FS weekly highlights—19 September 2019

FS weekly highlights—19 September 2019

In this issue

 

Brexit news
UK, EU and international regulators and bodies
Authorisation, approval and supervision
Prudential requirements
Financial stability, recovery and resolution
Crowdfunding
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
Consumer credit, mortgage and home finance
Regulation of insurance
Payment services and systems
Fintech and cryptoassets
Sustainable finance
Islamic finance
Dates for your diary

 

Brexit news

 

Financial Services and Markets Act 2000 (Benchmarks) (Amendment) Regulations 2019

SI 2019/1256: An amendment is made to Financial Services and Markets Act 2000 (Benchmarks) Regulations 2018 (2018 Regulations) to clarify the scope of the powers of the Financial Conduct Authority (FCA) under regulation 6(1)(b) of the 2018 Regulations to impose requirements on Miscellaneous Benchmark Persons ‘in order to advance any of its operational objectives’. These Regulations will come into force on 14 October 2019.

Andrew Bailey sets out FCA’s Brexit preparations, saying the UK and EU should have equivalence ‘on day one’

The FCA published a speech by its CEO, Andrew Bailey on preparations in financial services, in which he said it was the FCA’s role to prepare for a full range of possible outcomes and scenarios. Mr Bailey said the FCA would ‘use forbearance generously but appropriately, to maintain market integrity and protect consumers’.

FCA rolls out measures to ensure firms ready for Brexit

The FCA stepped up efforts to ensure that banks and insurers protect themselves against the threat of a no-deal Brexit amid continued legal chaos over the UK’s impending withdrawal from the European Union.

FCA and Hong Kong regulator amend MoU on mutual recognition of funds

The FCA and the Securities and Futures Commission of Hong Kong (SFC) amended their memorandum of understanding concerning mutual recognition of covered funds and covered management companies, and related co-operation, in preparation for Brexit.

Treasury Committee writes to chancellor amid speculation Mark Carney may be asked to extend BoE appointment

The Treasury Committee wrote to the chancellor of the exchequer, Sajid Javid MP, enquiring about the timetable for the appointment of the next governor of the Bank of England (BoE). The current governor, Mark Carney, is due to stand down on 31 January 2020. The Treasury Committee website is reporting speculation that the appointment of the next governor may be delayed ‘perhaps due to Brexit and an impending election’, and that Mr Carney may be asked to extend his service beyond 31 January 2020. 

 

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UK, EU and international regulators and bodies

 

FCA responds to Complaints Commissioner’s audio recordings recommendation

The FCA responded to the Complaints Commissioner’s recommendation, in report FCA00564, that the regulator ‘considers whether it should take steps to record telephone calls that lead to decisions about a firm’s activities and which will affect individuals and businesses’. The FCA says its policy is to keep an accurate record of external calls where material issues are discussed, but it does not keep audio recordings.

FSB secretary general discusses international challenges for financial regulation

The Financial Stability Board (FSB) published a speech by its secretary general, Dietrich Domanski, setting out three priorities for international regulatory and supervisory co-operation: implementation, integration and innovation. Domanski said international co-operation was vital because of the intrinsically global nature of key financial markets and technological innovation, and because of the potential global impact on financial instability.

European Parliament votes in favour of Christine Lagarde as next ECB president

Christine Lagarde obtained the European Parliament’s approval to be the next president of the European Central Bank (ECB). In a secret vote at plenary, members of the European Parliament (MEPs) voted 394 in favour, 206 against and 49 abstentions to recommend Lagarde to head up the ECB. She is due to replace current president Mario Draghi on 1 November 2019.

European Parliament votes for Yves Mersch as vice-chair of the ECB supervisory board

The European Parliament approved at plenary the appointment of Yves Mersch as vice-chair of the ECB’s supervisory board. In the secret ballot, MEPs voted 379 in favour and 230 against, with 69 abstentions. Mersch’s candidature will now be put on the agenda of the October 2019 European Council summit.

Adam Farkas resigns as EBA executive director to head AFME

Adam Farkas announced his resignation from his post as executive director of the EBA, which will be effective on 31 January 2020. The EBA's board of supervisors (BoS) conducted an assessment of the potential conflict of interest arising from Farkas' proposed future employment as chief executive of the Association for Financial Markets in Europe (AFME), which was confirmed by AFME. In compliance with the EBA staff regulations and ethics rules, the BoS decided that Farkas will no longer participate in the EBA's policy and supervisory work and will focus exclusively on operational matters until 31 October 2019. For the remainder of his notice period, his duties will be reallocated.

Irene Tinagli becomes new ECON chair

Irene Tinagli was elected as chair of the European Parliament’s Economic and Monetary Affairs Committee (ECON). She was elected by acclamation and replaces Roberto Gualtieri, who left the European Parliament to take up a ministerial post in the Italian government. 

Treasury Committee writes to chancellor amid speculation Mark Carney may be asked to extend BoE appointment

The Treasury Committee wrote to the chancellor of the exchequer, Sajid Javid MP, enquiring about the timetable for the appointment of the next governor of the Bank of England (BoE). The current governor, Mark Carney, is due to stand down on 31 January 2020. The Treasury Committee website is reporting speculation that the appointment of the next governor may be delayed ‘perhaps due to Brexit and an impending election’, and that Mr Carney may be asked to extend his service beyond 31 January 2020. 

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Authorisation, approval and supervision

 

FCA urges firms to register on Connect now, ahead of January 2020 deadline

The FCA issued a reminder to firms that they need to register on its Connect platform by January 2020. The FCA suggests firms register now in preparation. Firms will need to send the FCA their details—known as the mandatory annual update. Also from January 2020, firms will be required to review and confirm the accuracy of their details annually on Connect, in line with the accounting reference date. Even if a firm’s details are not changed from the previous year, they will still need to log on to Connect and confirm that they are up to date. 

CISI publishes guidance on the SM&CR Conduct Rules

The Chartered Institute for Securities & Investment (CISI) produced a Senior Managers and Certification Regime (SM&CR) Conduct Rules toolkit, which links the FCA’s five rules to the CISI’s own code of conduct and resources.

 

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Prudential requirements

 

PRA consults on implementing EBA rules and guidance on probability of default and loss given default estimation under CRR

The Prudential Regulation Authority (PRA) published a consultation paper (CP21/19) setting out its proposed approach to implementing the European Banking Authority (EBA)’s roadmap of rules and guidance relating to probability of default estimation, loss given default estimation and the treatment of defaulted exposures in the internal ratings based approach to credit risk under the Capital Requirements Regulation (EU) 575/2013 (CRR). The consultation closes on 18 December 2019.

PRA grants new waiver by consent of the Continuity of Access rules

The PRA granted a new waiver by consent of the Continuity of Access (CoA) rules in the Depositor Protection Part of the PRA Rulebook. The CoA rules require firms to put in place systems to ensure eligible depositors maintain continued access to Financial Services Compensation Scheme-covered deposits in resolution or insolvency by facilitating a transfer of such deposits. 

 

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Financial stability, recovery and resolution

 

ESAs report on risks and vulnerabilities in the EU financial system

The Joint Committee of the European Supervisory Authorities (ESAs) published a report on the risks and vulnerabilities in the EU financial system. Sources of instability and risks identified in the report include: Brexit, the low interest rate environment, and environmental, social and governance (ESG)-related risks. The report highlights the need for supervisory vigilance and co-operation amongst regulators and industry players across all sectors, focusing (amongst other things) on contingency planning, the low-for-long interest rate scenario, and the leveraged lending market.

 

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Crowdfunding

 

Council of the EU working party on financial services to discuss way forward for crowdfunding proposals

The Council of the European Union announced that its working party on financial services—crowdfunding (attachés only) will meet on 25 September 2019 to review some of the differences between the European Parliament and the Council’s positions on the EU’s proposed Regulation on European crowdfunding service providers, and to discuss at preliminary level the forthcoming trilogue negotiations.

 

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Competition in financial services

 

CMA proposes removal of overdraft alert rules as FCA’s rules due to come into force

The Competition and Markets Authority (CMA) provisionally decided to vary the Retail Banking Market Investigation Order 2017 and remove Part 6, in light of the FCA’s forthcoming rules on overdraft alerts. The CMA is seeking comments on this provisional decision, and on the variation order, and the draft explanatory note. The CMA will consider the comments and evidence provided before reaching its final decision. Feedback is sought by 15 October 2019.

 

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Enforcement and redress

 

FCA says Speedloan Finance Limited t/a Albemarle & Bond/Herbert Brown has ceased trading

The FCA announced that Speedloan Finance Limited t/a Albemarle & Bond/ Herbert Brown ceased trading, although it is not in administration. The firm confirmed that it closed its stores and transferred all existing accounts to its Pawnbroking Centre. 

FCA announces further details of independent investigation of interest rate hedging products

The FCA issued a press release stating that John Swift QC announced his full independent support team is now in place to conduct the investigation into the Financial Services Authority (FSA’s) (and subsequently the FCA’s) implementation and oversight of the interest rate hedging products (IRHP) redress scheme.

 

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Markets and trading

 

Amendments to EEA Agreement Annex IX (Financial Services) published in Official Journal

Decisions of the European Economic Area (EEA) Joint Committee amending Annex IX (Financial Services) to the EEA Agreement were published in the Official Journal (OJ). Pursuant to the amendments, Regulation (EU) 2017/1129 (Prospectus Regulation), and two related Commission Delegated Regulations, and Regulation (EU) 2016/1011 (Benchmarks Regulation) were incorporated into the EEA Agreement. The decisions entered into force one day after the date of the respective decision, or on the day following the last notification under Article 103(1) of the EEA Agreement, whichever is the later.

CFTC approves ‘plain English’ IBOR disclosures

The US Commodity Futures Trading Commission’s market risk advisory committee approved plain English disclosures for new derivatives referencing the London interbank offered rate (LIBOR) and other IBORs. The disclosures inform clients and counterparties about the implications of using such products.

BoE publishes terms of reference for new risk-free rates senior advisory group

The BoE risk-free reference rate (RFR) working group published the terms of reference for its new RFR senior advisory group. The working group, which was established in 2015 to develop alternative risk-free rates for use instead of LIBOR-style reference rates, determined it would benefit from an advisory group to provide strategic support and senior engagement in firms, to help achieve the working group’s deliverables and objectives. 

 

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MiFID II

 

ISDA issues primer on interest rate swap reporting under MiFIR

The International Swaps and Derivatives Association (ISDA) published ‘A primer on field 41: IR term of contract’, which provides guidance on implementation of the requirements for interest rate swap reporting contained in section 16 Q1 of the European Securities and Markets Authority (ESMA)’s Q&As on MiFIR data reporting. ESMA issued a public statement on 5 February 2019 which, among other things, indicated that the implementation deadline for these requirements would be shifted to Q3 2019. The Derivatives Service Bureau (DSB) subsequently revised the implementation date to 22 September 2019. 

 

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Regulation of capital markets and Capital Markets Union

 

Amendments to EEA Agreement Annex IX (Financial Services) published in Official Journal

Decisions of the EEA Joint Committee amending Annex IX (Financial Services) to the EEA Agreement were published in the OJ. Pursuant to the amendments, the Prospectus Regulation, and two related Commission Delegated Regulations, and the Benchmarks Regulation were incorporated into the EEA Agreement. The decisions entered into force one day after the date of the respective decision, or on the day following the last notification under Article 103(1) of the EEA Agreement, whichever is the later. 

Industry association releases ‘Introduction to CSDR Settlement Discipline’ document

AFME released a document called ‘Introduction to CSDR Settlement Discipline’, which outlines the basics of the Central Securities Depository Regulation (CSDR). The CSDR is the latest step in an attempt to harmonise regulatory structures across the EU. 

 

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Regulation of derivatives

 

ISDA issues primer on interest rate swap reporting under MiFIR

ISDA published ‘A primer on field 41: IR term of contract’, which provides guidance on implementation of the requirements for interest rate swap reporting contained in section 16 Q1 of ESMA’s Q&As on MiFIR data reporting. ESMA issued a public statement on 5 February 2019 which, among other things, indicated that the implementation deadline for these requirements would be shifted to Q3 2019. The DSB subsequently revised the implementation date to 22 September 2019.

HM Treasury provides a progress report on the proposed Regulation on recovery and resolution of CCPs

The UK government published a letter from the economic secretary to the Treasury, John Glen MP, to the chair of the House of Commons European Scrutiny Committee, Sir William Cash MP, providing an update on the progress of the European Commission's proposed Regulation 14835/16 on a framework for the recovery and resolution of central counterparties (CCPs) and amending Regulations (EU) 1095/2010, (EU) 648/2012, and (EU) 2015/2365. Glen sets out the topics of recent discussion in European Council working group meetings which centred on the ‘no creditor worse off’ principle and the requirements for recovery plans for CCPs that are part of a group. Areas where there is no agreement include the treatment of CCP equity in resolution.

BoE survey shows UK remains the single largest centre of FX activity

The Bank of England (BoE) published the results of its triennial survey on the turnover in the markets for foreign exchange (FX) and over-the-counter interest rate derivatives. It forms part of a global survey carried out by central banks throughout the world, co-ordinated by the Bank for International Settlements (BIS).

ISDA welcomes US swap margin requirements proposal

ISDA welcomed the US-proposed rule-making on swap margin requirements, saying the proposed rule reflects a global effort by regulators to make the margin requirements more sensitive to risk, and to align those rules across jurisdictions. ISDA says its analysis suggested the number of in-scope firms would have jumped by roughly 20-fold under the original phase-five initial margin implementation deadline, raising doubts about the capacity of these entities to comply in time.

FCA announces further details of independent investigation of interest rate hedging products

The FCA issued a press release stating that John Swift QC announced his full independent support team is now in place to conduct the investigation into the FSA’s (and subsequently the FCA’s) implementation and oversight of the IRHP redress scheme. 

 

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Investment funds and asset management

 

IA publishes guidance on authenticity of electronic instructions

The Investment Association (IA) published guidance on the measures that operators of UK-authorised collective investment schemes may adopt to ensure that reasonable steps are taken to ensure the authenticity of electronic instructions. This is in order to comply with the FCA's Collective Investment Schemes Sourcebook (COLL 4.4.13R(3)(b)) and paragraph 4C of Schedule 4 to the Open-Ended Investment Companies Regulations 2001 SI 2001/1228 (OEIC Regulations), as amended. The guidance aims to assist authorised fund managers determine the steps they should take to satisfy the ‘reasonable steps’ requirement.

IA publishes annual investment management survey

The IA published its annual investment management survey. It shows that the UK retains its global position with assets under management (AUM) of £7.7 trillion at the end of 2018, which represents an increase of £4.7 trillion compared to 10 years ago. Findings include that over a quarter of total AUM were invested using a responsible investment approach.

FCA and Hong Kong regulator amend MoU on mutual recognition of funds

The FCA and the SFC amended their memorandum of understanding concerning mutual recognition of covered funds and covered management companies, and related co-operation, in preparation for Brexit.

 

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Banks and mutuals

 

PRA grants new waiver by consent of the Continuity of Access rules

The PRA granted a new waiver by consent of the CoA rules in the Depositor Protection Part of the PRA Rulebook. The CoA rules require firms to put in place systems to ensure eligible depositors maintain continued access to Financial Services Compensation Scheme-covered deposits in resolution or insolvency by facilitating a transfer of such deposits.

PRA publishes PS17/19 on supervising international banks: revision of the branch return

The PRA published policy statement PS17/19, with feedback to responses to consultation paper CP8/19 ‘Supervising international banks: Revision of the Branch Return’ and the PRA’s final amendments to the PRA Rulebook. PS17/19 is relevant to PRA-supervised branches of international banks and PRA-designated investment firms which are not UK headquartered. The PRA also published the associated supervisory statement SS34/15. 

EIB study finds link between bank lending satisfaction and financial strength of the parties

The European Investment Bank (EIB) published a working paper, ‘What firms don’t like about bank loans: New evidence from survey data’. It finds that non-financial firms with weaker finances and those financed by weaker banks are less satisfied with their bank financing.

PRA annual assessment of credit union sector

The PRA published the findings of its 2019 annual assessment of the credit union sector. The assessment findings were emailed to credit unions in August 2019. The credit unions received one of two letters, depending on which peer group they fell into. Among other issues, both letters address operational risk and resilience and cyber security, and outsourcing issue.

CMA proposes removal of overdraft alert rules as FCA’s rules due to come into force

The Competition and Markets Authority (CMA) provisionally decided to vary the Retail Banking Market Investigation Order 2017 and remove Part 6, in light of the FCA’s forthcoming rules on overdraft alerts. The CMA is seeking comments on this provisional decision, and on the variation order, and the draft explanatory note. The CMA will consider the comments and evidence provided before reaching its final decision. Feedback is sought by 15 October 2019.

 

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Consumer credit, mortgage and home finance

 

ECJ delivers judgment on the interpretation of Article 16(1) of the Consumer Credit Directive

The ECJ published the decision in Lexitor sp. z o.o. v Spółdzielcza Kasa Oszczędnościowo—Kredytowa im. Franciszka Stefczyka, Santander Consumer Bank S.A., and mBank S.A. The case concerned a request for a preliminary ruling on the interpretation of Article 16(1) of Consumer Credit Directive.

CMA proposes removal of overdraft alert rules as FCA’s rules due to come into force

The CMA provisionally decided to vary the Retail Banking Market Investigation Order 2017 and remove Part 6, in light of the FCA’s forthcoming rules on overdraft alerts. The CMA is seeking comments on this provisional decision, and on the variation order, and the draft explanatory note. The CMA will consider the comments and evidence provided before reaching its final decision. Feedback is sought by 15 October 2019. 

 

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Regulation of insurance

 

Corrigendum to decision to wind-up Stronghold Insurance Company Ltd published in the OJ

A corrigendum to a decision to start winding-up proceedings in respect of Stronghold Insurance Company Ltd was published in the OJ. The decision to start winding-up proceedings was published in the OJ on 22 July 2019 and came into force on 27 June 2019. The corrigendum replaces the competent authorities named in the decision—originally the PRA and the FCA—with the High Court of Justice, Business and Property Courts of England and Wales.

PRA willing to accept applications from Solvency II firms to recalculate TMTP as at 30 September 2019

The PRA updated its Solvency II webpage by stating that if the current market conditions persist, the PRA would be willing to accept applications from firms to recalculate transitional measure on technical provisions (TMTP) as at 30 September 2019.

PRA consults on its proposed expectations on the Solvency II ‘prudent person’ principle

The PRA published consultation paper CP22/19, which sets out its proposed expectations for investment by firms in accordance with the prudent person principle, as set out in Chapters 2 to 5 of the Investments Part of the PRA Rulebook which transpose Article 132 of the Solvency II Directive (2009/138/EC). Feedback is sought by 18 December 2019.

EIOPA report calls for a sound cyber resilience framework for insurers

EIOPA published a report on ‘cyber risk for insurers—challenges and opportunities’. The report seeks to further enhance understanding of the vulnerabilities of the European insurance sector towards cyber risk as well as the challenges facing cyber insurers in the European cyber insurance market, and says a sound cyber resilience framework for insurers would help address these issues.

LMA survey finds fundamental operational risks are top concerns for Lloyd’s CROs

The Lloyd’s Market Association (LMA) published a report, produced jointly with PwC, on ‘the changing face of risk—breaking the vicious circle’. The report reflects the results of a survey of chief risk officers (CROs) within Lloyd’s managing agencies, which showed a shift in focus from specific macro risk issues towards fundamental operational risks.

EIOPA establishes consultative expert group on digital ethics in insurance

EIOPA established a new consultative expert group on digital ethics in insurance. The group is intended to assist EIOPA in developing digital responsibility principles in insurance, following EIOPA’s recent thematic review on the use of big data analytics in motor and health insurance.

 

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Payment services and systems

 

European Commission urges speedy implementation of PSD2 rules

The European Commission published FAQs on ‘making electronic payments and online banking safer and easier for consumers’, as the final rules of the revised Payment Services Directive (EU) 2015/2366 (PSD2) come into force. The Commission is calling on all EU Member States to ensure ‘speedy and full implementation of all the rules’.

EPC increases maximum amount per SCT Inst transaction

The European Payments Council (EPC) scheme management board, the body responsible for the administration and evolution of the Single Euro Payments Area (SEPA) payment schemes, increased the maximum amount per SEPA instant credit transfer (SCT Inst) transaction to €100,000. This amended maximum amount will take effect from 1 July 2020. Updated Q&As on the SCT Inst scheme and SCT Inst transactions were also published. 

PSR updates on its approach to profitability analysis for market review into card-acquiring services

The Payment Systems Regulator (PSR) published an update on its approach to the profitability analysis for its market review into card-acquiring services. In July 2019 the PSR launched a consultation on its proposed approach, setting out two proposed pieces of analysis—gross profit margin (GPM) and return on capital employed (ROCE). Having reviewed the responses it received, the PSR concluded that GPM is more likely to provide useful analysis for its review, so it will not be assessing ROCE.

 

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Fintech and cryptoassets

 

BIS publishes working paper on how to build regulation into blockchain finance

The BIS published a working paper on how blockchain-based financial markets might be regulated and supervised. The working paper argues that asset tokenisation and underlying distributed ledger technology open up new ways of supervising financial risks. It then puts the case for ‘embedded supervision’, ie a framework that allows compliance with regulatory goals to be automatically monitored by reading the market's ledger, thus reducing the need for firms to actively collect, verify and deliver data. 

Senior officials from public authorities meet on stablecoins

The BIS issued a press release noting that senior officials from public authorities worldwide met in Basel on Monday 16 September 2019 to discuss policy and regulatory issues posed by the emergence of ‘stablecoin’ initiatives backed by financial institutions and large technology companies.

 

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Sustainable finance

 

ESAs report on risks and vulnerabilities in the EU financial system

The Joint Committee of the ESAs published a report on the risks and vulnerabilities in the EU financial system. Sources of instability and risks identified in the report include: Brexit, the low interest rate environment, and ESG-related risks. The report highlights the need for supervisory vigilance and co-operation amongst regulators and industry players across all sectors, focusing (amongst other things) on contingency planning, the low-for-long interest rate scenario, and the leveraged lending market.

 

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Islamic finance

 

IFSB releases further country-level data on soundness and growth of the Islamic banking system

The Islamic Financial Services Board (IFSB) announced the dissemination of country-level data on financial soundness and growth of the Islamic banking systems for Q1 of 2019 from IFSB member jurisdictions. This is the 13th dissemination and completes the availability of quarterly data from Q4 of 2013 to Q1 of 2019. It is part of the IFSB’s ‘Prudential and structural Islamic financial indicators’ project.

 

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Dates for your diary

 

DateSubjectEvent

 

20 September 2019

 

Risk management and controls

 

The deadline for responses to the Risk Coalition’s consultation on its proposed principles and guidance for board risk committees and UK financial services sector risk functions is 20 September 2019.

 

22 September 2019MiFID II


Regulation of derivatives

The implementation deadline for the requirements for interest rate swap reporting contained in section 16 Q1 of ESMA’s Q&As on MiFIR data reporting is 22 September 2019.

 

22 September 2019Regulation of insurance

The deadline to fill in an online survey on Directive (EU) 2016/97 (the IDD) – Report analysing national General Good rules, is 22 September 2019.

 

22 September 2019Sustainable finance

UNEP FI–a partnership between United Nations Environment and the global financial sector– set 22 September 2019 as the official launch date of the industry-developed UNEP FI Principles for Responsible Banking.

 

25 September 2019Financial crime

The deadline for responses to FCA CP19/24: Recovering the costs of OPBAS: feedback on CP19/13 and consultation on fee-rate for 2019/20 is 25 September 2019.

 

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About the author:
Pietra has completed the Bar Professional Training Course at the University of Law and was called to the Bar in 2019. Prior to the BPTC, Pietra undertook a law degree at the University of Bristol.