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Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 11 May 2017.
On 4 May 2017, in the introductory remarks to a technical workshop for banks considering relocation in the context of Brexit, the vice-chair of the supervisory board of the European Central Bank (ECB), Sabine Lautenschläger, said significant and highly efficient planning efforts and resources will be required from both banks and supervisors to deal with any potential moves.
On 8 May 2017, theCityUK published a report it commissioned from Freshfields Bruckhaus Deringer LLP on how Brexit could affect UK financial services. The report initially planned to analyse each sector against three scenarios: full equivalence and passporting, equivalence where the provision already exists but no additional access rights are granted, and a third-country agreement, but says the first scenario is now politically impossible.
On 8 May 2017, EY released details from its Brexit Tracker survey, which monitors 222 UK financial services firms. The survey found more than a quarter of firms questioned are moving some staff or part of their operations out of the UK, or are reviewing their domicile as a result of Brexit. The figure represents a 50% rise over four months in the number of firms publicly voicing relocation intentions.
On 10 May 2017, the British Bankers’ Association's (BBA) published a Brexit Quick Brief #8, which looks at the UK’s external trade policy upon exiting the EU, and shows how, traditionally, free trade agreements (FTAs) have concentrated primarily on liberalising trade in goods more than on services. Market access arrangements for financial services in even the most modern FTAs are limited. For a modern developed economy such as the UK, for which the services sector is a major contributor, the briefing says it will be important to consider how a 21st-century FTA and other frameworks can be developed to be more suited for this evolution.
On 5 May 2017, the Financial Conduct Authority (FCA) published its latest policy development update, which provides information on its recent and upcoming publications. New developments include a forthcoming second consultation on implementation of the Insurance Distribution Directive, a fee rates proposal for market infrastructure providers, and next steps in the Financial Services Compensation Scheme (FSCS) funding review.
On 9 May 2017, the FCA issued a warning about fraudsters sending emails that appear to be from an FCA email address, or refer to the FCA in the email subject. It asks recipients to delete suspicious emails without opening them.
On 10 May 2017, the European Parliament published the minutes of the Committee on Economic and Monetary Affairs (ECON) meeting, held on 24-25 April 2017. Among the items discussed were FinTech: the influence of technology on the future of the financial sector, minimum income policies as a tool to tackle poverty, and public hearings on updating CRR, CRD, BRRD and SRMR: the new banking legislation package, and on sovereign investment funds.
On 5 May 2017, the FCA released the details of the number of skilled persons reports commissioned in Q4 2016/17.
On 4 May 2017, the European Banking Authority (EBA) published the final draft implementing technical standards (ITS) amending Commission Implementing Regulation (EU) 2016/2070 which laid down ITS with regard to benchmarking.
On 4 May 2017, the Bank for International Settlements (BIS) published a series of papers evaluating the effectiveness of macroprudential policies (MPPs). The project leading up to the publication of the papers studied the effectiveness of MPPs and their interaction with monetary policy using micro data at the bank-client level. In particular, the use of credit register data allows the evaluation of the effects of MPPs on lending, bank risk-taking, and spillover effects outside banking. The project focused on banking in the Americas.
On 5 May 2017, the ECB published a working paper which provides insights into the effects and usefulness of stress test-related disclosures. The paper argues that the most recent EU-wide stress tests provided value added in terms of providing new information to the market, which by enhancing market efficiency provided support to the broader micro- and macroprudential uses of the stress tests aiming at safeguarding financial stability.
On 5 May 2017, the European Parliament adopted a resolution on Banking Union—Annual Report 2016, in which it calls for action to address the risks facing the EU banking system. Among other things, the Parliament advocates EU-wide initiatives to tackle the problem of non-performing loans. The resolution also encourages all Member States to join the euro or the Banking Union in order to align the Banking Union with the internal market.
On 5 May 2017, the Bank of England (BoE) released indicative data on the minimum requirements for eligible liabilities and own funds (MREL) that the larger UK banks and building societies will be required to hold. These firms will become subject to interim requirements for MREL on 1 January 2020, and final requirements will come into force in 2022.
On 5 May 2017, the BBA updated its Access to Banking Standard, the industry-wide agreement on working with customers and communities to minimise the impact of branch closures. In 2015 the main high street banks signed up to the protocol. Its operation was subsequently independently reviewed in 2016 by Professor Russel Griggs to assess the success of its operation, and the recommendations made by Professor Griggs have now been integrated into the new Standard. It will apply to all closures announced after 1 May 2017, and to any previously announced closures taking place after 1 August 2017.
On 8 May 2017, the senior policy director for financial stability at the BBA, Mark Russell, called the BoE minimum requirement for own funds and eligible liabilities (MREL) ‘the home straight of the long journey out of quicksand that nearly swallowed the banking industry in 2008’. But Mr Russell also said the average requirement for smaller banks of 22% of risk-weighted assets is too high.
On 8 May 2017, the EBA launched a public consultation (EBA/CP/2017/05) on its draft regulatory technical standards (RTS) on simplified obligations under Article 496) of Directive 2014/59/EU, the Bank Recovery and Resolution directive (BRRD). The draft RTS further specify the eligibility criteria to determine whether institutions should be subject to simplified obligations when drafting their recovery and resolution plans. The consultation runs until 8 August 2017.
On 9 May 2017, the Legal Entity Identifier Regulatory Oversight Committee (LEI ROC) welcomed the launch on 1 May 2017 of the collection of information on the direct and ultimate parents of legal entities. The data collected has been available since 8 May 2017 on the GLEIF website.
On 10 May 2017, the Financial Stability Board (FSB) Regional Consultative Group of the Americas published the results of its third shadow banking monitoring exercise in the Americas, using data as of end-2015 (when available) for 17 jurisdictions which together account for approximately 97% of GDP in the region.
On 10 May 2017, the FSB presented the results of its sixth annual monitoring exercise to assess global trends and risks in the shadow banking system, reflecting data up to the end of 2015. It covers 28 jurisdictions, including Belgium and the Cayman Islands for the first time. These jurisdictions together account for about 80% of global GDP.
On 9 May 2017, the FCA published policy statement PS17/11, which sets out the final, updated appropriate exam standards (AES) for appropriate qualifications listed in its training and competence sourcebook. PS17/11 is aimed to ensure that staff working in financial services are appropriately qualified and well regulated, and provides feedback on responses to its consultation CP16/24 ‘Review of the FCA’s appropriate qualification exam standards’.
On 3 May 2017, MEPs from ECON and the Civil Liberties, Justice and Home Affairs Committee rejected for a second time, by 61 votes to 7 with 32 abstentions, a blacklist of countries drawn up by the EU Commission. Under the EU’s Anti-Money Laundering Directive, the Committee is responsible for producing an inventory of countries thought to be at risk of money laundering, tax evasion and terrorism financing. People and legal entities from blacklisted countries face tougher than usual checks when doing business in the EU.
On 4 May 2017, Societe Generale and the Libyan Investment Authority (LIA) jointly announced that they have signed a settlement agreement resolving all matters between the parties concerning five financial transactions entered into between 2007 and 2009 that have been the subject of legal action in the English High Court.
On 9 May 2017, the Joint Money Laundering Steering Group (JMLSG) has published proposed revisions to Parts II and III of its guidance on the prevention of money laundering and the financing of terrorism for the UK financial services industry. The guidance has been updated to reflect the proposed new Money Laundering Regulations published by HM Treasury on 15 March 2017. The JMLSG invites comments on the revised guidance by 26 May 2017.
On 3 May 2017, the FCA published reporting instructions for trading venues and investment firms submitting commodity position reports. The instructions are for entities which will submit commodity derivative position reports to the FCA for processing, and should be read in conjunction with the final draft of the MAR 10 sourcebook, as published in the FCA’s MiFID II Policy Statement PS17/5.
On 3 May 2017, the Council of the EU issued a corrigendum to Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) 596/2014.
On 4 May 2017, the European Commission proposed targeted reforms to the European Market Infrastructure Regulation (EMIR), to improve the functioning of the derivatives market in the EU. It says the reforms provide simpler and more proportionate rules for over-the-counter derivatives, reducing costs and regulatory burdens for market participants, without compromising financial stability.
On 4 May 2017, the London Stock Exchange (LSE) published the new International Securities Market (ISM) rulebook. The ISM is open for applications for admission to trading from 8 May 2017. The LSE has confirmed the Admission and Disclosure Standards have been amended to reflect the introduction of the ISM. These amendments are also effective from 8 May 2017.
On 4 May 2017, the European Money Markets Institute (EMMI) concluded the data analysis conducted in the context of the Euribor Pre-Live Verification Program to determine the feasibility of a seamless transition to a transaction-based Euribor. EMMI’s analysis has concluded that under the current market conditions it will not be possible to evolve the current Euribor methodology to a fully transaction-based methodology following a seamless transition path.
On 4 May 2017, the International Swaps and Derivatives Association (ISDA) published the May edition of its SwapsInfo Quarterly Review, analysing interest rate derivative (IRD) and credit default swap (CDS) index trading activity for Q1 2017. The report provides a breakdown of publicly available data to analyse the impact of regulatory change on swap execution facility (SEF) and bilateral trading volumes, as well as cleared and non-cleared activity.
On 5 May 2017, the Competition and Markets Authority (CMA) cleared the anticipated acquisition of MBNA Limited by Lloyds Banking Group Plc, following a phase 1 investigation.
On 5 May 2017, the Financial Markets Law Committee published a report exploring uncertainty around the financial instruments that fall within the scope of the Market Abuse Regulation (MAR). The report considers the new EU-wide market soundings regime introduced by Article 11 of the MAR, and, in particular, analyses the terms ‘transaction’ and ‘announcement’ within the definition of market sounding.
On 5 May 2017, the European Parliament adopted the compromise text of the MMF Regulation previously agreed with the European Commission and the Council of the EU. The Council has now published an 'I/A' agenda item note asking the Permanent Representatives Committee (COREPER) to confirm its agreement and to suggest that the Council of the EU gives its formal approval. 'I/A' agenda items are usually agreed without debate.
On 9 May 2017, the BIS released over-the-counter (OTC) derivatives statistics for the six months ending in December 2016. The figures show the increase in OTC derivatives positions that took place in the first half of 2016 reversed in the second. The notional amount of outstanding OTC derivatives declined from US$553trn to US$483trn between end-June and end-December 2016. Their gross market value—the cost of replacing all outstanding contracts at current market prices—fell from US$21trn to US$15trn over the same period.
On 9 May 2017, Clearstream, the Deutsche Borse-owned central securities depository, reported that the US Internal Revenue Service has published on its website further updated FAQs regarding the Foreign Account Tax Compliance Act foreign financial institution (FFI) list. The updated FAQs now include updates to the FFI list, FFI list fields, FFI list overview and the downloading of the FFI list. .
On 10 May 2017, the secretary general of the FSB, Svein Andresen, gave a speech on reforming derivatives markets at ISDA's Annual General Meeting (AGM). Mr Andresen set out the emerging evidence about the effects of the G20 OTC derivatives markets reforms, looked ahead to the FSB’s derivatives-related work for the next year, and stressed the importance of international regulatory and supervisory co-operation.
On 3 May 2017, the Organisation for Economic Co-operation and Development (OECD) published a report on investment governance and the integration of environmental, social and governance (ESG) factors.
On 8 May 2017, ECON issued a draft report containing amendments to the proposed pan-European covered bonds framework. A committee vote is scheduled for 19 June 2017.
On 8 May 2017, two UK trade associations in the investment management and financial advice sector, the Wealth Management Association (WMA) and the Association of Professional Financial Advisers (APFA), announced their intention to merge. From 1 June 2017 the WMA and APFA will become the Investment Management & Financial Advice Association (IMFA), subject to the merger being approved by the members. The new body will be led by Liz Field, currently CEO of WMA.
On 4 May 2017, the FCA announced it would be deferring its review of the effectiveness of independent governance committees (IGCs) it said it would do in its 2016/17 Business Plan. During 2016 it conducted, jointly with the Department for Work and Pensions, a review of industry progress against the Independent Project Board’s recommendations on workplace pensions. In December 2016 the FCA published its findings, which were broadly supportive of the effectiveness of IGCs in implementing the Independent Project Board’s recommendations. Given this position, the FCA has decided to defer the full IGC review to allow it to focus on other priorities. These priorities have been set out in the 2017/18 Business Plan.
On 8 May 2017, the European Insurance and Occupational Pensions Authority (EIOPA) published technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of April 2017.
On 8 May 2017, EIOPA published technical information for Solvency II relevant risk free interest rate (RFR) term structures with reference to the end of April 2017.
On 4 May 2017, the late payment insurance claims provisions of the Enterprise Act 2016 came into effect. Section 13A of the Insurance Act 2015 (IA 2015) has been added, and imposes a duty on insurers to make prompt payment of claims. This means policy holders will be able to claim damages if insurers breach that duty. The new provisions require that insurers pay within a 'reasonable time'. Just what a reasonable amount of time is remains to be seen, however. The law allows for certain delays relating to the type of insurance, the size and complexity of the claim, and factors outside the insurer’s control.
On 4 May 2017, the BoE and the Payment Systems Regulator (PSR) produced a report recommending a delivery plan for the consolidation of the operators of three payment systems: Bacs Payment Schemes Ltd, Cheque and Credit Clearing Company and the Faster Payments Scheme Ltd. The consolidation aims to further develop the capability and capacity of the operators by bringing them within a single organisation, reducing the complexity and costs of having three separate retail payment system operators.
On 5 May 2017, the EBA launched a consultation on its draft guidelines on security measures for operational and security risks under the revised Payment Services Directive (PSD2). The guidelines aim to support the objectives of PSD2, such as strengthening the integrated payments market in the EU, mitigating the increased security risks arising from electronic payments, and promoting equal conditions for competition. The consultation runs until 7 August 2017.
On 5 May 2017, the EBA published its final draft technical standards under the Payment Accounts Directive, setting out the standardised terminology for services linked to a payment account, and the standardised formats and common symbol of the fee information document (FID) and the Statement of Fees (SoF).
On 8 May 2017, Innovate Finance, the membership association for the UK’s global FinTech sector, appointedNatalie Ceeney CBE to the board of the company as non-executive chair, taking over from Alastair Lukies CBE. Innovate Finance said Ms Ceeney has a track record of leading technology-driven change, improving the reach and delivery of products and services to customers.
On 9 May 2017, the BoE set out its blueprint for a renewed real-time gross settlement (RTGS) service that will deliver a ‘resilient, flexible and innovative’ sterling payment to meet the challenges posed by a rapidly changing landscape.
On 10 May 2017, the ECB updated its payments and markets public consultations webpage with the purpose of launching a consultation by the Eurosystem on future real-time gross settlement (RTGS) services.
 EWCH 257(Ch)
The Financial List of the Chancery Division held that, on the facts, the defendant stock broker (Daiwa) was in breach of the duty of care that it had owed to the claimant (Singularis) in making disputed payments to third parties from the client account it had held for the benefit of Singularis, notwithstanding that those payments (in excess of US$200m), had been made on the instructions of Singularis' then owner and sole director. By making those payments without proper or any inquiry, Daiwa was liable to Singularis in negligence and for breach of contract for the sum of US$203,741,900, reduced by 25% to take account of Singularis' contributory negligence. Singularis' claim of dishonest assistance was dismissed on the facts.
consultation paper 'CP17/4: Review of the Effectiveness of Primary Markets: Enhancements to the Listing Regime'
0330 161 1234