Weekly highlights—1 March 2018

Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 1 March 2018.

Brexit

Nicky Morgan says businesses urgently need Brexit transition details

The chair of the Treasury Select Committee, Nicky Morgan MP, commented on the government’s response to the Committee’s December 2017 report on transitional arrangements for exiting the EU. The report concluded that an agreement between the UK and EU on transitional arrangements was urgent. While welcoming the fact that the overall framework for transitional arrangements recommended in the report had largely been accepted by the government, Ms Morgan said ‘Key questions remain unanswered and details are in short supply.

Financial Conduct Authority updates

FCA publishes Handbook Notice 52

The Financial Conduct Authority (FCA) published Handbook Notice No. 52, which includes changes to the FCA Handbook made by the FCA board on 22 February 2018, together with feedback on consultations that will not have a separate policy statement. The Handbook Notice includes four instruments.

Regulatory architecture

Almost all senior RBS restructuring employees worked at GRG

The Treasury Committee published a Supplementary Evidence Addendum submitted by RBS which states that 136 of the 182 current RBS restructuring employees (75%) and 30 of the 32 current RBS restructuring employees at senior manager grade or above (94%) previously worked in RBS' Global Restructuring Group (GRG).

FSB reports good progress in peer review of Singapore

The Financial Stability Board (FSB) published its peer review of Singapore, which focused on the macroprudential policy framework, and the framework for resolution of financial institutions. The review examined the steps taken by the authorities to implement reforms in these areas, including by following up on relevant International Monetary Fund (IMF) Financial Sector Assessment Program (FSAP) recommendations and G20/FSB reforms. The report found that good progress has been made in recent years in both areas, but also set out a list of recommendations.

ECB speech—banking supervision and the limits of proportionality

The ECB published a speech on proportionality in banking supervision by Ignazio Angeloni, a member of its supervisory board, delivered at the 13th Asia-Pacific high-level meeting on banking supervision. Mr Angeloni said that the demand for more proportionality is reinforced by a desire, in today’s improved economic and financial climate, ‘to call an end to the crisis and swing the pendulum a bit back towards a less regulated and more business-friendly approach’. But he warned that such demands should be regarded with great caution: ‘Proportionality should not lead to supervisory laxity or deviations from the single rule book’.

Adam Farkas addresses profitability and efficiency of the EU banking sector

The executive director of the European Banking Authority (EBA), Adam Farkas, gave a speech on regulatory and supervisory aspects of the evolution of bank business models in Europe. Mr Farkas said the macroeconomic outlook has improved and the completion of the Basel III reform package brings more regulatory clarity, helping banks plan their business models, but profitability remains the main concern and improving efficiency across the sector may mean fewer banks.

FCA director discusses the pros and cons of price regulation

The director of competition and chief economist at the FCA, Mary Starks, delivered a lecture on price regulation at the Social Market Foundation. Ms Starks argued that fixing or capping prices can have very serious unintended consequences, and policy makers should review them regularly to make sure they work as intended.

Authorisation, approval and supervision

FCA statement on proposals to introduce a public register

The FCA issued a statement in which the regulator states that later in 2018 it will consult on proposals to make information available on a wider range of individuals at authorised firms.

BSB updates guidance on its fitness and propriety assessment principles

The Banking Standards Board (BSB) published supporting guidance to its Statement of Good Practice: Fitness and Propriety (F&P) Assessment Principles, which aims to assist firms to identify and deal with risks and issues that may arise when assessing certified staff, especially in cases where the issues are not clear-cut.

Prudential requirements

PRA issues final rules and guidance on Pillar 2 liquidity

The Prudential Regulation Authority (PRA) published Policy Statement PS2/18 on Pillar 2 liquidity, with responses to consultation paper CP21/16 and CP13/17. The policy statement contains a final statement of policy (SoP), an updated supervisory statement (SS) 24/15, a final template and reporting instructions, a final amendment to the Reporting Part of the PRA Rulebook, and an updated SS34/15.

BCBS consultation on updated Pillar 3 disclosure requirements

The Basel Committee on Banking Supervision (BCBS) published a consultation document 'Pillar 3 disclosure requirements—updated framework', which sets out additional disclosure requirements to the Pillar 3 framework arising from the finalisation of the Basel III post-crisis regulatory reforms in December 2017. The final date for responses is 25 May 2018.

ESRB issues report and opinion on macro-prudential structural buffers

The European Systemic Risk Board (ESRB) published a report (dated December 2017) on the use of structural buffers in the EU over the last three years, covering the buffer for global systemically important institutions (G-SIIs), the buffer for other systemically important institutions (O-SIIs) and the systemic risk buffer (SRB). The ESRB also published an Opinion on how the EU legal framework for structural buffers could be enhanced in order to apply the macroprudential toolkit more effectively.

Council of the EU banking package RRM proposals amending CRR, CRDIV, BRRD and SRMR to be reviewed

The Council of the EU published a communication setting out a notice of a meeting and provisional agenda in relation to a meeting of the working party on financial services on 1 March 2018. The agenda states that the delegation is to continue reviewing the banking package of risk reduction measures (RRM) proposals which will amend the Capital Requirements Regulation (CRR), the Capital Requirements Directive IV (CRD IV), the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR) at the meeting on 1 March 2018.

EBA issues opinion on National Bank of Belgium’s capital requirements modification

The EBA published an opinion following the notification by the National Bank of Belgium (NBB) of its intention to modify capital requirements in order to address an increase in macroprudential risk. Based on the evidence submitted by the NBB, the EBA does not object to the adoption of the proposed measure, which is based on Article 458(2) of the CRR. The new measure aims to enhance the resilience of Belgian banks to potential severe downward corrections in residential real estate markets.

FIA EPTA warns that proposed new prudential regime for investment firms could increase costs

The FIA European Principal Traders Association (EPTA) says it supports the European Commission's recently proposed legislation on the prudential requirements for investment firms. However, it warns that some of the changes could increase compliance costs and barriers to entry, and it has suggested adjustments to ensure that investment costs will not increase unnecessarily.

ECB press release states ABLV Bank was failing or likely to fail

The ECB issued a press release in which it states that, on 23 February 2018, it determined that ABLV Bank was failing or likely to fail in accordance with the Single Resolution Mechanism Regulation. The ECB also determined ABLV Bank Luxembourg, a subsidiary of the Latvian bank, was failing or likely to fail.

Public responses to FSB consultations on G-SIB resolution

The FSB published the public responses to its two November 2017 consultations on the resolution regime for global systemically important banks (G-SIBs)—Principles on bail-in execution (responses here) and Funding strategy elements of an implementable resolution plan (responses here).

FCA conduct requirements

FCA issues perimeter guidance on personal recommendations for retail investments

The FCA published Policy Statement PS18/3, which sets out final rules and changes to the Perimeter Guidance Manual (PERG) on what constitutes a personal recommendation. PS18/3 also responds to feedback on Consultation Paper CP17/28, which was published in August 2017.

Financial crime

FATF adopts new operational plan of action to combat terrorist financing

The Financial Action Task Force (FATF) published a summary of its latest plenary meeting, which took place in Paris on 21-23 February 2018. The main issues dealt with included combatting terrorist financing, and a new counter-terrorist financing operational plan was adopted.

HMRC publishes anti-money laundering compliance review

HMRC published its review of anti-money laundering compliance in the money service businesses (MSBs) sector, which aims to benefit MSBs with activity centred on money transmission involving a network of agents.

HM Treasury updates advisory notice on AML/CFT controls in higher risk jurisdictions

Following the FATF public statements identifying jurisdictions that may pose a risk to the international financial system, HM Treasury updated its advisory notice on anti-money laundering and counter-terrorist financing (AML/CFT) controls in higher risk jurisdictions. The notice is not legally binding, but should be followed as part of the due diligence procedures required by the Money Laundering Regulations 2017.

Danièle Nouy on the jurisdiction for AML investigations

The chair of the supervisory board of the ECB, Danièle Nouy, issued a statement on AML, saying that when creating the single supervisory mechanism, the EU Member States chose to keep responsibility for AML at the national level. This means the ECB does not have the investigative powers to uncover such breaches of AML within banks, which Ms Nouy said can be symptomatic of more deeply rooted governance deficiencies.

Enforcement and redress

FCA fines Vanquis £1.9m for failure to disclose charges

The FCA fined credit card lender Vanquis £1,976,000 for failing to disclose the full price of an add-on product, called Repayment Option Plan (ROP). The firm will also repay an estimated £168m in compensation, which is the amount of the charges not disclosed to customers when they bought the ROP.

Markets and trading

UK Finance: MiFID II implementation—so far, so good

Industry association UK Finance published a comment piece on the implementation process for MiFID II and progress so far. Gathering views from its members, UK Finance said that whilst it is still early days for MiFID II the consensus is ‘so far, so good’.

CLLS comments on outsourcing in relation to MiFID II portfolio management services

The City of London Law Society (CLLS) published a letter (dated 29 December 2017) from the CLLS regulatory law committee chair, Karen Anderson, to the manager of the FCA’s markets policy division, Stephen Hanks, in relation to MiFID II: outsourcing in relation to portfolio management services. The CLLS letter provides observations on the FCA's letter of 19 July 2017 addressed to Mr Jiri Krol of AIMA.

MAR ITS on cooperation between competent authorities published in Official Journal

Commission Implementing Regulation (EU) 2018/292 of 26 February 2018 laying down implementing technical standards (ITS) with regard to procedures and forms for exchange of information and assistance between competent authorities according to Regulation (EU) No 596/2014 of the European Parliament and of the Council on market abuse was published in the Official Journal of the EU.

Gap identified in current margin call process for OTC collateral

The International Swaps and Derivatives Association collateral infrastructure committee (CIC) identified a gap as it pertains to the current margin call process in its remit to monitor issues and challenges related to the over-the-counter (OTC) collateral process. There remains a consistent population of counterparties who do not subscribe to an electronic form of margin call messaging, which prevent true straight-through processing in the overall collateral process.

European Parliament publishes ECON committee briefing on the Short Selling Regulation

The European Parliament's Committee on Economic and Monetary Affairs (ECON) published a briefing paper for the scrutiny session on the Short Selling Regulation (SSR) which took place on 22 February 2018.

ECON scrutiny session on ESMA's Short Selling Regulation technical advice

The executive director of the European Securities and Markets Authority (ESMA), Verena Ross, gave an address at an ECON scrutiny session on ESMA's technical advice on the evaluation of certain elements of the SSR.

ESMA presentation sets out details of the Securitisation Regulation

ESMA published the slides of a presentation on its consultation papers on draft regulatory standards under the Securitisation Regulation. The presentation examined the need for simple, transparent, and standardised (STS) regulation of an area that is ‘complex, opaque, and not consistently regulated’, and outlined the timelines for the various implementing and regulatory technical standards (RTS).

ECB publishes speech and consultation feedback on euro interest rate benchmark reforms

The ECB published a summary of the responses it received to its public consultation on developing a euro unsecured overnight interest rate, which closed on 12 January 2018. The ECB received responses from 54 market participants, with ‘the vast majority’ agreeing with the definition suggested in the public consultation document and expecting the rate to be generally accepted by the public as a reference rate.

Corrections made to UK benchmarks statutory instruments

The government has published correction slips with regard to the Financial Services and Markets Act 2000 (Benchmarks) Regulations 2018 and the Financial Services and Markets Act 2000 (Benchmarks) (Amendment) Regulations 2018, to reflect the fact that no impact assessment will be carried out.

Investment funds and wealth management

Government outlines plans to expand dormant asset scheme

The government published its response to the Independent Commission on Dormant Assets’ March 2017 report on expanding the dormant assets scheme. The government confirms its commitment to expand the scheme to a wider range of asset classes, and says that the core principles of the current scheme should be maintained.

IA issues guidance on FX Last Look and recommendations for liquidity providers

The Investment Association (IA) published a series of guidelines designed to address a number of concerns in the use of Last Look—the practice whereby a liquidity provider, such as a bank, has the final opportunity to decline or accept a trade request. The guidelines form part of IA’s call for greater transparency in the use of Last Look, and seek to address concerns that it can negatively affect the ability of asset managers to meet the needs of their clients.

Consumer credit, mortgage and home finance

FCA speech on the consumer credit landscape

The chief executive of the FCA, Andrew Bailey, gave a speech at a Finance and Leasing Association (FLA) event in London about the steps that the FCA is taking to ensure that lending is affordable and sustainable. Mr Bailey gave an overview of the work the FCA is doing in relation to credit cards, overdrafts and rent-to-own.

FCA publishes new rules on credit cards and persistent debt

The FCA published its final policy statement on new rules for the credit card market, which it estimates will save consumers between £310m and £1.3bn a year in lower interest charges. The changes will provide more protection for credit card customers in persistent debt or at risk of financial difficulties. The new rules come into force on 1 March 2018, but firms have until 1 September 2018 to comply.

Insurance and pensions

PRA publishes near-final rule changes to reflect IDD delay

The PRA updated Policy Statement PS31/17, 'Responses to CP18/17 Occasional Consultation Paper—Chapters 7 and 8', to reflect the proposed delay of the commencement date of the Insurance Distribution Directive (IDD) from 23 February 2018 to 1 October 2018. The changes were consulted on in the PRA's consultation paper CP4/18, which was published on 5 February 2018.

IE position paper makes suggestions to reform EIOPA governing structure

Insurance Europe (IE) issued a position paper responding to the European Commission’s proposals regarding the review of the European Supervisory Authorities (ESAs). IE welcomes the Commission’s recognition of the need to maintain the European Insurance and Occupational Pensions Authority (EIOPA) as a stand-alone authority responsible for both prudential and conduct of business supervision, but calls for changes to the EIOPA governance model to introduce more checks and balances.

EIOPA recommends further simplifications to the calculation of insurers' capital requirements

EIOPA submitted its second and final set of advice to the European Commission on the calculation of insurers' capital requirements using the Solvency Capital Requirement (SCR) standard formula.

PRA response to the Treasury Committee's report on Solvency II

The PRA published its response to the Treasury Committee's October 2017 report 'The Solvency II Directive and its impact on the UK Insurance Industry'. The PRA points out that it has limited scope to change Solvency II due its detailed, rules-based nature, but is committed to making improvements to its implementation where appropriate and where there is discretion to do so.

Sam Woods says PRA working to improve Solvency II implementation

The deputy governor for prudential regulation and CEO of the PRA, Sam Woods, delivered a speech on ‘looking out for the policyholder’ at the annual conference of the Association of British Insurers (ABI). Mr Woods said that while there was ‘no convincing evidence’ to suggest that the Solvency II directive had crushed the profitability or growth of UK insurance companies or driven up prices for UK insurance policyholders, there was a strong degree of agreement between the PRA, the Treasury Select Committee (TSC) and the industry that it could be made to work better.

IE feedback raises concerns about EIOPA reporting and disclosure ITS

IE responded to EIOPA call for input on the inclusion of new data validations and corrections to the reporting and disclosure ITS and harmonisation of the European XBRL filing rules. IE raises concerns in several areas, including on the look-through approach for investment related undertakings, and the reporting of nominated external credit assessment institutions (ECAIs) in several quantitative reporting templates (QRTs).

Payment services and systems

PSR confirms plans for contingent reimbursement model

The Payment Systems Regulator (PSR) announced the outcome of its consultation on introducing a contingent reimbursement model for victims of authorised push payment (APP) scams. The PSR plans to introduce an industry code by September 2018, which aims to provide better protection for victims of APP scams.

Private action—High Court rules that Visa MIFs are not exempt under Article 101(3) TFEU

The High Court handed down a further judgment concerning Sainsbury’s claim for damages against multilateral interchange fees (MIFs) set by Visa (based on the Commission’s infringement decision in AT.39398). By way of background, on 30 November 2017, the High Court dismissed Sainsbury’s claim in its entirety on the basis that Visa’s UK MIFs did not restrict competition within the meaning of Article 101(1). This conclusion rendered it unnecessary to consider Visa’s contention that the UK MIFs in any event were and would be exempt under Article 101(3) TFEU. Despite this ruling, on 23 February 2018, the High Court handed down a separate judgment to clarify this issue, in which Mr Justice Phillips ruled that if (contrary to the High Court’s 2017 judgment) Visa’s MIFs have at any time restricted competition within the meaning of Article 101(1) TFEU, they were not exempt under Article 101(3) TFEU and would not have been exempt at any level.

ECB director calls for early adoption of PSD2 security standards

Yves Mersch, member of the executive board of the ECB, called on payment service providers (PSPs) to implement the security requirements of the revised Payment Services Directive (PSD2) and its RTS as soon as possible. Speaking at the European Banking Federation's executive committee in Frankfurt, Mr Mersch also encouraged PSPs to co-operate in the standardisation of application programming interfaces (APIs) that will preferably result in a single API.

PSD2 and the new wave of payment services

Yves Mersch, a member of the executive board of the ECB, spoke on innovation and digitalisation in payment services at the second annual conference on FinTech and digital innovation, saying new technologies will increase both efficiency and competitiveness, and this will ultimately benefit society. Mr Mersch said the industry is already seeing numerous innovative solutions that make use of the opportunities created by PSD2, including payment initiation services (PIS) and account information services (AIS).

Council of the EU publishes statement from the Czech Republic on PSD2 strong customer authentication RTS

The Council of the EU published a statement from the Czech Republic concerning Commission Delegated Regulation (EU) No …/.. of XXX supplementing PSD2 with regard to RTS for strong customer authentication and common and secure open standards of communication. The statement raises an objection to this delegated regulation as the Czech Republic thinks that in some aspects the text is not a balanced compromise.

EBA compliance table for PSD2 major incident reporting guidelines

The EBA published a compliance table showing which competent authorities comply or intend to comply with the EBA’s guidelines on major incident reporting under Directive (EU) 2015/2366 (PSD2). All EU Member States have indicated that they comply or intend to comply, with the exception of Romania, which has not responded.

Fintech and virtual currencies

Inquiry launched into Bitcoin in the UK

The Treasury Committee announced a new inquiry into digital currencies distributed ledger technologies, such as Bitcoin and respectively, and their influence in the UK. Specifically the Committee is looking into the opportunities and risks that digital currencies may bring to consumers, businesses, and the government, and the potential impact of distributed ledger on financial institutions, including the central bank and financial infrastructure. Senior associate Robert Jappie is unsurprised by the news, stating that Mackrell Turner Garrett is ‘already seeing cryptocurrency frauds and scams taking place’. Meanwhile Leigh Sagar, barrister at New Square Chambers explains that it is important the review also looks at the ‘potential impact of distributed ledger technology-including blockchain-on financial institutions and financial infrastructure’.

Valdis Dombrovskis—Europe has what it takes to develop a globally competitive FinTech sector

The vice-president of the European Commission, Valdis Dombrovskis, delivered a speech at the second annual FinTech and Digital Innovation conference on developments in FinTech. He said that, on a recent ranking of the world's 100 most innovative FinTechs, as many as 33 were from the EU. This shows that FinTech is already a job creator in Europe, but this is only the beginning, and Europe has what it takes to develop a globally competitive FinTech sector. At the same time, there are risks. The challenge is to strike the balance between embracing the opportunities of new technologies, while addressing risks to consumers and investors.

Commission vice-president Dombrovskis gives debrief at the roundtable on cryptocurrencies

The European Commission published a press release by vice-president Dombrovskis at the roundtable discussion with key authorities, industry representatives and experts who shared their insights and views on cryptocurrencies. The aim of this roundtable was first and foremost to feed into the upcoming action plan on FinTech, and the EU's position for a possible discussion at G20 level.

Steven Maijoor on the risks and benefits of FinTech

The chair of ESMA, Steven Maijoor, gave a speech at the second annual FinTech and Digital Innovation Conference, in which he discussed FinTech regulation and the measured approach being taken by ESMA and the other ESAs. He said that regulators need to monitor and assess FinTech carefully, to ensure that they have the measure of different innovations and take both risks and opportunities into account when formulating policy. This involves assessing the structural features of FinTech innovations and monitoring the economic functions which those innovations perform.

Jon Cunliffe on the social technology of money

The deputy governor for financial stability at the Bank of England (BoE), Sir Jon Cunliffe, gave a speechat the University of Warwick PPE Society in which he described money as a 'social technology' underpinned by other technologies, and discussed the impact of the reforms being introduced under PSD2 and the Open Banking initiative, which will bring new players and new business models to the market.

Dates for your diary

Date Subject Event
2 March 2018 Fintech Deadline for responses to the FCA’s request for views on creating a global sandbox.
5 March 2018 Benchmarks Regulation Deadline for responses to FCA consultation ‘CP18/5: EU Benchmarks Regulation Implementation (DEPP and EG)’.
6 March 2018 Prudential requirements Deadline for responses to PRA consultation paper ‘CP25/17: Pillar 2—Update to reporting requirements’.
6 March 2018 Prudential requirements Deadline for responses to PRA consultation paper ‘CP26/17: Model risk management principles for stress testing’.
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