FS weekly highlights—27 June 2019

In this issue

 

Brexit news
Regulatory architecture
UK regulator updates
European regulator updates
International regulator updates
Authorisation, approval and supervision
Prudential requirements
Financial stability, recovery and resolution
Risk management and controls
Financial crime
FCA conduct requirements
FCA consumer protection and claims management regulation
Competition in financial services
Enforcement and redress
Markets and trading
MiFID II
Regulation of capital markets and Capital Markets Union
Regulation of derivatives
Investment funds and asset management
Banks and mutuals
Consumer credit, mortgage and home finance
Insurance and pensions
Payment services and systems
Fintech and virtual currencies
Sustainable finance
Dates for your diary

 

Brexit news

 

Bank of England publishes details of agents’ survey on preparations for Brexit

The Bank of England (BoE) published a webpage which summarises the results of the agents’ survey of almost 300 business contacts about their preparations for the UK’s withdrawal from the EU. The survey was conducted between 23 April and 28 May 2019. It indicated that the extension of the EU withdrawal period to the end of October 2019 did little to change respondents’ views about the economic outlook.

BoE speech on PRA liquidity policy and post-Brexit financial regulation

The executive director for prudential policy at the BoE, Victoria Saporta, gave a speech entitled ‘Bank regulation: on the benefits of flexibility’ at the Liquidity and Funding Risk Summit. Ms Saporta outlined the Prudential Regulation Authority (PRA)’s approach to liquidity policy now the international banking post-crisis reforms are in place. She set out three priority issues for implementation of liquidity policy: cashflow mismatch risk, the net stable funding ratio (NSFR) and asset encumbrance. Further, she discussed the future of financial regulation post-Brexit.

ESMA postpones MiFID II/MiFIR review report due to Brexit

The European Securities and Markets Authority (ESMA) published a letter dated 17 June 2019 from its chair, Stephen Maijoor, to the director general of DG FISMA at the European Commission, Olivier Guersent, regarding ESMA’s MiFIR (Regulation (EU) 600/2014) and MiFID II (Directive 2014/65/EU) annual review report on the operation of certain transparency requirements for bonds and derivatives under Article 17 of Commission Delegated Regulation (EU) 2017/583. In the letter, Mr Maijoor proposed to postpone ESMA’s report, which it was due to prepare by 30 July 2019, due to Brexit.

UK Finance offers guidance for SMEs facing Brexit uncertainties

UK Finance published guidance on how the banking and finance industry can help small to medium businesses (SMEs) plan and manage the potential impact of Brexit, as a new survey (by BVA BDRC) finds almost one in four SMEs sees the ongoing political uncertainty as one of the main barriers facing their business. Concern is highest amongst businesses in London and the North East, according to the regional survey.

ABI director general on the risk of a no deal Brexit, and other issues affecting the insurance sector

The Association of British Insurers (ABI) published a speech by its director general, Huw Evans, in which he warned that there was a real prospect of the UK leaving the EU without a deal after 31 October 2019, and said it would be ‘an act of immense self-harm, damaging our economy, our reputation and our relationships with our nearest neighbours’. He said the insurance industry was ‘exposed to a vast range of public policy from transport to environment, from civil justice to UK trade policy, from taxation to welfare rules’, and called for policy and financial regulation that ‘strikes the right balance: addressing political imperatives but making sure that our sector can play its full role as investors’.

Money Market Funds (Amendment) (EU Exit) Regulations 2019

SI 2019/394: This enactment is made in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. This enactment addresses the deficiencies in retained EU law in relation to money market funds, arising from the withdrawal of the UK EU, ensuring the legislation continues to operate effectively at the point at which the UK leaves the EU. This Regulation comes into force partly on 27 February 2019, and fully on exit day. (Updated from draft on 28 February 2019. Updated on 26 June 2019 to include correction slip).

 

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Regulatory architecture

 

Amended ECB guidelines published in OJ

Three amended European Central Bank (ECB) guidelines were published in the Official Journal. The guidelines relate to the Eurosystem monetary policy framework, and refinancing operations and eligibility of collateral:

 

 

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UK regulator updates

 

Keeping the UK a world leader in financial services—Mansion House speech

Chancellor Phillip Hammond delivered his 2019 Mansion House dinner speech, in which he laid out the future plans for fintech, financial services and the potential impact of Brexit on British prosperity. Among the most significant announcements, are the UK’s issuance of a second sovereign sukuk, a review of the UK regulatory system and the future of financial services in light of Brexit.

BoE sets out agenda to prepare for the future of finance

The BoE published a report chaired by Huw van Steenis on the future of finance. The report looks at how the economy is changing, how finance can serve and support these changes, and what it could mean for the BoE. In his annual Mansion House speech the governor of the BoE, Mark Carney, outlined the findings of the report and set out how the BoE will respond.

Financial Services Skills Taskforce report says technological and social change pose skills challenge for sector

An interim report from the chancellor’s Financial Services Skills Taskforce, chaired by Mark Hoban and convened by TheCityUK, with support from the City of London Corporation and EY, identifies a series of major skills challenges facing the sector. The report says challenges include a low spend on training, a lack of diversity at all levels, and the sector’s perceived values and culture. It also found the technical skills needed by financial services firms are evolving faster than roles can be currently be filled.

John Glen MP on risk and regulation in the financial sector

The economic secretary to the Treasury, John Glen MP, spoke at the CityUK’s annual conference, in which he said ‘it would be a tragedy’ if the UK lost its competitive advantage in financial services ‘by accident, through complacency or a lack of decisive action where needed’. Mr Glen discussed the need for balance between risk and regulation, saying there cannot be an enterprising, dynamic and competitive environment without a degree of risk, and if the cost of regulation was ratcheted up UK fintechs and start-ups will be driven overseas.

FCA’s June 2019 regulation round-up highlights FCA commitment to make overdrafts simpler, fairer and easier to manage

The Financial Conduct Authority (FCA) published its June 2019 regulation round-up, providing a monthly update on the latest news that affects the financial services sector. The round-up notes that the FCA confirmed that it is introducing reforms to make overdrafts simpler, fairer, and easier to manage, and to protect the millions of consumers that use them. The changes represent the biggest overhaul to the overdraft market for a generation. It also notes that the FCA introduced changes to the Buy Now Pay Later sector, saving consumers around £40-60m a year.

FCA publishes information on its performance against service standards for 2018-19

The FCA published a webpage setting out its performance against both statutory and voluntary service standards for the period 2018-19. The page covers 60 service standards on activities including dealing with regulatory applications, telephone enquiries, and MP correspondence. 

 

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European regulator updates

 

New EU strategic agenda aims to strengthen role of EU in ‘unsettled’ world

The European Council published its strategic agenda for 2019–24. The agenda provides an overall framework and direction for the EU’s future. It sets out four main priorities—'protecting citizens and freedoms’, ‘developing a strong and vibrant economic base’, ‘building a climate-neutral, green, fair and social Europe’, and ‘promoting European interests and values on the global stage’. Julie Vaughan, senior associate at Herbert Smith Freehills, comments on the agenda, saying it makes it clear that ‘EU policies should be consistent with the Paris Agreement’. The European Council also published its full conclusions from its meeting on 20 June 2019. 

 

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International regulator updates

 

BCBS meeting discusses policy and supervisory initiatives, and approves implementation reports

The Bank for International Settlements (BIS) published a press release noting that the Basel Committee on Banking Supervision (BCBS) met in Basel on 19-20 June 2019 to discuss a range of policy and supervisory issues, and to take stock of its members' implementation of post-crisis reforms. This was the first BCBS meeting chaired by Pablo Hernández de Cos, governor of the Bank of Spain, following his appointment by governors and heads of supervision in March 2019. 

 

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Authorisation, approval and supervision

 

Andrea Enria on culture and remuneration in banks

The ECB published a speech by the chair of its supervisory board, Andrea Enria, in which he discussed the role of culture in financial services firms and how remuneration policies feed into it. Mr Enria said strengthening internal governance and restoring profitability are complementary objectives which banks must pursue jointly ‘with great strength and focus’.

Regulators vow to watch Lloyd’s after harassment claims

Britain’s financial regulators will be scrutinising Lloyd’s of London for signs of improvement in its culture after female employees said they were bullied and sexually harassed, a senior BoE executive warned

 

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Prudential requirements

 

BCBS publishes report on Pillar 2 supervisory review processes

The BCBS published its ‘Overview of Pillar 2 supervisory review practices and approaches’. The report describes the key concepts of Pillar 2 and the different practices in use across Basel Committee member jurisdictions.

SRB updates MREL policy to reflect amended Capital Requirements Regulation

The Single Resolution Board (SRB) published an update to its policy on minimum requirements for own funds and eligible liabilities (MREL) to reflect the EU ‘banking package’ legislation published in the Official Journal on 7 June 2019. The requirements set out in the update will apply from 27 June 2019.

PRA launches consultation CP14/19 on PRA110 reporting frequency threshold

The PRA published a consultation paper (CP14/19), entitled ‘Pillar 2 liquidity: PRA110 reporting frequency threshold’. CP14/19 sets out its proposal to amend the reporting frequency of the PRA110 reporting template (PRA110) when a firm is in stress. The consultation closes on 27 September 2019.

BoE speech on PRA liquidity policy and post-Brexit financial regulation

The executive director for prudential policy at the BoE, Victoria Saporta, gave a speech entitled ‘Bank regulation: on the benefits of flexibility’ at the Liquidity and Funding Risk Summit. Ms Saporta outlined the PRA’s approach to liquidity policy now the international banking post-crisis reforms are in place. She set out three priority issues for implementation of liquidity policy: cashflow mismatch risk, the NSFR and asset encumbrance. Further, she discussed the future of financial regulation post-Brexit. 

 

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Financial stability, recovery and resolution

 

FSB chair reports to G20 leaders on progress of reforms ahead of Osaka summit

The Financial Stability Board (FSB) published a letter from its chair, Randal K. Quarles, to G20 leaders ahead of their summit in Osaka on 28-29 June 2019, along with a progress report on implementing the G20 financial regulatory reforms.

ECB vice-president on bank profitability from a financial stability perspective

The ECB published a speech by its vice-president, Luis de Guindos, on ‘banking union and Basel III—risk and supervision 2019’. Mr de Guindos said poor bank profitability constrains banks’ ability to build up buffers against negative shocks, and can encourage them to take on more risk. He called for consolidation, both domestic and cross-border, as well as further progress towards completing the banking union and the capital markets union (CMU). 

 

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Risk management and controls

 

World Federation of Exchanges working group holds inaugural meeting to discuss enterprise risk

The World Federation of Exchanges (WFE), the global industry group for exchanges and central counterparties (CCPs), is holding the inaugural meeting of its Enterprise Risk Working Group in London on 26 and 27 June 2019. The group connects Enterprise Risk Management and Operational Risk Management leadership and thinking at the world’s financial exchanges and clearing houses. The meeting aims to identify emerging issues and develop comprehensive and coherent industry policy positions to shape regulatory thinking in the field.

 

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Financial crime

 

FATF plenary discusses virtual assets, and updates on ML/TF by jurisdiction

The Financial Action Task Force (FATF) held its plenary meeting in Orlando on 19-21 June 2019. The meeting covered major strategic initiatives, including mitigating the money laundering and terrorist financing risks of virtual assets; the risk-based approach guidance on virtual assets and virtual asset service providers; and FATF’s current action to combat terrorist financing. The plenary also discussed a number of mutual evaluations, follow-up reviews, and compliance issues, and released statements on various specific jurisdictions. Documents produced from the meeting include:

Commission reports on Member States’ administrative sanctions and monitoring under WTR2

The European Commission published its report to the European Parliament and the Council of the EU on the implementation of Chapter IV of the Second Wire Transfer Regulation (EU) 2015/847 (WTR2). Chapter IV requires Member States to set up a regime of administrative sanctions and measures applicable to breaches of WTR2, and an effective framework for reporting of breaches and compliance monitoring.

HM Treasury issues AML/CTF advisory

HM Treasury issued an advisory notice on AML and CFT controls in overseas jurisdictions. The notice follows on from the two statements published by the FATF on 21 June 2019 identifying jurisdictions with strategic deficiencies in their AML/CFT regimes.

Joint operation sees six people arrested for cryptocurrency ‘typosquatting’

Eurojust and Europol—in a joint operation with UK and Dutch authorities—arrested six people in an ongoing investigation into the theft of €24m worth of cryptocurrency. Those culpable are believed to target users of bitcoin tokens—so far at least 4,000 in 12 countries. This is achieved through ‘typosquatting’, which is when a well-known online cryptocurrency exchange is either ‘spoofed’ or recreated to imitate the genuine site. This allows thieves to gain access to victims’ Bitcoin wallet and steal their funds and login details.

Swedbank suspends execs at Estonia unit amid AML probe

Troubled lender Swedbank suspended the chief executive and finance director of its Estonian operations as an internal investigation into compliance with money laundering rules at the bank sees more senior staff depart. 

 

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FCA conduct requirements

 

FCA recognises FX Global Code and UK Money Markets Code

The FCA confirmed that it will recognise the FX Global Code and the UK Money Markets Code under its codes recognition scheme. Individuals subject to the Senior Managers and Certification Regime (SM&CR) need to meet the requirements for market conduct, for both regulated and unregulated activities. Behaviour that is in line with an FCA recognised code, such as the FX and Money Markets Codes, will tend to indicate a person subject to the SM&CR is meeting their obligation to observe ‘proper standards of market conduct’. The BoE welcomed the announcement. 

 

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FCA consumer protection and claims management regulation

 

FCA responds to Treasury Committee recommendations on consumers’ access to financial services

The House of Commons Treasury Committee published a response by the FCA to the Committee’s 13 May 2019 report on consumers’ access to financial services, which made a number of recommendations regarding the FCA’s work and remit. Among other things, the FCA said that its expertise as a financial services regulator does not extend to carrying out enforcement of the Equality Act, as the Committee suggested.

FCA publishes ETA Services Ltd notice of undertaking on cycle insurance terms

The FCA published a notice of undertaking given by ETA Services Ltd under the Consumer Rights Act 2015 concerning the amendment to a term in its cycle insurance policy. This is because the FCA was concerned that the term was not sufficiently transparent, as the term contradicted another term in the policy. As a result, the FCA was concerned that consumers may be confused about whether they were covered under the policy, and therefore whether they could make a claim. 

 

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Competition in financial services

 

Funeral market investigation: CMA publishes feedback on issues statement

The Competition and Markets Authority (CMA) published the responses it received to its issues statements in the market investigation into the supply of services by funeral directors at the point of need and the supply of crematoria services. The CMA is investigating how competition between funeral directors works and transparency issues in the provision of funerals, alongside how competition works in the crematoria segment of the industry. 

 

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Enforcement and redress

 

FCA fines BOS for failure to report HBOS Reading fraud suspicions

The FCA fined Bank of Scotland (BOS) £45.5m for failures to disclose information about its suspicions that fraud potentially occurred at the Reading-based Impaired Assets team of Halifax Bank of Scotland. The FCA found that BOS failed to be open and co-operative, and failed to disclose information appropriately to the then regulator, the Financial Services Authority (FSA). The FCA also banned four individuals from working in financial services due to their role in the fraud at HBOS Reading. They are Lynden Scourfield, Mark Dobson, Alison Mills and David Mills.

Lloyds CEO considers BOS fine relating to HBOS Reading fraud in letter to Treasury Committee

The CEO of Lloyds Banking Group, António Horta-Osório, wrote to the chair of the House of Commons Treasury Select Committee, Nicky Morgan MP, on 21 June 2019, following the FCA’s fine on BOS for failure to report HBOS Reading fraud suspicions. Mr Horta-Osório updated the Committee on changes Lloyds put in place to ensure that customers are better protected and served.

FCA appoints independent reviewers to look at interest rate hedging products and the Connaught Income Fund Series 1

The FCA appointed independent reviewers for two ‘lessons learned’ reviews commissioned by the FCA’s board. One review will cover the redress scheme for interest rate hedging products and the other will cover the regulation of firms involved with the Connaught Income Fund Series 1.

FCA launches investigation into suspended Woodford fund

Britain's financial watchdog confirmed that it opened an investigation into the events surrounding the suspension of Neil Woodford’s flagship fund, which prevented investors from accessing their accounts for more than two weeks. For further background information into the ‘Woodford fund suspension’ see the investment funds and asset management category below.

HM Treasury updates on its response to London Capital & Finance failure

The government published a letter from the economic secretary to the Treasury, John Glen, to the chair of the Treasury Select Committee, Nicky Morgan, in which Mr Glen provides an update on HM Treasury’s response to the failure of London Capital & Finance. The letter explains the two strands of work HM Treasury plans to undertake—collaborating with the FCA and HM Revenue and Customs as appropriate—which consist of a review of policy on non-transferable debt securities and an assessment of the Innovative Finance ISA rules.

APPG welcomes FCA confirmation that public inquiry is the appropriate forum to investigate the APA in SME mistreatment

The All Party Parliamentary Group (APPG) on Fair Business Banking welcomed comments by the FCA’s chief executive, Andrew Bailey, that any further investigation into the role of the Asset Protection Agency (APA) in the mistreatment of SMEs by RBS’s Global Restructuring Group should be conducted as a public inquiry. The APPG considers that an independent inquiry is essential to determine the exact role and influence of the APA in the mistreatment.

Kevin Hollinrake ‘very disturbed’ by conflict of interest allegations in FT article

The APPG on Fair Business Banking published a letter from its co-chair, Kevin Hollinrake, to the chancellor of the exchequer, Philip Hammond, regarding a Financial Times article which claims HM Treasury officials accused Mr Hollinrake of hiding a conflict of interest. The allegations relate to a ‘perceived conflict of interest’ held by Mr Hollinrake, in the context of his role on the implementation steering group of the Dispute Resolution Service, a body established by the industry to resolve disputes between banks and SMEs.

 

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Markets and trading

 

IOSCO report looks at corporate bond market liquidity in stressed conditions

The International Organization of Securities Commissions (IOSCO) published a report that examines the factors affecting liquidity in secondary corporate bond markets under stressed conditions. It seeks to increase understanding of how stressed conditions may affect both bond and other financial markets and the financial system more broadly. The report finds that the willingness, resources and ability of market participants to provide sufficient demand-side liquidity to help stabilise markets will be critical factors in determining how corporate bond markets operate under stress.

FCA recognises FX Global Code and UK Money Markets Code

The FCA confirmed that it will recognise the FX Global Code and the UK Money Markets Code under its codes recognition scheme. Individuals subject to the SM&CR need to meet the requirements for market conduct, for both regulated and unregulated activities. Behaviour that is in line with an FCA recognised code, such as the FX and Money Markets Codes, will tend to indicate a person subject to the SM&CR is meeting their obligation to observe ‘proper standards of market conduct’. The BoE welcomed the announcement.

Bank of England publishes minutes of the Money Markets Committee May 2019 meeting

The BoE published the minutes of the Money Markets Committee meeting held on 16 May 2019. The Committee is a forum for market participants and authorities to discuss the UK unsecured deposits and funding market, and securities lending and repo markets.

Benoît Cœuré calls for ‘highly co-ordinated’ European financial regulation

The ECB published a speech by a member of its executive board, Benoît Cœuré, in which he said dismantling regulatory standards would add to market fragmentation, and called instead for renewed effort to complete the banking union and the CMU. Mr Cœuré also examined the role of ESMA, CCPs and EURIBOR.

London exchanges reveal plans to halt Swiss share trading

Three London stock-trading platforms wrote to investors to warn that they will no longer be able to accept buy or sell orders in shares of Swiss-registered companies as of 1 July 2019, responding to a standoff between Switzerland and the EU over a new bilateral treaty. Cboe EuropeAquis Exchange PLC and UBS MTF alerted clients that Swiss shares would be delisted unless Switzerland and the EU agree by 30 June 2019 to extend equivalency status of financial market regulation. Their warning was in response to the Swiss government's statement that it would ban trading in Swiss shares if equivalence with the EU wasn't extended by the deadline.

FICC Markets Standards Board publishes draft conflict of interest guidance

The Fixed Income, Currencies and Commodities (FICC) Markets Standards Board (FMSB) published a draft of a new statement of good practice on conflicts of interest, which provides guidance for market participants on identifying, preventing, managing or mitigating conflicts of interest that arise in connection with their FICC markets business and more generally across their firm. FMSB members and other interested parties are invited to comment on the draft by 6 September 2019, with the final document expected to be published shortly thereafter.

World Federation of Exchanges working group holds inaugural meeting to discuss enterprise risk

The WFE, the global industry group for exchanges and CCPs, is holding the inaugural meeting of its Enterprise Risk Working Group in London on 26 and 27 June 2019. The group connects Enterprise Risk Management and Operational Risk Management leadership and thinking at the world’s financial exchanges and clearing houses. The meeting aims to identify emerging issues and develop comprehensive and coherent industry policy positions to shape regulatory thinking in the field.

AIMA becomes affiliate member of IOSCO

The Alternative Investment Management Association (AIMA) was granted affiliate membership of IOSCO, the global standard setter for securities markets regulation. AIMA, with around 2,000 corporate members in over 60 countries, says its long been supportive of increased global regulatory co-ordination, and sees IOSCO membership as an important step in this mission. 

 

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MiFID II

 

Amendment to Delegated Regulation concerning the extension of exemptions from MiFIR pre- and post-trade transparency requirements to the People’s Bank of China published in the Official Journal

Commission Delegated Regulation (EU) 2019/1000 amending Delegated Regulation (EU) 2017/1799 as regards the exemption of the People's Bank of China from the pre- and post-trade transparency requirements in MiFIR was published in the Official Journal.

MiFID II delegated regulation to promote SME growth markets published in Official Journal

Commission Delegated Regulation (EU) 2019/1011 amending Commission Delegated Regulation (EU) 2017/565 as regards certain registration conditions to promote the use of SME growth markets for the purposes of MiFID II was published in the Official Journal of the EU.

Council of EU publishes compromise proposals on crowdfunding regulation and directive amending MiFID II

The Council of the EU published two compromise proposals relating to crowdfunding. One relates to the proposal for a Regulation (the ECSP Regulation) on European Crowdfunding Service Providers (ECSP) for Business and amending Regulation (EU) 2017/1129 (the Prospectus Regulation), and the other relates to a proposal for a Directive (the Amending Directive) amending MiFID II.

ESMA postpones MiFID II/MiFIR review report due to Brexit

ESMA published a letter dated 17 June 2019 from its chair, Stephen Maijoor, to the director general of DG FISMA at the European Commission, Olivier Guersent, regarding ESMA’s MiFID II/MiFIR annual review report on the operation of certain transparency requirements for bonds and derivatives under Article 17 of Commission Delegated Regulation (EU) 2017/583. In the letter, Mr Maijoor proposed to postpone ESMA’s report, which it was due to prepare by 30 July 2019, due to Brexit.

ESMA issues eight opinions on product intervention measures

ESMA issued eight positive opinions on product intervention measures taken by the National Competent Authorities (NCAs) of Germany, Spain, Bulgaria, Denmark, Latvia and Greece. ESMA’s opinion finds that the proposed measures are justified and proportionate and that it is necessary for NCAs of other Member States to take product intervention measures that are at least as stringent as ESMA’s measures.

ESMA agrees additional MiFID II position limits

ESMA published three more opinions on position limits regarding commodity derivatives under the MiFID II/MIFIR.

ESMA publishes updated results of the annual transparency calculations for equity and equity-like instruments

ESMA made available updated annual transparency calculations for equity and equity-like instruments.

ESMA publishes compliance table for MiFID II suitability guidelines

ESMA published a compliance table setting out which NCA’s comply with its guidelines on MiFID II suitability requirements. All Member States indicated that they comply or intend to comply, as did Gibraltar and the EEA EFTA states of Norway, Liechtenstein and Iceland. 

 

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Regulation of capital markets and Capital Markets Union

 

ECB amendment to Decision establishing rules and procedures for implementing the eligibility criteria for central securities depositories to access TARGET2-Securities services published in the Official Journal

Decision (EU) 2019/1006 of the ECB amending Decision ECB/2011/20 establishing detailed rules and procedures for implementing the eligibility criteria for central securities depositories to access TARGET2-Securities services (ECB/2019/15) was published in the Official Journal.

ECB amendment to Guideline ECB/2012/13 on TARGET2-Securities published in the Official Journal

Guideline (EU) 2019/1007 of the ECB of 7 June 2019 amending Guideline ECB/2012/13 on TARGET2-Securities (ECB/2019/16) was published in the Official Journal of the EU.

Prospectus Regulation rules published in Official Journal

Two delegated regulations supplementing the Prospectus Regulation were published in the Official Journal of the EU (Commission Delegated Regulation (EU) 2019/979 and Commission Delegated Regulation (EU) 2019/980). The delegated regulations relate to the key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal, as well as the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. The delegated regulations will enter into force on 11 July 2019 and will apply from 21 July 2019.

Financial Services and Markets Act 2000 (Prospectus) Regulations 2019

SI 2019/1043: Amendments are made to pieces of financial services primary and subordinate legislation in order to implement the provisions of the Prospectus Regulation in the UK. Transitional provisions are also made. The Regulations will come into force on 21 July 2019.

Council of EU publishes compromise proposals on crowdfunding regulation and directive amending MiFID II

The Council of the EU published two compromise proposals relating to crowdfunding. One relates to the proposal for the ECSP Regulation amending the Prospectus Regulation, and the other relates to a proposal for a Directive (the Amending Directive) amending MiFID II.

ESMA to hold public hearing on its SFTR consultation

ESMA is to hold an open hearing on its consultation on guidelines for reporting under Articles 4 and 12 of the Securities Financing Transaction Regulation (Regulation (EU) 2015/2365) (SFTR). The meeting will take place on 15 July 2019 from 15:00 to 17:00 at the ESMA premises in Paris. Consultation feedback is sought by 29 July 2019.

ESMA asks for input on short-termism in financial markets

As part of its work on sustainable finance and the Commission’s Action Plan on Financing Sustainable Growth, ESMA published a questionnaire which aims to gather evidence on potential short-term pressures on corporations stemming from the financial sector. The questionnaire will be open for five weeks, closing on 29 July 2019.

ECMI report says stalling CMU is undermining European competitiveness

The European Capital Markets Institute (ECMI) published a report, Rebranding capital markets union: A market finance action plan, which calls for political support ‘at the highest level’ if the CMU is to achieve its objectives. It recommends focusing action on the core bond and equity markets, and on promoting the participation of individuals in capital markets while introducing a set of indicators to measure progress towards more market-based finance.

 

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Regulation of derivatives

 

BCBS finalises revisions to leverage ratio treatment of client cleared derivatives and disclosure requirements

The BCBS published a document setting out a revised treatment of client cleared derivatives for purposes of the leverage ratio. The BCBS also published a revision to the leverage ratio disclosure requirements with the aim of reducing excessive volatility in banks' exposures around key reference dates.

FCA, CFTC and SEC issue statement on opportunistic strategies in the credit derivatives markets

Commodity Futures Trading Commission (CFTC) chair J. Christopher Giancarlo, Securities and Exchange Commission (SEC) chair Jay Clayton, and FCA chief executive Andrew Bailey issued a joint statement on opportunistic strategies in the credit derivatives markets.

ISDA CEO welcomes CFTC clarification on legacy swaps but highlights IM concern

The International Swaps and Derivatives Association (ISDA) published an article by its CEO, Scott O’Malia, on the importance of regulatory certainty. Mr O’Malia welcomes the 6 June 2019 clarification by the CFTC that legacy swaps should not be subject to non-cleared margin requirements following immaterial amendments to the terms of those swaps. 

 

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Investment funds and asset management

 

FCA publishes CP19/21 on DEPP and EG amendments to implement FCA powers to discipline and investigate proxy advisors

The FCA published CP19/21 on amendments to its Decision Procedure and Penalties Manual (DEPP) and Enforcement Guide (EG) required to implement the Proxy Advisors (Shareholders' Rights) Regulations 2019, part of the Shareholder Rights Directive (EU) 2017/828 (SRD II). The consultation closes on 26 July 2019. The Proxy Advisors (Shareholders' Rights) Regulations 2019, SI 2019/926 (Proxy Advisor Regulations) came into force on 10 June 2019.

FCA blames EU rule gaps for Woodford fund liquidity crisis

The head of the FCA defended the regulator’s handling of cash shortages at Neil Woodford’s £3.7bn ($4.7bn) equity fund, blaming loopholes in EU rules for a liquidity crunch that went unaddressed for weeks. Andrew Bailey, chief executive of the City watchdog, told a parliamentary hearing that managers of the flagship fund—which was frozen—engaged in ‘regulatory arbitrage’ and were able to ‘sail close to the wind’ by exploiting loopholes in the Undertakings for Collective Investments in Transferable Securities (UCITS Directive).

FCA writes to Treasury Committee on disputed Woodford Equity Income Fund point

The chair of the FCA, Andrew Bailey, wrote to the Treasury Committee in connection with Link Fund Solutions, the authorised fund manager for the LF Woodford Equity Income Fund. The FCA says Link disagreed with a statement made by the FCA in an earlier letter to the Treasury Committee, in which it said around 20% of the net asset value of WEIF was invested in unlisted securities in February 2019.

AIC expresses concern over FCA failings in relation to Woodford Fund in letter to Treasury Committee

The chief executive of the Association of Investment Companies (AIC), Ian Sayers, wrote to the chair of the House of Commons Treasury Select Committee, Nicky Morgan MP, on 14 June 2019, to express concern that the FCA is failing to address fundamental questions relating to the implications of the suspension of the Woodford Equity Income Fund and the problem of holding illiquid assets in open-ended funds more generally. He considers the FCA’s approach in relation to consumer detriment, systemic dangers and the prevention of future problems.

IA’s ‘2025 Vision’ report sets out principles for the investment management industry

The Investment Association (IA) launched its ‘2025 Vision’ report, which sets out industry principles to help promote sustainable, long-term returns from investments, and effective flows of funding through the economy. Among other areas of development, the IA considers sustainable investment, a Long-Term Asset Fund, and technological advances. The IA says it will work with industry and the FCA to help achieve healthy cultures, better communication and an environment which supports innovation.

Better Finance research paper examines correlation between cost and performances in EU equity retail funds

Better Finance published a research paper assessing whether there is a significant relationship between performance and fees of the actively managed equity funds domiciled in France, Belgium and Luxembourg offered to retail investors. The study evaluates the ability of actively managed equity funds to persistently deliver positive alpha (ie outperform their respective benchmarks) and assesses the relationship between the total fund charges and the rolling five-year average net past performance based on quarterly returns in excess of the funds’ corresponding benchmarks.

 

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Banks and mutuals

 

EBA publishes draft methodology for the 2020 EU-wide stress test

The European Banking Authority (EBA) published the 2020 EU-wide stress test draft methodology, templates and template guidance. The 2020 exercise will assess EU banks' resilience to an adverse economic shock and inform the 2020 supervisory review and evaluation process (SREP). The EBA says the methodology covers all risk areas and builds on the one prepared for the 2018 exercise while improving some aspects based on the lessons learnt. The preliminary list of institutions participating in the exercise as well as the timeline were also published.

ECB vice-president on bank profitability from a financial stability perspective

The ECB published a speech by its vice-president, Luis de Guindos, on ‘banking union and Basel III—risk and supervision 2019’. Mr de Guindos said poor bank profitability constrains banks’ ability to build up buffers against negative shocks, and can encourage them to take on more risk. He called for consolidation, both domestic and cross-border, as well as further progress towards completing the banking union and the CMU.

UK Finance chair calls for new body to look at banking regulation

The chair of UK Finance, Bob Wigley, called on the UK government to create a new, formal body, chaired by the chancellor, including all the relevant regulators and departments and the governor of the BoE, and working closely with the banking and finance industry, to set out a positive national vision for the role of banking and finance as a ‘critical enabler’ providing essential support for the UK economy as a whole.

Lending Standards Board publishes 2018 annual review

The Lending Standards Board (LSB) published its annual review for 2018. 

 

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Consumer credit, mortgage and home finance

 

FCA’s June 2019 regulation round-up highlights FCA commitment to make overdrafts simpler, fairer and easier to manage

The FCA published its June 2019 regulation round-up, providing a monthly update on the latest news that affects the financial services sector. The round-up notes that the FCA confirmed that it is introducing reforms to make overdrafts simpler, fairer, and easier to manage, and to protect the millions of consumers that use them. The changes represent the biggest overhaul to the overdraft market for a generation. It also notes that the FCA introduced changes to the Buy Now Pay Later sector, saving consumers around £40-60m a year.

 

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Insurance and pensions

 

Corrigendum to regulation amending Solvency II delegated regulation published in OJ

A corrigendum to Commission Delegated Regulation (EU) 2019/981 of 8 March 2019 amending Delegated Regulation (EU) 2015/35 (the Solvency II Delegated Regulation) supplementing Directive 2009/138/EC (Solvency II) was published in the Official Journal.

PRA publishes letter to firms’ chief actuaries setting out observations from recent regulatory reviews

The PRA published a letter from the head of its life insurance and pensions risk division, Sid Malik, dated 17 June 2019 and addressed to chief actuaries of life insurers. Mr Malik set out observations from the PRA's regulatory activities in the last 12 months which are specifically relevant to chief actuaries of life insurers, and signposts other important initiatives that chief actuaries should be aware of. He also discussed areas where further industry-wide PRA activity is expected in the next 12 months. Chief actuaries are encouraged to share the letter with their boards and others at their firms, as appropriate.

PRA updates webpage accompanying supervisory statement SS3/15 on Solvency II: the quality of capital instruments

The PRA updated its webpage that accompanies supervisory statement SS3/15 on Solvency II: the quality of capital instruments, in light of forthcoming changes to the Solvency II Commission Delegating Regulation and a recent consultation that amend SS3/15.

HMT and FCA hold workshop on using InsurTech to help low-income renters

HM Treasury and the FCA held an industry workshop on 20 June 2019 to generate innovative ideas for increasing the uptake of contents insurance, particularly among low-income private renters. Multiple firms from across the financial services sector—including insurers, brokers and InsurTechs—were invited to attend the ‘access to contents insurance innovation workshop’, and it is hoped the ideas generated from the workshop will help the industry to design better products for low-income consumers.

IAIS provides ICP implementation feedback to Guernsey

The International Association of Insurance Supervisors (IAIS) for the first time provided a member, Guernsey, with in-depth feedback on its implementation of the Insurance Core Principles (ICPs). The report finds that Guernsey enjoys a high level of observance of the ICPs, while at the same time recommending areas where it can further enhance its observance of the international standards.

ABI director general on the risk of a no deal Brexit, and other issues affecting the insurance sector

The ABI published a speech by its director general, Huw Evans, in which he warned that there was a real prospect of the UK leaving the EU without a deal after 31 October 2019, and said it would be ‘an act of immense self-harm, damaging our economy, our reputation and our relationships with our nearest neighbours’. He said the insurance industry was ‘exposed to a vast range of public policy from transport to environment, from civil justice to UK trade policy, from taxation to welfare rules’, and called for policy and financial regulation that ‘strikes the right balance: addressing political imperatives but making sure that our sector can play its full role as investors’.

Personal Finance Society publishes FCA blog on general insurance complaints handling

The Personal Finance Society published a blog on general insurance complaints handling, written by Karina McTeague, director of general insurance and conduct specialists at the FCA, which includes advice on how firms can improve their handling of customer complaints.

PIMFA publishes response to FCA’s action on benefit transfers

The Personal Investment Management & Financial Advice Association (PIMFA), the trade association for investment managers and financial advisers, responded to the FCA's announcement regarding defined benefit transfers. The FCA expressed concern that firms are recommending consumers transfer out of their defined benefit pension schemes despite this being likely to be an unsuitable action for most clients. The FCA says it will be setting new standards for firms to adhere to.

 

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Payment services and systems

 

EBA issues opinion on strong customer authentication under PSD2

The EBA published an opinion on the elements of strong customer authentication (SCA) under the revised Payment Services Directive (PSD2), in response to continued queries from market actors as to which authentication approaches the EBA considers to be compliant with SCA. The opinion also addresses concerns about the preparedness and compliance of some actors in the payments chain with the SCA requirements that apply as of 14 September 2019.

Commission roundtable discusses instant payments

The European Commission hosted a roundtable as part of its ongoing efforts to support the development and availability of cross-border instant payments for European consumers and businesses. As a global payment currency, the Commission is also seeing further progress in making the use of the euro more prominent in global payments, as part of its ongoing work on the strengthening of the international role of the euro.

BoE provides update on synchronisation engagement and next steps

The BoE published a document summarising the outputs from its August 2018 call for interest on delivering proposed synchronised settlement functionality as part of the real-time gross settlement (RTGS) renewal programme, as well as two workshops it held with interested parties earlier in 2019, and highlighting the BoE’s next steps. The BoE also published a background guide setting out its latest thinking on synchronisation.

PSR publishes consultation responses for pass-through methodology consultation

The Payment Systems Regulator (PSR) published a non-confidential version of the responses to its pass-through methodology consultation MR18/1.3—as part of its market review into the supply of card-acquiring services.

Open Banking report sets out implementation priorities

The Independent Consumer and Small Business Representatives for the Open Banking Implementation Entity (OBIE) wrote to the Implementation Trustee of OBIE, the CMA, the FCA, HM Treasury and the Department for Business, Enterprise, Industry and Skills (BEIS), FDATA and UK Finance calling for action to ensure Open Banking ‘delivers on its promise and potential to make consumers better off’. The letter follows publication of a report Consumer Priorities for Open Banking, setting out a series of priorities for the industry, regulators and government. 

 

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Fintech and virtual currencies

 

BIS says global co-ordination needed to regulate ‘big tech’ financial services

The BIS included a chapter on ‘big tech in finance: opportunities and risks’ in its annual economic report. It examines the potential for firms such as Alibaba, Amazon, Facebook and Google to leverage data from their existing platforms to spark rapid change in the financial system and ultimately reduce competition.

Global Financial Innovation Network publishes ‘One year on’ report

The Global Financial Innovation Network (GFIN) published a report, ‘GFIN—One year on’, in which it sets out the progress made in its first year, the challenges it faced, and its ambitions and plans for the future, as well as the work it did to engage with stakeholders. GFIN was created following a consultation by the FCA in early 2018 on the idea of creating a ‘global sandbox’, with the aim of providing a more efficient way for innovative firms to interact with regulators and a new means of co-operation between financial services regulators.

DIT says 500 UK firms now using the FinTech Alliance platform

The Department for International Trade (DIT) said over 500 companies from across the UK joined the FinTech Alliance, the community-driven platform for companies in the UK’s fintech sector. The Alliance aims to strengthen the regional collaboration between fintech companies in different areas of the country. Companies that signed up to the Alliance include leading firms like London-based Level39 and Virgin StartUp, MoneyBrain, based in Cheshire, and Delio, based in Wales.

HMT and FCA hold workshop on using InsurTech to help low-income renters

HM Treasury and the FCA held an industry workshop on 20 June 2019 to generate innovative ideas for increasing the uptake of contents insurance, particularly among low-income private renters. Multiple firms from across the financial services sector—including insurers, brokers and InsurTechs were invited to attend the ‘access to contents insurance innovation workshop’, and it is hoped the ideas generated from the workshop will help the industry to design better products for low-income consumers.

CLLS responds to crypto-assets consultation

The Financial Law Committee (FLC) of the City of London Law Society (CLLS) published its response to the consultation launched on 9 May 2019 by the UK Jurisdiction Taskforce of the LawTech Delivery Panel on crypto-assets, distributed ledger technology and smart contracts. FLC’s response was provided exclusively in a business to business, or business to professional investor context, and does not cover consumer protection or the appropriate approach to financial regulation in this area.

Joint operation sees six people arrested for cryptocurrency ‘typosquatting’

Eurojust and Europol—in a joint operation with UK and Dutch authorities arrested six people in an ongoing investigation into the theft of €24m worth of cryptocurrency. Those culpable are believed to target users of bitcoin tokens—so far at least 4,000 in 12 countries. This is achieved through ‘typosquatting’, which is when a well-known online cryptocurrency exchange is either ‘spoofed’ or recreated to imitate the genuine site. This allows thieves to gain access to victims’ Bitcoin wallet and steal their funds and login details. 

 

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Sustainable finance

 

Council of EU publishes progress report on proposed sustainable investment regulation

The Council of the EU published a progress report on the proposal for a Regulation on the establishment of a framework to facilitate sustainable investment. The proposal was adopted by the European Parliament at first reading on 28 March 2019 and is currently under consideration by the Council of the EU.

Commission hosts stakeholder dialogue on sustainability reports

The European Commission hosted an event to exchange views on the reports of the technical expert group on sustainable finance (TEG) and the new Commission guidelines on climate-related reporting. The event was held to discuss possible next steps in terms of the EU's progress on sustainable finance.

ESMA asks for input on short-termism in financial markets

As part of its work on sustainable finance and the Commission’s Action Plan on Financing Sustainable Growth, ESMA published a questionnaire which aims to gather evidence on potential short-term pressures on corporations stemming from the financial sector. The questionnaire will be open for five weeks, closing on 29 July 2019.

ICMA issue comments on report on sustainable finance

The International Capital Market Association (ICMA) published its comments and  overview on the reports issued by the TEG. ICMA provides comment for all the four key TEG deliverables—EU taxonomy for sustainable activities, EU green bond standard, EU climate benchmarks and benchmarks, ESG disclosures and guidelines on the disclosure of environmental and social information. In the annex of the report, ICMA provides an update on the parallel EU legislative initiatives on sustainable finance.

AFME responds to European Commission proposals on sustainability taxonomy

The Association for Financial Markets in Europe (AFME) responded to the European Commission’s proposals on the EU Taxonomy Regulation, saying the definition of common sustainability criteria is ‘a significant positive step in an orderly transition towards a low-carbon and climate resilient economy, to which AFME is fully committed’. AFME agrees that the lack of clarity on the definition of sustainability is a key obstacle for increasing and directing capital flows towards sustainable investments, and welcomes the Commission’s ‘ambitious objectives’ and ‘step by-step’ approach. 

 

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Dates for your diary

 

DateSubjectEvent

 

27 June 2019

 

Banks and mutuals

 

Final legislation intended to reduce risks in the EU banking sector (known as the ‘banking package’ which includes two regulations and two directives which amend existing legislation related to bank capital requirements and the recovery and resolution of banks in difficulty) will enter into force on 27 June 2019:

28 June 2019Insurance

NCA’s should report to EIOPA with information on group dynamic volatility adjustment as part of its fourth LTG report and Solvency II review.

 

29 June 2019Investment funds

The deadline for responses to ESMA’s consultation paper on draft regulatory technical standards (RTS) under Article 25 of Regulation (EU) 2015/760 (the ELTIF Regulation) is 29 June 2019.

 

30 June 2019

Recovery and resolution

Final elements of the PRA’s policy in relation to recovery planning come into  effect on 30 June 2019.

 

30 June 2019

Capital Requirements Directive IV


Prudential requirements

 

The EBA published its final report on Guidelines on the management of interest rate risk arising from non-trading ('banking') book activities - one of the Pillar 2 risks specified in CRD IV. The Guidelines will apply to firms from this date.

 

30 June 2019Markets and trading

The deadline for comments on the Global Legal Entity Identifier Foundation (GLEIF) Legal Entity Identifier (LEI) beta version search tool 2.0, which market participants can use to find information on over 1.3 million organisations within the public LEI data pool is 30 June 2019.

 

30 June 2019Markets and trading

The European Commission will recognise trading venues in Switzerland as eligible for compliance with the trading obligation for shares set out in MiFIR, for at least until 30 June 2019.

 

July 2019Regulatory architecture

The FCA is expected to feedback on its consultation on regulated fees and levies rates proposals for 2019/2020 in July 2019.

 

July 2019Pensions

The FCA will publish a second policy statement, setting out further remedies following its Retirement Outcomes Review, in July 2019.

 

July 2019Financial crime

The UK Government will deliver, in conjunction with the private sector, and Economic Crime Plan in July 2019.

 

July 2019Financial crime

Further to CP19/13: Recovering the costs of the Office for Professional Body Anti-Money-laundering Supervision (OPBAS): further consultation on fees structure the FCA will confirm at the end of July 2019 whether it is retaining or removing the minimum fee threshold for professional body supervisors. The FCA will also publish a consultation on the 2019/20 fee rates in July 2019.

 

July 2019Conduct of business

The FCA will publish a second policy statement, setting out further remedies following its Retirement Outcomes Review, in July 2019.

 

July 2019Risk management and controls

The FSB plans to launch an online survey in July 2019 to help identify effective practices at financial institutions for responses to and recovery from a cyber incident.

 

1 July 2019Payment services

The proposed direction that the PSR planned to consult on in December 2018 would require banks and payments service providers (PSPs) that are participants in the Faster Payments System to send confirmation of payee requests and present responses to their customers by 1 July 2019.

 

1 July 2019Prudential requirements

The PRA’s proposed changes to regulatory reporting requirements set out in SS 34/15 (specifically in relation to PRA110 instructions) will come into effect on 1 July 2019.

 

2 July 2019Sustainable finance

The UK government will launch the Green Finance Institute on 2 July 2019, to develop and communicate ‘the UK’s strengths in this dynamic market’.

 

3 July 2019Markets and trading

The European Commission is required under  Article 38 of Regulation (EU) 596/2014 on market abuse (MAR) to submit a report by 3 July 2019 to the European Parliament and the Council of the EU on the application of MAR and the level of thresholds set out in Article 19(1a)(a) and (b) of MAR on managers’ transactions in certain specific circumstances.

 

3 July 2019Insurance

The deadline for feedback to PRA CP7/19 on Solvency II: Equity release mortgages–part 2 is 3 July 2019.

 

4 July 2019Markets and trading

The ECB working group on euro risk-free rates will consider responses to its public consultation (on its draft recommendations to address the legal implications for new and legacy contracts referencing the euro overnight index average (EONIA) as a result of the proposed transition from EONIA to the euro short-term rate (€STR)) at its meeting on 4 July 2019.

 

4 July 2019Markets and trading

The deadline for applications to join ESMA’s Investor Protection and Intermediaries Standing Committee (IPISC)’s consultative working group is 4 July 2019.

 

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