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Welcome to the weekly highlights from the Lexis®PSL Financial Services team for the week ending 15 September 2016.
On 8 September 2016 at its Conference of Presidents, the European Parliament (EP) appointed Guy Verhofstadt as representative on Brexit matters. In its press release the EP stated Mr Verhofstadt, counterpart of Michel Barnier and negotiator for the European Commission, will keep the Conference of Presidents informed of developments and will help prepare the European Parliament position in the negotiations. Mr Verhofstadt will also work closely with the Chair of the Constitutional Affairs Committee, Danuta Hübner, and other committees wherever necessary to shape the EP’s negotiating position.
On 7 September the Lords Select Committee issued a press release announcing the launch of a series of co-ordinated inquiries on Brexit to be conducted by the European Union Committee and its six sub-committees, to establish and query the key issues that will arise in the forthcoming EU Brexit negotiations. The inquiries will include an inquiry into financial services.
In a press release HM Treasury announced Philip Hammond, the Chancellor of the Exchequer, hosted a roundtable discussion on 7 September 2016 with members of the European Financial Services Chairmen’s Advisory Committee on the issues affecting the financial services industry as the UK prepares for negotiations to leave the EU.
In a press release the EBA published a report analysing the core funding ratio across the European Union. The report is in response to a request from the European Commission to explore the possibilities of the core stable funding ratio (CFR) as a potential alternative metric for the assessment of EU banks' funding risk, concluding that it would be misleading to rely only on the CFR to assess banks' funding needs, as the CFR does not look at the whole balance sheet of a bank and therefore cannot fully assess a potential funding gap.
The European Central Bank (ECB) launched a public consultation on its draft guidance to banks on non-performing loans. The guidance is addressed to credit institutions within the meaning of Article 4(1) of the Capital Requirements Regulation (CRR) ((EU) 575/2013). The consultation period runs from 12 September to 15 November 2016 and includes a public hearing on 7 November 2016.
The draft guidance sets out that there is a broad industry consensus on the view that high non-performing loan (NPL) levels ultimately have a negative impact on bank lending to the economy, as a result of the balance sheet, profitability, and capital constraints faced by banks with high NPL levels.
Commission Delegated Regulation (EU) 2016/1608 of 17 May 2016 amending Delegated Regulation (EU) No 1222/2014 with regard to regulatory technical standards for the specification of the methodology for the identification of global systemically important institutions (G-SIIs) and for the definition of subcategories of G-SIIs has been published in the Official Journal of the EU.
The European Banking Authority has published its third updated list of capital instruments that competent supervisory authorities across the EU have classified as Common Equity Tier 1 (CET1). The last update was October 2015, and since then new CET1 instruments have been assessed and evaluated as compliant with the Capital Requirements Regulation (CRR).
On 8 September 2016 the European Association of Corporate Treasurers (EACT) issued a press release publishing a letter from the Chair of the EACT, Jean-Marc Servat. Mr Servat has written to the Chairman of the Basel Committee on Banking Supervision (BCBS), Stefan Ingves, on the BCBS consultation on reducing variation in credit-risk weighted assets, and constraints on the use of internal model approaches. Mr Servat commented on the detrimental consequences for non-financial companies as end users that the proposals could create.
The European Banking Authority (EBA) has issued a press release announcing a revised list of validation rules in its Implementing Technical Standards (ITS) on supervisory reporting, highlighting those which have been deactivated either for incorrectness or for triggering IT problems. Competent authorities throughout the EU are informed that data submitted in accordance with these ITS should not be formally validated against the set of deactivated rules.
On 7 September 2016 the European Association of Corporate (EACT) Treasurers issued a press release publishing a letter from its chair, Jean-Marc Servat, to the Basel Committee on Banking Supervision (BCBS) on its consultation on modifications to Basel III leverage ratio framework, which has since closed for public comment. Mr Servat focused his comments on the treatment of cash pooling, specifically notional cash pooling.
In a speech given on 8 September 2016, the Vice-President of the European Commission (EC) Valdis Dombrovskis set out his approach to the financial services portfolio he has taken over from Lord Hill at the Eurofi Financial Forum 2016 in Bratislava.
The Basel Committee on Banking Supervision (BCBS) has published the results of its Basel III minimum and common equity tier 1 (CET1) target capital requirements monitoring exercise. The report was created from aggregated data from 228 banks, 100 of which are large internationally active banks or group 1 banks and have tier 1 capital of more than €3bn. The BCBS report states that data as of December 2015 shows that all group 1 banks meet the Basel III risk-based capital minimum CET1 requirements as well as the target level of 7%.
The European Commission (EC) has put forward a plan to accelerate the implementation of the EU Capital Markets Union (CMU) project. One year after it was launched in September 2015, the Commission’s view is that it is important to rapidly finalise the first wave of CMU initiatives so they can have an effect on the ground as soon as possible. These include Simple, Transparent and Standardised (STS) securitisations, modernisation of the Prospectus rules and measures to strengthen venture capital markets to make it easier for medium-sized innovative companies to get financing.
In a press release dated 13 September 2016, the European Central Bank (ECB) published a speech on monetary policy in uncertain times, given by Sabine Lautenschäger, vice-chair of the supervisory board of the ECB. The speech focused on the effect of negative interest rates and the ECB’s bond purchase programme.
In its press release How can the Bank of England serve society and maintain stability in times of change? the Bank of England (BoE) announced that its governor and deputy governors will be travelling through the Midlands meeting with a wide cross-section of the population in an initiative called ‘The Future Forum’. The governors will host roundtable events for communities in Birmingham, Derby, Dudley, Leicester and Nottingham. The event is intended to listen to feedback and ideas from residents to promote the good of the people of the UK. The theme is to explore how the BoE can serve society and maintain stability in times of change.
Governor of the Bank of England, Mark Carney, presented his economic report dated 2 September 2016 to the Treasury Committee regarding monetary policy. The report provides details on the UK’s economic recovery since the recession and the reasons why Mr Carney voted for an exceptional package of monetary policy measures in August 2016.
On 6 September 2016 the Financial Ombudsman Service (FOS) published its latest complaints data on individual financial businesses spanning the first six months of 2016. The figures show the ombudsman took on a total of 169,132 new cases in the first half of 2016, which is a 3% increase on the previous period. Of the total cases referred in the first half of 2016, payment protection insurance (PPI) claims made up 54% of new complaints, with 91,381 new cases. The number of non-PPI complaints increased by 8% to 77,751, which includes a doubling of complaints against payday lenders. The ombudsman found in the consumer’s favour in 48% of cases over the six-month period.
The Bank of England issued a press release confirming Deputy Governor for Markets and Banking Minouche Shafik will leave the Bank of England (BoE) at the end of February 2017. Ms Shafik will become the Director of the London School of Economics. BoE Governor Mark Carney said that Minouche Shafik had helped drive through vital reforms on the domestic and international stages, particularly the completion of the Fair and Effective Markets Review which she co-chaired.
The Financial Conduct Authority (FCA) published a consultation paper (CP16/23) on proposals for a transitional provision covering insurers’ tariff data to be used to calculate their FCA periodic fees and the Financial Ombudsman Service (FOS) annual levies for 2017/18. The deadline for comments is 9 November 2016. To accommodate Solvency II changes, the FCA plans to use the same tariff data as used for 2016/17 fees and levies. In specified cases, firms will be able to make adjustments.
Andrew Tyrie, Chairman of the Treasury Committee has written to Andrew Bailey, Chief Executive of the Financial Conduct Authority (FCA) to request further information regarding the FCA’s review of the Financial Services Compensation Scheme (FSCS). The Treasury Committee published Andrew Tyrie’s letter—dated 9 September 2016—requesting information about how the FCA’s review of FSCS is progressing together with acting Chief Executive of the FCA Tracey McDermott’s original letter—dated 8 December 2015—stating that the FCA would keep the Treasury Committee updated with information about the FSCS review once it started.
On 14 September 2016 the Financial Conduct Authority (FCA) launched a public consultation to review its appropriate qualification exam standards in CP16/24. The FCA has made proposals to update the appropriate exam standards (AES) for appropriate qualifications listed in its training and competence (TC) sourcebook. The deadline for responses is 13 December 2016.
The primary objective of the consultation is to amend TC Appendix 4.1.1 of the TC sourcebook to clarify how to read and use the appropriate qualification tables (see appendix 2); update the current AES to ensure that the content continues to reflect the knowledge that individuals need to perform their roles competently (see Appendix 3 to the CP), and seek views on a standalone equity release qualification.
On 13 September 2016 the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) published a statistical release containing Mortgage Lenders and Administrators Statistics from the second quarter of 2016, which is aggregated from the annual returns from over 340 regulated mortgage lenders. The latest statistics report the total value of outstanding residential loans amounts to £1,317.3bn, an increase of 3.6% over the past four quarters.
The Financial Conduct Authority (FCA) issued a decision notice for Andrew Tinney, a former Chief Operating Officer of Barclays Wealth and Investment Management. This sets out the FCA’s finding that Mr Tinney should be publicly censured and banned from carrying out any senior management or Significant Influence Functions in any regulated financial service provider. Mr Tinney disputes the FCA’s decision and has referred the matter to the Upper Tribunal, where the FCA and Mr Tinney will present their cases.
Commission Implementing Regulation (EU) 2016/1646 of 13 September 2016 laying down implementing technical standards (ITS) with regard to main indices and recognised exchanges in accordance with the Capital Requirements Regulation (EU) No 575/2013 (CRR) has been published in the Official Journal of the EU.
On 13 September 2016 the European Banking Authority (EBA) published its report on the Basel III monitoring exercise at the European level. The EU measures implementing Basel III are the Capital Requirements Directive IV (CRD IV) and the Capital Requirements Regulation (CRR). The report uses data that was current at 31 December 2015. The sample includes 227 banks comprising 45 group 1 banks and 182 group 2 banks. This is the tenth publication of the report, and for the first time the analysis focuses on the joint sample of G-SIIs and O-SIIs.
The Prudential Regulation Authority (PRA) issued a press release dated 9 September 2016 announcing a consultation paper (CP30/16) setting out proposals for a one-year transitional arrangement for insurance firms’ PRA fees and Financial Services Compensation Scheme (FSCS) levies for the 2017/2018 fees year. The deadline for comments is 9 November 2016. The PRA intends to amend the Fees and Policyholder Protection Parts for firms within the scope of Solvency II and make consequential amendments for non-Directive firms so that PRA fees and FSCS levies are calculated on the basis of data available under the new regulatory reporting requirements.
The PRA is proposing a 12-month transitional period so that the calculations for the 2017/18 PRA fee and FSCS levy year will be based on the last set of Solvency I data received. The PRA is also proposing to allow submissions of updated data on a Solvency I calculation basis for the year ending in 2016, where a firm has gone into run-off between the end of its financial year ending in 2015 and 31 December 2016.
Correspondence between Lord Jonathan Hill, Commissioner for financial stability at the European Commission, and Roberto Gualtieri, Chair of the Committee on Economic and Monetary Affairs at the European Parliament, has been published which relates to PRIIPs regulatory technical standards (RTS) and key information documents (KIDs).
On 14 September 2016 the European Parliament passed a resolution calling for changes to the Commission Delegated Regulation of 30 June 2016 supplementing Regulation (EU) No 1286/2014 on key information documents for packaged retail and insurance-based investment products. MEPs stated the Commission Delegated Regulation was so flawed and misleading that it could actually cause individuals to lose money.
Commission Implementing Regulation (EU) 2016/1630 laying down implementing technical standards with regard to the procedures for the application of the transitional measure for the equity risk sub-module in accordance with the Solvency II Directive (2009/138/EC) was published in the Official Journal of the EU on 10 September 2016.
On 6 September 2016 the European Insurance and Occupational Pensions Authority’s (EIOPA) Head of Regulations, Dr Manuela Zweimueller, gave a keynote speech at the Slovenian Insurance Conference on Solvency II and its implementation. Ms Zweimueller acknowledged that Solvency II was not perfect, but contended that it was a good starting point. In an effort to achieve supervisory convergence, EIOPA is building a comprehensive information system based on regulatory reporting, and developing a Supervisory Handbook.
On 9 September 2016 the Prudential Regulation Authority (PRA) announced the issue of policy statement (PS) 24/16 (PS24/16) as a Solvency II external audit of the public disclosure requirement. This PS provides feedback on responses received to consultation paper 23/16, which closed 4 August 2016. Overall, the PRA did not consider that the responses received required significant changes to its proposals, though it has made some minor amendments to the proposed rules and supervisory statement. The rules apply to insurers with financial years ending on or after 15 November 2016.
In a press release dated 9 September 2016, the Prudential Regulation Authority (PRA) issued a supervisory statement SS11/16 on external audits of the public disclosure requirement under Solvency II. The PRA reminds the governing bodies of insurers of their responsibilities in respect of the ongoing appropriateness of the information disclosed, and that they must approve the Solvency and Financial Condition Report (SFCR). SS11/16 also sets out the level of assurance expected with respect to the external audit requirement on the SFCR and the audit guidance that the PRA expects auditors to follow when auditing a firm’s SFCR.
On 11 September 2016 HM Treasury published a letter from Simon Kirby MP Economic Secretary to the Treasury and Nicolas Aubert, Chairman of the London Market Group dated 5 September 2016. The letter sets out the Treasury’s appreciation for the contribution the London Market Group has been making to the Insurance Linked Securities (ILS) project and asks for continued support as the Treasury works towards successfully completing the project, particularly in finalising the detailed regulations that will implement the new framework for ILS.
The letter underlines the role that London plays as a global hub for specialist insurance and reinsurance which forms an important part of the UK’s financial sector exporting strength. The letter confirms the government’s commitment to working with the sector to ensure London has the regulatory environment it needs to innovate and compete in the global market place.
On 12 September 2016 the International Accounting Standards Board (IASB) announced it has amended its insurance contracts Standard, IFRS 4. The amendments follow a number of concerns arising from implementing the new financial instruments Standard, IFRS 9, such as temporary volatility in reported results. The amendments create both an overlay approach, and a deferral approach which are designed to give all companies which issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss and ensure the volatility that could arise when IFRS 9 is applied before the new insurance contracts Standard is issued, and gives companies whose activities are predominantly connected with insurance an optional temporary exemption from applying IFRS 9 until 2021.
On 13 September 2016 the Treasury Committee (TC) launched an inquiry into EU insurance regulation under Solvency II to explore the Solvency II directive. The TC stated that there was much concern expressed about Solvency II before it was introduced and now plans to explore the Brexit inheritance on insurance to see what improvements can be made in the interests of the consumer.
The European Insurance and Occupational Pensions Authority (EIOPA) published a report dated 31 August 2016 on good practices on communication tools and channels for communicating to occupational pension scheme members. The report is designed to highlight those existing rules and practices in Member States which currently help improve the communication tools and channels to occupational pension scheme members. EIOPA recommends storing all communication with scheme members in one accessible online platform.
A report dated 12 September 2016 on legislation governing ‘bills of sale’ has been published by the Law Commission, and is now awaiting the government’s response. The Commission published a number of recommendations on the bills of sale, including the creation of a new Goods Mortgages Act to, among other things, save £2m caused by unnecessary registration and red tape. In September 2014, HM Treasury asked the Law Commission to review the Bills of Sale Acts. In the report, the Commission found a number of problems in the current system for borrowers, purchasers and lenders and recommended a brand new Goods Mortgages Act to:
In a press release dated 13 September 2016, the Department for Business, Energy & Industrial Strategy confirmed new measures to strengthen the Prompt Payment Code and increase transparency. More than 1,800 firms are now signed up to the Code, with each one committing to the fair and equal treatment of suppliers. The statutory duty for large businesses to report on payment practices, introduced by the Small business, Enterprise and employment Act 2015 is due to come in to force from 6 April 2017 for financial years starting after this date.
Alternative asset managers are altering their business models and exploring a broader set of arrangements designed to improve the relationship with their investors, according to the latest survey published on 12 September 2016 by the Alternative Investment Management Association (AIMA). The survey of 120 alternative investment fund management firms identifies emerging trends, such as the growing prevalence of ‘claw backs’, whereby a share of past performance fees are returned to investors during loss-making periods and quantifies longer established practices.
On 12 September the Council of the European Union published an opinion of the European Central Bank (ECB) on a proposal for a Regulation amending Regulation (EU) No 345/2013 on European venture capital funds (EuVECA), and Regulation (EU) 346/2013 on European social entrepreneurship funds (EuSEF). The proposal, which is part of the Capital Markets Union Action Plan, seeks to amend EuVECA and EuSEF to ensure that the frameworks are best able to support investment in SMEs.
The Bank of International Settlements (BIS) published an opinion by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, examining TARGET2-Securities, a pan-European platform for securities settlement allowing banks to carry out cross-border securities transactions in the same way as they make domestic transactions.
On 9 September 2016 the EBA issued a press release of three European Supervisory Authorities (ESAs)—the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA)—publishing their opinion addressed to the European Commission (EC) expressing disagreement with its proposed amendments to the final draft Regulatory Technical Standards (RTS) on risk mitigation techniques for OTC derivatives not cleared by a central counterparty, which were originally submitted for endorsement on 8 March 2016. The ESAs disagree with the ECs proposal to remove concentration limits on initial margins for pension schemes, and make a number of other observations and recommendations.
On 8 September 2016 the International Swaps and Derivatives Association (ISDA) posted an article on its DerivatiViews blog regarding lessons learned from the implementation of non-cleared margin requirements on 1 September 2016, when around 20 of the largest derivatives users began exchanging initial and variation margin on their non-cleared trades under rules that took effect in the US, Japan and Canada.
According to ISDA, the roll-out of the new requirements went relatively smoothly, despite the fact that preparations could not be completed until the last minute. The principle lesson is that time is needed to put these changes into effect. ISDA says that it will work with regulators and market participants to make them aware of the impact that the deferred roll-out of phase-one requirements by European and other regulators will have on the broader launch of variation margin requirements in March 2017.
On the 12 September 2016 the British Bankers' Association (BBA) published a summary of its response to the European Securities and Markets Authority’s (ESMA) discussion paper on the use of distributed ledger technology (DLT) in securities markets issued in June 2016. The BBA confirms that DLT (including blockchain) has the potential to significantly improve the securities markets and regulatory compliance and reporting.
On 14 September 2016 the Bank for International Settlements (BIS) published working paper number 581, Near-Money Premiums, Monetary Policy and the Integration of Money Markets: Lessons from Deregulation. The paper investigates the impacts of the deregulation and integration of the money markets in the 1960s and 1970s, and the implications for monetary policy.
In a press release dated 13 September 2016, the Council of the European Union announced the issue of a corrigendum to the Capital Requirements Directive 2013/36/EU (CRD IV). The corrigendum will be published in the Official Journal of the EU after approval by the European Parliament.
On 8 September 2016 the Bank of England’s Chief Cashier, Victoria Cleland, presented a speech to the 2nd International Workshop P2P Financial Systems: Fintech: Opportunities for all? concerning fintech, and the opportunities it presents to the financial services sector.
On 14 September 2016 the Payment System Regulator (PSR) approved the designation of the Current Account Switch Service (CASS), operated by Bacs Payment Schemes Limited, as an alternative switching scheme under the Payment Accounts Regulations 2015 (PARs).
 All ER (D) 37 (Sep) Queens Bench Division
Negligence—professional person. The Queen's Bench Division dismissed the claimants' claims for breach of contract, negligence, breach of statutory duty and negligent misrepresentation against the defendant financial advisers. The claimants' investments had not been objectively unsuitable and, although the defendant had undertaken a binding obligation as a gesture of goodwill, that obligation had been performed.
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