Weekly highlights—10 August 2017

Weekly highlights—10 August 2017

Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 10 August 2017.

Financial Conduct Authority updates

FCA updates its policy development page

The Financial Conduct Authority (FCA) updated its policy development page, which provides information on its recent and upcoming publications. The FCA tries to update this page on the first Friday of each month.


ESMA amends guidelines on transaction reporting, order record keeping and clock synchronisation

The European Securities and Markets Authority (ESMA)  issued an updated version of its guidelines on transaction reporting, order record-keeping and clock synchronisation under the Markets in Financial Instruments Directive (MiFID II) (ESMA/2016/1452), first published in October 2016. The updates correct some factual errors, typos and inconsistencies in the technical section, but do not affect substance, policy or the comply or explain timeline.

FCA publishes Q&As on MiFID II commodity derivatives

The FCA published Q&As on commodity derivatives to assist firms with their preparations for MiFID II implementation. The FCA stressed that the guidance is not intended to ‘direct or encourage’ firms towards a specific course of action, and professional advice should be sought on the MiFID II requirements’ application to individual firms, but the regulator says it does reflect the content of Policy Statement 17/14.

FCA updates its MiFID II applications and notifications webpage

The FCA updated its webpage on applications and notifications under MiFID II, in order to clarify that firms will not be required to notify the FCA if they act as a general clearing member. The FCA also added a link to guidance regarding the ancillary activity exemption.

Regulatory architecture

FCA publishes industry views on its performance as regulator

The FCA and the FCA Practitioner Panel published the findings from their 2017 survey of FCA-regulated firms. The survey provides the opinions of more than 2,000 regulated firms who completed the survey in March and April this year. The survey shows that both the industry's satisfaction with its relationship with the FCA and the industry's rating of the FCA's effectiveness have increased.

EBA publishes Banking Stakeholder Group meeting minutes

The European Banking Authority (EBA) published the minutes of two Banking Stakeholder Group (BSG) meetings, which took place in February and May 2017. The first covered issues including the allocation of ongoing consultation papers such as one on guidelines on supervision of significant branches and another on RTS on central counterparty clearing houses (CCP) to strengthen fight against financial crime. The second meeting addressed matters such as coordination with the other European Supervisory Authorities’(ESAs) stakeholder groups—the BSG chairman said he is to prepare a joint position on the European Commission’s consultation paper on the ESAs review.

Prudential requirements

Mark Carney says banking reforms have built an ‘efficient and resilient system’

In an article published by the Financial Stability Board (FSB) reviewing the progress of banking reform in the decade following the financial crisis, the chair of the FSB, Mark Carney, has said the financial system is now ‘safer, simpler and fairer’, and called for ‘an open global financial system’. Mr Carney said the ‘toxic forms of shadow banking at the heart of the crisis’ no longer represent a global financial stability risk.

ESMA publishes MMF consultation responses

ESMA released the responses to its consultation on draft technical advice, implementing technical standards and guidelines under the Money Market Funds Regulation (MMF Regulation). The consultation set out the detailed rules required for the implementation of the new EU regulatory framework, which is aimed at ensuring the stability and integrity of money market funds. ESMA received 13 responses.

Risk management and controls

BoE responds to conflict of interest review

The Bank of England (BoE) is to implement all the recommendations contained in a review of its approach to identifying and managing conflicts of interest, and will designate a conflicts officer with overall executive responsibility for conflict identification and management. The BoE is to consider the creation of a centralised system for capturing and reviewing data on relationships and potential conflicts.

DDCMS consults on Network and Information Systems Directive

The Department for Digital, Culture, Media and Sport opened a consultation on the Network and Information Systems Directive. The European Commission, in co-operation with Member States, agreed the Directive with the aim of increasing the security of network and information systems (NIS) within the EU. The government supports the aims of the Directive and is consulting on the proposed implementation approach in the UK. The closing date for responses is 30 September 2017.

Financial Stability Institute report on regulatory approaches to bank cybersecurity

The Financial Stability Institute (FSI) published a report on regulatory approaches to enhance banks' cybersecurity frameworks. Recent high-profile cyber-attacks on financial institutions have focused attention on the need to strengthen cyber-security but only a handful of jurisdictions have specific regulatory and supervisory initiatives that seek to address banks' cyber-risk. The report analyses the regulatory and supervisory frameworks for banks' cyber-risk in these jurisdictions.

Financial crime

FCA to probe RBS over money laundering suspicions

In its half-yearly results, the Royal Bank of Scotland (RBS) confirmed the FCA will conduct an investigation into RBS's compliance with the Money Laundering Regulations 2007.

OECD outlines progress made 18 years after adoption of anti-bribery convention

The Organisation for Economic Co-operation and Development’s (OECD) working group on bribery outlined the progress made since the adoption of the Convention on combating bribery of foreign public officials in international business transactions (the convention) in 1999. Since then the working party has issued more than 200 monitoring reports covering foreign bribery laws and enforcement practices and activities of the parties to the convention.

FCA conduct requirements

FCA's director of competition explains the importance of competition in financial markets

The FCA published a speech given by Mary Starks, the FCA's director of competition and economics, on the FCA's competition mandate. Starks explained the importance of competition in financial markets and the FCA's the three main competition-related activities—market studies, competition law enforcement and pro-competition regulation.

FCA explains position limits and reporting regime for commodity derivatives

The FCA published an introduction to the position limits and reporting regime for commodity derivatives in advance of it coming into force on 3 January 2018. The regime aims to prevent market abuse and support orderly pricing and settlement conditions by improving transparency and oversight of financial markets.

Enforcement and redress

Charles Anthony Llewellen Palmer v The Financial Conduct Authority [2017] UKUT 0313 (TCC)

The Upper Tribunal (Tax and Chancery Chamber) published its decision in Charles Anthony Lewellen Palmer v The Financial Conduct Authority [2017] UKUT 0313 (TCC). The Tribunal upheld the FCA’s decision to ban and fine the director for failure to exercise due skill, care and diligence in managing the business of a network of financial advisers.

Former finance director fined £35,625 and given ten-year exclusion for misconduct

Following a Financial Reporting Council’s (FRC) investigation, the former finance director of Tech Data Limited (formerly known as Computer 2000 Distribution Limited (C2000)), admitted to 12 misconduct allegations and agreed to pay a £35,625 fine, with a ten-year exclusion from the Association of Chartered Certified Accountants (ACCA). The allegations were in relation to the preparation and approval of financial statements for the financial years ending 31 January 2012/13.

Markets and trading

BoE proposes to introduce new funding structure for supervision of financial market infrastructure

The Bank of England (BoE) issued a consultation paper: Levying fees for financial market infrastructure supervision. The purpose of this paper is to seek views on the BoE's proposal to introduce a new funding structure for the supervision of financial market infrastructure (FMI). The Bank has certain legal powers to levy fees on FMIs under the Banking Act 2009 (BA 2009) but, to date, has not exercised these. Responses are required by 6 October 2017.

FCA analyses circuit breakers in UK equity markets

The FCA published its findings following the analyses of a sample of events, where a sudden, sharp decrease in the price of a security triggers a circuit breaker on the London Stock Exchange (LSE), referred to as ‘flash crashes’. The FCA found that in the five-minute period after a circuit breaker was triggered and the LSE conducts a call auction, trading largely dries up on other UK trading venues and is effectively suspended on dark pools, with subdued quoted depth and wide effective spreads. These had significant impacts on both market and price volatility. In response to these events, the FCA suggests trading firms, including large banks, could behave differently.

Investment funds and wealth management

Record breaking half-yearly sales for funds industry

The funds industry experienced the highest level of half-yearly net sales on record in the first half of 2017, as retail investors place £18.4bn in UK authorised funds. Funds under management increased by £58bn in the year to end of June, to £1.1tn. Fund market specialist Alastair Wainwright says ‘net retail sales were once again strong in June, reaching £2.9bn. Over the last six months, retail and institutional net sales into UK authorised funds totalled £28.7bn’.

Consumer credit, mortgage and home finance

Survey launched to help FCA understand how consumers manage their mortgages

The FCA launched a survey of mortgages in the UK which will take place during August and September 2017. The survey will help the FCA understand more about consumers and how they are managing their mortgages and any engagement with their lenders. The research is due to be published in early 2018.


PRA opens extra consultation on fees for DIFs, life insurers and general insurers

The Prudential Regulation Authority (PRA) is consulting on its proposals relating to periodic fees for designated investment firms (DIFs), periodic fees and Financial Services Compensation Scheme (FSCS) levies for insurers, and fees in relation to models. The proposals aim to ensure that the methodologies for determining PRA fees for DIFs, life insurers and general insurers are appropriate to the risks these firms pose to the PRA objectives and, in the case of PRA fees and FSCS levies for general and life insurers, reflect the introduction of Directive 2009/138/EC (Solvency II). The consultation is in addition to the usual, annual consultations on fees and the FSCS management expenses levies limit. Feedback is sought by 24 October 2017.

Insurance Europe sets out PRIIPS Q&A requests

Insurance Europe asked the European Commission and the European Supervisory Authorities (ESAs) for further Q&As on the implementation of the revised regulatory technical standards for the Packaged Retail Investment and Insurance Products (PRIIPs) Regulation. It says Level 3 clarifications are essential to ensure that the industry has the necessary degree of legal certainty to appropriately implement the various provisions of the regulation.

Solvency II regulation published in the Official Journal

Commission Implementing Regulation (EU) 2017/1421 of 2 August 2017 laying down technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 30 June until 29 September 2017, in accordance with Solvency II, was published in the Official Journal of the EU on 5 August 2017.

EIOPA publishes July update of Solvency II symmetric adjustment of equity capital charge

The European Insurance and Occupational Pensions Authority (EIOPA) published its monthly update of the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of July 2017. EIOPA also published technical information on the relevant risk free interest rate term structures (RFR) with reference to the end of July 2017.

Payment services and systems

PSR proposes making switching between facilities management providers easier

The Payment Services Regulator (PSR) issued consultation paper: direct debit Facilities management-switching service provider (PSR CP17/1), consulting on provisional conclusions and proposals to change the direct debit rules relating to the switching of facilities management (FM) providers. The PSR are concerned that some FM clients currently face difficulties when trying to switch FM providers, inhibiting fair competition. The PSR proposes that FM providers remove barriers when an FM client wants to switch to another provider. The consultation closes on 15 September 2017.

EU investigation—Commission sends supplementary Statement of Objections to Visa in relation to inter-regional interchange fees

The European Commission sent a supplementary Statement of Objections (SoO) to Visa Inc and Visa International (Case AT.39398). The supplementary Statement of Objections, which follows the one adopted in 2012 against Visa, is another step in the Commission's ongoing investigation into the collective setting of the fees that merchants are charged by the Visa card holder's bank for each Visa card payment carried out at their shops. The cost increase of these fees is not charged directly to the Visa card user, but is spread across all consumer transactions at different merchants, which could potentially lead to higher prices for consumer goods and services. As Visa Inc and Visa International did not offer commitments in 2014, the case against these companies continued. This supplementary SoO, covering inter-regional interchange fees charged on payments made with cards issued outside the European Economic Area (EEA) for purchases in the EEA, most typically by tourists or other travellers, includes, inter-regional fees applied on transactions with consumer debit cards (in addition to the inter-regional fees with credit cards).

PSR appoints first chair of new payment system operator

The Payment Systems Regulator (PSR) appointed Melanie Johnson as the first chair of the New Payment System Operator (NPSO).

Fintech and virtual currencies

EBA publishes discussion paper on approach to Fintech

The EBA published a discussion paper: ‘Approach to financial technology (Fintech) EBA/DP/2017/01'. The EBA sets out the results of the first EU-wide Fintech mapping exercise and its proposals for future work on Fintech. Comments are required by 6 November 2017.

New report explores blockchain governance structures

Long Finance published a report examining appropriate governance structures for mutual distributed ledger (MDL, aka blockchain) applications. The report aims to provide ‘a roadmap for developers and users alike’, and includes a checklist highlighting the key issues that organisations should consider.

BIS assesses potential impact of Fintech on finance industry

The Bank for International Settlement (BIS) published working paperno 655 on the Fintech Opportunity by Thomas Phillippon, a member of the Monetary and Economic Department. The paper assesses the potential impact of Fintech on the finance industry and discusses the current regulatory approach, which Phillippon asserts is subject to significant political economy and coordination costs, and therefore unlikely to deliver much structural change. Fintech has the potential to improve both financial stability and access to services, but this requires significant changes in the focus of regulations.

International—financial services and related sectors

BIS—Approaches to regulatory proportionality for smaller banks ‘differ greatly’

The Bank for International Settlements (BIS) produced a note which compares the proportionality approaches, either applied or planned, taken by six jurisdictions on how best to tailor regulatory requirements to non-internationally active (smaller) banks. Across the six jurisdictions—Brazil, EU, Hong Kong, Japan, Switzerland and US—BIS finds approaches differ considerably in criteria and thresholds used to decide which banks are subject to a specific set of rules, and also differ in the regulatory standards subject to a proportional implementation. BIS says ‘proportionality should entail rules that are simpler but not necessarily less stringent’.

Dates for your diary

Key Date Subject Event
12 August 2017 FCA conduct requirements Deadline for responses to chapter 4 of the FCA consultation 'CP17/14: Quarterly Consultation Paper No. 17'.
12 August 2017 Benchmarks Regulation Deadline for responses to the FCA consultation 'CP17/15: Powers in relation to LIBOR contributions'.
14 August 2017 Senior Insurance Managers Regime and Senior Managers Regime Deadline for responses to Chapter 4 of the PRA consultation 'CP8/17—Strengthening accountability in banking and insurance: optimisations to the SIMR, and changes to SMR forms'.
15 August 2017 Insurance Deadline for responses to the FCA's guidance consultation 'GC17/5: Proposed guidance on the FCA’s approach to the review of Part VII insurance business transfers'.
15 August 2017 Investment funds and wealth management The National Savings (Amendment) Regulations 2017 come into force.
17 August 2017 Insurance Distribution Directive Deadline for responses to European Commission consultations:
• Commission Delegated Regulation (EU) …/... supplementing Directive (EU) 2016/97 of the European Parliament and of the Council with regard to product oversight and governance requirements for insurance undertakings and insurance distributors, and
• Commission Delegated Regulation EU) …/... supplementing Directive (EU) 2016/97 of the European Parliament and of the Council with regard to information requirements and conduct of business rules applicable to the distribution of insurance-based investment products

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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.