FS weekly highlights—20 August 2020

FS weekly highlights—20 August 2020

In this issue

 

 

Coronavirus (COVID-19)
UK, EU and international regulators and bodies
Authorisation, approval and supervision
Prudential requirements
Risk management and controls
Financial crime
Consumer protection
Investigations, enforcement and discipline
Competition in financial services
Markets and trading
Regulation of capital markets
Regulation of derivatives
Investment funds and asset management
Crowdfunding
Banks and mutuals
Regulation of insurance
Regulation of personal pension and stakeholder products
Fintech and cryptoassets
Sustainable finance
Islamic finance
Dates for your diary

 

Coronavirus (COVID-19)

For further information on the effects of COVID-19 on financial services, see: Coronavirus (COVID-19)—key developments for financial services lawyers and   Coronavirus (COVID-19)—key financial services issues.

Coronavirus (COVID-19)—EBA revises its work programme for 2020

In light of the coronavirus COVID-19 pandemic, on 14 August 2020 the European Banking Authority (EBA) published an amended work programme for 2020 (dated July 2020). This provides an update to the original EBA work programme that was published in September 2019.

Source: EBA Revised Work Programme 2020 (COVID-19 changes).

Coronavirus (COVID-19)—FCA and FRC permit issuers to temporarily rely on amended IFRS 16

The Financial Conduct Authority (FCA) and the Financial Reporting Council (FRC) announced temporary relief for issuers who choose to use the amended International Financial Reporting Standard (IFRS) 16 during the COVID-19 pandemic and its aftermath.  IFRS 16 was amended by the International Accounting Standards Board (IASB) in May 2020 to provide practical relief to lessees in accounting for rent concessions granted due to COVID-19.

Sources: Statement on accounting for lease modifications (amendment to IFRS 16) and  FRC statement on accounting for lease modifications (amendment to IFRS 16—COVID-19-related rent concessions).

Coronavirus (COVID-19)—SMEs remain wary of borrowing despite UK government support

HM Treasury published the latest statistics on the government-backed COVID-19 business loan schemes, which show that over 1.23m businesses in the UK have now been supported by lenders through the schemes. However, research commissioned by UK Finance members has revealed that businesses are still wary of drawing on additional credit largely due to ongoing economic uncertainty.

Sources: Lenders supporting 1.23 million businesses across the UK through COVID-19 support schemes and  HM Treasury coronavirus (COVID-19) business loan scheme statistics (update).

Pay.UK issues coronavirus (COVID-19) preparedness statement

Pay.UK published a press release setting out its preparedness for the COVID-19 pandemic. Pay.UK says it is monitoring the COVID-19 outbreak closely to ensure it is taking the necessary steps to protect colleagues and maintain services to its participants and end users.

Source: 17 August 2020 Pay.UK COVID-19 preparedness.

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UK, EU and international regulators and bodies

UK and Bank of Thailand sign MoU on financial services

The UK government and the Bank of Thailand (BoT) signed a memorandum of understanding (MoU) on 7 August 2020 with the aim of forming a strategic partnership on financial services. The key goal is to support Thailand’s inclusive economic recovery and green growth in line with the Sustainable Development Goals (SDGs).

Source: UK government MoU press release.

UK Finance podcast looks at the BoE Future of Finance review one year on

UK Finance published a blog discussing the Bank of England (BoE)’s Future of Finance review one year on. The report made a number of recommendations in the areas of green and digital finance. The UK Finance blog flags up its series of podcasts on the report, the latest episode of which seeks to explore what progress has been made and where the BoE and wider industry should be focusing their energies.

Source: The Future of Finance Review: one year on.

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Authorisation, approval and supervision

New FCA webpage on conduct rules reporting for solo-regulated firms under the SM&CR and assessing fitness and propriety

The FCA published a new webpage on conduct rules reporting for solo-regulated firms under the Senior Managers and Certification Regime (SM&CR). In a further update webpage, the FCA also provided information to firms on good and bad practice relating to training staff on the conduct rules and carrying out fitness and propriety assessments.

Sources: FCA REP008 reporting solo-regulated firms and  FCA updated SM&CR webpage.

For further information, see: SM&CR—essentials for solo-regulated firms.

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Prudential requirements

EBA consults on guidelines on criteria for the use of data inputs in the expected shortfall risk measure under the internal model approach

The EBA launched a consultation on draft guidelines on criteria for the use of data inputs in the risk-measurement model referred to in Article 325bc of the Capital Requirements Regulation (Regulation (EU) No 575/2013) (CRR) under the Internal Model Approach (IMA) for market risk. The guidelines have been developed according to Article 325bh(3) of the CRR, which mandates the EBA to issue such guidelines. The consultation runs until 12 November 2020.

Source: EBA consults on guidelines on criteria for the use of data inputs in the expected shortfall risk measure under the internal model approach.

For further information, see: CRD IV—essentials.

EBA makes available online tools to submit answers to its study of cost of compliance with supervisory reporting

Following the launch of the industry questionnaire to support its work on optimising supervisory reporting requirements and reducing reporting costs for institutions (see ‘EBA looks for ways to reduce reporting costs for further information’,  LNB News 22/07/2020 97), the EBA made available online tools to allow stakeholders to submit their responses.

Sources: EBA press releaseEBA qualitative section of the questionnaireEBA quantitative section of the questionnaire and EBA Supervisory Reporting webpage.

Action brought by Landesbank Baden-Württemberg against SRB published in Official Journal

Action brought on 2 July 2020—Landesbank Baden-Württemberg v Single Resolution Board (SRB) (Case T-406/20) has been published in the Official Journal.

Source: Action brought on 2 July 2020—Landesbank Baden-Württemberg v SRB

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Risk management and controls

BoE study examines links between risk-taking and performance pay

The Bank of England (BoE) published a staff working paper examining how constraints on bonus akin to bonus regulations, such as bonus cap and malus, could affect individuals’ risk-taking in the presence of relative performance pay.

Source: Does bonus cap curb risk taking? An experimental study of relative performance pay and bonus regulation.

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Financial crime

EBA responds to European Commission’s AML/CFT Action Plan

The EBA published its response to the European Commission’s Action Plan for a comprehensive EU policy on preventing money laundering and terrorism financing. In its response, the EBA sets out technical points that policymakers should consider when deciding on the scope and powers of an EU-level supervisor for anti-money laundering/combating the financing of terrorism (AML/CFT).

Source: EBA supports the EU Commission’s call for a more efficient and effective framework to tackle money laundering and terrorism financing.

For further information, see: The anti-money laundering regime.

ECB sixth oversight report on card fraud

The European Central Board (ECB) published its sixth oversight report on card fraud. The report analyses developments in card payment fraud with a particular focus on data from 2018. The report looks back over a five-year period from 2014 to 2018.

Source: ECB sixth report on card fraud.

FCA publishes Legal Notice to Richard Baldwin

The FCA published a Legal Notice addressed to Richard David Baldwin stating that, on 4 September 2020, Southwark Crown Court sitting at 1 English Grounds, London SE1 2HU will hear the application of the FCA for a criminal confiscation order against him under the Proceeds of Crime Act 2002.

Source: Legal Notice: Richard David Baldwin.

HMRC publishes breaches of the 2017 money laundering regulations for tax year 2019-2020

HM Revenue and Customs (HMRC) published a list of businesses for the tax year 2019 to 2020 that have not complied with the 2017 money laundering regulations. The list sets out details of businesses that received a penalty notice between 6 April 2019 and 31 January 2020, together with a brief description of the breach involved, the penalty amount and appeal status.

Source: List of businesses for tax year 2019 to 2020 that have not complied with the 2017 money laundering regulations.

HMT approves JMLSG guidance on pooled client accounts, cryptoassets, and other revisions

The Joint Money Laundering Steering Group (JMLSG) received HM Treasury ministerial approval for its guidance material published in June/July 2020. This includes the new Sector 22 Cryptoasset exchange providers and custodian wallet providers, Annex 5-V Pooled Client Accounts, and the various other revisions within Part I and Part II.

Source: Ministerial approval of JMLSG guidance.

 

Consumer protection

IOSCO prepares to launch 2020 World Investor Week

The International Organization of Securities Commissions (IOSCO) is preparing to launch its fourth annual World Investor Week (WIW) from 5 to 11 October 2020, as initially planned before the outbreak of the COVID 19 pandemic, saying: ‘More than ever, investors and financial consumers worldwide need to manage their finances and investments efficiently and strengthen their financial resilience in the face of growing economic uncertainty.’

Source: IOSCO to launch 2020 World Investor Week to promote investor education.

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Investigations, enforcement and discipline

Financial Solutions (Euro) Ltd v Financial Conduct Authority

Costs – Order for costs. The appellant company's application for costs, following its successful appeal against a decision notice of the Financial Conduct Authority, succeeded. The Upper Tribunal (Tax and Chancery Chamber) held that both the authority's decision and its decision to defend the proceedings on the basis ofthat decision had been unreasonable. There was no reason why the court should not order the authority to pay all of FSE's costs of and incidental to the proceedings in the tribunal.

See: [2020] All ER (D) 27 (Aug).

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Competition in financial services

BCR announces grants under Capability and Innovation Fund Pool E (Application Period One)

The board of Banking Competition Remedies Ltd (BCR) has announced the results of Application Period One of the Capability and Innovation Fund (CIF) Pool E grant process. The purpose of the fund is to facilitate the commercialisation of financial technology that is relevant to small and medium-sized enterprises (SMEs).

Source: Banking Competition Remedies Ltd (BCR) announces the awards of Capability and Innovation Fund Pool E (Application Period One).

CMA announces latest banking customer satisfaction results

The Competition and Markets Authority (CMA) announced the publication of the latest service quality league table of personal and business current account providers. This is the fifth publication since the league tables were put in place following the CMA’s market investigation into retail banking in 2016. For the first time, the data includes the service quality rankings for the new digital banks Monzo and Starling and for Virgin Money.

Sources: Latest banking customer satisfaction results published and  OBIE publishes Open Data Service Quality Indicators.

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Markets and trading

FCA Primary Market Bulletin 30 includes latest changes to Knowledge Base, reminder of PDMR regime under Market Abuse Regulation and recent updates to Prospectus Regulation

The FCA published Issue No 30 of its Primary Market Bulletin, the FCA newsletter for primary market participants. The edition summarises the latest changes to the Knowledge Base, includes a reminder of the person discharging managerial responsibilities (PDMR) regime under the Market Abuse Regulation and gives updates on recent changes to the Prospectus Regulation.

Source: Primary Market Bulletin Issue no 30.

For further information, see: Market Abuse Regulation (MAR)—essentials and The Prospectus Regulation—essentials.

 

Regulation of capital markets

ESMA updates XML schema and reporting instructions for securitisation reporting

The European Securities and Markets Authority (ESMA) published updated reporting instructions and XML schema (version 1.2.0) for the templates set out in the technical standards on disclosure requirements under the Securitisation Regulation. The updates address technical issues identified by stakeholders since December 2019.

Source: ESMA provides updated XML schema and reporting instructions for securitisation reporting.

For further information, see: Securitisation Regulation—essentials.

 

Regulation of derivatives

FIA webinar discusses response of the cleared derivatives markets to the coronavirus (COVID-19) pandemic

The Futures Industry Association hosted a webinar on the response of the cleared derivatives markets to the COVID-19 pandemic. Participants agreed that the sector had responded well and said industry preparedness through business continuity planning had played a key role in the resilience of the markets. However, the panelists were open about the challenges created by high order volumes and trade backlogs during the peak of market volatility and discussed how the system could improve its response to the next crisis.

Source: CCPs and FCMs in Asia Pacific discuss lessons learned from the crisis.

IMF and World Bank recommend changes to the US supervision of CCPs

The Financial Sector Assessment Program (FSAP), a joint effort between the International Monetary Fund (IMF) and the World Bank, issued its latest review of the US on 10 August 2020. While the full assessment covered the entire US financial system, the review also included a technical note entitled, ‘Supervision of financial market infrastructures, resilience of central counterparties and innovative technologies’. The technical note highlighted specific challenges for the supervision of derivatives clearing houses, including ‘resource constraints’ at the Commodity Futures Trading Commission (CFTC) as well as the CFTC’s approach to consultation on rule changes at systemically important central counterparties (CCPs).

Sources: Financial System Stability Assessment and  FSAP Technical note on FMIs, CCPs and technology.

 

Investment funds and asset management

Coronavirus (COVID-19)—FCA Dear CEO letter urges firms to consider clients’ best interests holding high client money balances

The executive director of supervision—investment, wholesale & specialists division of the FCA, Megan Butler, wrote a Dear CEO letter to firms that provide a non-discretionary investment service setting out the FCA’s expectations on high client money balances due to changes made to portfolios in light of the COVID-19 pandemic.

Source: Dear CEO letter: increased client money balances since coronavirus (COVID-19).

ESMA makes policy and reporting suggestions for the AIFMD review

The ESMAwrote to the European Commission suggesting areas to consider in the impending review of the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD). In annexes to the letter, ESMA sets out a number of problems and proposed solutions in the areas of policy and reporting.

Sources: ESMA recommends priority topics in AIFMD review and  Letter to the Commission.

For further information, see: AIFMD—essentials.

Solicitors Regulation Authority publishes report on dubious investment schemes

The Solicitors Regulation Authority (SRA) released a report on dubious investment schemes, which details typical schemes and explores how and why solicitors can become involved. The SRA stressed that law firms must be vigilant when advising on investment schemes—‘solicitors should be mindful of the risk of acting in a dubious scheme. They should act with integrity and protect consumers by robustly analysing the reality and risks of any financial arrangements they are involved in.' The SRA advises that solicitors who suspect that a transaction is potentially fraudulent or so high risk that it is unfair to buyers, should provide full and frank advice to buyer clients and cease to act for seller clients.

Source: Investment schemes that are potentially dubious.

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Crowdfunding

HM Treasury letters to Parliamentary Committee on EU crowdfunding service provider proposals: August 2020

HM Treasury published letters from the economic secretary John Glen MP to the chair of the House of Lords European Union Committee, Lord Kinnoull, and to Sir William Cash MP, the chair of the Commons European Scrutiny Committee. The letters update the committees on the proposals for a regulation on European Crowdfunding Service Providers for Business and the related proposal for a Directive amending Directive 2014/65/EU (MiFID II), noting that final compromise texts were published in April 2020. Glen adds that legislation will not come into force during the transition period and the government will therefore consider whether similar changes in UK law would enhance the competitiveness of the UK’s crowdfunding and peer-to-peer (P2P) lending sectors in the new trading environment, while also ensuring that consumer investors are adequately protected.

Sources: HM Treasury letters to Parliamentary Committee on EU crowdfunding service provider proposals: August 2020Letter to Sir William Cash and Letter to Lord Kinnoull.

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Banks and mutuals

Coronavirus (COVID-19)—APPG in Fair Business Banking discusses banks’ payment holiday support for business customers

The All-Party Parliamentary Group (APPG) on Fair Business Bankingpublished a blog discussing banks’ payment holiday support for business customers in light of the coronavirus (COVID-19) pandemic.

Source: Banks split over SME loan payment holidays.

Coronavirus (COVID-19)—ECB sets up repo lines with North Macedonia and San Marino central banks to provide euro liquidity

The ECB set up repo lines with the Central Bank of the Republic of San Marino and the National Bank of the Republic of North Macedonia, each of which will remain in place until June 2021 unless extensions are decided. The arrangements provide euro liquidity to financial institutions in the two countries through the central banks to address possible euro liquidity needs in the presence of market dysfunctions due to the coronavirus (COVID-19) shock.

Sources: ECB and Central Bank of the Republic of San Marino set up repo line to provide euro liquidity and  ECB and National Bank of the Republic of North Macedonia set up repo line to provide euro liquidity.

FSB publishes questionnaire on continuity of access to FMIs for firms in resolution

The Financial Stability Board (FSB) published a common template to gather information about continuity of access to financial market infrastructures (FMIs) for firms in resolution. All FMIs are encouraged to complete the template, which takes the form of a questionnaire. The responses to the questionnaire will be published, or made available in other ways, to firms that use FMI services and their resolution authorities to inform their resolution planning.

Source: FSB publishes questionnaire on continuity of access to FMIs for firms in resolution.

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Regulation of insurance

EIOPA publishes risk dashboard based on Q1 2020 Solvency II data

The European Insurance and Occupational Pensions Authority (EIOPA) published its updated risk dashboard based on the first quarter of 2020 Solvency II data.

Source: EIOPA’s risk dashboard: European insurers remain exposed to high risks since the outbreak of COVID-19.

FCA publishes final transcripts of business interruption test case

The FCA published the final transcript of all eight days of its business interruption (BI) insurance test case trial on its website. The FCA is seeking legal clarity on BI insurance during the coronavirus (COVID-19) crisis. It intends to obtain court declarations as part of a test case, aimed at resolving the contractual uncertainty around the validity of many BI claims. The eight-day court hearing took place before Lord Justice Flaux and Mr Justice Butcher on 20–23 July and 27–30 July 2020.

Source: Business interruption insurance—Latest updates.

For further information, see: Coronavirus (COVID-19)—business interruption insurance.

FCA ​​to research benefits of publishing public liability insurance details

The FCA published its letter dated​ 24 March 2020, to ​​the Independent Inquiry into Child Sexual Abuse (IICSA)​, regarding their Accountability and Reparations report dated September 2019, which recommended that the FCA ‘should make the necessary regulatory changes to compel insurers that provide public liability insurance to retain and publish details of all current policies’.

Source: Accountability and Reparations investigation report: recommendations.

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Regulation of personal pension and stakeholder products

EIOPA moves towards final PEPP Regulation with proposed implementing technical standards

EIOPA submitted to the European Commission a set of draft regulatory and implementing technical standards and its advice on Delegated Acts to implement the framework for the design and delivery of the pan-European personal pension product (PEPP).

Source: EIOPA finalises the regulation of the pan-European personal pension product.

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Fintech and cryptoassets

Head of BIS Innovation Hub speaks on regtech and suptech challenges and possibilities

The head of the Bank for International Settlements (BIS) Innovation Hub, Benoît Cœuré, gave a speech at the Peterson Institute for International Finance on leveraging technology to support supervision, as part of the Institute’s Financial Statement event series. He provided a broad overview of the challenges that remain for suptech and regtech to be embraced more widely, and suggested ways to address these collectively to build solutions and avoid silos.

Source: Leveraging technology to support supervision: challenges and collaborative solutions.

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Sustainable finance

FCA warned that ‘comply or explain’ approach not sufficient for climate risks

The Climate Disclosure Standards Board (CDSB) warned the FCA that a ‘comply or explain approach’ to recommendations set out by the Task Force on Climate-related Financial Disclosures would not result in a timely response to the climate risks faced by the market. The CDSB welcomed the heightened focus on climate disclosure, and instead recommended setting a mandatory Listing Rule. The FCA could then commit to more leniency in the first year of reporting under the Listing Requirement, which would allow for time to develop corporate reporting capabilities.

Source: CDSB warns a comply or explain approach is not sufficient in reaction to UK FCA’s Proposals to enhance climate-related disclosure by listed issuers and clarification of existing disclosure obligations.

Climate Financial Risk Forum discusses strategy for year ahead

The FCA and the Prudential Regulation Authority (PRA) hosted the fourth meeting of the Climate Financial Risk Forum (CFRF) in July 2020. Members discussed how to publicise and promote use of the CFRF Guide by the financial services industry, and discussed strategy for the coming year. The Bank of England published a summary of the meeting on 14 August 2020.

Source: Fourth meeting of the PRA and FCA’s joint Climate Financial Risk Forum.

GIIA publishes report on climate risks facing infrastructure investors

The Global Infrastructure Investor Association (GIIA), in partnership with Marsh & McLennan, released the second in a three-part analysis of global risks for infrastructure investors. Looking at the climate challenge, the latest report discusses the specific risks to infrastructure investors under each of the key risk categories outlined by the Task Force on Climate-related Financial Disclosures, as well as crucial levers for achieving climate resilience at both the portfolio and asset level for the infrastructure sector.

Source: Global risks for infrastructure—the climate challenge.

Insurance Europe responds to ESA consultation on ESG disclosures

Insurance Europe (IE) published its response to the European Supervisory Authorities' (ESAs) joint consultation on environmental, social and governance (ESG) disclosures. IE supports the development of a more sustainable economy and welcomes the new Sustainable Finance Disclosure Regulation (EU) 2019/2088, developed by European co-legislators. IE believes that customer information is key in developing sustainable finance, however disclosure must be balanced to help customers make balanced decisions. While the draft regulations are a step in the right direction, some changes are required.

Source: Insurers respond to ESAs consultation on ESG disclosures.

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Islamic finance

IFSB announces CEO forum on the impact of coronavirus (COVID-19) on Islamic finance

The Islamic Financial Services Board (IFSB) announced that its first virtual CEO’s forum, themed ‘COVID-19 and its implications on institutions offering Islamic financial services (IIFS)’, will be organised on 26 August 2020, 15:30-18:00 (Kuala Lumpur time). The forum aims to bring together industry leaders across the globe from different sectors to discuss their experiences, challenges and the opportunities created by the COVID-19 pandemic, as well as actions needed to strengthen the resilience of the Islamic financial sector and the key ways forward.

Source: The IFSB to organise its first CEO’s forum on COVID-19 and its implications on institutions offering Islamic financial services (IIFS).

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Dates for your diary

 

DateSubjectEvent

 

21 August 2020

 

 

Markets and trading

 

 

Deadline for responses to the FICC Markets Standards Board (FMSB) new draft Statement of Good Practice on Algorithmic Trading in FICC Markets.

 

23 August 2020

 

Prudential requirements

 

Deadline for responses to the BCBS’ proposed technical amendment to the capital rules for non-performing loan (NPL) securitisations, with the aim of addressing a gap in the regulatory framework and setting out a prudent treatment for securitisations of NPLs.

 

26 August 2020

 

Financial crime

 

Deadline for feedback for the European Commission’s anti-money laundering and counter-terrorist financing action plan .

 

 

 

 

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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.