulatory capital instruments: Update to Pre-Issuance Notification (PIN) requirements and  Supervisory statement SS7/13: Definition of capital (CRR firms) March 2020.

BoE speech on post-Brexit framework for prudential regulation

The BoE’s executive director of prudential policy, Victoria Saporta, gave a speech setting out a framework for thinking about an ideal system of prudential regulation for the future based on an independent regulatory body with a clear mandate and strong accountability to Parliament.

Source: The ideal post-EU regulatory framework—speech by Victoria Saporta.

For information on the impact of Brexit on prudential regulation, see Lexis PSL:  Preparing for Brexit: CRR and prudential regulation—quick guide.

ISDA CEO discusses the third Capital Requirements Regulation (CRR III)

The CEO of the ISDA, Scott O’Malia, published a blog on the legislative proposals for the third Capital Requirements Regulation (CRR III) expected in June 2020, in which he discusses the challenges facing regulators as they implement the final Basel III rules while bearing in mind their primary responsibility is to their own jurisdictions.

Source: CRR III: Appropriateness and consistency.

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Financial stability, recovery and resolution 

EBA consults on updated identification methodology for G-SIIs

The EBA launched a consultation to update the identification methodology for global systemically important institutions (G-SIIs) to reflect the revised framework for global systemically important banks (G-SIBs) published by the Basel Committee on Banking Supervision (BCBS) in July 2018. The consultation closes on 5 June 2020.

Source: EBA launches consultation to update methodology to identify G-SIIs.

EBA publishes Handbook chapter on management information systems in the context of the resolvability assessment

The EBA published an EBA Handbook chapter on how resolution authorities should assess institutions’ management information systems, in the context of the resolvability assessment, to ensure that data and information are swiftly provided to support a robust valuation for resolution (valuation MIS). The chapter, part of the EBA Handbook on valuation for purposes of resolution, aims to enhance institutions’ preparedness in business-as-usual to support a timely and robust valuation in case of resolution.

Source: EBA highlights the importance of data and information preparedness to perform a valuation for resolution.

EU’s 2020 Financial Stability and Integration Review published

The European Commission published the latest issue of the annual Financial Stability and Integration Review (EFSIR), examining recent economic and financial developments, and their impact. In addition to a description of general macroeconomic and financial-sector developments, this year’s issue combines different perspectives on the structural change that is taking place in the financial system, focusing on the banking sector in particular.

Source: European Financial Stability and Integration Review (EFSIR).

EBA letter to the European Commission on revision of own fund requirements

The EBA wrote a letter to John Berrigan, the acting director general, directorate-general financial stability and capital markets union of the European Commission. The letter sets out the EBA’s additional analysis for the call for advice for the purposes of revising the own fund requirements for credit, operational, market and credit valuation adjustment risk.

Source: Letter to Mr J Berrigan re output floor and equity exposure.

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Risk management and controls

FCA publishes insights from its Cyber Co-ordination Groups

As part of its role is to help firms become more resilient to cyber-attacks, so reducing the risk and frequency of disruption, the FCA has published a document bringing together industry insights on cyber resilience. The document covers governance, identification, protection, detection, situational awareness, response and recovery, and testing.

Sources: Cyber security—industry insights and  Insights from the Cyber Co-ordination Groups.

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Consumer protection

Major UK current account providers share anti-fraud practices with consumers

UK Finance announced that the major current account providers are publishing voluntary information, in conjunction with the FCA, relating to their fraud prevention processes and procedures. The banking control comparison data is being made available in order to provide consumers with more information so they can make an informed decision when choosing who to bank with.

Source: Banking Control Comparison Data.

FCA speech on treating customers fairly

The director of consumer and retail policy at the FCA, Nisha Arora, gave a speech at the Investments and Savings Association (TISA)’s vulnerability conference on the FCA’s forthcoming revised guidance on treating customers fairly.

Source: Our approach to ensuring firms treat vulnerable customers fairly.

For further information on the FCA and treating customers fairly, see:  FCA: Treating Customers Fairly—essentials and  Treating customers fairly—quality of advice and other key concepts.

FCA webpage provides contact details for potential scam victims

The FCA published a webpage providing details on how consumers can contact the FCA if they suspect they have been contacted by an unauthorised firm or individual carrying out an FCA-regulated activity. The webpage sets out phone and email contact details, office hours, and details of how Action Fraud may also be able to help.

Source: New webpage: Report a scam to us.

OPR-Finance s. r. o. v GK

EU–Consumer protection. Articles 8 and 23 of Directive (EC) 2008/48 had to be interpreted as imposing an obligation on a national court to examine, of its own motion, whether there had been a failure to comply with the creditor's pre-contractual obligation to assess the consumer's creditworthiness, provided for in article 8 of that directive, and to draw the consequences arising under national law of a failure to comply with that obligation, on the condition that they satisfied the requirements of article 23. The Court of Justice of the European Union (Second Chamber) so held, among other things, in a preliminary ruling in proceedings concerning a claim for payment of the outstanding amount due under an agreement relating to credit which the applicant company had granted to the respondent.

See:  [2020] All ER (D) 37 (Mar).

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Financial crime

Major UK current account providers share anti-fraud practices with consumers

UK Finance announced that the major current account providers are publishing voluntary information, in conjunction with the FCA, relating to their fraud prevention processes and procedures. The banking control comparison data is being made available in order to provide consumers with more information so they can make an informed decision when choosing who to bank with.

Source: Banking Control Comparison Data.

Specialist unit prevented £31m of fraud in 2019, UK Finance announces

UK Finance announced that a specialist police unit funded by the banking and finance industry prevented £31.2m of fraud and disrupted 23 organised criminal groups (OCGs) in 2019. The Dedicated Card and Payment Crime Unit (DCPCU) targets the organised criminal gangs responsible for fraud. It is made up of officers from the City of London Police and the Metropolitan Police Service, as well as banking industry fraud investigators and support staff from UK Finance.

Source: Banking industry-funded fraud squad prevents and disrupts £31.2m of fraud in 2019.

How to determine whether a digital ID is appropriate for use in customer due diligence

The Financial Action Task Force (FATF) issued guidance with the aim of helping governments, financial institutions and virtual assets services providers determine whether a digital ID is appropriate for use in Know Your Customer (KYC) processes. The guidance comes at a time where digital transactions grow by 12.7% annually and are projected to form 60% of all transactions by 2022.

Source: Guidance on Digital ID.

FCA director outlines supervisory powers to combat crypto-asset money laundering

The FCA published a speech by its director of retail and regulatory investigations, Therese Chambers, on crypto-assets, financial regulation and preventing financial crime in the emerging market for digital assets. Chambers argued that, while money laundering using crypto-assets is a real danger, the application of robust anti-money laundering (AML) controls combined with international co-operation can help reduce the risk, and the FCA’s AML regime for crypto-assets includes unique supervisory and enforcement powers that are tailored to meet international standards.

Source: Unstable coins: Crypt oassets, financial regulation and preventing financial crime in the emerging market for digital assets.

For further information on crypto-asset money laundering, see:  The risks of crypto-assets from a financial crime, money laundering and terrorist financing perspective.

Convicted EURIBOR bankers ordered to pay £1.2m

Two men who were convicted for manipulating the Euro Interbank Offered Rate (EURIBOR) have been ordered by the Serious Fraud Office (SFO) to pay over £1.2m in confiscation orders and costs.

Source: EURIBOR bankers ordered to pay over £1.2m.

FCA webpage provides contact details for potential scam victims

The FCA published a webpage providing details on how consumers can contact the FCA if they suspect they have been contacted by an unauthorised firm or individual carrying out an FCA-regulated activity. The webpage sets out phone and email contact details, office hours, and details of how Action Fraud may also be able to help.

Source: New webpage: Report a scam to us.

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Complaints, compensation and claims management

FSCS sets out advice for customers facing SIPPs losses

The Financial Services Compensation Scheme (FSCS) published advice on how it approaches customers losses as a result of failed investments made via a self-invested personal pension scheme (SIPP), where there are often a number of different firms which may be liable for some or all of those losses. Customers may have claims against an independent financial advisor (IFA) and the SIPP operator, and the losses which each firm may be responsible for will depend on the nature of the advice or service performed by the firm.

Source: FSCS allocation of claims regarding IFAs and SIPP operators.

For further information on the FSCS and pensions, see: The Financial Services Compensation Scheme (FSCS) and pensions.

FSCS declares 30 firms in default between 1 November 2019 and 31 January 2020

The FSCS declared 30 failed regulated firms in default between 1 November 2019 and 31 January 2020. A declaration of default means the FSCS is satisfied a firm is unable to pay claims for compensation made against it. This paves the way for customers of that firm to make a claim for compensation with the FSCS.

Source: FSCS declares 30 firms in default between November and January.

Flybe administration: Financial Ombudsman Service provides advice and scam warning

The FOS issued a statement in response to news reports that the Flybe airline had entered administration. The FOS advises customers with bookings to check their terms and conditions, the Flybe website and news reports for general advice. It also cautions customers to be aware of potential scams, especially if contacted by someone claiming that they are able to help recover money.

Source: Flybe entering administration.

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Investigations, enforcement and discipline

Treasury Committee publishes correspondence on HBOS Reading reviews

The Treasury Committee published a series of correspondence relating to the independent quality assurance review led by Sir Ross Cranston in relation to the HBOS Reading customer compensation scheme (the Cranston review) and the independent review into the events at HBOS Reading by Dame Linda Dobbs (the Dobbs review).

Source: Letter from the group public affairs director of Lloyds Banking Group to the clerk regarding the Cranston Review, dated 10 December 2019Letter from the chair to the chief executive of Lloyds Banking Group regarding the Cranston Review, dated 12 FebruaryLetter from the chief executive of Lloyds Banking Group to the chair regarding the Cranston Review, dated 20 February and  Letter from the chair to Dame Linda Dobbs regarding the Dobbs review, dated 2 March.

Permission to appeal granted in Barness & ors v (49) Coutts & co & anr

Permission to appeal the order of Mr Justice Nugee in Barness & ors v (49) Coutts & co & anrin the Chancery Division, dated 20 December 2019, has been granted. It will be heard by 12 April 2021.

Source: Barness & ors v (49) Coutts & co & anr.

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Competition in financial services

Associations write to the European Commission on global competitiveness of EU financial services

Insurance Europe (IE), the European Banking Federation (EBF), the European Fund and Asset Management Association (EFAMA), Pensions Europe and the Association of Mutual Insurers and Insurance Co-operatives in Europe (AMICE) (the Associations) wrote a joint letter to the president of the European Commission, Ursula von der Leyen. In their letter, the Associations set out suggestions for improving the competitiveness of the European financial services sector.

Source: Joint letter on the international competitiveness of the financial services sector.

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Markets and trading

ESMA consults on draft RTS under the Benchmarks Regulation

ESMA launched a consultation on draft regulatory technical standards (RTS) under the Benchmarks Regulation (BMR), covering governance, methodology, infringements reporting and critical benchmarks. ESMA will consider the responses to this consultation when developing the draft RTS for submission to the European Commission for adoption in the final legal text. The closing date for responses from stakeholders is 9 May 2020.

Source: ESMA consults on draft technical standards for benchmarks.

For further information on the Benchmarks Regulation, see:  Benchmarks Regulation—essentials and  The Benchmarks Regulation—level 2 and level 3 measures and other resources.

ESMA joint BoS/SMSG meeting discusses fund liquidity, strategic orientation and Euro RFRs

ESMA published a summary of conclusions from the joint meeting of the Board of Supervisors (BoS) and the Securities and Markets Stakeholder Group (SMSG) held on 4 December 2019. The meeting included discussions of fund liquidity, including an overview of the regulatory framework; ESMA’s strategic orientation; and new benchmarks and Euro risk free rates (RFRs).

Source: Summary of conclusions, Joint meeting of the Board of Supervisors and the Securities and Markets Stakeholder Group.

FCA CFI calls for review on data in wholesale markets

The FCA began a review into the use and value of data and advanced analytics in wholesale financial markets, both now and in the future, by issuing a call for input (CFI). The CFI considers the use and supply of market data, with a particular focus on trading data and benchmarks. Trading data and benchmarks play a vital role in wholesale financial markets. The FCA will use its CFI to determine whether it needs to do further work to address any harm that it identifies.

Source: FCA begins review on data in wholesale markets.

FCA/BoE joint letter to trade associations on discontinuation of LIBOR

The FCA and the BoE issued a joint letter to trade associations on how the discontinuation of LIBOR may affect their members and stakeholders, and offering practical help with raising awareness among their networks. The regulators also remind trade association members and stakeholders of their obligations to treat their customers fairly during the transition to alternative ‘risk-free’ rates.

Source: Next steps on LIBOR transition: letter to trade associations.

For further information on the LIBOR transition, see:  LIBOR transition.

The International Capital Markets Association’s (ICMA) Asset Management and Investors Council (AMIC) published its first review of 2020. The review includes articles on fund liquidity, sustainable finance and primary markets.

Source: ICMA AMIC publishes its first Review of 2020.

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Regulation of capital markets

FCA consults on proposals for a more proportionate listing regime for OEICs

The FCA published consultation paper CP20/5: Proposals for a more proportionate listing regime, which sets out how the FCA proposes to make the necessary changes to the Listing Rules to create a more proportionate listing regime for open-ended investment companies (OEICs) in standard listing, whilst ensuring existing investor protections are maintained.

Source: Open-ended investment companies—Proposals for a more proportionate listing regime.

ICMA FAQs on CSDR mandatory buy-ins and SFTs

ICMA published FAQs on Central Securities Depositories Regulation (CSDR) mandatory buy-ins and non-cleared securities financing transactions (SFTs). The FAQs are intended to outline considerations and, where possible, to provide clarity with respect to the application of CSDR buy-ins in the case of repos and other SFTs. The FAQs will be updated in light of new guidance from ESMA and agreed market best practice.

Source: ICMA publishes FAQs on CSDR mandatory buy-ins and Securities Financing Transactions.

For further information on the CSDR, see:  Central Securities Depositories Regulation—essentials.

High level CMU forum publishes interim report

The Council of the EU published the interim report of the high level forum on the capital markets union (CMU). It ‘sets out a new vision for the future of the CMU and will guide the work of the forum in the coming months’. It does not contain any specific policy proposals as these will be put forward in the final report to the European Parliament, Member States, European Commission and other stakeholders in May 2020.

Source: Interim report of the high level forum on the capital markets union.

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Investment funds and asset management

Spring Budget 2020: HM Treasury consults on a new ‘overseas funds regime’ for retail funds and MMFs

HM Treasury launched a consultation on government proposals to simplify the process for allowing investment funds set up overseas to be marketed to UK investors. A new process would be introduced to replace the existing regime, which the government says is not viable over the long-term. The proposed ‘overseas funds regime’ (OFR) would introduce two new regimes based on the principle of equivalence: one for retail investment funds and one for money market funds (MMFs). The consultation closes on 11 May 2020.

Source: Overseas funds regime: a consultation.

For further information on the impact of Brexit on investment funds, see:  Preparing for Brexit: UCITS—quick guide and  Preparing for Brexit: AIFMD—quick guide.

FCA consults on proposals for a more proportionate listing regime for OEICs

The FCA published consultation paper CP20/5: Proposals for a more proportionate listing regime, which sets out how the FCA proposes to make the necessary changes to the Listing Rules to create a more proportionate listing regime for open-ended investment companies (OEICs) in standard listing, whilst ensuring existing investor protections are maintained.

Source: Open-ended investment companies—Proposals for a more proportionate listing regime.

Standards Board for Alternative Investments publishes memo on conflicts of interest between parallel funds

The Standards Board for Alternative Investments published a memo on addressing potential conflicts of interest between parallel funds. The memo sets out a case study about potential conflicts of interest arising between parallel funds, highlights how the Alternative Investment Standards address these issues and provides examples for additional measures managers can take to strengthen their approach. It also provides an overview of areas investors should assess as part of their due diligence on how a manager addresses potential conflicts of interest.

Source: The Standards Board publishes a memo on conflicts of interest between parallel funds.

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Banks and mutuals

Spring Budget 2020: HM Treasury commits to implementing prudential standards through Financial Services Bill

HM Treasury published a policy statement on the government’s approach to implementing prudential standards through the Financial Services Bill. The policy statement confirms that the government intends to implement the internationally agreed Basel III banking standards in the UK, and announces that the government will take powers to enable the implementation of updated prudential rules for UK banks and investment firms.

Source: Prudential standards in the Financial Services Bill: policy statement.

For more information on the Basel III measures, see:  CRD IV—essentials and for more information on the EU’s new prudential regime for investment firms, see:  Review of the prudential framework for investment firms.

PRA publishes feedback on regulatory capital instruments consultation and related updates (effective from 1 April 2020)

The PRA published policy statement PS5/20, Regulatory capital instruments: update to Pre-Issuance Notification (PIN) requirements, providing feedback to the responses to consultation paper CP20/19, of the same name. PS5/20 contains the PRA’s final policy as follows: amendments to the Definition of Capital Part of the PRA Rulebook; an updated supervisory statement SS7/13 ‘Definition of capital (CRR firms)’; an updated PIN form; an updated Common Equity Tier 1 (CET1) compliance template; and a summary table showing the PRA’s final clarification of ‘sufficiently in advance’ notification and ‘substantially the same’ terms (as defined in updated SS7/13). PS5/20 takes effect from 1 April 2020.

Sources: Regulatory capital instruments: update to Pre-Issuance Notification (PIN) requirementsPolicy statement 5/20—Regulatory capital instruments: Update to Pre-Issuance Notification (PIN) requirements and  Supervisory statement SS7/13: Definition of capital (CRR firms) March 2020.

BoE speech on post-Brexit framework for prudential regulation

The BoE’s executive director of prudential policy, Victoria Saporta, gave a speech setting out a framework for thinking about an ideal system of prudential regulation for the future based on an independent regulatory body with a clear mandate and strong accountability to Parliament.

Source: The ideal post-EU regulatory framework—speech by Victoria Saporta.

For information on the impact of Brexit on prudential regulation, see:  Preparing for Brexit: CRR and prudential regulation—quick guide.

Treasury Committee publishes correspondence on HBOS Reading reviews

The Treasury Committee published a series of correspondence relating to the independent quality assurance review led by Sir Ross Cranston in relation to the HBOS Reading customer compensation scheme (the Cranston review) and the independent review into the events at HBOS Reading by Dame Linda Dobbs (the Dobbs review).

Source: Letter from the group public affairs director of Lloyds Banking Group to the clerk regarding the Cranston Review, dated 10 December 2019Letter from the chair to the chief executive of Lloyds Banking Group regarding the Cranston Review, dated 12 FebruaryLetter from the chief executive of Lloyds Banking Group to the chair regarding the Cranston Review, dated 20 February and  Letter from the chair to Dame Linda Dobbs regarding the Dobbs review, dated 2 March.

EBA publishes Handbook chapter on management information systems in the context of the resolvability assessment

The EBA published an EBA Handbook chapter on how resolution authorities should assess institutions’ management information systems, in the context of the resolvability assessment, to ensure that data and information are swiftly provided to support a robust valuation for resolution (valuation MIS). The chapter, part of the EBA Handbook on valuation for purposes of resolution, aims to enhance institutions’ preparedness in business-as-usual to support a timely and robust valuation in case of resolution.

Source: EBA highlights the importance of data and information preparedness to perform a valuation for resolution.

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Consumer credit, mortgage and home finance

Spring Budget 2020: HM Treasury publishes response to consultation on bringing funeral plans into FCA remit

HM Treasury published the government’s response to the June 2019 consultation on its proposed approach to strengthening the regulation of the pre-paid funeral plans market. The response sets out the government’s final policy approach to amending the regulatory framework, which will bring all funeral plan providers within the remit of the FCA. The government plans to lay the necessary secondary legislation before Parliament ‘shortly’ and will also publish a ‘de minimis’ impact assessment.

Source: Regulation of pre-paid funeral plans: response to the consultation.

FCA research and occasional papers on mortgage switching indicate future intervention required

The FCA published the following: Mortgage switching research report; Occasional paper 54 on the characteristics of consumers who do not switch; and Occasional paper 55 on brand loyalty in the mortgage market. The publications bring together the FCA’s latest research into mortgage switching and how consumers can be encouraged to seek out better deals. The FCA concludes there is a case for intervening to help mortgage customers who do not switch and will issue a consultation paper in the second quarter of 2020; a policy statement and final rule changes will be published by the end of 2020.

Sources: FCA issues research on mortgage switching and  What do mortgage holders who don’t switch have in common?.

European Commission issues call for tender on disclosure, inducements and suitability rules for retail investors

The European Commission issued a call for tender entitled ‘Disclosure, Inducements and Suitability Rules for Retail Investors Study’. The current level of participation by retail investors in financial markets in the EU remains low by international standards. The European Commission issued this study to investigate how far the legal framework in the EU empowers consumers to participate in the market and take informed investment and insurance decisions, while providing adequate retail financial consumer protection to create a trustful investment climate.

Source: Disclosure, Inducements and Suitability Rules for Retail Investors Study.

Treasury Committee questions BoE and FCA on helping consumers understand the climate risks associated with financial products

Following on from the Treasury Committee’s Decarbonisation and Green Finance inquiry, Mel Stride MP, the chair of the Treasury Committee, has written to the Bank of England (BoE) and Financial Conduct Authority (FCA) to enquire about what action is being taken to help consumers understand the ‘carbon footprint’ and climate risk of financial products. In their replies, the BoE and FCA have stressed the need to improve clarity for consumers on these issues.

Sources: Action needed to help consumers understand ‘carbon footprint’ of financial productsLetter from chair to Andrew BaileyLetter from chair to Mark CarneyLetter from Andrew Bailey to chairLetter from Mark Carney to chair and  Inquiry: Decarbonisation and green finance.

Payday lender Cash on Go enters administration

The FCA announced that payday lender Cash on Go, trading as Peachy.co.uk and Uploan.co.uk, was placed into administration on 5 March 2020. Adam Stephens, Gilbert Lemon and Henry Shinners of Smith & Williamson LLP were appointed as joint administrators.

Source: Cash on Go enters administration.

ECJ rules that Unfair Contract Terms Directive applies to non-mandatory official reference index used in consumer contract

In Marc Gómez del Moral Guasch v Bankia SA (Case C 125/18), the European Court of Justice (ECJ) ruled that the plain and intelligible language requirements of the Unfair Contract Terms Directive 93/13/EEC apply to a reference to an official reference index in a consumer contract, provided use of the index is not mandatory under national law.

Source: Marc Gómez del Moral Guasch v Bankia SA (Case C‑125/18) .

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Regulation of insurance

EBA opinion says there should be no specific value of regulatory LGD for credit insurance claims

The EBA published today an opinion on the treatment of credit insurance in the prudential framework, in response to the feedback received in its public consultations on draft guidelines on credit risk mitigation for institutions applying the internal ratings-based (IRB) approach with own estimates of loss given default (LGD). The EBA concludes that there should not be a specific value of regulatory LGD set for credit insurance claims. In the opinion the EBA calls for the implementation of the final Basel III framework as agreed by the Basel Committee on Banking Supervision (BCBS).

Source: EBA concludes that no specific regulatory LGD should be set for credit insurance claims.

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Regulation of personal pension and stakeholder products

FSCS sets out advice for customers facing SIPPs losses

The FSCS published advice on how it approaches customers losses as a result of failed investments made via a self-invested personal pension scheme (SIPP), where there are often a number of different firms which may be liable for some or all of those losses. Customers may have claims against an independent financial advisor (IFA) and the SIPP operator, and the losses which each firm may be responsible for will depend on the nature of the advice or service performed by the firm.

Source: FSCS allocation of claims regarding IFAs and SIPP operators.

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Payment services and systems

Study finds interchange fees for consumer cards down 35% since Regulation came into force

The European Commission published a study on the application of the Interchange Fees Regulation for card-based payment transactions. The study, which was commissioned by the Commission to an external contractor, finds that the main objectives of the Regulation have been achieved, as the interchange fees for consumer cards have decreased by 35% between 2015 and 2017. This decrease has resulted in lower charges for retailers as well as benefits to consumers through lower retail prices. Furthermore, increased cross-border acquiring services and card transactions have led to a higher degree of market integration.

Source: Antitrust: Commission publishes study on the application of Interchange Fees Regulation.

For further information on the Interchange Fees Regulation, see: Interchange Fee Regulation—essentials.

PSR publishes responses to its call for views on first annual review SD8

In October 2019 the PSR issued a call for views on its first annual review of Specific Direction 8 (SD8), which required LINK to make sure it does all it can to fulfil its commitment to maintain the broad geographic spread of free-to-use ATMs. The PSR has now published its stakeholders’ submissions to the call for views and outlined its response. The PSR concludes that there has been generally good progress in developing policies that meet LINK’s commitment.

Sources: Annual review of Specific Direction 8 and  Full responses to our call for views on our first annual review Specific Direction 8.

PSR publishes revised ‘day one’ directions

The PSR published revised ‘day one’ directions which cover communications with the PSR, payment systems’ access and governance arrangements. The PSR has also published its response paper RP20/1 setting out how responses to its consultation have been considered in its finalised wording of the directions and a factsheet summarising the changes made to the ‘day one’ directions.

Source: RP20/1—Our final revised ‘day one’ Directions and response to consultation.

PSR publishes summary of responses to its call for views on cash access

The PSR published a summary of responses to its call for views CP19/6, its second call for views on access to cash based on the PSR’s research into cash access, use and acceptance. The publication includes a summary of the roundtable discussion on the PSR’s further thinking about understanding people’s cash needs, how those needs are being met now, and how they should be met in the future.

Source: CP19/6: Responses to our call for views on our research into cash access, use and acceptance, and summary of our roundtable discussion.

EPC publishes new version of the guidelines on cryptographic algorithms usage and key management

The European Payments Council (EPC) published a new version of the guidelines on cryptographic algorithms usage and key management, in order to provide guidance to the European payments industry, more precisely to security officers, risk managers, system engineers and systems designers. The purpose of this document is to provide guidance to the European payment industry in the field of cryptographic algorithms and related key management issues.

Source: New version of the guidelines on cryptographic algorithms usage and key management.

EPC updates payment scheme rulebooks

The EPC published updated its single European payments area (SEPA) payment scheme rulebooks.

Source: Publication of the updated 2019 EPC SEPA payment scheme rulebooks.

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Fintech and cryptoassets

FCA director outlines supervisory powers to combat crypto-asset money laundering

The FCA published a speech by its director of retail and regulatory investigations, Therese Chambers, on crypto-assets, financial regulation and preventing financial crime in the emerging market for digital assets. Chambers argued that, while money laundering using crypto-assets is a real danger, the application of robust AML controls combined with international co-operation can help reduce the risk, and the FCA’s AML regime for crypto-assets includes unique supervisory and enforcement powers that are tailored to meet international standards.

Source: Unstable coins: Crypto-assets, financial regulation and preventing financial crime in the emerging market for digital assets.

For further information on cryptoasset money laundering, see  The risks of crypto-assets from a financial crime, money laundering and terrorist financing perspective.

How to determine whether a digital ID is appropriate for use in customer due diligence

The FATF issued guidance with the aim of helping governments, financial institutions and virtual assets services providers determine whether a digital ID is appropriate for use in KYC processes. The guidance comes at a time where digital transactions grow by 12.7% annually and are projected to form 60% of all transactions by 2022.

Source: Guidance on Digital ID.

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Sustainable finance

European Commission welcomes report on sustainable finance taxonomy

The European Commission welcomed the publication of reports by the Technical Expert Group (TEG) on sustainable finance relating to the EU’s taxonomy of green economic activities and the EU Green Bond Standard. The Commission will use the taxonomy report to develop rules setting out the EU’s taxonomy of activities for mitigating and adapting to climate change. A further report on Green Bonds will be used to explore a possible initiative for an EU Green Bond Standard, which will also include a public consultation. The TEG is made up of members from civil society, academia, business and finance, and will continue to assist the Commission in developing sustainable finance policies until September 2020.

Sources: Sustainable Finance—Commission welcomes expert group reports on EU taxonomy and the EU Green Bond Standard and  Taxonomy: Final report of the Technical Expert Group on sustainable finance.

FCA proposes new climate-related disclosure rules for premium listed issuers

The FCA published consultation paper CP20/3, Proposals to enhance climate-related disclosures by listed issuers and clarification of existing disclosure obligations. The new rules would require all commercial companies with a premium listing to either make climate-related disclosures consistent with the approach set out by the Taskforce on Climate-related Financial Disclosures (TCFD), or explain why not. The FCA says it will consider consulting on extending this rule to a wider scope of issuers. The consultation closes on 5 June 2020.

Source: FCA announces proposals to improve climate-related disclosures by listed companies.

Treasury Committee questions BoE and FCA on helping consumers understand the climate risks associated with financial products

Following on from the Treasury Committee’s Decarbonisation and Green Finance inquiry, Mel Stride MP, the chair of the Treasury Committee, wrote to the BoE and FCA to enquire about what action is being taken to help consumers understand the ‘carbon footprint’ and climate risk of financial products. In their replies, the BoE and FCA have stressed the need to improve clarity for consumers on these issues.

Sources: Action needed to help consumers understand ‘carbon footprint’ of financial productsLetter from chair to Andrew BaileyLetter from chair to Mark CarneyLetter from Andrew Bailey to chairLetter from Mark Carney to chair and  Inquiry: Decarbonisation and green finance.

IE states insurers welcome review of Non-Financial Reporting Directive

IE published its response to a consultation by the European Commission on an impact assessment on the review of the Non-Financial Reporting Directive (Directive 2014/95/EU) (NFRD), which covers reporting on topics such as environmental protection and social responsibility.

Source: Insurers welcome review of Non-Financial Reporting Directive, call for ESG data/assessments to be reported directly by investee companies.

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Dates for your diary

 

DateSubjectEvent

 

13 March 2020

 

Regulation of insurance

 

Deadline for responses to EIOPA’s  consultation on guidelines on information and communication technology (ICT) security and governance.

16 March 2020Fintech and crypto-assets

Deadline for responses to the European Commissions consultation on ‘Digital operational resilience framework for financial services: Making the EU financial sector more secure’.

 

16 March 2020Regulation of insurance

Deadline for responses to PRA call for feedback on the proposed content and presentation of the publication of regular, aggregated data relating to the UK insurance market on a quarterly basis.

 

16 March 2020Regulation of capital markets

Deadline for responses to ESMA’s  consultation on internal controls for credit rating agencies.

 

17 March 2020

Banks and mutuals



Payment services and systems

Deadline for responses to the FCA’s  call for input on its proposals on how open finance could transform financial services.

 

17 March 2020MiFID II

Deadline for responses to ESMA ‘Consultation Paper: MiFID II/ MiFIR review report on the transparency regime for equity and equity-like instruments, the double volume cap mechanism and the trading obligations for shares’.

 

18 March 2020MiFID II

Deadline for responses to ESMA ‘Consultation Paper: MiFIR report on Systematic Internalisers in non-equity instruments (ESMA70-156-1757)’.

 

18 March 2020

Prudential requirements



Banks and mutuals

Deadline for responses to EBA consultation on a guide outlining the methodology it uses to assess the internal models applied by banks to calculate their exposure to counterparty credit risk (CCR). The guide also describes how the ECB will assess the advanced methods banks use to calculate the own funds required to account for the risks related to credit valuation adjustments (CVAs).

 

18 March 2020

Sustainable finance

Financial stability, recovery and resolution

Deadline for responses to the BoE’s  discussion paper on its proposed framework for the 2021 biennial exploratory scenario (BES) exercise on the financial risks from climate change.

 

19 March 2020Fintech and crypto-assets

Deadline for responses to the European Commissions consultation on ‘an EU framework for markets in crypto-assets’.

 

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About the author:
Prior to joining LexisNexis in 2016 as a paralegal, Lauren was an adjudicator at the Financial Ombudsman Service. There she resolved consumers’ complaints, and gained knowledge about a wide variety of financial products. Before this she studied Law at Nottingham Trent University.