Weekly highlights—10 November 2016

Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 10 November 2016.

Brexit

Parliament debate on the effect of Brexit on financial services

On 3 November 2016, the UK Parliament published the transcript of a debate in the House of Commons on 3 November 2016 regarding the effect of Brexit on financial and other professional services.

EU Financial Affairs Sub-Committee publishes FCA’s written submission on UK’s post-Brexit future of financial services

On 4 November 2016, the House of Lords EU Financial Affairs Sub-Committee on Financial Services published the Financial Conduct Authority’s (FCA) written submission on the future of financial services in the UK following the Brexit vote. The submission, dated 17 October 2016, outlines the FCA’s commitment to ensuring continuity in the delivery of its objectives, and to continue to attach importance to a number of principles regardless of the shape of the new relationship with the EU and its member states.

Treasury Committee publishes FCA letter on financial services regulation post-Brexit

On 8 November 2016, the Treasury Committee published a letter from Andrew Bailey, Chief Executive of the FCA, to Andrew Tyrie MP, Chairman of the Treasury Committee. The letter covers the regulatory landscape for financial services if the UK were to be considered a third country by the continuing members of the EU post-Brexit.

Scotland’s Lord Advocate to intervene in Supreme Court appeal on Article 50

On 8 November 2016, Scotland’s First Minister confirmed that the Lord Advocate—Scotland’s most senior law officer—will lodge a formal application to intervene in the UK government’s appeal to the Supreme Court on the triggering of Article 50. The Lord Advocate will lodge the application as soon as the UK government begins its appeal against a High Court ruling preventing it from using the Royal Prerogative to begin the Brexit process.

Financial Conduct Authority updates

FCA publishes Handbook Notice 38

On 4 November 2016, the FCA published Handbook Notice 38, which sets out the FCA’s response to feedback to consultation CP16/17. The FCA has also published the Disclosure Guidance and Transparency Rules Sourcebook (Miscellaneous Amendments) Instrument 2016 (SI 2016/70), which implements changes to the Disclosure Guidance and Transparency Rules following the consultation.

FCA publishes policy development update for November 2016

On 4 November 2016, the FCA published its latest policy development update, which provides information on its recent and upcoming publications, including forthcoming consultations on MiFID II and consumer credit.

Regulatory architecture

International organisations critical to development of global standards

On 3 November 2016, the Organisation for Economic Co-operation and Development (OECD) published a study that determined international organisations (IOs) play an important role in the development of rules and standards, which can advance the wellbeing of citizens in a globalised world. However, OECD believes IOs could improve their effectiveness by seeking to coordinate their actions and technical expertise.

FSB publishes speech by secretary general Svein Andresen

On 3 November 2016, the Financial Stability Board (FSB) published a speech by Svein Andresen, FSB secretary general delivered at the Chatham House Banking Revolution conference ‘Global regulatory developments and their industry impact’.

Regulators ‘must take action’ to fix banking IT systems failures

On 7 November 2016, after Tesco Bank had confirmed that some customer accounts had been ‘subject to online criminal activity’ which resulted in money being withdrawn, the chairman of the Treasury Committee, Andrew Tyrie MP called it ‘the latest in a long line of failures and breaches of banking IT systems’ to which consumers have been ‘unnecessarily exposed’. Mr Tyrie said he would be writing to the chief executive of Tesco Bank to find out what went wrong, and what action will be taken to reduce the likelihood of it happening again.

FCA confirms successful regulatory sandbox firms under ‘Project Innovate’

On 7 November 2016, the FCA announced the firms that have been successful in their Project Innovate applications to begin testing in the first cohort of the regulatory sandbox. The FCA also announced that firms can start to apply for the second cohort from 21 November 2016—the closing date for which is 19 January 2017. It is expected that accepted firms will start testing in May 2017.

Treasury Committee:—‘Financial consumers must have equal access to services’

On 7 November 2016, the Treasury Committee published a letter dated 31 October 2016 from its chairman, Rt. Hon Andrew Tyrie MP, to the chief executive of the FCA, Andrew Bailey, which voiced concern that financial information may not be being provided to customers with visual impairments in accessible formats. Mr Tyrie said that it had been brought to the Treasury Committee’s attention that financial consumers with visual impairments may be being denied equal access to financial services.

BIS assesses macroeconomic impact of core Basel III reforms and outstanding issues

On 7 November 2016, the Bank of International Settlements (BIS) published a working paper on a conceptual framework to assess the macroeconomic impact of the core Basel III reforms, including the leverage ratio surcharge that is being considered for global systemically important banks (G-SIBs). The publication of the report comes as BIS looks to shift its emphasis to monitoring its implementation and assessing the impact of the reforms as the Basel III package nears completion.

FOS issues response to Law Commission’s 13th programme of law reform consultation

On 7 November 2016, the Financial Ombudsman Service (FOS) published its response to the Law Commission’s consultation regarding its 13th Programme of law reform in England and Wales.

ECB speech on European banking supervision

On 7 November 216, the European Central Bank (ECB) published by a speech given by Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, on 7 November 2016.

Immigration Act 2014 (Current Accounts) (Compliance &c) Regulations 2016

SI 2016/1073: The information, manner and form and timing requirements are prescribed for the purposes of the statutory regime governing immigration checks of current accounts by banks and building societies. These changes came into effect on 30 October 2017.

Recovery and resolution

ECB issues amending guideline on additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral

On 2 November 2016, the ECB published an amendment to Guidelines ECB/2014/31 on additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral.

ECB issues amending guideline on valuation haircuts applied in implementation of Eurosystem monetary policy framework

On 2 November 2016, the ECB published an amendment to Guideline ECB/2016/65 on the valuation haircuts applied in the implementation of the Eurosystem monetary policy framework. The amendments make changes to the provisions for valuation haircuts applied to eligible marketable assets and valuation haircuts for marketable assets.

ECB issues amending guideline on implementation of the Eurosystem monetary policy framework

On 2 November 2016, the ECB published amending guideline ECB/2015/510 on the implementation of the Eurosystem monetary policy framework.

HM Treasury responds to consultation on BRRD implementation

On 4 November 2016, HM Treasury published its response to the consultation on the implementation of the Bank Recovery and Resolution Directive 2014/59/EU (BRRD), which was launched on 17 December 2015 and closed on 25 February 2016. The government also published a draft statutory instrument on the Bank Recovery and Resolution Order 2016. The instrument would amend the special resolution regime for banks and investment firms to strengthen and clarify the UK’s transposition of the BRRD.

IEA helps with understanding the financial implications of climate change

On 7 November 2016, Dr Fatih Birol, the executive director of the International Energy Agency (IEA), met with Mark Carney, head of the Financial Stability Board (FSB), to discuss and provide assistance in understanding the financial risks due to climate change. Dr Birol strongly believes the IEA’s analysis of energy trends and markets can help governments, regulators, and corporations ensure a predictable, and economically sustainable transition to the low-carbon economy.

ECB publishes EU post-crisis reform and post-crisis bank performance slides

On 7 November 2016, the ECB published slides from Ignazio Angeloni’s (member of the ECB Supervisory Board) session on ‘Achieving financial stability: Challenges to Prudential Regulation’. The slides are from the ECB’s 19th annual international banking conference on 4 November 2016 at the Federal Reserve Bank of Chicago. The slides consider the EU post-crisis reform and post-crisis bank performance and sets out progress so far in increasing solvency ratios and reducing systemic risks.

PRA issues MREL rules

On 8 November 2016, the PRA published a policy statement (PS30/16) and a supervisory statement (SS16/16) detailing rules on the setting of the minimum requirement for own funds and eligible liabilities (MREL) for UK banks; a requirement under the Bank Recovery and Resolution Directive 2014/59/EU (BRRD). The Bank of England (BoE) also published its approach to setting an MREL, which includes feedback on the main issues raised in the consultation process.

Public Accounts Committee reports on Northern Rock assets sell-off

On 9 November 2016, the Public Accounts Committee issued a report which stated HM Treasury should review lessons learned from the sale of former Northern Rock assets and ensure these are shared across government.

Prudential requirements

ECB launches consultation on harmonising supervisory rules for banks supervised by national competent authorities

On 3 November 2016, the ECB launched a public consultation on a consolidated draft guideline and recommendation concerning the exercise of options and discretions (O&Ds) available in Union law for banks it does not directly supervise (less significant institutions or LSIs). The aim is to harmonise the way banks are supervised by national competent authorities (NCAs) in the 19 countries of the Single Supervisory Mechanism (SSM) and thereby ensure a level playing field and the smooth functioning of the euro area banking system as a whole. The consultation is open until 5 January 2017.

EBA publishes final guidelines on ICAAP and ILAAP information

On 3 November 2016, the European Banking Authority (EBA) published its final guidelines on the collection of information related to the internal capital adequacy assessment process (ICAAP) and the internal liquidity adequacy assessment process (ILAAP). These Guidelines aim at facilitating a consistent approach to the supervisory assessment of ICAAP and ILAAP frameworks across the EU as part of the supervisory review and evaluation process (SREP).

EBA consults on prudential regime for investment firms

On 4 November 2016, the EBA launched a consultation on designing a new prudential regime for investment firms (EBA/DP/2016/02). The discussion paper has been published in response to the European Commission’s Call for Advice dated 13 June 2016, which requested the EBA to provide technical advice on the prudential requirements applicable to investment firms. The consultation closes on 2 February 2017.

ESMA chair considers extension of macro-prudential framework to non-banking

On 7 November 2016, the European Securities and Markets Authority (ESMA) chair, Steven Maijoor, gave a speech at the European Commission’s public hearing on the review of the EU macro-prudential framework. Mr Maijoor’s speech focused on extending the macro-prudential framework to non-banks.

FRC head speaks at Financial Reporting Outlook Conference

On 8 November 2016, the Financial Reporting Council (FRC) published a speech by Stephen Haddrill, Chief Executive of the UK FRC at EY’s Financial Reporting Outlook 2016 Conference on 7 November 2016. His recommendations included a greater responsibility for boards to report on how they have allocated funds between pensions, dividends, directors’ remuneration and capital investment, and a review of the enforcement framework for the responsibilities of directors.

EBA consults on CRD IV authorisation information and shareholders requirements

On 8 November 2016, the EBA published a consultation paper containing draft Regulatory Technical Standards (RTS) made under Article 8 of the fourth Capital Requirements Directive (Directive 2013/36/EU) (CRD IV) on the information to be provided for the authorisation of credit institutions, the requirements applicable to shareholders and members with qualifying holdings and obstacles which may prevent the effective exercise of supervisory powers. The consultation also contains draft Implementing Technical Standards (ITS) concerning standard forms, templates and procedures for the provision of the information required for the authorisation of credit institutions.

European Parliament reports on proposed European Deposit Insurance Scheme Regulation

On 9 November 2016, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) published a draft report containing suggested amendments to the proposed European Deposit Insurance Scheme Regulation.

Financial crime

BEIS consults on implementing the Fourth Money Laundering Directive

On 3 November 2016, the Department for Business, Energy and Industrial Strategy (BEIS) sought views on its discussion paper outlining possible approaches to the transposition of Article 30 of the Fourth Money Laundering Directive. This Article relates to the requirement for EU member states to maintain a central register of beneficial ownership information of corporate and other legal entities in their territory. The deadline for responses is 16 December 2016.

Panama taskforce investigating 30 individuals and companies

On 8 November 2016, HM Revenue & Customs (HMRC) published an update on the work of the Panama Papers Taskforce, established in April 2016, to analyse the information contained in the Panama Papers data leak. More than 30 individuals and companies are under active investigation for criminal or serious civil offences linked to tax fraud and financial wrongdoing following revelations made in the Panama Papers.

Enforcement and redress

Regulator begins BHS pension enforcement action

On 3 November 2016, the Pensions Regulator (TPR) officially started enforcement action to seek redress on behalf of the BHS pension schemes. TPR has sent out warning notices to Sir Philip Green, Taveta Investments Limited and others setting out evidence to support the use of the regulator’s Contribution Notice (CN) and Financial Support Direction (FSD) powers.

FOS published Ombudsman News issue 137

On 3 November 2016, the FOS published issue 137 of Ombudsman News. The issue examines the types of complaints received between July and September the important questions from financial businesses and an overview of crowdfunding cases.

FCA updates status of interest rate hedging products review

On 4 November 2016, the FCA updated its interest rate hedging products (IRHP) webpage to reflect the fact that the nine banks participating in the IRHP review have now completed their sales reviews and have fewer than 100 consequential loss claims still to assess. The FCA has also updated the aggregate position chart to reflect the final position.

Treasury Committee publishes FCA and PRA responses to its HBOS recommendations

On 8 November 2016, the Treasury Committee published the responses of the FCA and the PRA to the recommendations made by the Committee in its Review of the reports into the failure of HBOS plc dated July 2016.

Treasury Committee comments on FCA evidence on RBS compensation scheme

On 8 November 2016, the Treasury Committee took evidence from John Griffith-Jones, chairman of the FCA, and Andrew Bailey, chief executive of the FCA concerning RBS's announcement of a compensation scheme and the attack on Tesco's retail accounts.

Markets and trading

CISI agrees cross-border recognition of financial services qualifications between Ireland and the UK

On 2 November 2016, the Chartered Institute for Securities & Investment (CISI) announced an agreement enabling cross border recognition of CISI financial services qualifications between Ireland and the UK. UK based professionals transferring to Ireland, who hold the CISI’s Investment Advice Diploma (IAD), will now be exempt from three modules of the Qualified Financial Adviser (QFA) designation.

LHC launches new service for the non-cleared derivatives market

On 2 November 2016, the launch of a new service in early 2017 for the non-cleared derivatives market was announced by the London Clearing House (LCH). LCH SwapAgent will act as an independent calculation agent, facilitating the calculation and exchange of bilateral margin and settlement payments, but will not become the central counterparty to the trade.

ISDA CEO offers informal comments on important OTC derivatives

On 2 November 2016, the International Swaps and Derivatives Association (ISDA) chief executive officer Scott O’Malia posted informal comments on important OTC derivatives issues on ISDA’s derivatiViews blog, urging firms to take action well in advance of the 1 March 2017 implementation of variation margin requirements for non-cleared derivatives.

Bank of England Deputy Governor speaks on financial market challenges

On 3 November 2016, the BoE published a speech given by its Deputy Governor for Financial Stability, Jon Cunliffe, at the Association for Financial Markets in Europe’s annual dinner in London on 3 November 2016, in which Mr Cunliffe discusses the challenges currently facing financial markets and institutions, and the possible implications of Brexit for capital markets.

ICMA launches Green Bond Principles Resources Centre to enhance standardisation

On 3 November 2016, the International Capital Market Association (ICMA) launched the Green Bond Principles Resource Centre. The Resource Centre contains standardised disclosure templates on green bonds from issuers and external reviewers, as well as other relevant market resources.

ESMA publishes corrections to consultation on SFTR and EMIR technical standards

On 4 November 2016, ESMA updated its website to correct some errors in its consultation paper (ESMA/2016/1409) on draft RTS and ITS under the Securities Financing Transactions Regulation (SFTR), and amendments to related EMIR RTS. The mistakes relate to the deadline for reporting of the collateral component of an SFT. The consultation closes 30 November 2016.

ESMA clarifies timing of MiFID II systematic internaliser regime

On 4 November 2016, ESMA updated its (Q&A document ESMA/2016/1424) on transparency topics under the recast Markets in Financial Instruments Directive (Directive 2014/65/EU) (MiFID II) and Markets in Financial Instruments Regulation (Regulation (EU) 600/2014) (MiFIR), clarifying when ESMA will publish the first set of data needed to implement the systematic internaliser (SI) regime and the date by when firms must comply with the SI regime for the first time.

Council of the EU issues non-objection to EMIR delegated act

On 4 November 2016, the General Secretariat of the Council of the EU published an ‘I/A’ item note to its Permanent Representatives Committee (COREPER) regarding a Commission Delegated Regulation amending Delegated Regulation 148/2014 which supplements the European Markets Infrastructure Regulation (EMIR) (Regulation No 648/2012) with regard to RTS on the minimum details of data to be reported to trade repositories.

Consultation—IOSCO consults on non-traditional CRA products

On 8 November 2016, the International Organization of Securities Commission (IOSCO) issued a consultation report on Other CRA Products (CR06/16). The consultation seeks information on how market participants use non-traditional credit rating agency products and services, including private and prospective ratings, credit default swap spreads, bond indices and portfolio assessment tools.

Investment funds and wealth management

PSLA calls for greater transparency around FTSE 350 workplaces

On 7 November 2016, the Pensions and Lifetime Savings Association (PLSA) announced it had written to the Chair of every FTSE 350 company asking them to share details about the culture and working practices of their workforce. The PSLA has said the management and engagement of employees can have a material effect on a company's performance over the long term, and investors should therefore have access to such information.

EBA issues recommendations on the implementation of new counterparty and market risk frameworks

On 7 November 2016, the EBA published a report in response to two calls for advice to assist the European Commission with the adoption of two new international frameworks proposed by the Basel Committee on Banking Supervision (BCBS).

IOSCO publishes responses received to investment funds consultation paper

On 7 November 2016, IOSCO published the responses it has received to its consultation report CR04/2016‘Good practices for the termination of investment funds’ published on 18 August 2016.

PRIIPs Regulation delayed by one year

On 9 November 2016, the European Commission proposed a one-year extension to the date of application of the Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products (PRIIPs Regulation). This is to ensure a smooth implementation for European consumers and to ensure legal certainty for the sector. Distributors of PRIIPs products have until 1 January 2018 to put the provisions in place.

Consumer finance

Government responds to CMA retail banking market investigation

On 3 November 2016, HM Treasury published a policy paper in response to the Competition and Markets Authority (CMA) retail banking market investigation. The paper sets out how the government will take forward recommendations that the CMA made in its final report, published on 9 August 2016. Further updates will be provided in due course as appropriate.

FCA speech on the challenges of mortgage market regulation

On 4 November 2016, the FCA published a speech given by its chief economist, Peter Andrews, on consumer decision-making in the context of the upcoming Mortgage Market Study, which is expected to be launched by the end of the year. The speech was delivered at the Brevan Howard Centre for Financial Analysis at Imperial College Business School on 4 October 2016.

FCA outlines actions following CMA final report on competition in the retail banking market

On 3 November 2016, the FCA announced it will take action to improve competition in the current account market. The decision follows the publication of recommendations from the Competition and Markets Authority (CMA) as part of its investigation into retail banking.

Insurance and pensions

Insurance Europe responds to European Commission consultation on personal pensions

On 3 November 2016, Insurance Europe published a response dated 28 October 2016 to the European Commission’s consultation on personal pensions. Insurance Europe emphasised that personal pensions were an important driver for long-term growth and welcomed the Commission’s evaluation of linking the future of pensions to strengthening and diversifying the financing of the EU economy through a Capital Markets Union.

IAIS publishes responses to consultation on risk-based Global Insurance Capital Standard

On 4 November 2016, the International Association of Insurance Supervisors (IAIS) published responses to its consultation on risk-based global Insurance Capital Standard (ICS) Version 1.0, which closed on 19 October 2016. ICS Version 1.0 is scheduled for adoption for purposes of confidential reporting in mid-2017.

EIOPA publishes new Q&A on ‘Guidelines on group solvency’

On 4 November 2016, the European Insurance and Occupational Pensions Authority (EIOPA) published a new Q&A on ‘Guidelines on group solvency’. The Q&A discusses article 335 of Commission Delegated Regulation (EU) 2015/35 (Delegated Regulation) which defines the consolidated data for the calculation of group solvency under Method 1. Paragraph(1)(e) of this article applies to holdings in related undertakings in other financial sectors, which includes holdings in financial and credit institutions.

Six more companies sign up to the Pensions Dashboard

On 5 November 2016, the Association of British Insurers (ABI) announced number of firms contributing to the Pensions Dashboard project has increased by over 50% to encompass all parts of the pensions industry. The ABI is managing the creation of a prototype dashboard on behalf of HM Treasury and in addition to the eleven companies named at the launch in September, a further six have now signed up to the project.

US/EU negotiations for a bilateral agreement on insurance and reinsurance measures

On 7 November 2016, the US Department of the Treasury and the European Union released a joint statement regarding current work towards a bilateral agreement relating to prudential insurance and reinsurance measures. The statement reiterates their efforts to continue to discuss in good faith matters relating to group supervision, exchange of confidential information between supervisory authorities on both sides, and reinsurance supervision, including collateral.

PRA publishes Solvency II: group supervision consultation paper (CP38/16)

On 7 November 2016, the Prudential Regulation Authority (PRA) set out its proposals in CP38/16 to update Supervisory Statement (SS) 9/15 ‘Solvency II: group supervision’. The proposals in the consultation paper follow CP20/16 ‘Solvency II: consolidation of Directors’ letters’ published in May 2016. The consultation is open until 7 February 2017.

EIOPA publishes monthly Solvency II technical information

On 9 November 2016, EIOPA published technical information pursuant to Article 77e(1) of Directive 2009/138/EC (Solvency II Directive) on the relevant risk free interest rate term structures (RFR) with reference to the end of October 2016. EIOPA has also published the technical information pursuant to articles 106 and 172 of the Solvency II Directive on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of October 2016.

Payments and fintech

EBA launches consultation on draft guidelines specifying information requirements for electronic money institutions authorized under PSD2

On 3 November 2016, the EBA launched a consultation EBA/CP/2016/18 on draft guidelines specifying the information to be provided by applicants intending to obtain authorisation as payment and electronic money institutions as well as to register as account information service providers under the revised Payment Services Directive (EU) 2015/2366 (PSD2). The consultation runs until 3 February 2017.

BoE COO speaks on FinTech Accelerator

On 9 November 2016, Charlotte Hogg, the BoE’s chief operating officer, delivered a speech about the work of the Bank’s FinTech Accelerator since its launch in June 2016. Among other things, she summarised the Proof of Concept projects that had been completed since the June launch and announced the current POCs and the start-ups the BoE is working with.

Cases

Investigations, enforcement and redress

ICO Monetary Penalty: Nouveau Finance Ltd

On 7 November 2016, the Information Commissioner’s Office (ICO) announced Nouveau Finance Ltd has been fined £70,000. The penalty relates to the transmission of unsolicited emails for the purposes of direct marketing without the recipients’ consent.

Upper Tribunal—Tax and Chancery Division

Upper Tribunal comments on FCA’s handling of applications by small firms (Köksal v FCA)

Dr Saim Köksal t/a Arcis Management Consultancy v FCA [2016] UKUT 0478 (TCC) (reference number: FS/2016/002)

The Upper Tribunal (Tax and Chancery Chamber) upheld the decision of the financial Conduct Authority to refuse a request to vary an existing Part 4A permission to carry on various mortgage related activities. In Dr Saim Köksal t/a Arcis Management Consultancy v FCA, the Tribunal also commented on how the FCA might act when it is clear that a firm is struggling with the complexity and opaqueness of regulatory provisions.

Dates for your diary

Date Subject Description
15 November 2016 Insurance Deadline for responses to HM Treasury consultation Distributable profits of long-term (life) insurers.
18 November 2016 Regulatory architecture Deadline for responses to the Agency for the Cooperation of Energy Regulators (ACER) draft outline of its 2018 work programme.
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