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The Bank of England (BoE), Financial Conduct Authority (FCA) and Commodity Futures Trading Commission (CFTC) issued a joint statement on continuity of derivatives trading and clearing post-Brexit. BoE, FCA and CFTC say that they are taking measures to ensure that the UK's withdrawal from the EU, in whatever
form it takes, will not create regulatory uncertainty regarding derivatives market activity between the UK and US, and will coordinate their activities in the areas of supervisory cooperation, extension of existing CFTC relief and comparability for
the UK, and UK equivalence for the US.
HM Treasury published a statement explaining how it plans to bring into UK law an exemption for pension scheme arrangements being negotiated in the EU in the European Market Infrastructure Regime (EMIR) REFIT. HM Treasury intends to incorporate a temporary
clearing exemption for both UK and European Economic Area (EEA) pension scheme arrangements after exit day in a no deal scenario. On 22 October 2018, the Treasury confirmed in its explanatory notice on the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018, SI 2019/335,
that, should EMIR REFIT come into force before exit day in the event that the UK leaves the EU without a deal or an implementation period, the EU temporary exemption for pension scheme arrangements would be brought into UK law under the European
Union (Withdrawal) Act 2018 (EU(W)A 2018).
The BoE announced a temporary amendment to its liquidity insurance
facilities, which will apply from March 2019 until the end of April 2019. The BoE will increase the frequency of the existing market-wide sterling operations, indexed long-term repos (ILTRs), from monthly to weekly over the weeks surrounding the planned
date for Brexit. This measure is a prudent and precautionary step, consistent with the BoE’s financial stability objective, to give additional flexibility in the BoE’s provision of liquidity insurance in the coming months. The BoE took
the same approach ahead of, and following, the UK’s EU referendum in 2016.
The FCA issued a statement regarding the onshoring
of temporary intervention measures adopted by the European Securities and Markets Authority (ESMA) prohibiting binary options and restricting contract for difference products (CFDs) sold to retail clients. The FCA confirmed that UK firms will need
to comply with ESMA's measures until they expire on 1 April 2019 for binary options, and 30 April 2019 for CFDs. The FCA says that its supervision of firms in this sector will continue to focus on compliance with ESMA's temporary product intervention
The FCA issued three directions under the Credit Rating Agencies (Amendments etc.) (EU Exit) Regulations 2019 SI 2019/266 (the Regulations). The three directions are (1) notification under Regulation 36 of the Regulations specifying the form and manner in which notification for registration as a credit rating agency (CRA) in the UK should be made to the FCA (2)
notification under Regulation 42 of the Regulations specifying the form
and manner in which notification to become a CRA certified in the UK should be made to the FCA, and (3) notification under Regulation 24 of the Regulations specifying the form and manner in which an advance application to be registered as a CRA in the UK should be made to the FCA.
The FCA published Primary Market Bulletin No 21 (PMB 21), which advises market makers
and issuers of new regulatory obligations that they will need to implement the Short Selling Regulation (SSR) and Market Abuse Regulation (MAR), should a ‘no deal’ Brexit occur. PMB 21 highlights that such advice is particularly important
for firms using the market maker exemption under the SSR, since they may need to take action prior to the 29 March 2019 (exit day). HM Treasury laid Statutory Instruments (SIs) for SSR and MAR. These SIs create new obligations for market makers and
issuers as a result of changes to convert EU law into UK law, following the EU(W)A 2018. The new obligations will apply immediately from exit day, in the event of a no deal Brexit. As a result, the FCA expects firms to undertake reasonable steps
to comply with these changes by exit day.
The FCA republished an updated version of its 'Preparing your
firm for Brexit’ webpage. The webpage contains more detailed information in its 'Issues to be aware of' section and provides
links to new sector specific information. The FCA is urging firms to ensure they are making any necessary changes to protect customers from negative impacts of leaving the EU, whatever the outcome of negotiations – for instance, in the event
of a no-deal Brexit. Firms are also being reminded to consider what information needs to be communicated to their customers, and how this will be done in a way that is clear, fair and not misleading.
In correspondence recently published by the Lords Constitution
Committee, the Cabinet Secretary David Lidington outlined the government's approach for Brexit SIs in the event that the UK exits the EU with a deal and transitional arrangements in place. In a short letter to the committee, the Cabinet Secretary
acknowledges that the EU(W)A 2018, makes no provision for transition, with some Brexit SIs focussing exclusively on a no deal outcome, and virtually all Brexit SIs intended to come into full effect on exit day (currently set in statute as
29 March 2019). The Cabinet Secretary confirmed that, as suggested in the governments White Paper: 'Legislating for the Withdrawal Agreement between the United Kingdom and the European Union' (published in July 2018) provision may be needed to defer, revoke or amend Brexit SIs in order to prepare
the UK for a negotiated exit. The Cabinet Secretary confirmed the government's decision that most Brexit SIs will be deferred so that, instead of coming into force on exit day, they would come into force at the end of the transition period.
In a statement to the House of Commons on 26 February 2019, the
Prime Minister updated MPs on progress in recent Brexit talks and promised to bring the Brexit deal back to Parliament for a vote by 12 March 2019. However, in light of deep concerns over the continued uncertainty, the PM also made further commitments,
promising that if the Brexit deal is not approved by 12 March 2019, the government will seek parliamentary consent for a no deal exit. If that is not approved, the government will then bring a further motion asking whether Parliament wishes to
seek a short extension to Article 50, which the government will implement if approved. Acknowledging that a no deal outcome is still the current legal default, the government also published a paper assessing domestic preparation for no deal.
European Union policymakers could “weaponize” the Solvency II capital regime to damage Britain’s insurance industry if the U.K. loses its influence in Brussels after Brexit, the director general of the Association of British Insurers
warned. Huw Evans said that EU officials
could use a major review of the Solvency directive to weaken the EU’s biggest insurance market by forcing London's insurers to hold greater amounts of capital in reserve after the U.K. exits the bloc on March 29. “At its worst, this
process could be ‘weaponized’ by those in the EU who want to use Solvency II to damage the U.K.,” Evans said.
In response to Brexit, the applicants, UBS Ltd and UBS Europe SE, purposed to transfer some of UBS Ltd's business to UBS SE under Pt VII s 106 of the Financial Services and Markets Act 2000 (FSMA 2000). The Commercial Court, in
allowing the application, considered, among other things, that the design of the scheme was one which
struck an appropriate balance between the desirability of certainty to clients and business, on the one hand, and to the exigencies of transferring to a different jurisdiction, on the other. The application was allowed.
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Under the European Union (Withdrawal) Act 2018 (EU(W)A 2018), before certain statutory instruments are formally laid in Parliament, they have to go through a preliminary sifting process to determine the appropriate parliamentary procedure. The latest
draft Brexit SIs laid for sifting are outlined here. Subjects covered include financial services. The following Brexit SI was laid for sifting on 27 February 2019. The sifting period for this instrument closes on 19 March 2019:
SI 2019/Draft: This draft enactment is laid in exercise of legislative powers under the EU(W)A
2018 in preparation for Brexit. This enactment addresses deficiencies in UK domestic law and retained EU law arising from the UK’s withdrawal from the EU, in line with the approach taken in other financial services EU exit instruments
under EU(W)A 2018 and revokes a number of pieces of retained EU law and UK domestic law. Regulations 1 and 13 to 24 come into force immediately before exit day. The remaining provisions come into force on exit day. This draft enactment
was withdrawn and relaid on 25 February 2019 with correction on the substituted date in the Credit Institutions and Insurance Undertakings Reorganisation and Winding Up (Amendment) (EU Exit) Regulations 2019.
SI 2019/Draft: This enactment is laid in exercise of legislative powers under the EU(W)A 2018 in
preparation for Brexit. This enactment is laid in order to ensure a coherent and functioning financial services regulatory regime once the UK leaves the EU. It addresses deficiencies in retained EU law arising from the UK's withdrawal from the
EU, in line with the approach taken in other financial services EU exit instruments. It comes into force on the day after which these regulations are made.
The Financial Services (Implementation of Legislation) Bill, which is a Bill to authorise the making of provision by reference to certain EU financial services legislation adopted on or before, or no later than two years after, the United Kingdom's
withdrawal from the EU. It is now at Committee Stage in the House of Commons (as of 26 February 2019).
SI 2019/335: This enactment is made in exercise of legislative powers under the EU(W)A
2018 in preparation for Brexit. This enactment amends UK legislation and retained EU legislation in relation to over the counter (OTC) derivatives, central counterparties (CCPs) and trade repositories in order to ensure the legislation continues
to operate effectively, and address deficiencies in retained EU legislation arising from the withdrawal of the UK from the EU. In relation to pensions, the enactment amends EMIR (being retained direct EU legislation) to ensure that a UK occupational
pension scheme continues to be a 'financial counterparty' under EMIR following Brexit. It comes into force on exit day (updated from draft 20 February 2019).
SI 2019/341: This enactment is made in exercise of legislative powers under the EU(W)A 2018 and European
Communities Act 1972 in preparation for Brexit. It amends the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 and the Financial Collateral Arrangements (No 2) Regulations 2003 and makes consequential amendments to
legislation including the Companies Act 1989, the Banking Act 2009 and the Financial Markets and Insolvency Regulations 1991 in order to address failures of retained EU law to operate effectively and other deficiencies arising
from the withdrawal of the UK from the EU. The Regulations will come into force partly on 22 February 2019 and fully on exit day (updated from draft on 21 February 2019).
SI 2019/328: This enactment is made in exercise of legislative powers under the EU(W)A 2018 in preparation
for Brexit. This enactment amends UK subordinate legislation and EU delegated legislation and revokes EU delegated legislation in the field of financial services, relating to the regulation of alternative investment fund managers (AIFMs), in order
to address deficiencies in retained EU law arising from the withdrawal of the UK from the EU. This is to ensure the legislation continues to operate effectively at the point at which the UK leaves the EU. It comes into force on exit day (updated
from draft on 19 February 2019).
SI 2019/343: This enactment is made in exercise of legislative powers under the EU(W)A 2018 in preparation
for Brexit. This enactment is being made in order to address the deficiencies in retained EU law in relation to European social entrepreneurship funds (EuSEFs), arising from the withdrawal of the UK from the EU, ensuring the legislation continues
to operate effectively at the point at which the UK leaves the EU. It comes into force on exit day (updated from draft on 20 February 2019).
SI 2019/336: This enactment is made in exercise of legislative powers under the EU(W)A 2018 in preparation
for Brexit. This enactment amends UK legislation and retained direct EU legislation in relation to European Long-term Investment Funds (ELTIFs) to address the deficiencies in retained EU law, arising from the withdrawal of the UK from the EU.
It comes into force partly on 21 February 2019 and fully on exit day (updated from draft on 20 February 2019).
SI 2019/333: This enactment is made in exercise of legislative powers under the EU(W)A 2018 in preparation
for Brexit. This enactment is being made in order to address the deficiencies in retained EU law in relation to European Venture Capital Funds (EuVECAs), arising from the withdrawal of the UK from the EU, ensuring the legislation continues to
operate effectively at the point at which the UK leaves the EU. It comes into force on exit day (updated from draft 20 February 2019).
The Commons European Statutory Instruments Committee (ESIC) and the Lords Secondary Legislation Scrutiny Committee (SLSC) are responsible for the sifting process under the EU(W)A 2018. These committees scrutinise proposed negative Brexit SIs
and make recommendations on the appropriate parliamentary procedure before the instruments are laid in Parliament. This bulletin outlines the latest updates and recommendations, collated on 22 February 2019. The following Brexit SIs were noted
by the Committees:
The European Parliament's Economic and Monetary Affairs Committee (ECON) recommended that the Parliament confirm it does not object to four Delegated Regulations adopted by the European Commission that would include the BoE and other UK public bodies
charged with or intervening in the management of public debt in the list of exempt entities under certain provisions of EU regulations post-Brexit. The four Delegated Regulations involve amending (1) EMIR (2) MAR (3) the
Markets in Financial Instruments Regulation (MiFIR), and (4) the Transparency of Securities
Financing Transactions Regulation (SFTR).
The Financial Stability Board (FSB) is seeking feedback
from stakeholders to help it to evaluate the effects of financial regulatory reforms on the provision of financing to small and medium sized enterprises (SMEs). The evaluation is part of the FSB’s broader examination of the effects of the
G20’s programme of post-crisis reforms on financial intermediation. Any feedback, including supporting evidence, should be submitted by 18 March 2019 to firstname.lastname@example.org with the subject ‘SME financing evaluation’. The FSB will issue
its draft report (based on the feedback received) for public consultation ahead of the G20 summit in June 2019.
A group of European trade associations representing asset managers, the banking sector, insurers, pension funds, private equity funds and market infrastructures wrote to the Council of the EU, the European Parliament and the European Commission to set out their joint views on the review of the European system of financial supervision (ESFS). In the
joint letter, the trade associations support the creation of a harmonised European supervisory framework, with European authorities cooperating closely with national supervisors to ensure a well-functioning system applies consistently across Europe.
The signatories to the letter include Insurance Europe, the European Fund and Asset Management Association (EFAMA) and the Association for Financial Markets in Europe (AFME).
The FCA published its regulation roundup for February 2019. In it, the FCA notes that
it will continue to plan for a range of Brexit scenarios, including the possibility of a no-deal Brexit. The FCA expects firms to be well advanced in their Brexit contingency planning, including planning for communicating with customers. In its
hot topics section, the FCA shares a video of senior executives from four financial services firms discussing their experiences of adopting the Senior Managers and Certification Regime (SM&CR). The FCA states that it will be extending the
SM&CR to around 47,000 solo-regulated firms in December 2019.
The BoE published three annual reports, prepared by Mark Carney, Sir Dave Ramsden and Gertjan Vlieghe respectively for the Treasury Select Committee hearing on 26 February 2019. Each of the reports addresses three broad topics: economy and voting record, economic outlook, and
explaining monetary policy. Each of the reports sets out the views of its author on how the economy performed in the past year, how the author of the report voted on key matters and how the economy is likely to perform in the near future, particularly
in light of Brexit.
The Financial Services Trade and Investment Board (FSTIB) released its annual report detailing the work of government and industry in 2018 to maintain and strengthen the UK’s position as a leading global financial centre. The FSTIB is tasked
with informing the government’s financial services trade and investment priorities and supporting UK firms to export abroad and attract inward investment from overseas.
The European Banking Authority (EBA) launched a
consultation on its Guidelines on credit risk mitigation (CRM) in the context of the advanced internal rating-based (A-IRB) approach, which aim to eliminate the remaining significant differences in approaches in the area of CRM, which are either
due to different supervisory practices or bank-specific choices. The draft Guidelines complement the EBA Report on CRM, published in March 2018, which focused on the standardised approach and the foundation-IRB approach. The consultation runs
until 25 May 2019.
The European Central Bank (ECB) sanctioned Sberbank Europe
AG for breaching the large exposure requirements laid down in art 395(1) of the Capital Requirements Regulation (EU) 575/2013 (CRR) on both an individual and a consolidated basis in 2015. The ECB imposed an administrative penalty of
€630,000 on Sberbank. Sberbank was found to be in excess of the large exposure limits under the CRR within two consecutive quarterly reporting periods in 2015 on an individual and consolidated basis. The ECB’s decision imposing a sanction
may be challenged before the Court of Justice of the European Union, under the conditions and time limits set out in art 263 of the Treaty on the Functioning of the EU (TFEU).
The Council of the EU published a progress report relating to the proposed Whistleblowing
Directive, in which it provides a brief summary of the discussions and negotiations to date, sets out the main issues identified during negotiations with the European Parliament, and concludes that all parties to the negotiations must show flexibility
given the limited time available to reach an agreement with the current European Parliament. The Council of the EU introduced several amendments to the proposal aimed at ensuring a high level of protection for the ‘whistleblower’,
including clarifying the conditions for protecting reporting persons such as the use of internal and external channels and the conditions for public disclosures, simplifying the obligations on competent authorities and providing for clearer rules
The EBA published its revised Guidelines on outsourcing arrangements
setting out specific provisions for the governance frameworks of all financial institutions within the scope of the EBA's mandate with regard to their outsourcing arrangements and related supervisory expectations and processes. The aim of the
Guidelines is to establish a more harmonised framework for these financial institutions, namely credit institutions and investment firms subject to the Capital Requirements Directive (CRD IV), as well as payment and electronic money institutions.
The recommendation on outsourcing to cloud service providers, published in December 2017, was also integrated into the Guidelines.
UK Finance published an article by
Henry Umney, CEO, Clusterseven, on the impact of the joint discussion paper ‘Building the UK financial sector's operational resilience’ published by the BoE, Prudential Regulation Authority (PRA) and FCA in July 2018 (BoE DP1/18, PRA
DP1/18 and FCA DP 18/4). Mr Umney says that the fundamental premise—that a resilient financial system is one that can 'absorb shocks rather than contribute to them'—goes well beyond the current norms of operational risk and recovery
The Financial Action Task Force (FATF) published outcomes
of its second plenary meeting in Paris on 20-22 February 2019, together with a public statement on mitigating risks from virtual assets. The FATF also provided information on high-risk jurisdictions with strategic deficiencies and described its
current efforts to monitor and take action against terrorist financing. Combating the financing of terrorism remains a top priority for the FATF under the US Presidency, and the plenary heard an update on the FATF's work in this area, including
work on the prosecution of terrorist financing.
The European Parliament announced on
27 February 2019 that its Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance adopted a detailed roadmap with recommendations. These range from overhauling the system for dealing with financial crimes, tax evasion and tax avoidance—by
improving cooperation between the authorities involved—to setting up new bodies at the EU and global level. The numerous findings and recommendations include, among other things (1) requiring the European Commission to immediately work on
a proposal for a European financial police force (2) setting up an EU anti-money laundering watchdog, and (3) providing whistleblowers and investigative journalists with better protection, potentially replicating the US reward system for whistleblowers
in the EU. The report will now be passed on to the plenary for approval during the second session of March (25 to 28 March 2019) in Strasbourg.
The Office of Financial Sanctions Implementation (OFSI) published a webpage providing
information on actions it takes to enforce financial sanctions, including information on monetary penalties imposed by OFSI. A British bank was hit with the country's first-ever fine for breaching financial sanctions regulations after it handled
money belonging to a person targeted following the Egyptian revolution, the UK's sanctions enforcer said. Raphaels Bank was fined £5,000 ($6,534) by OFSI, part of HM Treasury, for handling £200 belonging to an unidentified person named
in an asset freeze. Britain and the EU both froze funds belonging to individuals accused of misappropriating Egyptian state assets after the revolution against President Hosni Mubarak erupted in January 2011.
HM Treasury published an
updated version of its advisory notice on money laundering and terrorist financing controls in overseas jurisdictions. The notice, which was originally published on 3 July 2013 and most recently updated on 26 February 2019, sets out advice regarding
the risks posed by unsatisfactory money laundering and terrorist financing controls in several high-risk jurisdictions. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 require firms to
put policies and procedures in place to prevent activities related to money laundering and terrorist financing, including applying enhanced due diligence for higher risk jurisdictions. This advisory notice provides advice on how to comply with
Standard Chartered PLC said that it set aside $900m to
cover potential fines from regulatory investigations in Britain and the US over allegations that it breached sanctions, violated financial crime controls and claims that trades were manipulated. The provision, which will be accounted for in the
group’s fourth-quarter results, includes a £102.2m ($133.6m) penalty that Standard Chartered is due to pay to the FCA. The fine, which the FCA can reduce by 30% for early settlement, is for so-called legacy failings in the bank’s
financial crime controls. The lender said it is considering its options over the penalty.
The Treasury Committee published evidence
taken on 13 February 2019 from executives at UK Finance, Santander UK and Nationwide as part of its inquiry into economic crime. The evidence was taken on 13 February 2019 following a letter to the Treasury Committee from Caroline Wayman, chief
ombudsman and chief executive of the Financial Ombudsman Service (FOS), who notes that the FOS received 8,500 complaints about fraud and scams in 2017/18 and already received over 10,000 new cases this financial year.
Last month, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, wrote to the FCA about the impact of the failure of Wonga on those with outstanding complaints with the FOS. In her letter to the FCA, Ms. Morgan expressed the Committee's concern that consumers,
many of whom are likely to be vulnerable, are likely to be at a significant financial disadvantage as they are no longer eligible to claim through the FOS nor are eligible for compensation through the Financial Services Compensation Scheme (FSCS).
Commenting on the correspondence and calling for the government to intervene to help the 10,000 people who were potentially missold loans by WONGA, Ms. Morgan said 'These people have been left to fend for themselves by Wonga, the FCA and the FOS'.
The FCA urged members of the public who
invested in unauthorised collective investment schemes established and operated by Countrywide Land Holdings Limited, and who may be eligible to receive some of their money back, to get in contact with the FCA. Between 2005 and 2010, approximately
870 members of the public invested approximately £32.8m in to these schemes, which involved the unlawful selling of plots of land. Following High Court cases in which the unauthorised businesses were ordered to repay investors, the FCA received
approximately £2.5m from a related Panamanian company, Paradigm Consultancy S.A., which it intends to return to eligible investors.
The UK’s statutory compensation scheme, the FSCS, published a
list of eight financial firms it declared to be in default during January 2018. Any consumers who lost money due to dealings with any of the eight failed firms named by the FSCS could claim that money back under the FSCS. The FSCS protects customers
of regulated financial services firms. It will declare a firm to be in default if it is satisfied that the firm is unable to pay claims for compensation made against it, paving the way for its customers to make a claim to the FSCS for compensation.
The Upper Tribunal upheld a
decision by the FCA to ban a debt management firm from carrying out regulated activities, finding in a decision that the financial watchdog was justified to conclude that it could not ensure the firm would comply with market rules. The Tribunal
agreed with the FCA that Lewis Alexander Ltd. showed a reluctance to provide information and comply with the regulator’s rules and ‘argumentatively questioned why it was required to provide information and adopted an uncooperative
attitude,’ according to the decision. Lewis Alexander challenged the FCA’s decision to refuse it permission to carry out the regulated activities of debt adjusting and debt counselling under FSMA 2000, claiming the FCA intimidated
it to do things that other larger operators were not doing.
Lloyds Banking Group PLC revealed it set aside £750m ($980m) in 2018 to deal with customers rushing to claim they were missold controversial payment protection insurance (PPI) before a deadline in August 2019. Banks must repay customers who
took out unnecessary loan insurance in a scandal that dates from the 1990s. Lloyds already announced fresh PPI costs of £550m in June, but now added that it was forced to allocate another £200m in the final three months of 2018 to
deal with the volume of claims from people affected by the misselling scandal. Lloyds said in its annual results that
it estimates it wrongly sold approximately 16m highly lucrative PPI policies alongside mortgages, loans and credit cards since 2000.
A London judge threw out a
property investor's bid to escape Euribor-linked derivatives inked with Royal Bank of Scotland PLC (RBS) in light of the rate-rigging scandal, concluding that the lender did not act dishonestly when it sold the swaps to cover a €1.57bn ($1.8bn)
loan. High Court Judge Simon Picken said that Marme Inversiones 2007 SL’s action against RBS ‘must fail’ because the Spanish investment vehicle could not prove that the bank knowingly made false representations when selling it
several swaps in 2008 referenced to the Euro Interbank Offered Rate (Euribor). He also said that Marme would not rely on them to enter the transactions anyway, because it was not aware of them at the time.
On 21 February 2019, the FCA announced it found three asset
management firms breached competition law by sharing sensitive information in relation to prices for initial public offerings (IPOs). This is the FCA’s first formal decision under its competition enforcement powers. The FCA fined Hargreave
Hale Ltd £306,300 and River & Mercantile Asset Management LLP £108,600. Newton Investment Management Limited was given immunity under the competition leniency programme and was therefore not fined. This is the first time that the
FCA made use of its ‘concurrent’ competition law enforcement powers since obtaining them on 1 April 2015. Under its concurrent competition enforcement powers, the FCA can enforce the prohibition on anti-competitive behaviour under
the UK Competition Act 1998 and Article 101 TFEU in relation to the provision of financial services in the UK and it can impose fines of up to 10% of worldwide turnover.
On 25 February 2019, the Competition and Markets Authority (CMA) published a
letter from the CMA Chairman Chairman, Andrew Tyrie, to the Rt Hon Greg Clark MP, Secretary of State for Business, Energy and Industrial Strategy, outlining proposals for reform of the competition and consumer protection regimes of the
CMA, backed by strengthened tools and powers to facilitate earlier and more robust intervention to address consumer detriment, and to deter wrongdoing. The letter, dated 21 February 2019, recommends the CMA relinquish certain powers and functions,
or its lead responsibility for them, including the review of certain decisions by economic regulators and the prosecution of criminal cartels, enabling it to focus more effectively on its core responsibilities.
Three banks emerged as winners of a £260m ($337m) fund to boost competition in business lending, bankrolled by RBS as part of conditions attached to its government bailout during the financial crisis. The awards are part of a £775m
Banking Competition Remedies fund that RBS must pay for as its final state aid penalty for being bailed out by UK taxpayers in 2008. Metro Bank PLC won the lion's share of the cash, claiming £120m, while digital bank Starling Bank
Ltd and clearing bank ClearBank Ltd were handed £100m and £60m, respectively. The giveaway is meant to boost competition in the business banking sector by helping the winners develop their current account, lending and payments
offerings for SMEs.
The European Commission reached an agreement with the Monetary Authority of Singapore
(MAS) to continue to recognise some trading platforms authorised in Singapore as compliant with EU derivatives regulations, in a bid to strengthen ties by allowing them to keep trading with each other. Singapore’s financial counter-parties
will also be able to use EU trading platforms to trade liquid derivatives under the deal, which the commission signed with the MAS. The cross-border trades are possible through a so-called equivalence decision, which recognises a list of markets
in Singapore as meeting requirements under the EU’s MiFIR.
ESMA published the responses it received
to its consultation paper on draft reporting guidelines on the reporting to competent authorities requirements under art 37 of the Money Market Funds Regulation (EU) 2017/1131 (the MMF Regulation). ESMA published its consultation paper
on 13 November 2018, requesting responses by 14 February 2019. The consultation requested views on certain aspects of the reporting guidelines required to be provided by ESMA under the MMF Regulation, to give managers of MMFs the information they
need to fill in certain fields of the reporting template mentioned in art 37 of the MMF Regulation.
The FCA published a
speech by Megan Butler, Executive Director of Supervision-Investment, Wholesale and Specialists, that she delivered at the Investment Association (IA) in London on 21 February 2019. Ms Butler notes that, with the London Interbank Offered Rate
(Libor) production likely to end at the end of 2021, firms need to be preparing to end their reliance on it. She recalls that, although the European Investment Bank (EIB) completed a Sterling Overnight Index Average-based (Sonia) referencing bond
issue last year which demonstrated the feasibility of issuing a floating rate note referencing Sonia, firms were concerned about system changes required to manage bonds and loans that calculate interest payments at the end of reference periods.
The Global Association of Central Counterparties (CCP12)—a global association of 36 members who operate more than 50 individual CCPs across Europe, the Middle East and Africa, the Americas and the Asia-Pacific region—published a report titled ‘Incentives for Central
Clearing and the Evolution of OTC Derivatives’ The report examines the progress made in central clearing and is intended to complement the report on ‘Incentives to centrally clear over-the-counter derivatives’ published by the
FSB in November 2018.
The European Association of CCP Clearing Houses (EACH) released a
statement welcoming the political agreement reached by the European Parliament and EU Member States on the reform of EMIR. However, the association notes that the exemption for Undertakings in Collective Investments in Transferable Securities
(UCITS) and Alternative Investment Funds (AIFs) from group level calculation of the clearing threshold might weaken the G20 reforms and enforce an un-levelled playing field with other financial market participants.
The Council of the European Union published a decision on the position to be adopted
on behalf of the Union, within the EEA Joint Committee on the proposed amendment of Annex IX (Financial services) to the EEA Agreement, based on the draft decision of the EEA Joint Committee. According to the decision, Annex IX to the EEA Agreement
is to be amended to incorporate MiFIR, Directive 2014/65/EU (the Markets in Financial Instruments Directive (MiFID)) and a number of other related Directives and Regulations.
The FCA published a speech
by its chief executive, Andrew Bailey, on MiFID II at the European Independent Research Providers Association. In his speech, Mr Bailey considers the positive impacts of MiFID II as seen in its initial implementation stages, the challenges and
concerns it raised, the FCA’s plans in relation to MiFID II and how it sees competition evolving in the research market. Mr Bailey explains that the FCA is now completing its supervisory work to assess how the MiFID II rules are impacting
asset owners and consumers and, more broadly, on the market for research. The FCA will provide more formal feedback in the second quarter of 2019.
On 26 February 2019, the Romanian Presidency of the Council and the European Parliament reached a provisional agreement on a package of measures, setting out new prudential requirements and supervisory arrangements for investment firms. The text agreed by the Presidency and
the Parliament aims to adapt the requirements to the firms' risk profiles and business models while preserving financial stability. There are approximately 6,000 investment firms in the EEA. Most of them are considered small, but a limited number
of investment firms hold a significant proportion of all assets and provide a very broad range of services. Until now, all investment firms were subject to the same capital, liquidity and risk management rules as banks. The CRR/CRDIV are based
on international standards intended for banks. Therefore, they do not fully take into account the specificities of investment firms.
On 27 February 2019, EU ambassadors endorsed the
Council's position on a proposal to give easier access to SMEs trying to list and issue securities on financial markets, while safeguarding investor protection and market integrity. The initiative endorsed today concerns ‘SME growth markets’,
which is a recently introduced category of trading venue dedicated to small issuers. On the basis of this text, the Presidency will start negotiations with the European Parliament on 6 March 2019. There are approximately 20 million SMEs in Europe,
only 3,000 of which are currently listed on stock-exchanges. This is partially due to high compliance costs on the one hand and insufficient liquidity on the other. Therefore, the proposed rules aim to reduce the administrative burden and cut
red-tape faced by smaller companies.
The Council of the EU issued a
press release on 26 February 2019, stating that the Romanian presidency and the European Parliament reached a provisional agreement on a harmonised framework for covered bonds. Covered bonds are financial instruments backed by a separate pool
of assets to which investors enjoy a preferential claim in case of failure of the issuer. They are considered to be an efficient source of financing of the economy while ensuring a high level of certainty for investors. The framework reached by
the agreement will specify a common definition to receive an EU covered bond label and benefit from preferential capital treatment. The deal will now be submitted for endorsement by EU ambassadors.
The Council of the EU asked the Permanent Representatives Committee (COREPER) to approve
the final compromise texts of the proposed Directive and Regulation on cross-border distribution of collective investment funds and confirm that the Presidency can indicate
to the European Parliament that, should the European Parliament adopt the Directive and Regulation in its current form, the Council would approve the European Parliament's positions and the acts would be adopted.
The FCA published a letter
it sent to the CMA regarding a report by the CMA on its market investigation into the supply and acquisition of investment consultancy and fiduciary management services. The letter sets out how the FCA will respond to the recommendations in the
report that affect the FCA. As part of its Asset Management Market Study in 2017, the FCA made a reference to the CMA as it wished to understand the role investment consultancy and fiduciary management services play in helping institutional investors
get value for money from asset management services.
ESMA published an updated list of EU national
authorities that signed a Memorandum of Understanding (MoU) required to be in place between EU national competent authorities (NCAs) and third-country authorities in accordance with the Alternative Investment Fund Managers Directive (Directive
2011/61/EU) (AIFMD) relating to the rights and regulatory requirements of an EU AIFM. In addition to the supervisory cooperation arrangements, the AIFMD sets out other conditions that need to be satisfied in order for the relevant cross‐border
activity to be permitted in the EU. ESMA maintains a list of MoUs signed by the EU NCAs.
The IA launched a roadmap on 21 February 2019 to guide asset managers
through the transition from Libor to Sonia, the new risk-free rate. The roadmap, produced with the assistance of Oliver Wyman, provides steps to help asset managers complete the transition by 2021, the date by which the FCA plans to retire the
benchmark rate. There are estimated to be over US$240trn in products that currently reference Libor. Therefore, asset managers are advised to initiate their plans now to deal with the complexity of the transition, much of which will also depend
on the development of market conventions and liquidity in the next few years.
The IA announced on
21 February 2019—ahead of annual general meeting season—that it will highlight companies who fall behind the market in the area of diversity or pay pension contributions to executive directors at rates above the majority of the workforce.
IA’s institutional voting information service (IVIS)—which provides corporate governance research to shareholders to aid their voting decisions during AGM season—will ‘red-top’ companies who fall behind in respect
of pensions and diversity. A red-top is the highest level of warning IVIS issues and is reserved for companies where shareholders should be most concerned.
HM Treasury published the Regulatory Policy Committee’s (RPC) opinion on HM Treasury's impact assessment of amending the UK definition of investment advice. The RPC deemed the amendment to be fit
for purpose. The Financial Advice Market Review (FAMR) was conducted by the government to consider how to improve financial advice for consumers. One of the FAMR recommendations was to consult industry on changing the Regulated Activities Order
(RAO) definition of regulated advice to the MiFID definition to aid consumer decision making on investments. The UK definition of investment advice, as defined by the RAO, is broader than the EU definition set out in MiFID. Therefore, the boundary
between 'financial advice' (which is regulated by the FCA) and 'financial guidance' (which is unregulated) was not clear.
ECON unanimously endorsed the agreement reached between the Romanian Presidency and the European Parliament on a set of revised rules aimed at reducing risks in the EU banking sector. The package agreed by the Council and the Parliament comprises
two regulations and two directives, relating to bank capital requirements and the recovery and resolution of banks in difficulty. The European Parliament and Council reached political agreement on 4 December 2018. The Council of the EU approved
the political agreement on 15 February 2019. ECON now approves the text that was agreed. In particular agreement was reached on (1) Legislative File 2016/0361(COD) (as regards amending the Single Resolution Mechanism) (2) Legislative File 2016/0362(COD) as regards amending the Bank Recovery and Resolution Directive (BRRD) (3) Legislative File 2016/0364(COD) as regards amending CRD IV, and (4) Legislative File 2016/0360A(COD) as regards amending the CRR.
The ECB published an analysis of high-level considerations
and high-priority technical aspects of its qualitative stock-taking questionnaire on the integrated reporting framework (IReF), which was launched in June 2018. The ECB also published an overview of the IReF. The idea underpinning the European
System of Central Banks (ESCB) IReF is to integrate existing ESCB statistical data requirements for banks into a single framework. In particular, the IReF would consist of (1) an integrated set of reports for banks, aimed in the long run at replacing
national reporting templates, and (2) a unique set of transformation rules for compiling the derived statistics required by authorities.
The EBA published a Handbook on valuation for purposes of resolution
under the BRRD, with a view to operationalising the valuation process in order to facilitate its implementation by resolution authorities in times of crisis. The BRRD provides a comprehensive framework of powers for resolution authorities to intervene
in failing banks to protect the public interest and financial stability. To ensure that authorities exercise these powers in ways that reduce the risk of costs falling on the taxpayer, preserve value and respect the property rights of affected
shareholders and creditors, the BRRD requires independent valuations to be carried out to inform resolution authorities' decisions.
The Scottish Affairs Committee launched a short inquiry into access to financial services. This follows on from work that the Committee did last year on bank closures and ATM networks in Scotland, following which the Committee recommended
that the Government do everything it can to reverse the wave of RBS bank closures to prevent adverse effects on local communities. As part of the inquiry launched today, the Committee will examine how access to financial services in Scotland changed,
and the impact ATM and bank closures on rural communities. The deadline for written evidence is 25 March 2019.
The Council of the European Union published a decision on the position to be adopted
on behalf of the Union, within the EEA Joint Committee on the proposed amendment of Annex IX (Financial services) and Annex XIX (Consumer protection) to the EEA Agreement, based on the draft decision of the EEA Joint Committee. According to the
decision, Annex IX and XIX to the EEA Agreement are to be amended to incorporate Directive 2014/17/EU (the Mortgage Credit Directive).
The FCA announced that Curo Transatlantic Limited (CTL)
(trading as Wage Day Advance and Juo Loans), a high cost short term credit firm regulated by the FCA, placed itself into administration. The FCA will continue to supervise CTL and is in close contact with the administrators, KPMG, to ensure the
fair treatment of customers. CTL completed a pre-pack administration sale of part of its loan book to Shelby Finance Ltd (trading as Dot Dot Loans), an FCA-regulated firm and subsidiary of Morses Club PLC, to which 50,000 customers will be moved
A decision to start winding-up proceedings
in respect of Elite Insurance Company Limited was published in the Official Journal of the EU. The decision was published in accordance with Article 280 of Directive 2009/138/EC of the European Parliament and of the Council on the taking-up
and pursuit of the business of Insurance and Reinsurance (Solvency II). The decision to start winding-up proceedings entered into force on 31 January 2019.
The European Insurance and Occupational Pensions Authority (EIOPA) updated its Q&As
on regulatory topics. The new Q&As relate to Article 31 of Commission Delegated Regulation (EU) 2015/35 (a Level 2 measure under the Solvency II Directive) and the application of the connected contracts exemption under the Insurance
Distribution Directive (IDD). In relation to the IDD, EIOPA, added Answers to Questions No 2016–97 in relation to the application of the connected contracts exemption in the context of the IDD.
The International Association of Insurance Supervisors (IAIS) published an application paper on the proactive supervision of corporate governance. Application Papers provide further advice, illustrations, recommendations or examples of good practice
to supervisors on how supervisory material may be implemented. The application paper is organised into four sections that each address key aspects of fostering and supporting proactive supervision such as culture and process, communication and
early warning indicators.
EFAMA welcomed the approval by ECON of the trilogue agreement on the proposed ‘pan-European Personal Pension Product’ (PEPP),
which paves the way to developing personal pension products with a European label. The draft regulation needs to be formally adopted by the European Parliament at plenary and by the Council of the EU before it can enter into force. Commenting
on ECON’s approval of the trilogue agreement on PEPP, EFAMA reiterates its strong support for the PEPP, which it says would only produce all the intended positive effects if the accompanying level 2 measures ensure that the PEPP is attractive
to both savers and providers.
The Council of the EU issued an I/A item note requesting COREPER confirm its agreement
with the proposed regulation amending Regulation (EC) 924/2009 as regards certain charges on cross-border payments in the EU and currency conversion charges, as adopted by the European Parliament on 14 February 2019, and to suggest that
the Council approves the European Parliament's position at a forthcoming meeting. If the Council approves the European Parliament's position, the regulation will be adopted.
The Payment Systems Regulator (PSR) announced the launch of its annual plan 2019-20 on Wednesday 27 March 2019. The launch includes sessions on the recast Payment Services Directive (PSD2) and innovation in interbank payments. More information can
be found on the regulator’s website.
ESMA published a keynote speech titled ‘Cryptoassets: time to deliver’, given on 26 February 2019 by ESMA chair
Steven Maijoor at the FinTech Conference 2019 on FinTech and Regulation. In his speech, Mr Maijoor gives his views on cryptoassets and the underlying distributed ledger technology, which he says are at the frontier of innovation and so pose a
challenge to firms—who seek to turn the promise of that technology into workable business models—and to regulators—who are partly in uncharted territory.
The European Commission published a speech by
the European Commissioner for Financial Stability, Financial Services and Capital Markets Union, Valdis Dombrovskis, on the progress of the Commission's FinTech Action plan at the third Annual FinTech and Regulation Conference. Other bodies, including
the EIOPA also published speeches by their representatives at the conference. Mr. Dombrovskis provided updates on the Commission's FinTech Action Plan, which was launched almost a year ago. He noted that there was a need to bring down regulatory
barriers between Member States, to achieve a genuine single market for FinTech in Europe. Gabriel Bernardino, Chairman of EIOPA, gave a key note speech on Cyber Security and Cyber Risk at the same conference. He noted that the digital transformation of how society works, lives and does business created huge opportunities for innovation
On 31 January 2019, a Canadian cryptocurrency exchange reported it lost access to about US$150m in customers’ holdings. The exchange, QuadrigaCX, which
was the largest by volume in Canada until last month, held cold (offline) storage wallets on behalf of its customers containing keys to cryptocurrencies like bitcoin and Ethereum. The ability to transfer these cryptocurrencies requires access
to a private key, which may be held in a wallet. If the key is lost, so is access, potentially permanently. The British Columbia Securities Commission since reported it enjoys no remit to regulate the exchange, because it was not trading in securities
or derivatives. On 14 January 2019, Quadriga announced the death of its founder and CEO, Gerald Cotton. On 31 January 2019, in a filing for relief under the Companies’ Creditors Arrangement Act, to head off prospective customer lawsuits,
the exchange disclosed that the founder was the only individual with access to the cold wallets.
The European Commission launched a targeted consultation on 21 February 2019 with the objective to finalise new guidelines for company reporting on climate-related information, as part of its Sustainable Finance Action Plan. The consultation
proposes ways to assess how climate change can impact the financial performance of companies, as well as how companies can positively and negatively impact the climate. It builds on the report published in January by the Technical Expert Group
on Sustainable Finance, and stakeholders’ responses to the call for feedback on that report.
ESMA published the responses received to its
Consultation Paper on integrating sustainability risks and factors in MiFID II and its Consultation Paper on integrating sustainability risks and factors in the UCITS Directive and the AIFMD, which were both published on 19 December 2019. The
responses include details of replies from groups such as ICMA and the Alternative Investment Management Association (AIMA).
The Council of the EU and the European Parliament reached a political agreement on a proposal creating a new category of low-carbon financial benchmarks, aimed at giving increased information on an investment portfolio’s carbon footprint.
The rules, originally proposed by the European Commission in May 2018, will still need to be formally approved by the Council and the European Parliament before they can enter into force. The measures agreed by the EU institutions will create
a new category of low-carbon benchmarks, comprising two types (1) EU climate transition benchmarks, which aim to lower the carbon footprint of a standard investment portfolio, and (2) EU Paris-aligned benchmarks, which push for a more ambitious
goal to select only components that contribute to attaining the reduction set out in the Paris climate agreement.
28 February 2019
The deadline for responses to FCA ‘CP19/9: Financial Services Compensation Scheme – Management Expenses Levy Limit 2019/20’
and PRA ‘CP2/19:Financial Services Compensation Scheme – Management Expenses Levy Limit 2019/20’
is 28 February 2019.
Following FCA ‘CP18/32: Recovering the costs of the Office for Professional Body Anti-Money-laundering Supervision (OPBAS): proposed fee rates for 2018/19’
the deadline for professional body supervisors to submit their figures to OPBAS is 28 February 2019.
The deadline for feedback to FCA ‘CP18/40: Consultation on proposed amendment of COBS 21.3 permitted links rules, the purpose of which is to further enable retail investors to invest in patient capital through unit-linked funds’
is 28 February 2019.
Firms wishing to take part in the FCA’s cross-border testing pilot (for
firms wishing to test innovative products, services or business models across international markets—the pilot is an initiative by the Global Financial Innovation Network (GFIN), a group of 29 international organisations committed to supporting financial innovation in the interest of consumers
and which is currently chaired by the FCA) in the UK should review the list of participating regulators and apply before the deadline of 28 February 2019.
The deadline for
responses to the UK Parliament’s call for views on the Financial Services (Implementation of Legislation) [Lords] Bill, which is currently passing through Parliament is 5pm on 28 February 2019.
The European Commission is consulting with
the European Securities Committee until 28 February 2019 regarding a draft implementing amending Commission Implementing Regulation (EU) 2016/1368, establishing a list of critical benchmarks used in financial markets pursuant to Regulation (EU) 2016/1011 (the Benchmarks Regulation).
The provisional political agreement resulting from interinstitutional negotiations on the European Commission’s proposal for a regulation amending the CRR with regard to minimum loss coverage for non-performing exposures (NPEs)
will be considered at a plenary session in March 2019.
The FCA is expected to give feedback on its consultation on recovering the costs of
regulating securitisation repositories after the UK leaves the European Union, in March 2019.
The PRA proposes that firms should meet the revised expectations by the end of March 2019 following 'PS13/17—Residential mortgage risk weights'.
The deadline for comments on the Payment Systems Regulator’s (PSR) consultation (on
the PSRs proposed approach to analysing how the level of fees that merchants pay for card-acquiring services responded to changes in interchange fees and scheme fees, as part of its market review into the supply of card-acquiring
services) is 1 March 2019.
The deadline for feedback to the IA’s first industry-wide consultation on sustainability and responsible investment is 1 March 2019.
The deadline for
applications to be part of the second cohort of the IAs specialist FinTech accelerator and innovation hub for the asset management industry is 12.00pm on 1 March 2019. Applications can be made through the IA accelerator program
The proposed implementation date for the PRA Fees Amendment Instrument 2019 and
the updated SS3/16 ‘Fees: PRA approach and application’ is 1 March 2019.
The Principality of Andorra and the Vatican City State/the Holy See will
be part of the geographical scope of the SEPA schemes from 1 March 2019.
As part of its live and local series the FCA will host its ‘Ask the regulator’ Q&A roundtable
discussion in Edinburgh on 5 March 2019.
As part of its live and local series the FCA will host its interactive workshop on
defined benefit pension transfers on 6 March in Edinburgh.
The Board of the European Payments Council (EPC) will make a formal final determination in relation to UK Finance’s application on behalf of the UK financial services and payments industry to maintain participation in the Single Euro Payments Area (SEPA), on 7 March 2019.
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