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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 10 May 2018.
The Bureau Européen des Unions de Consommateurs—the European Consumer Association (ECA)—published a consumer checklist on the EU-UK relationship after Brexit, which aims to secure positive outcomes for consumers. The report says that regardless of what sort of deal and transition period emerges, the starting point is an integrated market where EU and UK consumers enjoy a comprehensive and harmonised legal, supervisory and enforcement framework. It warns that attention will need to be paid to the potential risks to consumers of a more disintegrated approach.
HM Treasury published a 27 April 2018 letter to the Treasury Select Committee concerning the financial services risk management technical working group in relation to Brexit. The group will be convened by the European Central Bank (ECB) and the Bank of England (BoE).
The Financial Conduct Authority (FCA) published the latest version of its policy development update, which provides information on its recent and upcoming publications. Future publications include a policy statement on the EU Money Market Funds Regulation (CP18/4), which is expected in Q2 2018.
At its meeting on 2 May 2018, the EU scrutiny committee considered proposals on the cross-border distribution of collective investment funds and non-performing loans (both retained under scrutiny) and communications from the European Commission on long-term regulatory plans (cleared from scrutiny).
The ECB published an interview given by Danièle Nouy, chair of the Supervisory Board of the ECB, in which she discussed transitional issues surrounding Brexit, non-performing loans, IT expertise on boards and compensation packages.
Benoît Cœuré, a member of the executive board of the ECB delivered a speech on central counterparty (CCP) resolution, highlighting the factors that tend to make CCPs resilient, but calling for recovery and resolution planning with an EU wide systemic risk assessment and a strong co-ordination at global level. Mr Cœuré said strong regulation and bail-in provisions meant CCP resolution remains a very unlikely event, but the disorderly failure of a major CCP would be ‘disastrous’.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report, Implementation monitoring of PFMI: follow-up Level 3 assessment of CCPs recovery planning, coverage of financial resources and liquidity stress testing. The report reviews the progress made by CCPs in implementing arrangements consistent with the principles for financial market infrastructures (PFMI).
The ECB announced that the 2018 stress test of four Greek significant institutions shows that the average capital depletion under the adverse scenario, which covered a three-year period and assumed static balance sheets, was nine percentage points, equivalent to €15.5bn. The stress test used the same methodology and approach as the EU-wide European Banking Authority (EBA) exercise, but with an accelerated timetable in order to complete the test before the end of the European Stability Mechanism's Stability Support Programme for Greece in August 2018.
The European Commission called for advice from the EBA on the implementation in the EU of the Basel III framework, which was finalised in December 2017. In its call, the Commission asked the EBA to prepare a comprehensive analysis to assess the potential impact of the different elements of the Basel reform on the EU banking sector and the wider economy.
The EBA published the results of its 2016 credit valuation adjustment (CVA) risk monitoring exercise, which assessed the impact on own funds requirements of the reintegration of the transactions currently exempted from the scope of the CVA risk charge. The results, in line with those of the previous monitoring exercise, continue to show the materiality of CVA risks that are currently not capitalised due to the Capital Requirements Regulation (CRR) exemptions.
The ECB fined Banco de Sabadell, S.A. €1.6m for repurchasing its CET1 instruments from 1 January 2014 to 7 November 2016 without the prior permission of the banking supervision authority. This constitutes a continuous breach of own funds requirements in that period.
Three companies in the Lloyds Bank group succeeded in their application under Pt VII of the Financial Services and Markets Act 2000 (FSMA 2000) for an order sanctioning a ring-fencing transfer scheme for the separation of their retail banking business from their (potentially riskier) wholesale and investment banking activities. The judgment is available at:  EWHC 1034 (Comm).
The Financial Stability Board (FSB) is consulting on recommendations for consistent national reporting of data on the use of compensation tools to address misconduct risk. The FSB says collecting and evaluating compensation data on a regular basis can provide firms and supervisors with important insights into the effectiveness of compensation programmes and potential areas of weakness. Currently, the gathering and analysis of compensation data varies significantly across jurisdictions and firms. Feedback is sought by 6 July 2018.
The Investment Association (IA) and KPMG jointly published a report to provide an overview of the key cybersecurity risks facing the asset management industry, offer guidance on the steps organisations can take to protect their business from cyber-attack, share thoughts on the power of an industry-wide response, and set out cybersecurity risks around future disruptive technologies.
The Information Commissioner’s Office (ICO) is seeking views from stakeholders and the public on its proposals to regulate new data protection laws. The consultation will focus on updates to the ICO’s draft Regulatory Action Policy. The consultation ends on 28 June 2018.
The ECB published a report setting out the lessons learnt from its thematic review on effective risk data aggregation and risk reporting, describing the key areas of concern and providing examples of observed good practices. It aims to encourage credit institutions to implement robust supervisory standards, in line with international best practices.
The House of Commons Treasury Committee launched an inquiry into service disruption at TSB Bank plc, in the wake of extensive and ongoing IT problems hitting customer accounts.
The European Commission adopted a Delegated Regulation with regulatory technical standards (RTS) under the fourth Anti-Money Laundering Directive (MLD4) on the criteria for the appointment of central contact points for electronic money issuers and payment service providers and with rules on their functions.
The chair of the supervisory board of the ECB, Danièle Nouy, wrote a letter to Sven Giegold MEP in which she makes the case for the creation of a Europe-wide anti-money laundering (AML) body. Ms Nouy also argues that the EU resolution framework needs to be amended in light of lessons learned from the ABLV Bank failure.
The CPMI published its strategy to reduce the risk of wholesale payments fraud related to endpoint security, which aims to encourage and help focus industry efforts to reduce the risk of wholesale payments fraud and, in doing so, support financial stability. The CPMI states that each CPMI member central bank, and the CPMI as a whole, is committed to acting as a catalyst for effective and coherent operationalisation of the strategy within and across jurisdictions and systems, and will monitor progress throughout 2018 and 2019 to determine the need for further action.
As part of its payment protection insurance (PPI) campaign, the FCA commissioned research on the 'to-do-lists' of UK adults. The FCA is encouraging people to put checking whether they're eligible to claim for PPI on their list prior to the 29 August 2019 deadline.
The Financial Services Compensation Scheme (FSCS) issued a press release stating that it has been made aware that Alpha Insurance A/S of Denmark has been put into bankruptcy.
The European Supervisory Authorities (ESAs) launched two joint consultations on proposed RTS regarding the clearing obligation and risk mitigation techniques for over-the-counter (OTC) derivatives not cleared by CCPs. The RTS are intended to implement provisions of Regulation (EU) 2017/2402 (the Securitisation Regulation), which amended Regulation (EU) 648/2012 (EMIR). Feedback is sought by 15 June 2018.
The European Securities and Markets Authority (ESMA) launched a companies portal allowing investors to check whether a financial service provider is authorised within the EU. The portal also provides reference to sanctions applied by the competent authorities in the Member States under several European legislations.
ESMA updated its public register with the latest set of double volume cap (DVC) data under the Markets in Financial Instruments Directive (MiFID II). The DVC mechanism aims to limit the trading under the reference price waiver and the negotiated transaction waiver for liquid instruments in an equity instrument.
The Bank for International Settlements (BIS) released its OTC derivatives statistics for the end of December 2017. Since 2015, the notional amount of outstanding OTC derivatives contracts has fluctuated in a range between about US$480trn and US$550trn. Notional amounts remained in this range in the second half of 2017, ending the year at US$532trn.
The FCA published the interim report on its mortgages market study. The FCA says competition in the market is working well, but there a number of ways in which the market could work better for some people, and it is consulting on a range of proposed remedies.
HM Treasury published a summary of the Financial Inclusion Policy Forum meeting held on 19 March 2018. The group discussed the work of the Financial Inclusion Commission, the government’s plans to use dormant assets for financial inclusion initiatives, the Financial Conduct Authority’s work on vulnerable consumers and affordable credit, and access to basic bank accounts.
The Association of British Insurers (ABI) and the British Insurance Brokers' Association (BIBA) launched a set of guiding principles and action points (GPAPs) aimed at addressing some of the issues in the current market that can lead to excessive differences between new customer premiums and subsequent renewal premiums that unfairly penalise long-standing customers.
The European Insurance and Occupational Pensions Authority (EIOPA) published the technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of April 2018. The updated symmetric adjustment is 1.41%.
EIOPA published technical information on the relevant risk-free interest rate term structures (RFR) with reference to the end of April 2018.
UK Finance, the Financial Data and Technology Association (FDATA), the Electronic Money Association (EMA) and techUK published voluntary guidelines and encouraged market behaviours under the revised Payment Services Directive (PSD2), which they urge all industry players to adopt and integrate into their practices.
The Payment Systems Regulator (PSR) published a document which sets out the PSR's reporting requirements which LINK must provide to the PSR monthly. The PSR says the information will help it protect people's access to cash. The quick reference guide shows what those reporting requirements are and what this means for consumers.
As part of its programme of work on ATMs, the PSR commissioned Europe Economics to provide insights on potential changes to the LINK interchange fee, specific to Scotland. The report provides an overview of the Scottish free-to-use (FtU) ATM network.
The ECB published the TARGET annual report for 2017. The report provides information on TARGET2 traffic, its performance and the main developments that took place in 2017.
The International Islamic Financial Market (IIFM) published its Annual Sukuk Report 2018 during its seminar in Kuala Lumpur, which states that Malaysia has remained the leader in the Sukuk market with domestic and international issuances of US$612bn.
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