FS weekly highlights—5 March 2020

FS weekly highlights—5 March 2020

In this issue

 

 

Brexit news
MiFID II
PRIIPs
UK, EU and international regulators and bodies
Authorisation, approval and supervision
Prudential requirements
Financial crime
Risk management and controls
Conduct requirements
Complaints, compensation and claims management
Markets and trading
Regulation of capital markets
Regulation of derivatives
Investment funds and asset management
Banks and mutuals
Consumer credit, mortgage and home finance
Regulation of insurance
Regulation of personal pension and stakeholder products
Payment services and systems
Fintech and cryptoassets
Sustainable finance
Dates for your diary

 

Brexit news

Brexit Bulletin—UK priorities for its future relationship with the EU

On 27 February 2020, the UK government published a position paper outlining its priorities and approach for negotiations on its future relationship with the EU. The UK is looking to finalise a Comprehensive Free Trade Agreement with zero tariffs and quotas on goods, based on existing EU models such as Canada, Japan and South Korea. This would be supplemented by a range of other international agreements eg on fisheries, nuclear cooperation, law enforcement and judicial cooperation. This would be supported by various technical and other processes for instance on data protection adequacy, financial services equivalence and civil judicial cooperation. Central to the UK position is the rejection of the EU’s proposals on level playing field, centralised governance and enforced dynamic alignment with EU rules, regulations and institutions, including the Court of Justice. With talks due to start from 2 March 2020, Richard Eccles, Partner at Bird & Bird, and Professor Adam Cygan of the University of Leicester consider some of the potential flashpoints ahead.

Sources: HM Government—The Future Relationship with the EU The UK’s Approach to NegotiationsHM Government—Our future relationship with the EU: Chancellor of the Duchy of Lancaster's statement to ParliamentHansard, House of Commons, 27 February 2020—European Union: Future RelationshipEuropean Commission—Future EU-UK Partnership: Question and Answers on the negotiating directivesSpeech by Michel Barnier to the students at ESCP Europe: Cooperation in the Age of BrexitScottish Government—UK mandate will hit Scotland’s economy and Welsh Government—Written Statement: Welsh Government’s analysis of the UK Government’s negotiating mandate for the Future Relationship with the EU .

UK priorities for its future relationship with the EU—financial services

The UK government’s position paper outlining its priorities and approach for negotiations on its future relationship with the EU, published on 27 February 2020, included a proposal in general terms on how financial services should be covered in the Comprehensive Free Trade Agreement (CFTA) to be negotiated with the EU, using the EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the EU-Japan Economic Partnership Agreement (EPA) as models. Equivalence in financial services was covered separately in a section on technical and other processes beyond the scope of the future relationship negotiations.

Source: The future relationship with the EU: The UK’s approach to negotiations.

For further information on impact of Brexit on financial services and equivalence, see: Financial Services passporting, equivalence and the UK post-Brexit.

Government publishes letter from chancellor to Valdis Dombrovskis on financial services equivalence

The government published a letter from the chancellor of the exchequer, Rishi Sunak, to executive vice president Valdis Dombrovskis on the UK’s preparations for assessments of financial services equivalence. In the letter, the chancellor notes that the UK and the EU have agreed to start assessing equivalence with respect to each other under their respective frameworks as soon as possible after the UK’s withdrawal from the Union, endeavouring to conclude these assessments before the end of June 2020 (though the chancellor notes that the date has not been included in the EU’s mandate agreed on 25 February 2020).

Source: Chancellor letter to Valdis Dombrovskis on financial services equivalence.

PRA letter on outstanding EU liabilities following the UK’s withdrawal from the EU

The Prudential Regulation Authority (PRA) published a letter from Anna Sweeney, its executive director, insurance supervision, to PRA-regulated insurance firms on their contingency plans to ensure ongoing service continuity in respect of EU liabilities. The letter is specifically relevant to firms which intend to rely on EU run-off regimes, or which intend to transfer their EU liabilities to an EU-authorised insurer but have not yet completed this process.

Source: Letter from Anna Sweeney ‘Outstanding EU liabilities following the UK’s withdrawal from the European Union’.

Barnier speech on co-operation in the age of Brexit

The European Commission’s head of task force for relations with the UK, Michel Barnier, gave a speech to the students at ESCP Europe on co-operation in the age of Brexit. Areas covered include the effect of the loss of the financial services passports and the EU’s approach to granting equivalence.

Source: Speech by Michel Barnier to the students at ESCP Europe: Co-operation in the age of Brexit.

Lords to hear evidence from John Glen on financial services and Brexit

The House of Lords EU Financial Affairs Sub-Committee heard evidence from the economic secretary to the Treasury and City minister, John Glen MP, on 4 March 2020, in the final evidence session of its inquiry on financial services after Brexit.

Source: City Minister questioned on financial services after Brexit.

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MiFID II

ESMA makes available the results of the annual transparency calculations for equity and equity-like instruments under MiFID II/MiFIR

The European Securities and Markets Authority (ESMA) made available the results of the annual transparency calculations for equity and equity-like instruments under the recast Markets in Financial Instruments Directive (Directive 2014/65EU) (MiFID II) and Markets in Financial Instruments Regulation (Regulation (EU) 600/2014).

Source: MiFID II: ESMA makes available the results of the annual transparency calculations for equity and equity-like instruments.

For further information see Lexis PSL:  MiFID II & MiFIR—pre- and post-trade transparency.

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PRIIPs

Commission report on PRIIPs KID consumer testing

The European Commission published a report on its consumer testing of the key information document (KID) for packaged retail and insurance-based investment products (PRIIPs) under the PRIIPs Regulation (Regulation (EU) 1286/2014).

Source: Consumer testing study—Key information document under the PRIIPs framework.

For further information on PRIIPs, see: PRIIPs regulation and KIDs.

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UK, EU and international regulators and bodies

FCA publishes Handbook Notice No. 74

The Financial Conduct Authority (FCA) published Handbook Notice No. 74, which includes changes to the FCA Handbook made by the FCA board on 30 January 2020 and 27 February 2020. Feedback on the relevant consultation papers (CPs) is set out in Chapter 3 of the Handbook Notice or in separate policy statements (PSs).

Source: Handbook Notice 74.

ECB publishes wide-ranging report on financial integration and structure in the euro area

The European Central Bank (ECB) combined two previously published reports—‘Financial integration in Europe’ (last published in May 2018) and ‘Report on financial structures’ (last published in October 2017)—into a single report on ‘Financial integration and structure in the euro area’. The report focuses on structural developments in the financial system of the euro area, and in some cases also of the EU, and related policy issues. It will be published biennially.

Sources: Structural developments in the euro area financial systemECB pushes for EU capital markets integration and developmentLuis de Guindos: Capital markets union: the role of equity markets and sustainable financeImplications of Brexit for the EU financial landscape and How could a common safe asset contribute to financial stability and financial integration in the banking union?.

PRA publishes February 2020 Regulatory Digest

The PRA published the February 2020 edition of its Regulatory Digest, which highlights key regulatory news and publications delivered for the month.

Source: PRA Regulatory Digest—February 2020.

ESMA seeks candidates for its corporate finance advisory group

ESMA is seeking industry experts to join the consultative working group (CWG) for its Corporate Finance Standing Committee (CFSC). The current two-year term of the CFSC CWG will expire shortly and ESMA is launching the process to renew its composition.

Source: ESMA seeks experts in corporate finance to join its Industry Advisory Group.

EIOPA seeks new members for its stakeholder groups

The European Insurance and Occupational Pensions Authority (EIOPA) is seeking new members for its Insurance and Reinsurance Stakeholder Group and the Occupational Pensions Stakeholder Group. EIOPA is looking for candidates with academic, consumer, industry, employee, or SME experience relevant to the future of the insurance and pensions sectors.

Source: Support and guide our work: become a member of EIOPA’s stakeholder groups.

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Authorisation, approval and supervision

PIMFA paper on future of UK supervision highlights areas where FCA is ‘falling short’

The Personal Investment Management and Financial Advice Association (PIMFA) published a paper on the future of UK supervision entitled ‘FCA supervision—fit for purpose?’. The paper outlines PIMFA’s and its members’ key concerns, suggestions and feedback regarding supervision and its future in the UK, and identifies several areas where PIMFA considers the FCA to be falling short in its role as a supervisor in delivering its regulatory objectives.

Source: PIMFA on the future of UK supervision—Is the FCA fit for purpose?.

For further information on supervision and the FCA, see:  FCA supervisory approach.

PRA Dear Chair letter reminds firms to comply with PRA rules on board diversity

PRA executive directors David Bailey (international banks supervision), Sarah Breeden (UK deposit takers supervision), Anna Sweeney and Charlotte Gerken (both, insurance supervision), have written to the chairs of Solvency II insurers, large non-Directive firms and Capital Requirement Regulation (CRR) firms, reminding them of the importance the PRA places on diversity for improving decision-making and providing effective challenge, and of the requirement to comply with PRA rules in this area.

Source: Letter from David Bailey, Anna Sweeney, Charlotte Gerken, and Sarah Breeden ‘PRA rules on board diversity’.

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Prudential requirements

EBA notes enhanced consistency on institutions’ CRR Pillar 3 disclosures, but calls for improvements to reinforce market discipline

The European Banking Authority (EBA) published its report assessing institutions’ CRR Pillar 3 disclosures, which aims at identifying best practices and potential areas for improvement. While the EBA observes overall progress in institutions’ prudential disclosures, some practices may still impair the proper communication of their risk profile in a comparable way, compromising the ultimate objective of market discipline.

Source: EBA notes enhanced consistency on institutions’ Pillar 3 disclosures but calls for improvements to reinforce market discipline.

For further information on the Capital Requirements Regulation, see:  CRD IV—essentials.

EBA publishes analysis on final Basel III standards on specialised lending exposures and MREL

The EBA published a letter it sent to the European Commission on 25 February 2020, together with additional analysis on the final Basel III standards relating to specialised lending exposures and the minimum requirement for own funds and eligible liabilities (MREL). The further analysis was requested by the European Commission in July 2019, as a follow-up to its May 2018 call for advice on the impact and implementation in the EU of the final Basel III standards.

Sources: EBA letter regarding the call for advice on the final elements of the Basel III framework and Annex 2: Impact of Basel III on MREL.

EBA issues opinion on extension of Belgian capital requirements modification

The EBA published an opinion after the National Bank of Belgium (NBB) notified the regulator of its intention to extend a measure, introduced in 2018, which modified capital requirements to address an increase in macroprudential risk. The measure is primarily driven by ‘persistent macroprudential risks in the Belgian economy related to a substantial level of systemic risk in banks’ mortgage portfolios and of macrofinancial vulnerabilities’. In the opinion the EBA confirms that it does not object to the extension of the measure.

Source: EBA issues opinion on measures to address macroprudential risk following notification by National Bank of Belgium (NBB).

List of institutions involved in 2020 supervisory benchmarking exercise updated

The EBA published an updated list of institutions which have a reporting obligation for the purpose of the 2020 EU supervisory benchmarking exercise.

Source: EBA updates list of institutions involved in the 2020 supervisory benchmarking exercise.

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Financial crime

FMLC welcomes Commission’s AML/CFT roadmap

The Financial Markets Law Committee (FMLC) responded to the European Commission’s ‘Roadmap: Preventing and combating money laundering and terrorism financing’ (AML/CFT). The FMLC welcomes the Commission’s initiative and highlighted the importance of legal entity identifiers (LEIs)—which ‘unambiguously identify legal entities engaged in financial transactions’—in combating money laundering.

Source: Response to European Commission Roadmap: Preventing and combating money laundering and terrorism financing: 3 March 2020.

£100m worth of fraud prevented under the Banking Protocol

UK Finance announced that over £100m worth of fraud—often targeting vulnerable and elderly customers—has been prevented through the Banking Protocol, the UK-wide scheme that enables bank branch staff to spot potential fraud victims and request an immediate police response.

Source: £100m of fraud stopped through bank branch rapid response scheme.

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Risk management and controls

European financial infrastructures launch joint initiative against cyber threats

A group of the largest European financial infrastructures, members of the Euro Cyber Resilience Board for pan-European Financial Infrastructures (ECRB), chaired by the ECB, have launched an initiative to share cybersecurity threat information. This is intended to help protect European citizens’ savings against cybercriminals.

Source: Major European financial infrastructures join forces against cyber threats.

For further information on cyber security see:  Cybersecurity regulation and best practice in the US and UK.

FCA reviewing firms’ Covid-19 preparations

The FCA issued a statement saying that, in conjunction with the Bank of England (BoE) and HM Treasury, it is working closely with the financial services sector to ensure it is responding effectively to the Covid-19 outbreak. The FCA says it expects all firms to have contingency plans in place to deal with major events. Alongside the BoE it is actively reviewing the contingency plans of a wide range of firms. This includes assessments of operational risks, the ability of firms to continue to operate effectively and the steps firms are taking to serve and support their customers.

Source: Statement on Covid-19.

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Conduct requirements

FCA PS sets out final rules and guidance on changes to facilitate investment in patient capital

The FCA published policy statement PS20/4, 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. PS20/4 sets out the FCA’s response to the feedback received to its consultation paper CP18/40, Consultation on proposed amendment of COBS 21.3 permitted links rules, in the FCA’s Conduct of Business (COBS) sourcebook, in addition to final rules and guidance. Firms wishing to make use of the new conditional permitted links will need to ensure compliance with these rules with effect from 4 March 2020.

Source: PS20/4: Amendment of COBS 21.3 permitted link rules.

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Complaints, compensation and claims management

APP scams voluntary compensation funding to continue until end of 2020

UK Finance announced that the interim funding arrangement to pay compensation to victims of authorised push payment (APP) scams in situations where both the customer and their bank have met the standards expected of them under the APP scams voluntary code is being extended to 31 December 2020.

Source: APP scams voluntary code: interim funding for scam victim compensation to continue to 31 December 2020.

FSCS says customers of Midas Financial Solutions (Scotland) Ltd may be eligible for compensation

The Financial Services Compensation Scheme (FSCS) announced that it will accept claims from victims of an illegal scheme operated by the former Aberdeen-based firm Midas Financial Solutions (Scotland) Ltd.

Source: Claims accepted against Midas Financial Solutions (Scotland) Ltd.

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Markets and trading

ICMA guide to IBORs transition in the bond market

The International Capital Market Association (ICMA) published a guide to the transition from IBORs (including LIBOR) to alternative near risk-free reference rates (RFRs) in the bond market. It covers, amongst other things, the impact of IBOR transition on ICMA documentation, the EU Benchmarks Regulation (Regulation (EU) 2016/1011) and regulatory issues in the UK. It also highlights progress to date and contains links to relevant resources. A podcast is also available.

Source: ICMA publishes Quick Guide to the transition to risk-free rates in the bond market.

For further information on the transition from IBORs. see:  LIBOR transition.

For further information on ICMA developments, see:  ICMA—latest news on documentation.

ESMA publishes translations of guidelines for MMF stress tests

ESMA issued the official translations of its guidelines on stress test scenarios under Regulation (EU) 2017/1131 on Money Market Funds (the MMF Regulation). National competent authorities (NCAs) to which these guidelines apply must notify ESMA whether they comply or intend to comply with the guidelines, within two months.

Source: ESMA publishes translations for guidelines on MMF stress tests.

For further information on the MMFs regulation, see:  Money Market Funds Regulation—essentials.

FCA Dear CEO letter to asset managers on LIBOR cessation

The FCA published a Dear CEO letter to UK regulated asset management firms on how to prepare for LIBOR cessation (which will take place by the end of 2021), including specific recommendations for governance and planning.

Source: Dear CEO letter: Asset management firms: prepare now for the end of LIBOR.

FCA discusses possible reasons behind fall in 2019 STORs figures

The FCA published details of the number of suspicious transaction and order reports (STORs) for the year ending December 2019. Since 2016 the FCA has seen an annual increase in the number of STORs from market participants, but the 2019 figures show the first decrease in the total number of reports. The FCA says there may be several reasons for the decrease, including the fact that some firms are taking more robust steps to tackle financial crime risks following the publication of chapter 8 of the Financial Crime Guide in December 2018 and associated supervisory activity.

Source: FCA publishes the number of STORs received in 2019.

BCBS urges banks to prepare for benchmark rate reforms

The Basel Committee on Banking Supervision (BCBS) published a newsletter on the global efforts to strengthen the robustness and reliability of existing inter-bank offered rates (IBORs) and promote the development of alternative reference rates. The Committee says it is ‘critically important’ that banks consider the effects of benchmark rate reform on their businesses and make the necessary preparations for the transition to the alternative rates. In doing so, they should maintain a close dialogue with their supervisory authorities regarding their plans and transition progress, including impediments that may be identified.

Source: Benchmark rate reforms.

Minutes of the Working Group on Sterling Risk-Free Reference Rates published

The BoE published the minutes of the meetings of the Working Group on Sterling Risk-Free Reference Rates held on 5 December 2019 and 28 January 2020.

Sources: 5 December 2019 minutes and  28 January 2020 minutes.

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Regulation of capital markets

AFME recommendations for partial settlement under CSDR

The Association for Financial Markets in Europe (AFME) published a market practice document setting out recommendations for partial settlement in view of the impending Central Securities Depository Regulation (EU) No 909/2014 (CSDR). The recommendations aim to encourage greater and more harmonised use of partial settlement across the industry as a way of improving settlement rates.

Source: AFME publishes recommendations for partial settlement under CSDR.

For further information on the CSDR, see:  Central Securities Depositories Regulation (CSDR)—timeline.

ICMA publishes third study on secondary European corporate bond market

The International Capital Market Association (ICMA) issued the third in its series of studies into the state and evolution of the European investment grade corporate bond secondary market. The study looks at the current state and expected course for market liquidity, the evolution of market structure, and participants’ expectations for future developments in the market. It also considers the impacts of regulation and monetary policy. The study identifies potential opportunities through new technologies and the use of data, as well as further challenges to liquidity, not least as a result of higher capital charges for market makers.

Source: Time to act—ICMA issues study on the state of the European investment grade corporate bond secondary market.

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Regulation of derivatives

ESMA report recommends extending temporary EMIR exemptions for C6 energy derivative contracts

ESMA published a report on C6 energy derivative contracts and related obligations under the European Market Infrastructure Regulation (EU) 648/2012 (EMIR). The report focuses on the adequacy of requiring C6 energy derivative contracts to be subject to certain EMIR obligations—including the clearing obligation—for which they currently benefit from a temporary exemption, and recommends extending the temporary regime.

Source: EMIR: ESMA advises Commission on C6 energy derivatives.

ESMA publishes terms of reference for CCP Supervisory Committee

ESMA published the terms of reference for ESMA’s Central Counterparties (CCP) Supervisory Committee (CCPSC) which specifies the responsibilities and functioning of the committee. In line with Regulation (EU) No 648/2012 (EMIR), ESMA’s board of supervisors established the CCPSC pursuant to Article 41 of Regulation (EU) No 1095/2010 of the European Parliament and Council (ESMA Regulation).

Source: CCP Supervisory Committee terms of reference

ISDA chart shows equivalence determinations for global non-cleared margin requirements

The International Swaps and Derivatives Association (ISDA) published a compilation and comparison summary chart of equivalence determinations for global non-cleared margin requirements. The document is intended as an information resource only and does not contain legal advice.

Source: Equivalence determinations for non-cleared margin requirements.

For further information on non-cleared margin requirements, see: Margin for non-cleared derivatives—industry initiatives.

ISDA updates OTC derivatives compliance calendar

ISDA published an updated version of its global over-the-counter (OTC) derivatives compliance calendar. It also published ISDA In Review—February 2020, a compendium of links to new documents, research papers, press releases and comment letters published by ISDA in February 2020.

Sources: Updated OTC derivatives compliance calendar and ISDA In Review—February 2020.

For further information on the latest ISDA developments, see:  ISDA—latest news on documentation.

FIA publishes audit trail recommendations

The Futures Industry Association (FIA) published the presentation given by its Law & Compliance Audit Trail Working Group to the US Commodity Futures Trading Commission (CFTC)'s Technology Advisory Committee on 26 February 2020. The presentation made four primary audit trail recommendations, with a goal of eliminating redundant audit trail requirements for designated contract markets and futures commission merchants.

Source: FIA working group presents audit trail recommendations to reduce redundancy.

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Investment funds and asset management

FCA PS sets out final rules and guidance on changes to facilitate investment in patient capital

The FCA published policy statement PS20/4, 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. PS20/4 sets out the FCA’s response to the feedback received to its consultation paper CP18/40, Consultation on proposed amendment of COBS 21.3 permitted links rules, in the FCA’s Conduct of Business (COBS) sourcebook, in addition to final rules and guidance. Firms wishing to make use of the new conditional permitted links will need to ensure compliance with these rules with effect from 4 March 2020.

Source: PS20/4: Amendment of COBS 21.3 permitted link rules.

FCA feeds back on responses to its Patient Capital and Authorised Funds discussion paper

The FCA published feedback statement FS20/2, Patient Capital and Authorised Funds, containing feedback on DP18/10, also entitled Patient Capital and Authorised Funds. DP18/10 sought views on whether there are any unnecessary barriers to investing in long-term assets (also known as patient capital) through authorised funds. FS20/2 summarises the responses received, including the Investment Association’s proposal for a new type of authorised fund designed to invest in long-term assets—the Long-Term Asset Fund (LTAF).

Source: FS20/2: Patient capital and authorised funds.

ESMA publishes translations of guidelines for MMF stress tests

ESMA issued the official translations of its guidelines on stress test scenarios under the MMF Regulation. NCAs to which these guidelines apply must notify ESMA whether they comply or intend to comply with the guidelines, within two months.

Source: ESMA publishes translations for guidelines on MMF stress tests.

For further information on the MMFs regulation, see:  Money Market Funds Regulation—essentials.

PIMFA paper on future of UK supervision highlights areas where FCA is ‘falling short’

PIMFA published a paper on the future of UK supervision entitled ‘FCA supervision—fit for purpose?’. The paper outlines PIMFA’s and its members’ key concerns, suggestions and feedback regarding supervision and its future in the UK, and identifies several areas where PIMFA considers the FCA to be falling short in its role as a supervisor in delivering its regulatory objectives.

Source: PIMFA on the future of UK supervision—Is the FCA fit for purpose?.

For further information on supervision and the FCA, see:  FCA supervisory approach.

Investment Association’s Budget submission calls on government to ‘remove barriers’

Ahead of the chancellor of the exchequer’s Spring Budget, the Investment Association (IA) is calling on the government to capitalise on the UK’s ‘world leading’ financial services industry and ‘remove the barriers that make the country less attractive for business’. The trade body is also recommending a series of measures that ‘will ensure pension savings can be used to level up investment in infrastructure across the UK’.

Source: Investors call for a budget for savers.

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Banks and mutuals

European Parliament report argues the case for completing the banking union

The European Parliament has published the annual report for 2019 on the banking union, saying a more stable, competitive and convergent economic and monetary union requires a solid banking union and a more developed and safe capital markets union, as well as the creation of a budgetary instrument. The report argues that the completion of the banking union is ‘a vital contributor’ to the international perception of the euro and its increased role in global markets, but says it still lacks effective tools to tackle problems consumers are facing, including artificial complexity, unfair commercial practices, exclusion of vulnerable groups from using basic services and limited involvement of public authorities.

Source: Report on banking union—annual report 2019.

For further information on the EU banking union, see Practice Notes:  Banking Union: The EU banking package and  European Banking Union.

European Financial Stability and Integration Review 2020 focuses on structural change in banking

The European Commission published the European Financial Stability and Integration Review 2020, an annual review which examines recent economic and financial developments and their impact on financial stability and integration in the EU. This year’s review combines different perspectives on the structural change taking place in the financial system, focusing in particular on the banking sector.

Source: European Financial Stability and Integration Review 2020.

PRA Dear Chair letter reminds firms to comply with PRA rules on board diversity

PRA executive directors David Bailey (international banks supervision), Sarah Breeden (UK deposit takers supervision), Anna Sweeney and Charlotte Gerken (both, insurance supervision), have written to the chairs of Solvency II insurers, large non-Directive firms and Capital Requirement Regulation (CRR) firms, reminding them of the importance the PRA places on diversity for improving decision-making and providing effective challenge, and of the requirement to comply with PRA rules in this area.

Source: Letter from David Bailey, Anna Sweeney, Charlotte Gerken, and Sarah Breeden ‘PRA rules on board diversity’.

BSB publishes results of 2019 survey of ethical and professional standard

The Banking Standards Board (BSB) published the results of its 2019 Assessment of UK banks’ ethical and professional standards. The results of the survey of UK banks and building societies, taken as a group, showed little change in 2019. This followed a similar tendency in 2018, meaning that—over the four years in which the survey has been run to date—the overall picture is one of improving scores in 2017 followed by a sideways trend.

Source: Assessment results 2019.

ECB speech sets out challenges for EU banking sector

The ECB published a speech by a member of its supervisory board, Kerstin af Jochnick, on current & future priorities in EU banking reform. Af Jochnick said the challenges and the priorities concerned supervisors and regulators as well as the banks, and included deepening the European banking market, restoring banks’ profitability, addressing climate and environmental risks, and tackling the IT and cyber risks posed by technological disruption.

Source: Challenges for the European banking system.

Progress updates on Capability and Innovation Fund recipients

Banking Competition Remedies Ltd (BCR) published progress updates on public commitments from Pool A, B, C and D Capability and Innovation Fund (CIF) recipients.

Source: Banking Competition Remedies Ltd (BCR) publishes progress updates on Public Commitments from Pool A, B, C and D Capability and Innovation Fund recipients.

BCBS discusses CLOs and the financial stability implications of the coronavirus

The BCBS met in Basel on 26-27 February 2020 to review risks impacting the banking system, advance a range of supervisory initiatives and promote the implementation of Basel III. The Committee discussed the financial stability implications of the coronavirus outbreak for the banking system, and exchanged information on the business continuity measures that banks and authorities have put in place.

Source: Basel Committee meets to review vulnerabilities and emerging risks, advance supervisory initiatives and promote Basel III implementation.

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Consumer credit, mortgage and home finance

EBA reviews its RTS on professional indemnity insurance for mortgage credit intermediaries

The EBA published a report (developed in accordance with Article 29(2)(a) of the Mortgage Credit Directive (Directive 2014/17/ EU) (MCD)) on the review of the regulatory technical standard (RTS) specifying the minimum monetary amount of the professional indemnity insurance (PII) or comparable guarantee for mortgage credit intermediaries. The EBA assessed the information obtained from national authorities, from a sample of intermediaries and through desk-based research and concluded that no amendments to the RTS are currently required.

Source: EBA reviews its RTS on professional indemnity insurance for mortgage credit intermediaries.

For further information on the MCD, see: Mortgage Credit Directive (MCD)—essentials.

New guide aims to help frontline staff deal with mental health issues in debt management

Money and Mental Health, in partnership with the Money Advice Trust and with support from UK Finance, have produced a free new guide to help creditors support customers affected by debt and mental health problems. Aimed primarily at staff working in debt collection teams in essential services firms, it features detailed information about how specific mental health conditions may affect a customer’s ability to manage and earn money.

Sources: Charities launch new guide to help creditors support customers with mental health and debt problems and  The need to know—a new guide to help lenders understand and support customers with mental health problems.

UK Finance publishes FAQs for customers on FCA rules on persistent credit card debt—PD36

UK Finance published ‘FCA rules on persistent credit card debt—36 months actions—Frequently asked questions’ in order to provide some background to the FCA’s ‘persistent debt’ rules, with a particular focus on the 36 months stage of the process, and what the rules mean for customers. The FAQ has been developed by UK Finance, on behalf of its members, in consultation with an external stakeholder group which includes broad representation from the debt advice sector.

Sources: Managing persistent credit card debt and  Financial Conduct Authority (FCA) rules on persistent credit card debt—36 months actions—Frequently asked questions

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Regulation of insurance

FCA review considers outsourcing in the life insurance sector

The FCA published its findings from its review of outsourcing and third-party service providers in the life insurance sector. The FCA identified governance over outsourcing as a priority area for supervision in the life insurers’ portfolio strategy. Life insurers are encouraged to consider whether the findings and examples set out in the FCA’s review are relevant to them, and to review their systems and controls where appropriate.

Source: Outsourcing in the life insurance sector.

EIOPA executive director on the challenges facing cyber underwriting

EIOPA published a speech by its executive director, Fausto Parente, on cyber underwriting and managing the risks of digital finance. Parente explains that an effective cyber insurance market is a core component of a sound cyber resilience framework and emphasises the importance of respecting consumer data and the importance of protecting people through cyber insurance. He discusses the development of a harmonised cyber incident reporting taxonomy and a common understanding of contractual definitions around cyber coverage.

Source: Cyber underwriting: Managing the risks of digital finance.

PRA Dear Chair letter reminds firms to comply with PRA rules on board diversity

PRA executive directors David Bailey (international banks supervision), Sarah Breeden (UK deposit takers supervision), Anna Sweeney and Charlotte Gerken (both, insurance supervision), have written to the chairs of Solvency II insurers, large non-Directive firms and Capital Requirement Regulation (CRR) firms, reminding them of the importance the PRA places on diversity for improving decision-making and providing effective challenge, and of the requirement to comply with PRA rules in this area.

Source: Letter from David Bailey, Anna Sweeney, Charlotte Gerken, and Sarah Breeden ‘PRA rules on board diversity’.

Solvency I capital adequacy regime has effectively reduced insurance failures, report finds

A report compiled by KPMG for a cross-market group of London associations says European solvency rules have effectively reduced the number and size of failures since the Solvency I capital adequacy regime was introduced in 2004. The study, which reviewed non-life insurance company failures in the seven most important EU insurance markets during the past 30 years, found that the bulk of failures occurred in the early 1990s as a result of the rapid increase in asbestos, pollution, and health hazard claims. A marked decrease in the number and size of insolvencies followed the introduction of the Individual Capital Adequacy Standards regime in 2004, which raised insurers’ base capital requirements.

Source: Solvency rules have minimised insurance company failures: KPMG report.

PRA letter on outstanding EU liabilities following the UK’s withdrawal from the EU

The PRA published a letter from Anna Sweeney, its executive director, insurance supervision, to PRA-regulated insurance firms on their contingency plans to ensure ongoing service continuity in respect of EU liabilities. The letter is specifically relevant to firms which intend to rely on EU run-off regimes, or which intend to transfer their EU liabilities to an EU-authorised insurer but have not yet completed this process.

Source: Letter from Anna Sweeney ‘Outstanding EU liabilities following the UK’s withdrawal from the European Union’.

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Regulation of personal pension and stakeholder products

FCA PS sets out final rules and guidance on changes to facilitate investment in patient capital

The FCA published policy statement PS20/4, 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. PS20/4 sets out the FCA’s response to the feedback received to its consultation paper CP18/40, Consultation on proposed amendment of COBS 21.3 permitted links rules, in the FCA’s Conduct of Business (COBS) sourcebook, in addition to final rules and guidance. Firms wishing to make use of the new conditional permitted links will need to ensure compliance with these rules with effect from 4 March 2020.

Source: PS20/4: Amendment of COBS 21.3 permitted link rules.

TPR launches consultation on clearer DB funding standards

The Pensions Regulator (TPR) published the first stage of a major consultation on its revised code of practice for defined benefit (DB) funding. The consultation considers TPR’s new proposed regulatory approach, the principles TPR thinks should underpin the new framework, and how they could be applied in practice to provide clearer guidelines. The consultation closes on 2 June 2020.

Source: Major consultation on clearer DB funding standards launched by TPR.

FCA provides additional information on pension scams

The FCA updated its webpage on how to avoid pension scams by adding additional information on how such scams work and the warning signs.

Source: How to avoid pension scams webpage.

Better Finance position paper on PEPP Regulation level 2 measures

The European Federation of Investors and Financial Services Users (Better Finance) published a position paper on the level 2 measures to be adopted under the Pan-European Personal Pension Product Regulation (EU) 2019/1238 (PEPP Regulation).

Source: Better Finance PEPP position paper L2.

IE response to EIOPA consultation on PEPP technical standards says that they are overly ambitious and lack crucial technical details

Insurance Europe (IE) published its response to EIOPA consultation on pan-European personal pension product (PEPP) technical standards, in which IE warns that the approach taken by EIOPA to draft proposals for technical standards that set out the details of the PEPP is extremely ambitious, with EIOPA exceeding its mandate, which is set by the PEPP regulation, on several occasions.

Source: EIOPA’s draft PEPP proposals are overly ambitious and lack crucial technical details.

Investment Association’s Budget submission calls on government to ‘remove barriers’

Ahead of the chancellor of the exchequer’s Spring Budget, the Investment Association is calling on the government to capitalise on the UK’s ‘world leading’ financial services industry and ‘remove the barriers that make the country less attractive for business’. The trade body is also recommending a series of measures that ‘will ensure pension savings can be used to level up investment in infrastructure across the UK’.

Source: Investors call for a budget for savers.

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Payment services and systems

ECB consults on proposed amendments to the Regulation on payments statistics

The ECB is launching a public consultation on a draft Regulation amending Regulation (EU) No 1409/2013 on payments statistics, with the aim of keeping the ECB’s statistics fit for purpose. The review also takes into account an assessment of the relative merits of new requirements against the potential costs to reporting agents. Feedback is sought by 9 April 2020. The ECB will hold a public hearing on 23 March 2020, starting at 14:00 CET.

Source: ECB seeks feedback on amendments to the Regulation on payments statistics.

BIS Quarterly Review looks at the future of payments

The Bank for International Settlements (BIS) published its latest Quarterly Review, which takes an in-depth look at the world of payments, explaining the strengths and weaknesses of existing systems, describing the rapid pace of technological change and its impact, and assessing new solutions.

Sources: Shaping the future of payments: BIS Quarterly ReviewThe technology of retail central bank digital currency and BIS Quarterly Review, March 2020—media remarks.

BoE speech considers the evolution of money and its implications

The deputy governor, financial stability at the Bank of England (BoE), Sir Jon Cunliffe, gave a speech entitled ‘It’s time to talk about money’. Cunliffe notes the significant shift from physical cash to electronic transaction, resulting in cash use declining fast. He considers the technological shifts which have occurred, the challenges they pose and how the BoE is addressing those challenges.

Source: BoE speech—It’s time to talk about money.

EBA chair on innovative technologies in the banking and payments sectors

The EBA published a speech by its chair, José Manuel Campa, on digital finance: towards a common EU approach. The speech set out the EBA’s work removing obstacles to the application of innovative technologies in the banking and payments sectors, namely by working to achieve technological neutrality in its regulatory and supervisory approaches and strategy.

Source: Digital finance: Towards a common EU approach—speech by José Manuel Campa.

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Fintech and cryptoassets

FCA report explores evolution of the TechSprint model

The FCA published a report entitled ‘Fostering innovation through collaboration: the evolution of the FCA TechSprint approach’. The report looks at the TechSprint model–a part of the FCA’s innovation toolkit–and how it has evolved over time. It evaluates the model and notes some areas where the FCA is working to further develop and improve its approach in the context of its wider efforts to foster sustainable and desirable innovation in financial markets.

Source: Fostering innovation through collaboration: The evolution of the FCA TechSprint approach.

European Commission to consult on fintech and digital finance outreach

The European Commission published the latest issue of its banking and finance newsletter, focusing on digital finance outreach. It notes that the Commission is working on a new digital finance strategy, aimed at ensuring the EU can make the most of fintech and compete globally. The strategy will be presented in the third quarter of 2020.

Source: Digital Finance.

ESMA chair discusses growing scale of financial technology and its impact on regulation

ESMA published a speech delivered by its chair, Steven Maijoor, at the 4th annual fintech conference in Brussels. Maijoor’s speech focused on topics including BigTech financial services, trends and potential growth, the benefits and risks of BigTech in finance, distributed ledger technology (DLT), global stablecoins and the need for a co-ordinated approach among regulators.

Source: Steven Maijoor delivers keynote at 4th annual fintech conference.

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Sustainable finance

UN agreement to enhance climate and environmental actions

The United Nations Environment Programme (UNEP) and the European Investment Bank (EIB) have announced their intentions to enhance climate and environmental actions, as they deepen their co-operation. A Memorandum of Understanding was signed between Inger Andersen, Under-Secretary-General of the UN, and Emma Navarro, the EIB Vice President responsible for Climate Action and Environment. The UNEP has confirmed that the strategic co-operation will focus on climate change, conservation, protection and the support of nature and natural resources, including worldwide biological diversity. Additionally, the UNEP has stated that a priority will be establishing a new pipeline of investment projects in relation to climate change and the environment.

Source: The EIB and UNEP strengthen their co-operation to enhance climate and environmental actions.

For further information on sustainable finance and financial services, see:  Global and EU sustainable finance initiatives.

COP 26 Private Finance Agenda launches, with speeches from Carney and Lagarde

The governor of the BoE, Mark Carney, launched the ‘COP26 Private Finance Agenda’ at the Guildhall, London. It aims to help private finance support the whole economy transition to net zero, with every professional financial decision taking climate change into account. In a speech at the launch the president of the ECB, Christine Lagarde, said there were both threats and opportunities that will significantly affect the economy and the financial sector, depending on which carbon emission scenario eventually unfolds.

Sources: COP 26 private finance agenda launched and Climate change and the financial sector.

IAIS paper suggests ways to enhance climate-related financial disclosures

The International Association of Insurance Supervisors (IAIS) and the Sustainable Insurance Forum (SIF) published a paper on the implementation of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), in which they call for action on strengthening such disclosures. While acknowledging the diversity of supervisory frameworks across jurisdictions, the paper identifies a number of areas where supervisors can encourage strengthened disclosures through the application of existing supervisory tools.

Source: IAIS calls for action on strengthening climate related financial disclosure.

ISLA announces further details of its Principles for Sustainable Securities Lending

The International Securities Lending Association (ISLA) announced further details of the ISLA Council for Sustainable Finance (ICSF), which it says will introduce wide-ranging solutions for sustainable securities lending through the launch of its Principles for Sustainable Securities Lending (PSSL). PSSL is a new voluntary sustainable finance mechanism for securities lending that has been developed by a high-level working group which first convened in September 2018.

Source: ISLA Council for Sustainable Finance & PSSL.

Chancery Lane Project publishes first climate contract playbook

The Chancery Lane Project (CLP) published their first ever climate contract playbook aimed at mobilising the legal profession to tackle climate change. The playbook contains model laws and precedents for lawyers and policymakers to consider in future policymaking.

Source: Climate Contract Playbook.

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Dates for your diary

 

DateSubjectEvent

 

6 March 2020

 

Prudential requirements


Financial stability, recovery and resolution

 

Deadline for responses to SRB consultation on substantive changes to its policy on the MREL under the 2019 Banking Package.

9 March 2020SM&CR

Deadline for Banks, building societies, credit unions and insurance companies to submit all data on Directory Persons to the Directory.

 

11 March 2020Financial crime

Deadline for responses to the European Commissions feedback period for its ‘Action Plan on Money Laundering

 

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About the author:
Prior to joining LexisNexis in 2016 as a paralegal, Lauren was an adjudicator at the Financial Ombudsman Service. There she resolved consumers’ complaints, and gained knowledge about a wide variety of financial products. Before this she studied Law at Nottingham Trent University.