FS weekly highlights—6 February 2020

FS weekly highlights—6 February 2020

In this issue

 

 

Brexit news
MiFID II
UK, EU and international regulators and bodies
Prudential requirements
Financial stability, recovery and resolution
Financial crime
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
Islamic finance
Dates for your diary

 

Brexit news 

 

Brexit bulletin--European Commission releases draft mandate on the future relationship negotiations

On 3 February 2020, the European Commission adopted draft negotiating directives, to be approved by the European Council ahead of talks on the future relationship between the UK and the EU. The draft mandate covers all areas outlined in the Political Declaration agreed between the UK and EU in October 2019 and proposes a single comprehensive partnership agreement, covering economic arrangements, security arrangements and overarching principles and governance (based on a level playing field and subject to separate agreement on fisheries). Meanwhile, the government issued a statement to Parliament, setting out high level red lines for talks on the future relationship. The UK proposals take a different approach, rejecting regulatory alignment and recommending a ‘suite of agreements’ on trade, fisheries, security and specific technical areas, accompanied by less formal cooperation in areas such as competition, data protection and public procurement.

Sources: The Future Relationship between the UK and the EUPM speech in Greenwich: 3 February 2020Proposal for negotiating directives for a new partnership with the United KingdomGuide to the negotiationsStatement by Michel Barnier at the presentation of the Commission's proposal for a Council recommendation on directives for the negotiation of a new partnership with the UK and  Commission President remarks on the draft negotiating directives.

ECB publishes Agreement and Decisions made as a result of Brexit

An agreement between the European Central Bank (ECB) and the national central banks of the Member States outside the euro area amending the agreement of 16 March 2006 laying down the operating procedures for an exchange rate mechanism in stage three of Economic and Monetary Union, as well as six decisions made as a result of the Bank of England (BoE) ceasing to be a national central bank of a Member State, were published in the Official Journal of the EU.

Sources: Agreement of 22 January 2020 between the European Central Bank and the national central banks of the Member States outside the euro area amending the Agreement of 16 March 2006 between the European Central Bank and the national central banks of the Member States outside the euro area laying down the operating procedures for an exchange rate mechanism in stage three of Economic and Monetary Union2020/C 32 I/01Decision (EU) 2020/136 of the European Central Bank of 22 January 2020 on the paying-up of the European Central Bank’s capital by the non-euro area national central banks and repealing Decision (EU) 2019/48 (ECB/2020/2)Decision (EU) 2020/137 of the European Central Bank of 22 January 2020 on the national central banks’ percentage shares in the key for subscription to the European Central Bank’s capital and repealing Decision (EU) 2019/43 (ECB/2020/3Decision (EU) 2020/138 of the European Central Bank of 22 January 2020 on the paying-up of the European Central Bank’s capital by the national central banks of Member States whose currency is the euro and repealing Decision (EU) 2019/44 (ECB/2020/4)Decision (EU) 2020/139 of the European Central Bank of 22 January 2020 laying down the terms and conditions for transfers of the European Central Bank’s capital shares between the national central banks and for the adjustment of the paid-up capital and repealing Decision (EU) 2019/45 (ECB/2020/5)Decision (EU) 2020/140 of the European Central Bank of 22 January 2020 laying down the measures necessary for the contribution to the European Central Bank’s accumulated equity value and for adjusting the national central banks’ claims equivalent to the transferred foreign reserve assets and repealing Decision (EU) 2019/46 (ECB/2020/6) and Decision (EU) 2020/141 of the European Central Bank of 22 January 2020 amending Decision ECB/2010/29 on the issue of euro banknotes (ECB/2020/7)

ESMA statement on governance and reporting obligations for UK entities on Brexit

The European Securities and Markets Authority (ESMA) published a statement clarifying issues relating to its governance and the reporting obligations for UK entities from 1 February 2020 following Brexit.

Source: ESMA: update on governance and reporting obligations following the UK’s withdrawal from the European Union.

SRB issues statement on the effect of Brexit for EU resolution planning

The Single Resolution Board (SRB) issued a statement on the effect of Brexit for EU resolution planning. The SRB notes that, during the transition period, MREL-eligible liabilities governed by UK law are treated as if they were governed by Member State law. After that, they will be treated as third country liabilities and may need additional clauses.

Source: SRB statement: UK withdrawal from the EU.

FCA publishes Handbook Notice No. 73

The Financial Conduct Authority (FCA) published Handbook Notice No. 73, which provides information on the impact of the Withdrawal Agreement and European Union Withdrawal Instruments, and the changes to the FCA Handbook made by the FCA board on 12 December 2019, 10 January 2020 and 30 January 2020. Feedback on the relevant consultation papers (CPs) is set out in Chapter 3 of the Handbook Notice or in separate policy statements.

Source: Handbook Notice 73.

FCA sets out issues for firms to consider during Brexit transitional period

The FCA updated a webpage on Brexit which sets out issues for UK firms to consider during and after the transition period, which ends on 31 December 2020.

Source: FCA outlines issues for firms to consider during Brexit transitional period.

FCA publishes post-Brexit update to EMIR webpage

The FCA updated its webpage on the European Market Infrastructure Regulation (EU) 648/2012 (EMIR) to reflect the fact that the UK has now left the EU and entered an implementation period, which will run until 31 December 2020.

Source: FCA webpage update: EMIR.

FCA publishes post-Brexit updates to credit rating agencies webpage

The FCA published an updated version of its webpage for credit rating agencies (CRAs) to reflect the fact that the UK has left the EU and entered an implementation period, which is due to operate until 31 December 2020.

Source: FCA webpage update: Credit rating agencies.

TheCityUK publishes response to PM’s outline of UK-EU future relationship objectives

TheCityUK responded to a speech by prime minister Boris Johnson, in which he outlined the UK’s objectives in negotiating its future relationship with the EU. The CEO of TheCityUK, Miles Celic, said that whatever the ultimate future UK-EU relationship is, ‘it must be built on transparency and constructive regulatory and supervisory co-operation’.

Source: TheCityUK responds to PM’s outline of UK-EU future relationship objectives.

OFSI publishes financial sanctions guidance

The Office of Financial Sanctions Implementation (OFSI) published guidance on financial sanctions, which includes a summary of financial sanctions during the Brexit transition period.

Source: Financial sanctions: general guidance.

The European Council has voted in favour of concluding the Withdrawal Agreement

The European Council adopted the decision to conclude the Withdrawal Agreement (WA), after the European Parliament voted in its favour on 29 January 2020. The WA will enter into force at midnight, Central European Time, on 31 January 2020. From then on, the UK will enter the transition period which will end on 31 December 2020 and will no longer be an EU Member State.

Source: Brexit: Council adopts decision to conclude the withdrawal agreement.

Brexit Bulletin—Foreign Office publishes the ratified Withdrawal Agreement

The Foreign and Commonwealth Office (FCO) published the ratified Withdrawal Agreement. Sir Tim Barrow, the UK’s Permanent Representative to the EU, deposited the instrument of ratification to the European Council yesterday ahead of its adoption. Completion of these steps, and its addition to the FCO Treaty Series clears the final hurdles in the domestic ratification of the Withdrawal Agreement ahead of the UK’s withdrawal from the EU at 11pm on 31 January 2020.

Source: Agreement on the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community [TS No 3/2020].

European Parliament approves Brexit deal

The European Parliament approved the Withdrawal Agreement (WA) on 29 January 2020 by overwhelming majority, with 621 MEPs voting in favour, 49 against and 13 abstaining. MEPs emphasised the EU's close ties with the UK and thanked UK MEPs for their work, however, they were also warned that negotiations on the future relationship will be difficult. To come into force, the WA must now be put to a final vote by qualified majority in the European Council.

Source: Brexit deal approved by the European Parliament.

FCA publishes advice to firms as implementation period approaches

The FCA published information for financial services firms as the UK prepares to exit the EU and move into the implementation period at 11pm on 31 January 2020. During the implementation period, which is due to last until 31 December 2020, EU law will continue to apply in the UK. Firms and funds will continue to benefit from passporting between the UK and EEA. Consumer rights and protections derived from EU law will also remain in place.

Source: Information for firms during the Brexit implementation period.

 

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MiFID II

 

ESMA consults on TS on the provision of investment services and activities by third-country firms

ESMA published a consultation paper on draft technical standards on the provision of investment services and activities in the EU by third-country firms. The technical standards relate to the changes made by the Investment Firms Regulation (EU) 2019/2033 to the Markets in Financial Instruments Regulation (Regulation (EU) 600/2014) (MiFIR) regime for third-country firms providing investment services and activities throughout the EU to eligible counterparties and per se professional clients (without any establishment in the EU), and by the Investment Firms Directive (EU) 2019/2034 to the MiFID II regime for third-country firms providing investment services and activities to retail clients and professional clients through a branch. The consultation closes on 31 March 2020.

Source: ESMA consults on the new MiFIR AND MiFID II regimes for third-country firms.

ESMA consults on review of the MiFIR transparency regime for equity, ETFs and related instruments

ESMA launched a consultation paper reviewing the MiFIR transparency regime for equity, exchange-traded funds (ETFs) and other related instruments. The consultation paper contains proposals, based on in-depth data analysis of the effects of the current regime since January 2018, for possible amendments to the transparency regime. Feedback is sought by 17 March 2020.

Source: ESMA consults on MiFIR transparency regime for equity instruments.

ESMA opens consultation on MiFIR transparency regime for systematic internalisers

ESMA launched a consultation on MiFIR pre-trade transparency regime for systematic internalisers (SIs) active in non-equity instruments.

Source: ESMA consults on MiFIR transparency regime for systematic internalisers.

ESMA to launch common supervisory action on the MiFID II suitability rules

ESMA is launching a common supervisory action with national competent authorities (NCAs) on the application of the Markets in Financial Instruments Directive (Directive 2014/65/EU) (MiFID II) suitability rules across the EU. The common supervisory action will be conducted during 2020.

Source: ESMA launches a common supervisory action with NCAS on MiFID II suitability rules.

ESMA publishes final report on product intervention requirements

ESMA published its final report on product intervention requirements under MiFIR. The report sets out technical advice to the European Commission, following a request from the Commission in May 2019.

Source: ESMA advises the European Commission on product intervention.

ESMA issues an opinion on MiFIR product intervention measures by Norway

ESMA issued an opinion on two product intervention measures taken by the NCA of Norway under Article 42 of MiFIR. ESMA’s opinion concludes that the proposed measures are justified and proportionate. ESMA qualifies this conclusion in relation to the application of the measures in the case of cross-border activities.

Source: ESMA issues an opinion on product intervention measures by Norway.

ESMA publishes list of NSA contact points for MiFID II supervisory framework

ESMA published a list of contact points of national supervisory authorities (NSAs) for communication in the MiFID II framework on supervisory co-operation, authorisation, acquisitions and passporting.

Source: Contact points of national supervisory authorities for communication in the MiFID II framework on supervisory co-operation, authorisation, acquisitions and passporting.

 

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UK, EU and international regulators and bodies

 

Decisions of the EEA Joint Committee published in the Official Journal

Three decisions of the EEA Joint Committee amending Annex IX (Financial services) to the EEA Agreement to incorporate financial services measures, were published in the Official Journal of the EU.

Sources: Decision of the EEA Joint Committee No 62/2018 of 23 March 2018 amending Annex IX (Financial services) to the EEA Agreement [2020/79]Decision of the EEA Joint Committee No 63/2018 of 23 March 2018 amending Annex IX (Financial services) to the EEA Agreement [2020/80] and  Decision of the EEA Joint Committee No 64/2018 of 23 March 2018 amending Annex IX (Financial services) to the EEA Agreement [2020/81].

FCA publishes Handbook Notice No. 73

The FCA published Handbook Notice No. 73, which provides information on the impact of the Withdrawal Agreement and European Union Withdrawal Instruments, and the changes to the FCA Handbook made by the FCA board on 12 December 2019, 10 January 2020 and 30 January 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 73.

PRA publishes January 2020 Regulatory Digest

The Prudential Regulation Authority (PRA) published its January 2020 Regulatory Digest. The PRA Regulatory Digest is for people working in the UK financial services industry and highlights key regulatory news and publications delivered for the month.

Source: PRA Regulatory Digest—January 2020.

 

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Prudential requirements

 

ECB consults on guide to how it assesses internal models for calculating counterparty credit risk

The ECB published for consultation a guide outlining the methodology it uses to assess the internal models applied by banks to calculate their exposure to counterparty credit risk (CCR). The guide also describes how the ECB will assess the advanced methods banks use to calculate the own funds required to account for the risks related to credit valuation adjustments (CVAs). The consultation closes on 18 March 2020.

Source: ECB launches public consultation on its guide to assess how banks calculate counterparty credit risk.

Amendments to relevant diversified indices under CRR published in the Official Journal

Commission Implementing Regulation (EU) 2020/125 (Amending Implementing Regulation) amending Implementing Regulation (EU) 945/2014 on relevant appropriately diversified stock indices (Indices Implementing Regulation) in accordance with Regulation (EU) 575/2013 on prudential requirements for banks, building societies and investment firms (Capital Requirements Regulation (CRR)), was published in the Official Journal of the EU.

Source: Commission Implementing Regulation (EU) 2020/125 of 29 January 2020 amending Implementing Regulation (EU) No 945/2014 laying down implementing technical standards with regard to relevant appropriately diversified indices in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council.

EBA report on CRD IV diversity data shows progress stalling

The European Banking Authority (EBA) published a report on the diversity data reported by competent authorities under the Capital Requirements Directive (2013/36/EU) (CRD IV). The data analysed come from a representative sample of credit institutions (in different size categories) and investment firms selected by each national competent authority on the basis of common criteria set out by the EBA. The findings show two thirds (66.95%) of institutions have executive directors of only one gender. The representation of women is particularly low in investment firms and small institutions. In fact in those institutions, the proportion of women among members of management bodies even fell between 2015 and 2018.

Source: EBA report on the benchmarking of diversity practices.

EBA reports on the consistency of risk-weighted assets for firms using internal approaches to calculate capital requirements

The EBA published two reports on the consistency of risk-weighted assets across all EU institutions authorised to use internal approaches for the calculation of capital requirements. The reports cover credit risk for high and low default portfolios (LDPs and HDPs), as well as market risk. The results confirm that the majority of risk-weights variability can be explained by fundamentals.

Sources: EBA releases its annual assessment of the consistency of internal model outcomesEBA report: Results from the 2019 Market Risk benchmarking exerciseEBA report: Results from the 2019 Low-default and high-default portfolios exercise and  Annex: Chart pack 2019: Low-default (LDP) and high-default (HDP) portfolios exercise.

BIS paper warns against regulatory-driven market fragmentation

The Bank for International Settlements (BIS) published a paper warning against regulatory-driven market fragmentation, saying it poses challenges for the proper functioning of the global financial system. The authors say unwarranted differences in prudential requirements can distort competition and discourage banks from undertaking cross-border activities, reducing the efficiency of the financial system, dampening international capital flows and impeding global risk-sharing.

Source: Convergence in the prudential regulation of banks—what is missing?.

EBA updates validation rules and taxonomy for supervisory reporting ITS

The EBA issued an updated list of validation rules and XBRL taxonomy related to its implementing technical standards (ITS) on supervisory reporting. The update aims to improve data quality issues for the reporting framework v2.9.

Source: EBA issues updated list of validation rules and related taxonomy to improve data quality.

 

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Financial stability, recovery and resolution 

 

ECB opinion approves changes to the governance of De Nederlandsche Bank

The ECB published an opinion on changes to the governance of De Nederlandsche Bank and the formal establishment of the Financial Stability Committee (FSC) (CON/2020/6). The Netherlands’ draft law would introduce changes to the internal procedures for the nomination and appointment of the members of the executive board, supervisory board and bank council of DNB. In addition, it would strengthen the current legal basis for the existing FSC.

Source: Opinion of the European Central Bank on changes to the governance of De Nederlandsche Bank.

ECB to examine 35 euro area banks as part of the 2020 EBA stress test

The EBA launched the 2020 EU-wide stress test, the fifth exercise since its establishment, and released the macroeconomic scenarios. The adverse scenario follows for the first time a ‘lower for longer’ narrative, a recession coupled with low or negative interest rates for a prolonged period. The EU real GDP would decline by 4.3% cumulatively by 2022, resulting in the most severe scenario to date. The ECB also announced that it will examine 35 significant euro area banks as part of the EBA’s 2020 EU-wide stress test. In line with the EBA’s selection criteria, these banks, which are directly supervised by the ECB, represent about 70% of total euro area banking assets.

Sources: ECB to stress test 35 euro area banks as part of the 2020 EU-wide stress test led by EBA and  EBA launches 2020 EU-wide stress test exercise.

BoE transfers responsibility for resolution of financial firms at deputy governor level

The BoE announced that, from 3 February 2020, the responsibility within the BoE for the resolution of financial firms at deputy governor level will transfer from the deputy governor for financial stability, Sir Jon Cunliffe, to the deputy governor for markets and banking, Sir Dave Ramsden. This reallocation follows Cunliffe’s appointment as chair of the Bank for International Settlement’s Committee on Payments and Market Infrastructure and increasing involvement in cross border payment and central bank digital currency issues.

Source: Change in deputy governor responsibilities at the Bank of England.

FSB report suggests ways to enhance effectiveness of its six regional consultative groups

As part of its work to reinforce engagement with stakeholders, the Financial Stability Board (FSB) completed a review of how to enhance the effectiveness of its six regional consultative groups (RCGs) as an outreach and feedback mechanism. Through the RCGs, the FSB engages with approximately 70 jurisdictions beyond its membership. The FSB and RCGs agreed a set of actions to encourage greater input from non-FSB member authorities into the FSB’s work and to further strengthen the effectiveness of RCG meetings.

Source: FSB takes steps to enhance the effectiveness of its regional consultative groups.

SRB issues statement on the effect of Brexit for EU resolution planning

The SRB issued a statement on the effect of Brexit for EU resolution planning. The SRB notes that, during the transition period, MREL-eligible liabilities governed by UK law are treated as if they were governed by Member State law. After that, they will be treated as third country liabilities and may need additional clauses.

Source: SRB statement: UK withdrawal from the EU.

IFSB-17 to be included in the Financial Stability Board Compendium of Standards

The Standing Committee on Standards Implementation has approved the inclusion of the Islamic Financial Services Board’s IFSB-17: Core Principles for Islamic Finance Regulation (Banking Segment) standard to the FSB Compendium of Standards.

Source: The Financial Stability Board (FSB) Approves to Include the IFSB's Core Principles for Islamic Finance Regulation (Banking Segment) into the Compendium of Standards.

IMF blog considers climate-related financial stress tests

The International Monetary Fund (IMF) published a blog entitled ‘Assessing climate-change risk by stress testing for financial resilience’. Noting that stress tests have a long and successful record of answering the question of whether banks and insurance companies would be able to continue providing all-important financial services in a crisis, the IMF says adding climate-related factors to the existing stress-testing methodology would help government and private-sector leaders prepare for the wide range of potential financial shocks that could be triggered by climate dangers.

Source: Assessing climate-change risk by stress testing for financial resilience.

 

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Financial crime

 

EBA publishes first report on CAs’ approaches to AML/CFT supervision and consults on revised risk factors guidelines

The EBA published its first report on NCAs’ approaches to the AML/CFT supervision of banks. This publication is part of the EBA’s new role to lead, co-ordinate and monitor the fight against ML/TF in all EU Member States, which is further explained in an accompanying factsheet. The EBA also published a consultation on revised ML/TF risk factors guidelines, taking into account changes to the EU AML/CFT legal framework and new ML/TF risks, including those identified by the EBA’s implementation reviews.

Sources: EBA consults on revised guidelines on money laundering and terrorist financing risk factorsEBA acts to improve AML/CFT supervision in Europe and Anti-money laundering and countering the financing of terrorism: Factsheet on the EBA’S new role.

Joint Money Laundering Steering Group consults on amends to its guidance

The Joint Money Laundering Steering Group (JMLSG) is consulting on proposed amendments to its guidance, to take account of the Money Laundering and Terrorist Financing (Amendment) Regulations 2019, which came into force on 10 January 2020. There are also some amendments to improve the clarity of other minor issues. Feedback is sought by 3 April 2020.

Source: JMLSG today publishes proposed amendments to its guidance.

OFSI publishes financial sanctions guidance

The OFSI published guidance on financial sanctions, which includes a summary of financial sanctions during the Brexit transition period.

Source: Financial sanctions: general guidance.

RPC opinion on HMT impact assessment of transposition of MLD5

The Regulatory Policy Committee (RPC) published its opinion on HM Treasury's (HMT) final stage impact assessment (IA) of the transposition of the Fifth Money Laundering Directive (EU) 2018/843 (MLD5). It considers HMT’s final assessment of the overall impacts of the proposals, including the impacts on business, and whether they are fit for purpose. It also notes several areas of the IA which HMT should consider improving.

Source: Regulatory Policy Committee opinion on HMT's impact assessment of the transposition of the Fifth Anti-Money Laundering Directive.

 

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Complaints, compensation and claims management

 

Complaints Commissioner ‘seriously concerned’ by increase in delays in FCA responses to complaints

In a final report dated 20 January 2020, the Complaints Commissioner, Antony Townsend, concluded that delays by the FCA in responding to complaints have increased further since Townsend drew attention to the situation in the Commissioner’s annual report in July 2019. In response, the FCA’s board noted the FCA has significantly increased the number of investigations (Complaint number FCA00590).

Source: Final report by the Complaints Commissioner Complaint number FCA00590.

 

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Markets and trading

 

Financial Services and Markets Act 2000 (Central Counterparties, Investment Exchanges, Prospectus and Benchmarks) (Amendment) Regulations 2020

SI 2020/117: Provisions are made to make a series of necessary minor updates to UK law in order to ensure that the UK financial services framework remains fully effective and enforceable following the introduction of new EU legislation. These Regulations are necessary to implement three EU regulations and one EU directive related to financial services. These Regulations come into force on 29 February 2020.

Sources: The Financial Services and Markets Act 2000 (Central Counterparties, Investment Exchanges, Prospectus and Benchmarks) (Amendment) Regulations 2020 and  explanatory memorandum.

FSB publishes correspondence on LIBOR pre-cessation issues

The FSB published correspondence with the International Swaps and Derivatives Association (ISDA) on LIBOR pre-cessation issues, including a letter from the FCA, responding to ISDA’s request for clarity on the ‘reasonable period’ during which a non-representative LIBOR would continue to be published in accordance with Article 11(4) of the Benchmarks Regulation (EU) 2016/1011.

Source: Correspondence with ISDA on pre-cessation triggers.

BIS Markets Committee calls for more firms to fully adopt the FX Global Code

The BIS Markets Committee called for more participants in the foreign exchange (FX) market to adopt the FX Global Code, the set of good market practices launched in 2017.

Source: Markets Committee calls for wider adoption of global code of conduct for foreign exchange markets.

IA proposes standardised categories for unsuccessful FX trades

The Investment Association (IA) is proposing to standardise reject codes in FX trading; a new set of categories will simplify the processing of unsuccessful trades on the FX markets, in a bid to bring greater consistency to the market and improve outcomes for investors.

Sources: Investment Association calls for standardisation of unsuccessful FX trades and  The Investment Association position on standardisation of reject codes in FX trading policy document

GFXC reports on anonymous trading and survey results

The Global Foreign Exchange Committee (GFXC) published a report on anonymous trading and shared the results from its annual industry survey on the FX Global Code. Focus areas for 2020 include electronic trading and disclosures. Additional guidance on unique identifiers and prime brokers will be added to the Code.

Source: GFXC publishes report on anonymous trading and shares results from industry survey.

 

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Regulation of capital markets

 

FCA publishes post-Brexit updates to credit rating agencies webpage

The FCA published an updated version of its webpage for CRAs to reflect the fact that the UK has left the EU and entered an implementation period, which is due to operate until 31 December 2020.

Source: FCA webpage update: Credit rating agencies.

ESMA amends guidelines on national regulators’ enforcement of financial information

ESMA published an amended version of its guidelines on the enforcement by NCAs of financial information which issuers, listed on regulated markets, are required to publish under the Transparency Directive. ESMA decided to amend the guidelines following a 2017 peer review on the implementation of certain aspects of the guidelines, with the aim of further harmonising the way NCAs enforce the financial disclosures of European issuers.

Source: ESMA amends guidelines to further harmonise the enforcement of financial information by national regulators.

ESMA proposes to postpone entry into force of CSDR RTS on settlement discipline

ESMA published a proposal for a new draft regulatory technical standard (RTS) postponing the date of entry into force of Commission Delegated Regulation (EU) 2018/1229 supplementing Regulation (EU) 909/2014 (the CSDR) with regard to the RTS on settlement discipline. Under the proposal, the date of entry into force of the RTS on settlement discipline, which is currently 13 September 2020, would be postponed until 1 February 2021.

Source: Final report: CSDR RTS on settlement discipline—postponed entry into force.

IOSCO sets out six key priorities for 2020

The International Organization of Securities Commissions (IOSCO) published its 2020 annual work program, setting out the projects it will undertake to further its core objectives of ‘protecting investors, maintaining fair, efficient and transparent markets and addressing systemic risks’. In addition to five specific priorities identified for 2019, IOSCO will also focus on a new priority for 2020: rising levels of corporate debt and leveraged loans, and the potential resulting risks in capital markets.

Source: IOSCO publishes annual work program.

World Federation of Exchanges sets out 2020 priorities

Following a January 2020 meeting of the World Federation of Exchanges (WFE)'s board and working committee, the global industry group for exchanges and central counterparties (CCPs) agreed its 2020 business priorities. The WFE will focus on the value of the exchange role in creating data; CCPs and their role in systemic safety; environmental, social & governance (ESG) issues; and building appropriate market structure around technology-led trends.

Source: The World Federation of Exchanges agrees 2020 priorities.

 

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Regulation of derivatives

 

ISDA to re-consult on pre-cessation fallbacks in derivatives contracts

ISDA announced that it will re-consult on how to implement pre-cessation fallbacks following the release of new information by the FCA and ICE Benchmark Administration (IBA) on the length of time LIBOR may be published. Based on the results of this consultation, ISDA will move quickly to deliver the appropriate, industry endorsed fallback solution later in 2020.

Source: ISDA to re-consult on pre-cessation fallbacks

FCA publishes post-Brexit update to EMIR webpage

The FCA updated its webpage on EMIR to reflect the fact that the UK has now left the EU and entered an implementation period, which will run until 31 December 2020.

Source: FCA webpage update: EMIR.

World Federation of Exchanges sets out 2020 priorities

Following a January 2020 meeting of the World Federation of Exchanges (WFE)'s board and working committee, the global industry group for exchanges and central counterparties (CCPs) agreed its 2020 business priorities. The WFE will focus on the value of the exchange role in creating data; CCPs and their role in systemic safety; environmental, social & governance (ESG) issues; and building appropriate market structure around technology-led trends.

Source: The World Federation of Exchanges agrees 2020 priorities.

 

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Investment funds and asset management

 

Decisions of the EEA Joint Committee published in the Official Journal

Three decisions of the EEA Joint Committee amending Annex IX (Financial services) to the EEA Agreement to incorporate financial services measures, were published in the Official Journal of the EU.

Sources: Decision of the EEA Joint Committee No 62/2018 of 23 March 2018 amending Annex IX (Financial services) to the EEA Agreement [2020/79]Decision of the EEA Joint Committee No 63/2018 of 23 March 2018 amending Annex IX (Financial services) to the EEA Agreement [2020/80] and Decision of the EEA Joint Committee No 64/2018 of 23 March 2018 amending Annex IX (Financial services) to the EEA Agreement [2020/81].

ESMA and NCAs supervisory action on UCITS liquidity risk management

ESMA will take common supervisory action with NCAs on the supervision of UCITS’ managers liquidity risk management across the EU. The common supervisory action will be conducted during 2020.

Source: ESMA launches a common supervisory action with NCAS on UCITS liquidity risk management.

IA proposes standardised categories for unsuccessful FX trades

The IA is proposing to standardise reject codes in FX trading; a new set of categories will simplify the processing of unsuccessful trades on the FX markets, in a bid to bring greater consistency to the market and improve outcomes for investors.

Sources: Investment Association calls for standardisation of unsuccessful FX trades and  The Investment Association position on standardisation of reject codes in FX trading policy document

 

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Banks and mutual

 

ECB to examine 35 euro area banks as part of the 2020 EBA stress test

The EBA launched the 2020 EU-wide stress test, the fifth exercise since its establishment, and released the macroeconomic scenarios. The adverse scenario follows for the first time a ‘lower for longer’ narrative, a recession coupled with low or negative interest rates for a prolonged period. The EU real GDP would decline by 4.3% cumulatively by 2022, resulting in the most severe scenario to date. The ECB also announced that it will examine 35 significant euro area banks as part of the EBA’s 2020 EU-wide stress test. In line with the EBA’s selection criteria, these banks, which are directly supervised by the ECB, represent about 70% of total euro area banking assets.

Sources: ECB to stress test 35 euro area banks as part of the 2020 EU-wide stress test led by EBA and EBA launches 2020 EU-wide stress test exercise.

EBA reports on the consistency of risk-weighted assets for firms using internal approaches to calculate capital requirements

The EBA published two reports on the consistency of risk-weighted assets across all EU institutions authorised to use internal approaches for the calculation of capital requirements. The reports cover credit risk for high and low default portfolios (LDPs and HDPs), as well as market risk. The results confirm that the majority of risk-weights variability can be explained by fundamentals.

Sources: EBA releases its annual assessment of the consistency of internal model outcomesEBA report: Results from the 2019 Market Risk benchmarking exerciseEBA report: Results from the 2019 Low-default and high-default portfolios exercise and Annex: Chart pack 2019: Low-default (LDP) and high-default (HDP) portfolios exercise.

BIS paper warns against regulatory-driven market fragmentation

The BIS published a paper warning against regulatory-driven market fragmentation, saying it poses challenges for the proper functioning of the global financial system. The authors say unwarranted differences in prudential requirements can distort competition and discourage banks from undertaking cross-border activities, reducing the efficiency of the financial system, dampening international capital flows and impeding global risk-sharing.

Source: Convergence in the prudential regulation of banks—what is missing?.

ECB publishes 2020 list of significant supervised entities

The ECB published a list of the 117 significant supervised entities, which are directly supervised by the ECB (part A), alongside a list of less significant supervised entities which are indirectly supervised by the ECB (part B). The list is compiled on the basis of significance decisions which have been adopted and notified by the ECB to the supervised entity and that have become effective up to the cut-off date of 1 January 2020.

Source: ECB list of supervised entities (as of 1 January 2020).

EBA updates validation rules and taxonomy for supervisory reporting ITS

The EBA issued an updated list of validation rules and XBRL taxonomy related to its implementing technical standards (ITS) on supervisory reporting. The update aims to improve data quality issues for the reporting framework v2.9.

Source: EBA issues updated list of validation rules and related taxonomy to improve data quality.


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Consumer credit, mortgage and home finance

 

FCA policy statement on mortgage advice and selling standards

The FCA published policy statement PS20/1, Mortgage advice and selling standards: feedback to CP19/17 and final rules. CP19/17 contained proposed changes to the FCA’s rules after the Mortgages Market Study (MMS) identified potential harms. PS20/1 summarises the feedback the FCA received and sets out its final rules. The FCA says there was support for its proposals and it is implementing them broadly as proposed.

Source: PS20/01: Mortgage advice and selling standards: feedback to CP19/17 and final rules.

FCA raises concerns about persistent credit card debt

The FCA wrote to credit card firms telling them to review their approach to borrowers who are stuck in persistent debt for three years, where they are paying more in interest, fees and charges than they are paying off their balance.

Source: FCA tells credit card firms to review their approach to persistent debt customers.

LSE study aims to find policy solutions to assist mortgage prisoners

MoneySavingExpert.com founder Martin Lewis has funded a study by the London School of Economics and Political Science (LSE) looking to find solutions for the UK’s estimated 170,000 'mortgage prisoners'. It aims to find evidence-based policy solutions which will push the government to help mortgage prisoners that the financial regulators can’t reach.

Sources: LSE study on solutions for mortgage prisoners and UK Finance response

 

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Regulation of insurance

 

Decisions of the EEA Joint Committee published in the Official Journal

Three decisions of the EEA Joint Committee amending Annex IX (Financial services) to the EEA Agreement to incorporate financial services measures, were published in the Official Journal of the EU.

Sources: Decision of the EEA Joint Committee No 62/2018 of 23 March 2018 amending Annex IX (Financial services) to the EEA Agreement [2020/79]Decision of the EEA Joint Committee No 63/2018 of 23 March 2018 amending Annex IX (Financial services) to the EEA Agreement [2020/80] and Decision of the EEA Joint Committee No 64/2018 of 23 March 2018 amending Annex IX (Financial services) to the EEA Agreement [2020/81].

Civil Liability (Information Requirements) and Risk Transformation (Amendment) Regulations 2020

SI 2020/Draft: Provisions are laid to set out what kind of information is required and the level of authentication required, as well as how and when it should be provided to the FCA to allow the Government to assess whether cost savings made by insurers from the reforms under Civil Liability Act 2018 have been passed onto consumers. They come into force partly on the day after the day on which these Regulations are made and fully on 1 April 2020.

Source: The Civil Liability (Information Requirements) and Risk Transformation (Amendment) Regulations 2020

New ICOBS rules on travel insurance for consumers with medical conditions

The FCA published policy statement PS20/3, ‘Signposting to travel insurance for consumers with medical conditions’. PS20/3 introduces changes to the FCA Handbook, the Insurance: Conduct of Business sourcebook (ICOBS) and the FCA Handbook Glossary, intended to help consumers with pre-existing medical conditions (PEMC) to have better access to affordable travel insurance. These changes will come into force on 1 June 2020.

Source: FCA PS—Signposting to travel insurance for consumers with medical conditions.

 

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Regulation of personal pension and stakeholder products

 

FCA publishes PS20/2 on publishing and disclosing costs and charges to workplace pension scheme members

The FCA published policy statement PS20/2 on publishing and disclosing costs and charges to workplace pension scheme members and amendments to its Conduct of Business Sourcebook, COBS 19.8. The policy statement sets out the FCA’s response to the feedback it received to its consultation paper CP19/10, which was published in February 2019, and details the final rules and guidance it is introducing following that consultation.

Source: Publishing and disclosing costs and charges to workplace pension scheme members and amendments to COBS 19.8.

 

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Payment services and systems

 

PayUK consults on adoption of ISO 20022 for NPA

PayUK is consulting on the adoption of ISO 20022 and other key standards for the clearing and settlement capability to be enabled by the New Payments Architecture (NPA) infrastructure. Feedback will help PayUK design the standards used to exchange payments data at the core of the NPA infrastructure and identify opportunities for further standardisation. Reponses are requested by 31 March 2020. The consultation includes a joint collaboration statement between the BoE and Pay.UK which sets out key achievements in 2019 and priorities for 2020.

Sources: Next generation standard for UK retail payments and NPA Standard Consultation Document

 

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Fintech and cryptoassets

 

French and Belgian authorities make ten arrests in international bitcoin fraud

Eurojust, the EU Agency for Criminal Justice Co-operation, has announced that authorities in France and Belgium have taken action against a criminal network which committed large-scale international fraud with the sale of bitcoins and other crypto-currencies. Approximately 85 victims in France and Belgium were defrauded of EUR 6m by an organised criminal group operating from Israel. In total, 10 suspects were arrested.

Source: Action taken against bitcoin fraud in France and Belgium.

 

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Sustainable finance

 

Council publishes consolidated version of the Taxonomy Regulation

The Council of the European Union published file items on the proposed regulation on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation), including a consolidated version of the text of this regulation agreed between the Council and the European Parliament. The Economic and Monetary Affairs (ECON) and the Environment, Public Health and Food Safety (ENVI) committees recommend that the Council's position be accepted, subject to legal-linguistic verification.

Sources: Proposal for a Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment—letter from chairs of the European Parliament's ECON and ENVI CommitteesProposal for a Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment—Political agreement and ADD 1.

Feedback period opens for proposed revision of the Non-Financial Reporting Directive

The feedback period is open for the European Commission’s proposed revision of the Non-Financial Reporting Directive (Directive 2014/95/EU). The initiative will modify the requirements on some companies to publicly report certain non-financial information, including information about their environmental and social performance and impacts. The aim is to ensure that investors, civil society organisations and other interested parties have access to the information that they need, while not imposing excessive reporting obligations on companies. Feedback is sought by 27 February 2020 (midnight Brussels time).

Source: Roadmap: Open: Revision of Non-Financial Reporting Directive.

EIB announces 2019 results, with focus on climate action, cohesion and innovation

The European Investment Bank (EIB) announced its results and summarised its activities for 2019. It was involved in ‘a record number’ of 1,095 operations and increased financing volumes to EUR 72.22bn. The EU bank notes that this was in spite of uncertainty and delays linked to Brexit and the need for the remaining EU Member States to come to an agreement, in spring 2019, over the replacement of the UK’s share of EIB capital.

Source: EIB press conference on annual results—EU bank closes 2019 with stronger results in climate finance and a record number of deals.

IMF blog considers climate-related financial stress tests

The IMF published a blog entitled ‘Assessing climate-change risk by stress testing for financial resilience’. Noting that stress tests have a long and successful record of answering the question of whether banks and insurance companies would be able to continue providing all-important financial services in a crisis, the IMF says adding climate-related factors to the existing stress-testing methodology would help government and private-sector leaders prepare for the wide range of potential financial shocks that could be triggered by climate dangers.

Source: Assessing climate-change risk by stress testing for financial resilience

 

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Islamic finance

 

IFSB-17 to be included in the Financial Stability Board Compendium of Standards

The Standing Committee on Standards Implementation approved the inclusion of the Islamic Financial Services Board’s IFSB-17: Core Principles for Islamic Finance Regulation (Banking Segment) standard to the FSB Compendium of Standards.

Source: The Financial Stability Board (FSB) Approves to Include the IFSB's Core Principles for Islamic Finance Regulation (Banking Segment) into the Compendium of Standards.

 

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Dates for your diary

 

DateSubjectEvent

 

13 February 2020

 

Banks and mutuals

Authorisation, approval and supervision

 

Deadline for responses to EBA consultation on draft amended technical standards on passport notification.

 

13 February 2020Prudential requirements

Deadline for responses to EBA consultation on changes to Commission Implementing Regulation (EU) 2016/2070, which sets out ITS on the benchmarking of internal models.

 

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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.