FS weekly highlights—9 January 2020

FS weekly highlights—9 January 2020

In this issue

 

 

Brexit news
UK, EU and international regulators and bodies
Authorisation, approval and supervision
Prudential requirements
Financial stability, recovery and resolution
Financial crime
Enforcement and redress
Markets and trading
Regulation of capital markets and Capital Markets Union
Regulation of derivatives
Securities financing transactions
Banks and mutuals
Consumer credit, mortgage and home finance
Regulation of insurance
Regulation of personal pension and stakeholder products
Payment services and systems
Islamic finance
Dates for your diary

 

Brexit news

 

ECB vice-president on the EU and UK’s regulatory future

The European Central Bank (ECB) published a speech by its vice-president, Luis de Guindos, on ‘Forging a new future between the UK and the EU’, in which he said the EU would have to further develop its domestic capacity in capital market activities, so as to avoid a Brexit-induced increase in financial fragmentation, while at the same time ensuring that the UK and EU Member States ‘do not engage in a race to the bottom on regulation’.

Source: Europe’s role in the global financial system.

Brexit uncertainty eases in city following UK election

Law360, London: Business uncertainty over Brexit fell following Boris Johnson’s win at the polls in December, a survey by the Bank of England (BoE) published on 2 January 2020 found, although bosses doubt government promises that the question will be resolved by the end of the year.

See: Brexit uncertainty eases in city following UK election.

 

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UK, EU and international regulators and bodies

 

Legislation reforming the ESFS published in the OJ

A package of legislation to improve the supervisory framework for European financial institutions, known as the European system of financial supervision (ESFS), was published in the Official Journal of the EU on 27 December 2019. The package comprises two regulations and a directive, which aim to adapt the three European Supervisory Authorities (ESAs) and the European Systemic Risk Board (ESRB) to the changed context in which they operate following post-financial crisis reforms to the EU financial system.

Sources: Regulation (EU) 2019/2175 of the European Parliament and of the Council of 18 December 2019 amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority), Regulation (EU) No 1094/2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority), Regulation (EU) No 600/2014 on markets in financial instruments, Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds, and Regulation (EU) 2015/847 on information accompanying transfers of fundsRegulation (EU) 2019/2176 of the European Parliament and of the Council of 18 December 2019 amending Regulation (EU) No 1092/2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board, and Directive (EU) 2019/2177 of the European Parliament and of the Council of 18 December 2019 amending Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), Directive 2014/65/EU on markets in financial instruments and Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money-laundering or terrorist financing.

Chancellor confirms next Budget will take place in March 2020

Chancellor of the Exchequer Sajid Javid confirmed that the next government Budget will take place on 11 March 2020, during his visit to the Trafford Park tram line project in Manchester. According to the Chancellor, the Budget intends to ‘set out ambitious plans to unleash Britain’s potential, level up across the UK and usher in a decade of renewal’. During his visit, he declared that the Budget will boost public spending, invest in hospitals, train new police officers and update the Charter of Fiscal Responsibility in an effort to take advantage of low interest rates. The Chancellor intends to provide the rest of the Cabinet with an economic update in relation to the future Budget presently.

Source: Chancellor launches Budget process to usher in ‘decade of renewal’.

FCA updates privacy notice webpage

The FCA updated its privacy notice webpage (which explains how and why the FCAs uses personal data) by including a new section on independent investigations and reviews.

Source: FCA updates privacy notice webpage.

BSB chair says 2020 will see expanded remit and focus on firm culture

The chair of the Banking Standards Board (BSB), Dame Susan Rice, published a new year’s message outlining the organisation’s 2020 priorities and projects. Rice noted that the BSB’s reach is expanding beyond banking and beyond the UK to help asset managers, insurers and others to manage and establish a culture of trust at their firms.

Source: New Year message from BSB chair Dame Susan Rice.

 

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Authorisation, approval and supervision

 

BSB chair says 2020 will see expanded remit and focus on firm culture

The chair of the BSB, Dame Susan Rice, published a new year’s message outlining the organisation’s 2020 priorities and projects. Rice noted that the BSB’s reach is expanding beyond banking and beyond the UK to help asset managers, insurers and others to manage and establish a culture of trust at their firms.

Source: New Year message from BSB chair Dame Susan Rice.

FCA and BoE announce plans for data reforms across UK financial sector

The Financial Conduct Authority (FCA) and the BoE issued a joint announcement outlining plans to develop their data and analytics capabilities. Alongside the announcement, the FCA published its refreshed data strategy and the BoE published a discussion paper, ‘Transforming data collection from the UK financial sector’.

Sources: FCA and Bank of England announce proposals for data reforms across the UK financial sector (FCA) and  FCA and Bank of England announce proposals for data reforms across the UK financial sector (BoE).

 

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Prudential requirements

 

EU body responds to European Commission consultation on Basel III Reforms

The European Repo and Collateral Council (ERCC) responded to the European Commission’s consultation on Implementing the Final Basel III Reforms in the EU. Although the ERCC recognises the objective of the framework, the ERCC points to certain considerations which causes the framework to appear punitive and complex. The ERCC recommends a cautious approach should be taken before proceeding with the implementation of the minimum haircut floors framework.

Source: ICMA ERCC implementing the final Basel III reforms in the EU.

 

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Financial stability, recovery and resolution 

 

ESRB meeting reviews EU financial vulnerabilities

The ESRB published a summary of the meeting of its general board on 19 December 2019, at which it considered vulnerabilities in the EU financial system, including the indebtedness of non-financial corporations, the liquidity of assets in investment funds, and the misconduct costs facing financial institutions. The board also took note of the risks to financial stability which might result from climate change and disruptions in critical financial infrastructures. The ESRB also published the latest edition of its quarterly Risk Dashboard.

Sources: The general board of the European Systemic Risk Board held its 36th regular meeting on 19 December 2019 and  Risk Dashboard.

 

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Financial crime

 

ECB opinion endorses Dutch AML proposal to limit large cash payments

The ECB published an opinion on a draft law on an anti-money laundering (AML) action plan containing limitations to cash payments. The ECB received the request for an opinion from the minister for finance of the Netherlands. The draft law intends to reinforce measures taken to prevent money laundering by limiting the use of large amounts of cash.

Source: Opinion of the European Central Bank of 30 December 2019 on limitations to cash payments (CON/2019/46).

Reforming SARs—reflections on the reform programme

The government pledged to reform suspicious activity reports (SARs) to ensure UK enforcement agencies and IT systems are prepared to effectively prevent and tackle money laundering and terrorist financing. Max Hobbs, solicitor, and Neill Blundell, head of corporate crime and investigations practice at Macfarlanes, consider the strength of the UK’s existing SAR regime and suggest what changes practitioners can expect from the reform programme as we enter 2020.

See News Analysis: Reforming SARs—reflections on the reform programme.

 

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Enforcement and redress

 

Complaints Commissioner prompts FCA to revise monitoring process of Mutuals Register

In a final report dated 4 December 2019, the Complaints Commissioner upheld a complaint against the FCA in relation to the FCA’s maintenance of its Mutuals Register. In response to the Complaint Commissioner’s report, the FCA committed to institute a revised process with regular monitoring of the Mutuals Register and immediate follow-up action (Complaint number FCA00654).

Source: Final report by the Complaints Commissioner Complaint number FCA00654.

Addendum to non-prosecution agreement sees Union Bancaire Privée pay US $14m

The US Justice Department announced that it has signed an addendum to Swiss Bank Program Category 2 Non-Prosecution Agreement with Union Bancaire Privée (UBP). Under the agreement, UBP—a private bank headquartered in Geneva, Switzerland—acknowledges that, during the initial non-prosecution agreement signed on 6 January 2016, it should have disclosed additional US-related accounts to the US Justice Department. As a result, UBP has agreed to pay an additional $14m for these undisclosed accounts and provide supplementary information relating to its US-related account population, including the 97 additional accounts created.

Source: Justice Department Announces Addendum to Swiss Bank Program Category 2 Non-Prosecution Agreement with Union Bancaire Privée, UBP SA.

 

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Markets and trading

 

ESMA study assesses impact of circuit breakers on EU financial markets

ESMA published a study on the market impacts of circuit breakers, key instruments used by trading venues to regulate markets and interrupt excessive price movements. The study found that price volatility is significantly lower after the use of a circuit breaker, although bid-ask spreads widen as a result of the calmer trading conditions.

Source: ESMA assesses EU financial market impact of circuit breakers.

FMLC publishes response to European Commission’s 2019 review of the BMR

The FMLC published its response to the European Commission’s consultation, launched on 11 October 2019, on its review of the Benchmarks Regulation (EU) 2016/101. In the response, the FMLC highlights some key areas which it says have been the cause of legal uncertainty in relation to the BMR, including the interplay between Brexit and the transition from LIBOR.

Source: Benchmark Regulation: Response to the European Commission’s 2019 review.

 

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Regulation of capital markets and Capital Markets Union

 

ECB vice-president on the EU and UK’s regulatory future

The ECB published a speech by its vice-president, Luis de Guindos, on ‘Forging a new future between the UK and the EU’, in which he said the EU would have to further develop its domestic capacity in capital market activities, so as to avoid a Brexit-induced increase in financial fragmentation, while at the same time ensuring that the UK and EU Member States ‘do not engage in a race to the bottom on regulation’.

Source: Europe’s role in the global financial system.

 

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Regulation of derivatives

 

ESMA clarifies rules on CCP membership criteria and due diligence under EMIR

ESMA published a report on a survey it conducted on membership arrangements and due diligence by central counterparties (CCPs) in relation to their clearing members. The report further clarifies existing rules under the European Market Infrastructure  Regulation (EU) 648/2012 (EMIR) for clearing members in both areas.

Source: ESMA clarifies rules for CCPs’ membership criteria and due diligence.

ISDA publishes guide to the cross-border application of US, EU and Japan margin rules for non-cleared derivatives

ISDA published a guide to the cross-border application of US, EU and Japan margin rules for non-cleared derivatives. The guide describes the cross-border and substituted compliance rules under different margin regimes and uses that framework to examine the applicable rules for the US, the EU and Japan. It focuses on the position of an entity that is not a swap dealer but is either directly subject to margin rules or is obliged to comply with the margin requirements of its counterparties.

Source: Guide to the cross-border application of US, EU and Japan margin rules for non-cleared derivatives.

Future Industry Association responds to Commodity Futures Trading Commission’s swaps margin proposals

The FIA published a response letter to the CFTC’s proposals regarding the margin requirements for uncleared swaps for swap dealers and major swap participants. The CFTC proposes to include the ESM in the list of entities which are excluded from the definition of ‘financial end user’, to correct the mistake of excluding the treasury securities and US government agency securities from the list of eligible collateral to which cash collateral held by a custodian of initial margin may be converted, and to extend the compliance schedule for the margin rule. FIA’s response supported the CFTC proposals and outlined operational challenges that need to be addressed further.

Source: FIA's Commodities Members Support CFTC's Swaps Margin Changes.

International Swaps and Derivatives Association releases December 2019 review

ISDA released ISDA in Review—December 2019, which includes a compilation of documents, research papers, press releases and letters. The December 2019 review includes a notification regarding potential non-publication of ICE swap rates, a letter to US prudential regulators on revised margin requirements and the launch of a consultation on Fallbacks for Euro LIBOR and EURIBOR.

Source: ISDA In Review—December 2019.

 

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Securities financing transactions

 

ESMA publishes SFTR reporting guidelines

ESMA published guidelines on reporting under Articles 4 and 12 of the Securities Financing Transactions Regulation (EU) 2015/2365 (SFTR), along with its final report on the guidelines, amended SFTR validation rules and a statement on legal entity identifiers (LEIs). The guidelines are intended to complement the SFTR technical standards and to ensure the consistent implementation of the new SFTR rules.

Source: ESMA clarifies SFTR reporting.

 

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Banks and mutuals

 

EU body responds to European Commission consultation on Basel III Reforms

The ERCC responded to the European Commission’s consultation on Implementing the Final Basel III Reforms in the EU. Although the ERCC recognises the objective of the framework, the ERCC points to certain considerations which causes the framework to appear punitive and complex. The ERCC recommends a cautious approach should be taken before proceeding with the implementation of the minimum haircut floors framework.

Source: ICMA ERCC implementing the final Basel III reforms in the E.

Complaints Commissioner prompts FCA to revise monitoring process of Mutuals Register

In a final report dated 4 December 2019, the Complaints Commissioner upheld a complaint against the FCA in relation to the FCA’s maintenance of its Mutuals Register. In response to the Complaint Commissioner’s report, the FCA has committed to institute a revised process with regular monitoring of the Mutuals Register and immediate follow-up action (Complaint number FCA00654).

Source: Final report by the Complaints Commissioner Complaint number FCA00654.

ICO blog looks at Open Banking and shared data

The ICO published a blog on the lessons to be learned from the sharing of personal data in Open Banking, the financial services initiative which requires the UK’s nine largest banks to give customers better control of their data. If people give permission, the banks are obliged to share their data with third-party services.

Source: The benefits of sharing personal data—what can we learn from Open Banking?.

 

 

Consumer credit, mortgage and home finance

 

FCA publishes Occasional Paper and Insight into borrowers in financial distress

The FCA published Occasional Paper No. 49: Borrower subgroups and the path into distress: commonalities and differences. The paper analyses those entering financial distress and understands how distress links to their personal characteristics and consumer credit use. The same authors have summarised their findings in the FCA’s Insight Paper entitled ‘Journey into distress part 2—the profile of debtors in difficulty’.

Sources: FCA Occasional Paper No. 49: Borrower subgroups and the path into distress: commonalities and differences and  FCA Insight: Journey into distress part 2—the profile of debtors in difficulty.

FCA study aims to identify warning signs of financial distress

The FCA published a study of the financial lives of people who find themselves in distress, aiming to identify how they differ from those whose finances keep on an even keel. Looking at the credit files of almost half a million individuals in the UK, the authors ask what went wrong for those people who do suffer financial distress, and whether there are symptoms that could be warning signs for those who would later become ‘financially unwell’.

Source: Journey to distress part 1—a study of the UK’s troubled borrowers.

 

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Regulation of insurance

 

European Commission to hold Solvency II conference ahead of 2020 review

The European Commission is to hold a conference on the 2020 Solvency II review, in Brussels on 29 January 2020. The aim is to discuss the challenges and opportunities of the review, and for the Commission to gather ideas on whether new risks or developments that insurers face or are going to face would require regulatory action.

Source: 2020 Solvency II review: Challenges and opportunities.

FCA Dear CEO letter sets out expectations on non-financial misconduct in wholesale GI firms

The FCA wrote a Dear CEO letter warning of the risks of non-financial misconduct in wholesale general insurance (GI) firms. The letter sets out the FCA’s expectations, including the need for strong whistleblowing processes and appropriate incentive structures, and discusses the SM&CR and the FCA’s Conduct rules for insurers.

Source: FCA Dear CEO letter—Non-financial misconduct in wholesale general insurance firms.

FCA sets out its supervisory strategy for PL&CL insurers in letter addressing key risks of harm

The FCA published a portfolio strategy letter addressed to the boards of directors of firms in the PL&CL portfolio. The letter addresses the key risks of harm PL&CL firms could pose to their consumers and the markets in which they operate. The FCA informs the directors of PL&CL firms that these key risks will receive greater focus as part of the FCA’s supervisory strategy covering the period to January 2021.

Source: Portfolio strategy letter to firms in the Personal & Commercial Lines Insurer (PL&CL) portfolio: identifying and remedying harms.

The International Underwriting Association outlines 2020 business plan

The International Underwriting Association (IUA) highlighted climate change and cyber warfare as two key risks for the London market in its business plan for 2020. The IUA is to set up a new market group to examine the growing impact of climate change policies on a range of insurance activities, including investment, underwriting and risk management. Model cyber clauses, a research paper on the consequences of cyber warfare, and an underwriting questionnaire are also part of the 2020 business plan.

Source: IUA draws up business plan for 2020.

 

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Regulation of personal pension and stakeholder products

 

FCA podcast examines pensions regulation and the quality of pension transfer advice

The FCA published a podcast on key issues in the pensions market from regulatory and trade perspectives. It highlights where the FCA has focused its work in recent years and how it aims to improve the quality of pension transfer advice.

Source: Inside FCA Podcast examines how we're regulating a changing pensions sector.

 

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Payment services and systems

 

EPC publishes version 1.4 SEPA Payment scheme participation fees—Policy and invoicing guidelines

The European Payments Council (EPC) published version 1.4 of the SEPA Payment scheme participation fees—Policy and invoicing guidelines. In accordance with the relevant provisions of the scheme management internal rules (SMIRs), the EPC establishes each year the following year’s payment scheme participation fees to recover the costs related to the payment scheme management function performed by the EPC and the payment scheme management governance bodies. The purpose of the document is to clarify the administrative rules put in place to ensure the effective collection of payment scheme participation fees, as defined in the SMIRs.

Source: Version 1.4 SEPA Payment scheme participation fees—Policy and invoicing guidelines.

ICO blog looks at Open Banking and shared data

The ICO published a blog on the lessons to be learned from the sharing of personal data in Open Banking, the financial services initiative which requires the UK’s nine largest banks to give customers better control of their data. If people give permission, the banks are obliged to share their data with third-party services.

Source: The benefits of sharing personal data—what can we learn from Open Banking?.

 

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Islamic finance

 

IFSB publishes second set of FAQs on four of its standards

The IFSB published a second set of FAQs on four of its standards on disclosure requirements for ICM products, ICM regulation, the supervision of Takāful and Retakāful undertakings, and transparency and market discipline for institutions offering Islamic financial services (IIFS). The FAQs aim to promote implementation of IFSB standards globally, through presenting clarifications and explanative directions on the issued standards.

Source: The IFSB publishes second set of frequently asked questions (FAQs) on four of its standards on disclosure requirements for ICM products, ICM regulation, supervisory on Takāful and Retakāful, and transparency and market discipline for IIFS.

IFSB updates guide to prudential and structural Islamic financial indicators

The IFSB revised its guide on PSIFIs for institutions offering Islamic financial services. The guide provides information on key indicators, compilation procedures, aggregations and consolidation procedures, among other issues. It aims to assist data suppliers, data compilers and users of the PSIFIs data.

Source: The IFSB issues revised compilation guide on prudential and structural Islamic financial indicators, 2019.

 

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Dates for your diary

DateSubjectEvent

 

10 January 2020

 

Fintech and crypto-assets

 

 

All UK cryptoasset businesses carrying out activities within scope of the MLRs will need to register with the FCA from this date.

10 January 2020Financial crime

Member States to bring into force laws, regulations and administrative provisions necessary to comply with MLD5.
In the UK the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 come into force.

 

10 January 2020Financial crime

The Joint Money Laundering Steering Group (JMLSG) is to finalise and publish new guidance that will reflect changes in the Money Laundering Regulations due to be brought in based on MLD5.

 

13 January 2020Regulation of insurance

Deadline for responses to PRA consultation paper CP26/19 Solvency II: Adjusting for the reduction of loss absorbency where own fund instruments are taxed on conversion.

 

13 January 2020PRIIPs

Deadline for responses to the ESAs consultation on proposed amendments to the existing rules underpinning the key information document (KID) for PRIIPs.

 

13 January 2020Authorisation, approval and supervision

Deadline for responses to FCA consultation paper CP19/30: Regulatory fees and levies: policy proposals for 2020/21.

 

15 January 2020Regulation of insurance

Deadline for submitting proposals to the European Insurance and Occupational Pensions Authority (EIOPA), to address open questions related to a number of topics with a special emphasis on policy angles.

 

15 January 2020Regulation of insurance

Deadline for responses to EIOPA consultation on an opinion setting out technical advice for the 2020 review of Solvency II.

 

15 January 2020Brexit


Investment funds and asset management

The FCA extended the date by which fund managers should inform them if they want to make changes to their existing notification, following the Brexit delay.

 

15 January 2020Markets and trading

Deadline for responses to the FCA’s guidance consultation ‘GC19/5: Primary Market Bulletin No. 25’.

 

15 January 2020Consumer credit, mortgage and home finance

Deadline for responses to FCA consultation paper CP19/28 on new protections for motor finance customers.

 

16 January 2020Banks and mutuals

Deadline for responses to EBA consultation on the new comprehensive ITS for financial institutions’ public disclosure, designed to promote market discipline and optimise the EBA Pillar 3 policy framework.

 

16 January 2020Banks and mutuals

Deadline for responses to EBA consultation on revised ITS on supervisory reporting related to CRR 2 and the Backstop Regulation, which aim to keep the reporting requirements in line with changes in the regulatory framework and with the evolving needs for supervisory authorities' risk assessments, is 16 January 2020.  

 

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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.