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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 12 July 2018.
The International Swaps and Derivatives Association (ISDA) published a comment paper on the European Parliament's April 2018 draft report on relationships between the EU and third countries concerning financial services regulation and supervision. ISDA says it supports a risk-based approach to the evaluation and recognition of the comparability of regulatory regimes in third-country jurisdictions.
The Association for Financial Markets in Europe (AFME) welcomed Theresa May’s announcement on the UK government’s proposed approach to Brexit. AFME said with businesses facing considerable uncertainty about the framework that will apply in less than eight months, it is now vital for the negotiations to make progress to provide certainty of a transition period and direction on the future trading relationship.
The Financial Conduct Authority (FCA) published a research paper which sets out a framework for considering the fairness aspects of price discrimination and how best to balance them with economic considerations.
The 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.
The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) published their joint guidelines to assess the suitability of members of management bodies and key function holders.
The Department for Exiting the European Union (DExEU) published a report by HM Treasury on the European Commission's proposal for a regulation on disclosures relating to sustainable investments and sustainability risks, and amending Directive (EU) 2016/2341 on the activities and supervision of institutions for occupational retirement provision (IORPs).
Small and medium-sized enterprises (SMEs) face a structural disadvantage when looking for funding, which can become even more pronounced in a crisis. The answer, according to the chair of the supervisory board of the European Central Bank (ECB), Danièle Nouy, is more diversity of funding sources, and policymakers need to do more to make this possible.
TheCityUK published a report on the contribution made by financial and related professional services to the UK’s economic output and employment. The report concludes that the industry is genuinely national, making a significant economic contribution to regional and national economies. Collectively this amounted to £174bn in 2016, with two thirds of the 2.3m industry jobs based outside London.
The HM Treasury announced a further 67 companies have signed the Women in Finance Charter, taking the official number of signatories to 272—meaning, with the added signatures, the Charter covers more than 760,000 financial services employees in the UK. The Charter is an agreement for firms to commit to preparing ‘female talent for leadership positions’.
Amendments are made to legislation to expand the definition of alternative finance investment bonds (AFIBs), to allow these to be admissible for trading on additional types of financial trading venues, known as multilateral trading facilities (MTFs) and organised trading facilities (OTFs). These are markets for the issuing and trading of debt securities which are regulated by the platform’s operator, the London Stock Exchange for example. The Order will come into force on 11 July 2018 (updated from draft on 11 July 2018).
The EBA published the final peer review report on the regulatory technical standards (RTS) on the information to be notified when exercising the right of establishment and the freedom to provide services for credit institutions. The report summarises the main findings of the peer review exercise, showing that competent authorities (CAs) have developed consistent and robust procedures to comply with the RTS requirements, although the EBA say the level of sophistication of these processes varies across Member States.
The Prudential Regulation Authority (PRA) is to consult on an update to the branch return form, which would ask firms to indicate the accounting standard applied by them in cell H30 in the cover tab.
The FCA published a report setting out a range of information as required under the Small Business, Enterprise and Employment Act 2015, as amended by the Enterprise Act 2016 (the Act), which assists the FCA in measuring the costs of its regulation, and in being transparent about these costs.
Commission Delegated Regulation (EU) 2018/959 of 14 March 2018 was published in the Official Journal of the EU. It supplements Regulation (EU) 575/2013 of the European Parliament and of the Council (Capital Requirements Regulation (CRR)) with regard to RTS of the specification of the assessment methodology under which competent authorities permit institutions to use Advanced Measurement Approaches for operational risk.
The European Parliament published a webpage stating that, at the opening of the session on 2 July 2018, the President announced the decision of several committees to enter into interinstitutional negotiations pursuant to Rule 69c(1).
The DExEU published a letter dated 28 June 2018 from the economic secretary to the Treasury, John Glen MP, to the chair of the European Scrutiny Committee, Sir William Cash MP. In the letter Mr Glen provided an update on the outcomes of the May 2018 ECOFIN meeting as regards the Banking Recovery and Resolution Directive (BRRD), the Capital Requirements Directive (CRD) and the CRR.
The Basel Committee on Banking Supervision (BCBS) published Global systemically important banks: revised assessment methodology and the higher loss absorbency requirement. The BCBS reconfirmed the fundamental structure of the global systemically important bank (G-SIB) framework. The revised methodology is expected to be implemented in member jurisdictions by 2021.
The European Parliament published a briefing note on the banking union (ie the single supervision of all large European banks coupled with uniform and consistent practice for crisis management in relation to large and cross-border European banks) in light of the resent resolution of Banco Popular.
The Bank for International Settlements (BIS) published a report on the financial stability implications of a prolonged period of low interest rates. It warns that an environment characterised by ‘low-for-long’ interest rates may dampen the profitability and strength of financial firms and thus become a source of vulnerability for the financial system. In addition, low rates could change firms' incentives to take risks, which could engender additional financial sector vulnerabilities.
HM Treasury published responses to its November 2016 consultation concerning the introduction of rules on ensuring the effective functioning of a financial market infrastructure special administration regime (FMI SAR). The document summarises the responses to the consultation and provides an update on the forthcoming legislation. The consultation asked three questions and the government received six written responses, which were largely in agreement with the proposals.
The EBA published an updated compliance table regarding its 2014 guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP). According to the table, the competent authorities of all EU Member States and EEA-EFTA States, as well as the ECB, comply or intend to comply with the guidelines.
The Bank of England (BoE) published a speech by the executive director of its prudential policy directorate, Vicky Saporta, looking at the impact of Basel III and the future of banking regulation. Ms Saporta said the industry should not expect a lot of further reform to bank regulation, particularly regulations regarding banks’ capital and liquidity, but the BoE would consider making adjustments to regulations in response to unintended consequences and new risks ‘to ensure that the resilience we injected into the banking system post-crisis stands the test of time’.
Ignazio Angeloni, a member of the supervisory board of the ECB, gave a speech on banking supervision at the ECB Central Banking Seminar. He explained that the ECB only acquired the function of banking supervision as late as November 2014. He discussed the main challenges the ECB has faced and how it has dealt with them, and touched on some continuing issues.
The BoE, PRA and FCA published a joint discussion paper on an approach to improve the operational resilience of firms and financial market infrastructures (FMIs). Feedback is sought by 5 October 2018.
The Treasury Select Committee published a letter from the economic secretary to the Treasury, John Glen, on the IT problems affecting TSB and its customers. Mr Glen said the response to the TSB service disruption was being managed through the Authorities' Response Framework (ARF), which is used for major operational incidents in the sector and consists of HM Treasury, the BoE, the PRA and the FCA. The FCA, as the financial authority responsible for consumer protection, is leading the response.
The Financial Action Taskforce (FATF) requested comments from private-sector stakeholders on its draft risk-based approach guidance for the life insurance sector by 17 August 2018. The guidance is designed to assist countries, competent authorities, insurers and insurance intermediaries in the application of a risk-based approach (RBA) to anti-money laundering and countering the financing of terrorism (AML/CFT).
Credit Suisse (Hong Kong) Limited (CSHK), a Hong Kong-based subsidiary of Credit Suisse Group AG (CSAG), a Swiss-based issuer of publicly traded securities in the US, reached a resolution with the Department of Justice and agreed to pay a $47m criminal penalty for its role in a scheme to corruptly win banking business by awarding employment to friends and family of Chinese officials.
The chair of the Treasury Committee, Nicky Morgan MP, expressed disappointment at the anticipated publication date of Lloyd's independent review of HBOS Reading, now expected in mid-to-late 2019. The Treasury Committee published further correspondence relating to the review in addition to a sample confidential settlement agreement.
ESMA is consulting on the clearing obligation under the European Market Infrastructure Regulation (EMIR). The consultation deals with an amending draft regulatory technical standards (RTS) regarding the treatment of intragroup transactions with a third country group entity. ESMA’s consultation seeks stakeholders’ views on a proposed extension of the temporary intragroup exemption and is open for feedback until 30 August 2018.
The DexEU published two letters from the economic secretary to the Treasury, John Glen MP, to the chair of the European Scrutiny Committee, Sir William Cash, and the chair of the European Union Committee, Lord Boswell of Aynho, regarding the European Commission's proposal for a regulation amending EMIR:
The European Parliament published the minutes of its plenary session confirming that it has voted in plenary to adopt a report on a draft decision amending Article 22 of the Statute of the European System of Central Banks and of the ECB (2017/0810(COD)) in order to confer increased regulatory powers over clearing systems for the ECB.
ESMA updated its public register with the latest set of double volume cap (DVC) data under the Markets in Financial Instruments Directive (MiFID II) for the period of 1 June 2017 to 31 May 2018.
The Economic and Monetary Affairs Committee of the European Parliament (ECON) published a briefing paper on the implementing measures under the Benchmarks Regulation (EU) No 2016/1011. The Benchmarks Regulation governs indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds. As of 1 January 2018, most of the rules for entities providing benchmarks, contributing input data to a benchmark or using a benchmark, apply. The briefing provides an overview of issues that are expected to be covered by the forthcoming RTS, including rules on input data and the authorisation/registration of an administrator.
Jakub Michalik, a senior officer of the corporate affairs department at ESMA, made an introductory statement at a meeting of ECON. The purpose of the meeting was to scrutinise the Level 2 measures under the EU Benchmarks Regulation (BMR). Mr Michalik explained that, since the BMR started to apply on 1 January 2018, ESMA has supported the smooth implementation of the BMR through a range of activities, with the ultimate goal being to ensure that the objectives of the legislators are achieved.
The Board of the International Organization of Securities Commissions (IOSCO) published a report, Commodity storage and delivery infrastructures: Good or sound practices, which consults on proposed good or sound practices to assist relevant storage infrastructures and their oversight bodies to identify and address issues that could affect commodity derivatives' pricing and in turn affect market integrity and efficiency.
The European Central Securities Depositories Association (ECSDA) is consulting on the draft version of its future settlement fail penalties framework. It aims to create a harmonised and coherent set of rules and considerations for creation and operation of the settlement discipline cash penalties mechanisms by all European Central Securities Depositories (CSDs) subject to the CSD Regulation (EU) 909/2014 or equivalent provisions. Feedback is sought by 17 August, though ECSDA says preliminary or partial views will be appreciated as soon as possible.
The Fixed Income, Currency and Commodities (FICC) Markets Standards Board (FMSB) issued a transparency draft of a new statement of good practice on algorithmic trading in FICC markets. The statement of good practice is intended to apply to the use of algorithms in all FICC businesses, including those not covered by MiFID II. Feedback is sought by 7 September 2018, with the final document expected to be published shortly thereafter.
The FCA welcomed the recommendations made by the Institutional Disclosure Working Group (IDWG). According to a statement made by the FCA director of strategy and competition, Christopher Woolard, the FCA believes that the group has made significant progress in tackling the issues the FCA found in relation to institutional disclosure as part of the Asset Management Market Study.
The economic secretary to HM Treasury, John Glen MP, wrote a letter to the chair of the House of Commons European Scrutiny Committee, Sir William Cash MP, dated 3 July 2018. The letter responds to the Committee's report on the proposal for a directive of the European Parliament and of the Council amending Directive 2009/65/EC of the European Parliament and of the Council, and Directive 2011/61/EU of the European Parliament and of the Council with regard to cross-border distribution of collective investment funds.
The Investment Association (IA) published report into the LGBT+ experience in asset management, which sets out 12 steps organisations can take to create more inclusive workplaces. The report, Bringing our whole selves to work, follows a roundtable discussion the IA hosted with more than 20 members and allies from LGBT+ networks.
The Association of Investment Companies (AIC) published a press release in which a number of investment company managers comment on how they are taking advantage of opportunities to confront environmental issues.
The Solicitors Regulation Authority announced that its new European Insurance Distribution Directive has been approved by the FCA and Legal Services Board. The new Directive is set to replace the Insurance Mediation Directive, as well as strengthen protections for clients and alter the way firms carrying on insurance distribution activities conduct business. The new Directive comes into effect on 1 October 2018.
The Work and Pensions Committee (WPC) published a letter from the executive director of supervision—investments, wholesale and specialists division at the FCA, Megan Butler, to the chair of the WPC, Frank Field MP, in response to a letter dated 22 May 2018 regarding defined benefit (DB) pension transfers and non-standard investments (NSIs) into self-invested personal pension schemes (SIPPs). Ms Butler noted that the FCA had been looking at SIPPs for some time and since 2009 has been concerned with the quality of NSIs held in SIPPs.
The European Insurance and Occupational Pensions Authority (EIOPA) published the first set of Q&As providing practical guidance on the application of the Insurance Distribution Directive and its implementing regulations.
EIOPA published its mediation opinion regarding the determination of the correct insurance class for the insurance policy known as ‘statutory risks’ in France. The statutory risk insurance policy covers the maintenance of civil servants' salary in case of sickness, maternity, work incapacity or disability, and the payment of death benefits to the civil servant's beneficiaries.
The Treasury Committee published a letter which it has sent to the chief executive of the PRA, Sam Woods, responding to the PRA's comments in relation to the Committee's inquiry on Solvency II (Directive 2009/138/EC. The Committee states that it welcomes the PRA's constructive approach to the matters raised by the Committee's inquiry.
EIOPA published technical information on the relevant risk-free interest rate (RFR) term structures with reference to the end of June 2018. No issues were encountered during production.
The FCA published an updated version of its approach document on payment services and electronic money, showing changes from the previous version, which was published in September 2017. The updated version includes new guidance on operational and security risks under the revised Payment Services Directive (PSD2).
The European Data Protection Board (EDPB) published a detailed letter to Sophie in’t Veld MEP, clarifying a number of issues related to the protection of personal data in the context of PSD2.
The House of Commons European Scrutiny Committee requested further information on the UK government’s approach to the proposed EU Regulation amending Regulation (EC) No 924/2009 (the Cross-border Payments Regulation) as regards certain changes on cross-border payments in the EU and currency conversion charges.
The chair of the FCA and Payment Systems Regulator (PSR), Charles Randell, gave a speech on big data, algorithms, AI and the potential impact on financial services and society at large. Mr Randell said the UK’s FinTech industry is world leading and bursting with new ideas, but ‘there is no room for complacency’.
The European Parliament issued the results of a study requested by ECON on competition issues in the area of financial technology (FinTech). The study analyses competition issues in the FinTech ecosystem, focusing on analysing potential anti-competitive factors and their impact both in the FinTech ecosystem as a whole and in concrete services categories. Because the area of FinTech is still in its infancy and is constantly evolving, an established case practice of how to deal with competition concerns has not yet been developed and official decisions by competition authorities have still to emerge.
The European Parliament published a study of cryptocurrencies and blockchain, which discusses the legal context and implications for financial crime, money laundering and tax evasion. Regulators are increasingly worried about the misuse of virtual currencies, which have a worldwide market value above €7bn. The report suggests global action is necessary, and contains policy recommendations for future EU standards.
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