FS weekly highlights—23 January 2020

FS weekly highlights—23 January 2020

In this issue

 

 

Brexit news
MIFID II
PRIIPs
Authorisation, approval and supervision
Prudential requirements
Financial stability, recovery and resolution
Risk management and controls
Financial crime
Conduct requirements
Complaints, compensation and claims management
Investigations, enforcement and discipline
Markets and trading
Regulation of capital markets and Capital Markets Union
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
Islamic finance
Dates for your diary

 

Brexit news

 

Brexit Bulletin—progress and preparations for final approval of the Withdrawal Agreement

As the UK government's legislation to approve and implement the Withdrawal Agreement passed its final stages in Parliament, the European Parliament confirmed final arrangements for completing its internal procedures for approval of Withdrawal Agreement.

Source: Brexit—final committee vote tomorrow on the EU–UK withdrawal agreement.

European Commission releases updated slides explaining the Withdrawal Agreement

The European Commission released an updated set of slides explaining the revised EU–UK Withdrawal Agreement. The updated slides follow previous versions circulated by the European Commission's Task Force. The authors of the slides provide a timeline of key events and cover the main areas of the Withdrawal Agreement, among other things. Practitioners may wish to monitor this source for further updates and background reading.

Source: The revised EU–UK Withdrawal Agreement EXPLAINED.

House of Lords EU committee raises points on proposed Taxonomy Regulation post-Brexit

The House of Lords EU committee published a letter from its chair, Lord Kinnoull, to John Glen MP, economic secretary to the Treasury, on the proposed Regulation on the establishment of a framework to facilitate sustainable investment (the Taxonomy Regulation).

Source: Letter from House of Lords EU Committee to John Glen MP on Taxonomy Regulation.

UKIFC article discusses impact of Brexit on UK Islamic finance sector

The UK Islamic Finance Council (UKIFC) published an article saying Brexit presents various risks and opportunities for the sector, such as Islamic finance playing a role in bilateral trade negotiations and the UK’s second sovereign sukuk. Beyond these, however, the author suggests it is unlikely it will significantly transform the industry in the UK.

Source: Brexit brings risks and opportunities for UK Islamic finance but unlikely to revolutionise domestic industry, say experts.

 

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MiFID II

 

EFSA paper calls for recalibration of MiFID II

Ahead of the European Commission’s review of the recast Markets in Financial Instruments Directive (Directive 2014/65/EU) and Markets in Financial Instruments Regulation (Regulation (EU) 600/2014 (the MiFID II Review), the European Forum of Securities Associations (EFSA) published a paper calling for certain areas of the regulation to be recalibrated in order to deliver its intended policy outcome of establishing a more transparent financial system that works to the benefit of the economy and society as a whole.

Source: EFSA paper calls for recalibration of MiFID 2/R.

 

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PRIIPs

 

Industry bodies urge European Commission to reconsider PRIIPs KID proposals

Insurance Europe (IE), the Association of Mutual Insurers and Insurance Cooperatives in Europe (AMICE), the European Banking Federation (EBF) and the European Fund and Asset Management Association (EFAMA) wrote a joint letter to the European Commission warning that the EU’s approach to fixing problems with the regulatory technical standards (RTS) of the Packaged Retail Investment and Insurance-Based Products (PRIIPs) Regulation is ‘fundamentally flawed and will negatively impact consumers’.

Source: Serious concerns raised on ESA’s approach to fixing PRIIPS KID.

ESA’s publish responses to consultation on amendments to PRIIPs KID rules

The European Supervisory Authorities (ESAs) published responses to their consultation on proposed amendments to the existing rules underpinning the key information document (KID) for PRIIPs.

Source: Joint consultation concerning amendments to the PRIIPS KID.

 

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Authorisation, approval and supervision

 

FCA publishes Dear CEO letter to asset managers and alternative investment firms

The Financial Conduct Authority (FCA) published two ‘Dear CEO Letters’ which outline the regulator’s view of the key risks of harm that alternative investment firms pose to their customers or the markets in which they operate. The letters note that the FCA’s alternatives portfolio is comprised of FCA-authorised firms that predominately manage alternative investment vehicles (for example, hedge funds or private equity funds) or alternatives assets directly; or advise on these types of investments or investment vehicles. The FCA’s asset management portfolio is comprised of FCA-authorised firms that predominantly directly manage mainstream investment vehicles, or advise on mainstream investments, excluding wealth managers and financial advisers. The FCA recognises that many of the issues within the sector will be common to both types of firms and that business models will often overlap.

Sources: Portfolio letter: Our alternatives supervision strategy and Asset management portfolio letter.

AFME report examines conduct supervision across four EU jurisdictions

The Association for Financial Markets in Europe (AFME) and Linklaters, in collaboration with Irish law firm Arthur Cox, published ‘Financial services conduct supervision: What to expect in four key EU jurisdictions.’ The report discusses the approach to conduct supervision taken by financial regulators in France, Germany, Ireland and the Netherlands. It aims to help compliance teams meet the expectations of conduct regulators, and highlights current priorities such as anti-money laundering, market misconduct, MiFID II and sustainability.

Source: AFME and Linklaters publish report on financial services conduct supervision.

FCA Enterprise Act report estimates financial impact of regulation on firms

The FCA published its latest Enterprise Act report, covering the period 21 June 2019 to 12 December 2019. It provides an estimate of costs to business created by regulation. During the reporting period, and using the government’s specified methodology, the FCA estimates that a cost of £1,577.4m over the prescribed five-year period has been created from the FCA’s qualifying regulatory provisions (QRPs), as validated by the independent Regulatory Policy Committee (RPC).

Source: FCA Enterprise Act report: 21 June 2019 to 12 December 2019.

 

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Prudential requirements

 

ECB seeks feedback on draft guideline on materiality threshold for credit obligations past due for less significant institutions

The European Central Bank (ECB) published a draft ECB guideline on the definition of the materiality threshold for credit obligations past due for less significant institutions (LSIs). It is addressed to national competent authorities (NCAs) to set a single materiality threshold for all LSIs within the Single Supervisory Mechanism (SSM), both for retail and non-retail exposures, irrespective of the method used for the calculation of capital requirements. The materiality threshold will comprise an absolute component, expressed as a specific maximum amount for the sum of all amounts past due owed by an obligor, and a relative component, expressed as a percentage reflecting the amount of the credit obligation past due in relation to the total amount of all on-balance sheet exposures to that obligor for the credit institution, the parent undertaking or any of its subsidiaries.

Source: ECB seeks feedback on draft ECB guideline on materiality threshold for credit obligations past due for less significant institutions.

ECB recommendation on dividend distribution policies (ECB 2020/1)

The ECB published its Recommendation to credit institutions on paying dividends in 2020 for the financial year 2019 (ECB 2020/1). It recommends the same method set out in its Recommendation 2019/1 be applied. The Recommendation is made in light of the need for credit institutions to continue preparing for the full application of the Capital Requirements Regulation (EU) No 575/2013 (CRR), the Capital Requirements Directive 2013/36/EU (CRD IV), and for the expiration of the IFRS 9 transitional arrangements provided by Regulation (EU) 2017/2395.

Source: Recommendation of the European Central Bank of 17 January 2020 on dividend distribution policies (ECB/2020/1).

ECB letter to significant institutions on variable remuneration policy

The chair of the Supervisory Board of the ECB, Andrea Enria, wrote to significant institutions under its supervision regarding their variable remuneration policies. Enria states that, along with dividend distribution policies, variable remuneration polices should be prudent and forward-looking in order to protect a firm’s capital base, particularly in light of the need for credit institutions to continue preparing for the full application of the CRR, the CRD IV, and for the expiration of the IFRS 9 transitional arrangements provided by Regulation (EU) 2017/2395.

Source: Variable remuneration policy of the significant institution.

EBA report says competent authorities have properly applied standards on identified staff

The European Banking Authority (EBA) published its report on the application by competent authorities of the RTS in Commission Delegated Regulation (EU) 604/2014, which sets out the criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile for purposes of CRD IV. The peer review shows that, within the European Economic Area (EEA), competent authorities have properly applied the RTS during the reference period from 1 January 2015 to 31 December 2017.

Source: EBA found that competent authorities have properly applied standards on identified staff.

ICMA and EFAMA issue update to ‘Managing fund liquidity risk in Europe’ report

The International Capital Market Association (ICMA)’s Asset Management and Investors Council (AMIC) and the EFAMA published an update of the report published in April 2016 titled ‘Managing fund liquidity risk in Europe: Recent regulatory enhancements & proposals for further improvements’. AMIC and EFAMA joined forces in 2016 to write this report on the legislative requirements and market-based tools available to manage liquidity risk in investment funds in Europe and offer some recommendations on further improving the general liquidity management environment. Given the largely EU focus of AMIC and EFAMA membership, the report focuses on EU legislation and EU fund structures, namely UCITS and AIFMD. This January 2020 version is an update of the report published in April 2016.

Source: Managing fund liquidity risk in Europe: Recent regulatory enhancements & proposals for further improvements.

 

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Financial stability, recovery and resolution 

 

ECA report under the SRM Regulation on contingent liabilities published in the Official Journal

The European Court of Arbitrators (ECA) Report made pursuant to Article 92(4) of the Single Resolution Mechanism (Regulation (EU) 806/2014) on any contingent liabilities arising as a result of the performance by the Single Resolution Board, the Council or the Commission of their tasks under this Regulation for the financial year 2018, together with the replies of the Single Resolution Board, the Commission and the Council, has been published in the Official Journal.

Source: Report (pursuant to Article 92(4) Regulation (EU) No 806/2014) on any contingent liabilities arising as a result of the performance by the Single Resolution Board, the Council or the Commission of their tasks under this Regulation for the financial year 2018, together with the replies of the Single Resolution Board, the Commission and the Council.

FSB publishes annual report on non-bank financial intermediation

The Financial Stability Board (FSB) published the Global Monitoring Report on Non-Bank Financial Intermediation 2019. The report presents the results of the FSB’s annual monitoring exercise to assess global trends and risks from non-bank financial intermediation (NBFI) (previously called shadow banking). The annual monitoring exercise is an important part of the FSB’s policy framework to enhance the resilience of NBFI. It covers data up to end-2018 from 29 jurisdictions, which together represent over 80% of global GDP. The FSB focuses particularly on those parts of NBFI that may pose bank-like financial stability risks and/or regulatory arbitrage (ie the narrow measure of NBFI).

Source: : FSB publishes annual report on non-bank financial intermediation.

State aid: Commission approves further prolongation of Greek bank guarantee scheme until 31 May 2020

On 16 January 2020, the European Commission announced it had authorised further prolongation of the Greek guarantee scheme for credit institutions until 31 May 2020 (Case SA.55767). Though the Greek bank liquidity situation is slowly improving, the Commission found the six-month prolongation of the guarantee scheme was in line with State aid rules during the crisis, especially because the measure is targeted, proportionate and limited in time and scope.

Source: State aid—Commission approves prolongation of Greek bank guarantee scheme.

 

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Risk management and controls

 

ECB letter to significant institutions on variable remuneration policy

The chair of the Supervisory Board of the ECB, Andrea Enria, wrote to significant institutions under its supervision regarding their variable remuneration policies. Enria states that, along with dividend distribution policies, variable remuneration polices should be prudent and forward-looking in order to protect a firm’s capital base, particularly in light of the need for credit institutions to continue preparing for the full application of the CRR, the CRD IV, and for the expiration of the IFRS 9 transitional arrangements provided by Regulation (EU) 2017/2395.

Source: Variable remuneration policy of the significant institution.

FCA warns firms on use of data following discovery of ‘improperly obtained’ source

The FCA issued a warning to firms on how they obtain data, following the regulator becoming aware that the Raid Forum website is offering what purports to be FCA information for sale. The FCA said it believes that this information has been improperly obtained from third parties. Based on its own detailed assessment, the FCA said it believes there has been no compromise of its systems or of data it holds.

Source: Warning on being careful where you get your data from.

 

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Financial crime

 

Banks ask for clarity on EBA guidelines on fraud reporting under PSD2

Participants in workshop sessions hosted by the Euro Banking Association at the request of members of the PSD2 Practitioners’ Panel and the SCT Inst Migration Action Round Table (SMART2) have issued a note seeking clarification of the definition of e-money transactions and the related fraud reporting requirements in the European Banking Authority (EBA)’s Guidelines on fraud reporting under PSD2, published on 18 July 2018.

Sources: Bank experts across Europe seek clarification on e-money definition and related fraud reporting requirementsNote: Joint PSD2-SMART2 workshop on EBA Guidelines: How to report e-money transactions under the EBA Fraud Reporting Guidelines Open questions around e-money definitionEBA Guidelines and ECB definition of e-money.

SFO publishes guidance on ‘Evaluating a compliance programme’

The Serious Fraud Office (SFO) updated its Operational Handbook with new guidance on ‘Evaluating a compliance programme.’ The guidance is designed to assist SFO personnel investigating companies for corporate criminal wrongdoing. This will be either in the context of having received a self-report or where the SFO initiates an external criminal investigation. Companies and their legal advisors should take note of the guidance as it will feed into the decisions about the resolutions that are available, including any potential deferred prosecution agreement (DPA) and charging decisions. It will also feed into sentencing exercises.

Source: SFO updated guidance—evaluating a compliance programme.

 

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Conduct requirements

 

AFME report examines conduct supervision across four EU jurisdictions

The AFME and Linklaters, in collaboration with Irish law firm Arthur Cox, published ‘Financial services conduct supervision: What to expect in four key EU jurisdictions.’ The report discusses the approach to conduct supervision taken by financial regulators in France, Germany, Ireland and the Netherlands. It aims to help compliance teams meet the expectations of conduct regulators, and highlights current priorities such as anti-money laundering, market misconduct, MiFID II and sustainability.

Source: AFME and Linklaters publish report on financial services conduct supervision.

 

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Complaints, compensation and claims management

 

FSCS announces Plan and Budget for 2020/21

The FSCS published its Plan and Budget for 2020/21. The document outlines expected management costs and the latest forecast of potential claims volumes. Also outlined are initial forecasts for the levy financial services firms will pay in 2021, as well as a supplementary levy due to be raised on firms before the end of 2019/20.

Source: FSCS announces its annual Plan and Budget 2020/21.

Regulator issues 12-month progress update on loyalty penalties

The Competition and Market Authority (CMA) published a 12-month progress update following the investigation into the loyalty penalty super-complaint submitted by the Citizens Advice. During the investigation substantial loyalty penalty was identified in the mobile, broadband, household insurance, cash savings and mortgages markets. The CMA committed itself to cooperate with the government and regulators to tackle the detrimental effects of loyalty penalty.

Source: Loyalty penalty update: 12 months on.

FCA fines claims management company for breaches of data privacy

The FCA fined claims management company Hall and Hanley Ltd (HHL) £91,000 for negligence in relation to data privacy breaches and for copying customers’ signatures without their consent. HHL was fined for behaviour taking place under the previous regulatory regime applicable to CMCs, the Conduct of Authorised Persons Rules 2014 (CAPR).

Source: FCA final notice Hall and Hanley Ltd.

 

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Investigations, enforcement and discipline

 

FCA fines claims management company for breaches of data privacy

The FCA fined claims management company Hall and Hanley Ltd (HHL) £91,000 for negligence in relation to data privacy breaches and for copying customers’ signatures without their consent. HHL was fined for behaviour taking place under the previous regulatory regime applicable to CMCs, the Conduct of Authorised Persons Rules 2014 (CAPR).

Source: FCA final notice Hall and Hanley Ltd.

 

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Markets and trading

 

Regulation (EC) 1126/2008 amended to reflect interest rate benchmark reform

An amendment to Regulation (EC) 1126/2008 as regards International Accounting Standard (IAS) 39 and International Financial Reporting Standards (IFRS) 7 and 9 were published in the Official Journal of the EU. The changes are intended to address the financial reporting consequences of interest rate benchmark reforms so that companies can continue to meet hedge accounting requirements.

Source: Commission Regulation (EU) 2020/34 of 15 January 2020 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Accounting Standard 39, International Financial Reporting Standards 7 and 9 (Text with EEA relevance).

FCA and Bank of England set out 2020 roadmap for LIBOR transition

The Bank of England (BoE), FCA and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) published a set of documents outlining priorities and milestones for 2020 on LIBOR transition. The FCA and the BoE are also encouraging market makers to change the market convention for sterling interest rate swaps from LIBOR to SONIA (the Sterling Overnight Index Average) in Q1 2020.

Sources: FCA and Bank of England encourage switch from LIBOR to SONIA for sterling interest rate swaps from Spring 2020Next steps for LIBOR transition in 2020: the time to act is nowJoint letter from PRA and FCA to nominated Senior Manager of major banks and insurers supervised in the UK with responsibility for LIBOR transition and Transition to sterling risk-free rates from LIBOR.

IOSCO recommends that trading venues synchronise business clocks to UTC

The board of the International Organization of Securities Commissions (IOSCO) issued a report recommending that trading venues and their participants synchronise the clocks they use for timestamping a reportable event with co-ordinated universal time (UTC).

Source: IOSCO recommends synchronising clocks used for timestamping with UTC.

Better Finance urges Commission to direct FTT at the financial industry, not savers

Better Finance called on the European Commission to make changes to the proposed Financial Transaction Tax (FTT), saying the tax as it stands would disproportionately target EU citizens as savers and end-investors rather than financial institutions. It says the Commission should focus the tax on forex transactions, especially forex derivatives, as well as other derivatives, rather than focusing on trades in listed equities and bonds.

Source: European proposal for Financial Transaction Tax (FTT) disproportionately targets EU citizens rather than financial institutions.

 

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Regulation of capital markets and Capital Markets Union

 

ESMA consults on limiting use of No Data options in securitisation reporting

The European Securities and Markets Authority (ESMA) published a consultation paper on Guidelines on securitisation repository data completeness and consistency thresholds. The aim of the consultation is to help market participants and securitisation repositories to understand ESMA’s expected maximum use of No Data options in a securitisation data submission. The consultation closes on 16 March 2020.

Sources: Press release and Consultation paper.

ICMA AMIC proposes changes to ELTIF Regulation

The ICMA’s AMIC published a discussion paper which proposes changes to the European Long-Term Investment Funds Regulation (EU) 2015/760 (ELTIF Regulation).

Source: ICMA AMIC publishes discussion paper—review of the European Long-Term Investment Fund (ELTIF) Regulation.

AFME MD looks at banks’ market intermediation and market-making functions

The AFME published an article by its managing director, Jacqueline Mills, on ‘Squaring the circle of banking regulation and capital markets in Europe’. Mills argues that, as the EU prepares to reinvigorate its plans to develop the region’s capital markets via its capital markets union (CMU) project, a closer look at how banks’ market intermediation and market-making functions are impacted by global regulatory initiatives will be key to ensuring the deepening of market-based financing in the EU.

Source: Squaring the circle of banking regulation and capital markets in Europe.

 

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Investment funds and asset management

 

FCA publishes Dear CEO letter to asset managers and alternative investment firms

The FCA published two ‘Dear CEO Letters’ which outline the regulator’s view of the key risks of harm that alternative investment firms pose to their customers or the markets in which they operate. The letters note that the FCA’s alternatives portfolio is comprised of FCA-authorised firms that predominately manage alternative investment vehicles (for example, hedge funds or private equity funds) or alternatives assets directly; or advise on these types of investments or investment vehicles. The FCA’s asset management portfolio is comprised of FCA-authorised firms that predominantly directly manage mainstream investment vehicles, or advise on mainstream investments, excluding wealth managers and financial advisers. The FCA recognises that many of the issues within the sector will be common to both types of firms and that business models will often overlap.

Sources: Portfolio letter: Our alternatives supervision strategy and Asset management portfolio letter.

ICMA and EFAMA issue update to ‘Managing fund liquidity risk in Europe’ report

The ICMA’s AMIC and the EFAMA published an update of the report published in April 2016 titled ‘Managing fund liquidity risk in Europe: Recent regulatory enhancements & proposals for further improvements’. AMIC and EFAMA joined forces in 2016 to write this report on the legislative requirements and market-based tools available to manage liquidity risk in investment funds in Europe and offer some recommendations on further improving the general liquidity management environment. Given the largely EU focus of AMIC and EFAMA membership, the report focuses on EU legislation and EU fund structures, namely UCITS and AIFMD. This January 2020 version is an update of the report published in April 2016.

Source: Managing fund liquidity risk in Europe: Recent regulatory enhancements & proposals for further improvements.

 

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Banks and mutuals

 

ECB seeks feedback on draft guideline on materiality threshold for credit obligations past due for less significant institutions

The ECB published a draft ECB guideline on the definition of the materiality threshold for credit obligations past due for less significant institutions (LSIs). It is addressed to national competent authorities (NCAs) to set a single materiality threshold for all LSIs within the Single Supervisory Mechanism (SSM), both for retail and non-retail exposures, irrespective of the method used for the calculation of capital requirements. The materiality threshold will comprise an absolute component, expressed as a specific maximum amount for the sum of all amounts past due owed by an obligor, and a relative component, expressed as a percentage reflecting the amount of the credit obligation past due in relation to the total amount of all on-balance sheet exposures to that obligor for the credit institution, the parent undertaking or any of its subsidiaries.

New global collaboration group formed to discuss central bank digital currency

Source: ECB seeks feedback on draft ECB guideline on materiality threshold for credit obligations past due for less significant institutions.

Six central banks, together with the Bank for International Settlements (BIS), created a group to share experiences as they assess the potential cases for a central bank digital currency (CBDC) in their home jurisdictions. The group will assess CBDC use cases; economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies

Sources: Central Bank group to assess potential cases for central bank digital currencies and BIS press release.

ECB recommendation on dividend distribution policies (ECB 2020/1)

The ECB published its Recommendation to credit institutions on paying dividends in 2020 for the financial year 2019 (ECB 2020/1). It recommends the same method set out in its Recommendation 2019/1 be applied. The Recommendation is made in light of the need for credit institutions to continue preparing for the full application of the Capital Requirements Regulation (EU) No 575/2013 (CRR), the Capital Requirements Directive 2013/36/EU (CRD IV), and for the expiration of the IFRS 9 transitional arrangements provided by Regulation (EU) 2017/2395.

Source: Recommendation of the European Central Bank of 17 January 2020 on dividend distribution policies (ECB/2020/1).

ECB letter to significant institutions on variable remuneration policy

The chair of the Supervisory Board of the ECB, Andrea Enria, wrote to significant institutions under its supervision regarding their variable remuneration policies. Enria states that, along with dividend distribution policies, variable remuneration polices should be prudent and forward-looking in order to protect a firm’s capital base, particularly in light of the need for credit institutions to continue preparing for the full application of the CRR, the CRD IV, and for the expiration of the IFRS 9 transitional arrangements provided by Regulation (EU) 2017/2395.

Source: Variable remuneration policy of the significant institution.

Financial Inclusion Policy Forum discusses use of credit data, access to cash and credit unions

HM Treasury published a summary of the Financial Inclusion Policy Forum meeting held on 7 October 2019. The forum brings together leaders on financial inclusion to ensure collaboration across government and with the sector. Topics discussed at the meeting included the use of credit data and its implications for financial inclusion, the government’s progress on protecting access to cash, and the government’s work to support credit unions.

Source: Summary of Financial Inclusion Policy Forum meeting 7 October 2019.

FCA chair calls for accelerated growth in credit union membership, and regulatory clarity

The FCA published a speech by its chair, Charles Randell, on credit unions, in which he argued that community-based lending is a key part of growing the supply of affordable credit, and said that accelerating the growth in credit union membership requires a transformation of the sector. Randell said credit unions need governance that’s equal to this transformation challenge, while continuing to protect consumers and prevent financial crime.

Source: Is this the decade of the credit union?

 

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Consumer credit, mortgage and home finance

 

FCA publishes data on mortgage prisoners, in wake of rule change

The FCA published data on the mortgage prisoner population. In 2019 the FCA published rules (policy statement PS19/27: Changes to mortgage responsible lending rules and guidance—feedback on CP19/14 and final rules) which allow lenders to assess affordability based on a borrower’s track record of making mortgage payments. While around 250,000 people are in closed mortgage books or have mortgages owned by firms that are not regulated by the FCA, the regulator’s research shows around 170,000 of these borrowers are up-to-date with payments and would be eligible to switch because of the new rules.

Sources: Understanding mortgage prisoners and Policy statement PS19/27.

UK Finance responds to FCA mortgage prisoner data and APPG reacts

UK Finance published a response to the data published by the FCA on the mortgage prisoner population on 17 January 2020. The data showed that while around 250,000 people are in closed mortgage books or have mortgages owned by firms that are not regulated by the FCA, the regulator’s research found around 170,000 of these borrowers are up to date with payments and would be eligible to switch because of new rules introduced in policy statement PS19/27: Changes to mortgage responsible lending rules and guidance—feedback on CP19/14 and final rules.

Sources: UK Finance responds to FCA mortgage prisoner data and Reaction to UK Finance statement on FCA mortgage prisoner data.

FCA states that majority of customers with overdrafts will be better off when rules change

The FCA issued a press release in which it states that, across the market, seven out of ten overdraft users will be better off or see no change when new FCA rules on overdrafts come into force in April.

Source: New overdraft rules mean 7 out of 10 people will be better off or see no change.

Money & Pensions Service sets out 10-year plan to improve UK financial wellbeing

The Money & Pensions Service (MaPS) published its UK Strategy for Financial Wellbeing 2020–2030, containing five ‘ambitious changes to help people make the most of their money and pensions’. It sets out the views of the MaPS board about what it will take to significantly improve financial wellbeing in the UK, saying that while financial wellbeing is good for individuals, communities, business, and the economy, poor financial wellbeing affects tens of millions of people and is holding the UK back. Alongside the MaPS announcement, the Building Societies Association (BSA) has also announced plans to boost the number of UK employees saving directly from their salaries.

Sources: UK strategy for financial wellbeing ten-year vision and BSA members set target of 1 million workplace savers.

Financial Inclusion Policy Forum discusses use of credit data, access to cash and credit unions

HM Treasury published a summary of the Financial Inclusion Policy Forum meeting held on 7 October 2019. The forum brings together leaders on financial inclusion to ensure collaboration across government and with the sector. Topics discussed at the meeting included the use of credit data and its implications for financial inclusion, the government’s progress on protecting access to cash, and the government’s work to support credit unions.

Source: Summary of Financial Inclusion Policy Forum meeting 7 October 2019.

FCA chair calls for accelerated growth in credit union membership, and regulatory clarity

The FCA published a speech by its chair, Charles Randell, on credit unions, in which he argued that community-based lending is a key part of growing the supply of affordable credit, and said that accelerating the growth in credit union membership requires a transformation of the sector. Randell said credit unions need governance that’s equal to this transformation challenge, while continuing to protect consumers and prevent financial crime.

Source: Is this the decade of the credit union?

 

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Regulation of insurance

 

Insurers reach agreement on access to protection insurance

The British Insurance Brokers’ Association (BIBA) announced that, in collaboration with insurers, protection insurance groups and brokers, charities and other stakeholders, a new agreement has been reached to help people with disabilities or medical conditions access protection insurance. The 26 signatories to the agreement on access to protection insurance for people with pre-existing medical conditions and disabilities comprises both regulated providers of insurance and supporting bodies. The latter will encourage support of the ethos of the agreement and promote its benefits, while the providers will signpost customers that they cannot help because of their medical condition or disability towards a firm that can help.

Source: Collaboration across the insurance sector set to make protection insurance more widely available

Insurance Europe sets out EU insurance ‘ambitions’ and warns against EIOPA’s Solvency II review proposals

IE published its ‘Ambitions for Europe’, setting out policy suggestions on four topics that reflect some of the key objectives of the new European Commission. For each ambition, IE sets out key challenges, how insurers should respond, and what regulators can do. However, IE also raises a number of issues with Solvency II and expresses concern that some of the proposals suggested by the European Insurance and Occupational Pensions Authority (EIOPA) in its 2020 review consultation could be counterproductive.

Sources: EIOPA draft Solvency II review advice would hinder not help EC ambitions for Europe and Joint industry comments on EIOPA’s opinion on the 2020 review of Solvency II.

BoE article analyses use of cloud services by banks and insurers

The BoE published its latest Bank Overground article, presenting data from a survey of the use of cloud services by banks and insurers. It says using the cloud allows businesses to work in a more agile way, offering speed, security and flexibility, but notes that as use of such services evolves, regulators need to evolve too.

Source: How reliant are banks and insurers on cloud outsourcing?

 

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Regulation of personal pension and stakeholder products

 

Pensions and investment advice: FCA announces ‘Assessing Suitability Review 2’ and publishes Dear CEO letter to financial advisers

The FCA published a Dear CEO/Director portfolio strategy letter for financial advisers, setting out the regulator’s approach to tackling key areas of concern with financial advice firms and summarising the action it expects firms to take. The Dear CEO letter forms part of the FCA’s focus on the advice that consumers receive around retirement income. The letter details the FCA’s second review of the market for pensions and investment advice—the Assessing Suitability Review 2.

Sources: FCA statement on Assessing Suitability Review 2 and Dear CEO letter: Portfolio strategy letter for financial advisers [PDF].

 

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Payment services and systems

 

Banks ask for clarity on EBA guidelines on fraud reporting under PSD2

Participants in workshop sessions hosted by the Euro Banking Association at the request of members of the PSD2 Practitioners’ Panel and the SCT Inst Migration Action Round Table (SMART2) have issued a note seeking clarification of the definition of e-money transactions and the related fraud reporting requirements in the European Banking Authority (EBA)’s Guidelines on fraud reporting under PSD2, published on 18 July 2018.

Sources: Bank experts across Europe seek clarification on e-money definition and related fraud reporting requirementsNote: Joint PSD2-SMART2 workshop on EBA Guidelines: How to report e-money transactions under the EBA Fraud Reporting Guidelines Open questions around e-money definitionEBA Guidelines and ECB definition of e-money.

PSR publishes proposal to vary Specific Direction 10 on Confirmation of Payee

The Payment Systems Regulator (PSR) published consultation paper CP20/1 containing a proposal to vary the PSR’s Specific Direction 10 on Confirmation of Payee. Specific Direction 10 (SD10) was given by the PSR to members of the UK’s six largest banking groups on 19 August 2019 to fully implement Confirmation of Payee by 31 March 2020.

Source: CP20/1—Confirmation of payee: Proposal to vary Specific Direction 10.

EBA amends PSD2 fraud reporting guidelines to reflect SCA

The EBA amended its 2018 guidelines on fraud reporting under PSD2. The changes reflect some consequential amendments to the reporting templates under the guidelines as a result of clarifications provided by the European Commission on the application of strong customer authentication (SCA) to certain type of transactions. The amendments will apply to the reporting of payment transactions initiated and executed from 1 July 2020.

Source: EBA updates its guidelines on fraud reporting under PSD2.

New SEPA Card Standards published

The European Cards Stakeholders Group (ECSG), the industry association overseeing cards standardisation in the Single Euro Payments Area (SEPA), published version 9.0 of the SEPA Cards Standardisation Volume. This initiative will help ensure the interoperability and security of cards in Europe by defining a standard set of requirements to enable an interoperable and scalable card and terminal infrastructure across SEPA, based on open international card standards.

Source: Payments industry agrees new SEPA Card Standards.

FCA provides SCA update on use of eIDAS certificates

The FCA updated its Strong Customer Authentication (SCA) webpage with guidance on the use of electronic identification, authentication and trust services (eIDAS) certificates.

Source: FCA updates webpage on SCA with additional guidance on use of eIDAS certificates.

 

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Fintech and cryptoassets

 

New global collaboration group formed to discuss central bank digital currency

Six central banks, together with the BIS, created a group to share experiences as they assess the potential cases for a CBDC in their home jurisdictions. The group will assess CBDC use cases; economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies.

Sources: Central Bank group to assess potential cases for central bank digital currencies and BIS press release.

GFIN launches new website and announces next steps for cross-border testing

The Global Financial Innovation Network (GFIN) launched its own website, which provides information about the GFIN’s membership, cross-border testing and all the GFIN’s existing publications. GFIN has also published a report on lessons from the cross-border testing pilot that was launched in February 2019.

Sources: Global Financial Innovation Network (GFIN) and Cross-border testing—lessons learned.

BoE article analyses use of cloud services by banks and insurers

The BoE published its latest Bank Overground article, presenting data from a survey of the use of cloud services by banks and insurers. It says using the cloud allows businesses to work in a more agile way, offering speed, security and flexibility, but notes that as use of such services evolves, regulators need to evolve too.

Source: How reliant are banks and insurers on cloud outsourcing?

Innovate Finance CEO outlines plans for 2020

Innovate Finance published a speech by its CEO, Charlotte Crosswell, setting out the work of the fintech industry body in 2019 and its plans for 2020. Crosswell said Innovate Finance was working in partnership with the City of London on a programme of international research to look at the attractiveness and competitiveness of the global fintech ecosystem, aiming to identifying the opportunities for UK fintech in the context of global growth.

Source: New Year’s update from Innovate Finance.

 

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Sustainable finance

 

Mark Carney appointed PM’s finance adviser for COP26 climate conference

The BoE announced that its governor, Mark Carney, has been appointed as the Prime Minister’s finance adviser for the UN Climate Change Conference, COP26, to help build a sustainable financial system to support the transition to a net zero economy.

Source: Mark Carney appointed by Prime Minister as finance adviser for COP26.

House of Lords EU committee raises points on proposed Taxonomy Regulation post-Brexit

The House of Lords EU committee published a letter from its chair, Lord Kinnoull, to John Glen MP, economic secretary to the Treasury, on the proposed Regulation on the establishment of a framework to facilitate sustainable investment (the Taxonomy Regulation).

Source: Letter from House of Lords EU Committee to John Glen MP on Taxonomy Regulation.

 

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Islamic Finance

 

UKIFC article discusses impact of Brexit on UK Islamic finance sector

The UKIFC published an article saying Brexit presents various risks and opportunities for the sector, such as Islamic finance playing a role in bilateral trade negotiations and the UK’s second sovereign sukuk. Beyond these, however, the author suggests it is unlikely it will significantly transform the industry in the UK.

Source: Brexit brings risks and opportunities for UK Islamic finance but unlikely to revolutionise domestic industry, say experts.

 

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Dates for your diary

DateSubjectEvent

 

24 January 2020

 

Prudential requirements

 

Deadline for responses to PRA consultation paper ‘CP28/19, Credit unions: Review of the capital regime’.

 

27 January 2020Markets and trading

Deadline for responses to the Fixed Income, Currencies and Commodities Markets Standards Board (FMSB) draft good practice guide on sovereign and supranational auctions.

 

28 January 2020Sustainable finance

The Climate Disclosure Standards Boar (CDSB) will host a webinar on to discuss its consultation into the disclosure regime for nature-related financial information in the mainstream report and gain stakeholder feedback.

 

30 January 2020Brexit

Authorisation, approval and supervision

The FCA extended the date by which firms and funds should notify it for entry into the temporary permissions regime (TPR) to 30 January 2020, following the Brexit delay.

 

31 January 2020Brexit

The UK expects to leave the EU.

 

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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.