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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 12 October 2017.
The deputy governor for prudential regulation and CEO of the Prudential Regulation Authority (PRA), Sam Woods, gave a speech on the impact of borders, location and distance on the shape of banks, insurers and financial regulation. Defining ‘geofinance’ as the impact of geography on the geometry of finance, Mr Woods said that with the revolution in regulation following the financial crisis coming to its end, and with changes to the geopolitical landscape looming large, the concept is likely to be the defining challenge of the next few years. Mr Woods also looked in detail at the potential impact of Brexit on UK and EU banks and insurers.
The EU Financial Affairs Sub-Committee took evidence from law firms specialising in international corporate and commercial law. The discussion covered the range of legal options available to a post-Brexit UK for EU market access, different kinds of transition period and their risks, returns and practicalities, and the role of UK regulators upon exit.
The Law Society gave its views on the effect of the UK leaving the EU on consumers and consumer protection. In its opinion as the most consumer protection legislation is already UK legislation, Brexit is ‘unlikely to have a significant impact on domestic consumer rights in the immediate future’. The Society’s main concerns regard the uncertainties around consumers undertaking travel abroad or making EU cross-border transactions.
Parliament published on 11 October 2017 a letter from the chancellor of the exchequer, Philip Hammond, to the chair of the Treasury Committee, Nicky Morgan, dated 20 September 2017, regarding the impact of the UK's withdrawal from the EU on insurance contracts that run beyond the point of the UK's exit.
The chair of ESMA, Steven Maijoor, made a statement to the Economic & Monetary Affairs Committee (ECON) setting out ESMA’s readiness for MiFID II implementation in January 2018, its preparations for Brexit, and the third country equivalence regime. Mr Maijoor said ESMA was monitoring Brexit-related relocations to ensure there was no regulatory arbitrage between the EU-27 Member States seeking to attract this business.
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 policy statements on implementation of the Insurance Distribution Directive (IDD), which are expected in December 2017 and January 2018.
The European Commission called for the completion of all parts of the Banking Union by 2018, saying European citizens and businesses will benefit from deeper financial integration and a more stable financial system. In a Communication that seeks to ensure agreement on all outstanding elements, the Commission suggests new measures to reduce non-performing loans and to help banks diversify their investments in sovereign bonds. It also sets out ideas to facilitate progress in the European Parliament and the Council on steps towards a European deposit insurance scheme (EDIS)—‘a vital missing element of the Banking Union’—guaranteeing citizens' deposits at a central level.
The European Banking Authority (EBA) published its detailed annual work programme for 2018, describing the specific activities and tasks of the Authority for the coming year, as well as a multiannual work programme, highlighting the key strategic areas of work from 2018 to 2021.
The European Securities and Markets Authority (ESMA) released its work programme for 2018, which sets out its priorities and areas of focus for 2018. The work programme reflects ESMA’s shift from building a single rulebook for EU financial markets to promoting supervisory convergence and assessing risks. However, ESMA warns that possible changes proposed under the ESAs and CCP Reviews and planning for Brexit could require it to adapt and reprioritise its efforts.
The vice-president of the European Commission, Valdis Dombrovskis, spoke at the ECOFIN press conference in Luxembourg on the EU’s need for more capital for green and sustainable projects. In order to meet environmental targets, Mr Dombrovskis said private as well as public investment was essential, and to facilitate a systemic change, the EU needs to change the investment culture altogether. In early 2018, the Commission will present a ‘comprehensive strategy’ for sustainable and green finance in the EU, looking at, among other options, EU-wide green labels, classification for green assets, integrating sustainability into the investment chain and credit ratings, and the ‘green supporting factor’.
The Financial Stability Board (FSB) reviewed its workplan for 2017-18 at its plenary in Berlin, including the potential themes for the finance track of the Argentine G20 presidency in 2018. The plenary agreed that the FSB, in co-ordination with the relevant standard-setting bodies, should undertake an evaluation of the effects of reforms on financial intermediation.
A European Commission Opinion of 3 October 2017 on the Recommendation of the European Central Bank (ECB) for a Decision of the European Parliament and of the Council amending Article 22 of the Statute of the European System of Central Banks and of the ECB has been published in the Official Journal. The Commission welcomes the initiative of the ECB to recommend an amendment to Article 22, in order to allow the ECB to regulate clearing systems for financial instruments, for monetary policy purposes.
The chair of the Joint Committee of the European Supervisory Authorities (ESAs), Andrea Enria, gave a speechsetting out the work of the committee, and saying the three main areas for supervisory concern are political uncertainty and fragmentation, not least in the light of the UK’s withdrawal from the EU, persistent valuation risk, also related to an uncertain outlook for yields, and the low profitability of financial institutions.
The European Commission published a list of legal actions it is taking against Member States for failing to comply with their obligations under EU law. These decisions, covering various sectors and EU policy areas, aim to ensure the proper application of EU law for the benefit of citizens and businesses.
The Financial Stability Board (FSB) appointed Dietrich Domanski as its new secretary general. Mr Domanski is currently deputy head of the monetary and economic department and head of economic analysis at the Bank for International Settlements, and has held previous positions in the Bundesbank and as an adviser at the International Monetary Fund.
The EBA opened a consultation on amending the implementing technical standards (ITS) on the information which institutions must provide to resolution authorities for the purpose of drawing up and implementing resolution plans. The consultation runs until 11 December 2017.
The PRA published consultation paper CP20/17, which sets out the PRA's proposed changes and clarifications to requirements relating to intragroup transactions in the Large Exposures (LE) Part of the PRA Rulebook. The PRA also proposes to update supervisory statement 16/13 'Large Exposures' to reflect the updates to the PRA’s expectations.
The PRA published consultation paper CP19/17 concerning its groups policy framework. The PRA's regulatory regime for banks includes prudential requirements relating both to individual legal entities ('firms') that undertake regulated activities such as deposit taking in the UK, and to the broader groups of which they form a part. The PRA has reviewed the groups policy framework, in order to ensure that it remains coherent and fit for purpose in light of post-crisis financial reforms—including Basel III standards, UK ring-fencing legislation, the resolution framework and other international developments. Following the review, the PRA is considering some necessary changes to achieve this objective.
The Committee on Economic and Monetary Affairs of the European Parliament (ECON) adopted a draft report on a proposal to amend the Bank Recovery and Resolution Directive 2014/59/EU (BRRD) as regards the ranking of unsecured debt instruments in insolvency hierarchies. The proposed amendment to BRRD was presented by the European Commission in November 2016 and relates to the implementation of the Financial Stability Board's Total Loss-absorbing Capacity (TLAC) standard and the impact on the EU's existing Minimum Requirement for Own Funds and Eligible Liabilities (MREL) requirement.
The Council of the European Union announced that it would not object to the Delegated Regulation amending Regulation (EU) 575/2013 on bank capital requirements as regards the waiver on own funds requirements for certain covered bonds.
The EBA updated the table of compliance by national competent authorities (NCAs) with its guidelines on the management of interest rate risk arising from non-trading activities. The guidelines were published in May 2015.
The European Commission approved the Portuguese restructuring plan and support for sale of Novo Banco (Case SA.34720). The restructuring plan will allow the new private owner to launch its restructuring plan aimed at ensuring the long-term viability of the bank, while limiting distortions to competition. The sale of Novo Banco completes the 2014 resolution of Banco Espírito Santo (BES). In August 2014, Portugal put BES into resolution under the Portuguese resolution framework and determined the strategy for its resolution. To enable an orderly resolution, Portugal designed several support measures, including State aid for the transfer of certain BES assets to a bridge bank, Novo Banco. The Commission concluded Portugal's sales process of the bridge bank was open and competitive; Portuguese plans to grant additional State aid to finalise the BES resolution and bridge bank sale are in line with EU State aid rules; and the entity resulting from the sale of the bridge bank is viable in the long-term.
The Bank for International Settlements (BIS) agreed that supervisors may allow banks to apply a 0% risk weight to claims on the Asian Infrastructure Investment Bank (AIIB), in accordance with paragraph 59 of International Convergence of Capital Measurement and Capital Standards: A revised Framework—Comprehensive Version, June 2006.
The EBA updated its risk dashboard, summarising the main risks and vulnerabilities in the EU banking sector through a set of risk indicators in Q2 2017. The EBA says non-performing loans are declining but progress is slow.
A memorandum of understanding (MoU) been signed to enable the Crown Prosecution Service (CPS) to apply for serious crime prevention orders (SCPOs) on behalf of other prosecuting authorities. The MoU was signed between the CPS and the Food Standards Agency, the Insolvency Service, the Financial Conduct Authority, Natural Resources Wales, the Competition and Markets Authority and the Environment Agency, in order to establish a more robust operational process.
The FCA cancelled the Part 4A permission of Bayliss & Co (Financial Services) Limited (Bayliss) and finedClive Rosier, its sole approved person and director, £10,000, after the Court of Appeal refused their applications for permission to appeal a decision by the Upper Tribunal (Tax and Chancery Chamber). The FCA has also withdrawn the significant influence approvals granted to Mr Rosier at Bayliss, and prohibited him from performing significant influence functions in the future.
The Financial Reporting Council (FRC) closed its investigation into the conduct of PricewaterhouseCoopers LLP (PwC LLP) in relation to its role in reporting to the Financial Services Authority (now the Financial Conduct Authority) on Barclays Bank PLC’s compliance with the FSA’s client asset rules for the years ended 31 December 2007 to 31 December 2011. The FRC has concluded that there is not a realistic prospect that a tribunal would make an adverse finding against PwC LLP in respect of the matters within the scope of the investigation.
The Financial Ombudsman Service (FOS) issued a feedback statement on its consultation on amending its rules to make changes to the time limits for PPI complaints. The consultation, which closed on 12 July 2017, received two responses, both of which supported the changes. The FOS board passed the instrument on 26 July 2017. The FCA board consented to and approved the rule changes on 20 July 2017.
The FOS opened a consultation on amendments to the rules regarding the Benchmarks Regulation, MiFID II and advising on investments. Chapter 2 of the ‘Dispute Resolution: Complaints sourcebook’ (DISP) sets the scope of the jurisdiction of the FOS. The Financial Conduct Authority (FCA) is proposing to make a number of changes to DISP 2 as a result of recent legislative changes. This consultation proposes to mirror these changes in the voluntary jurisdiction. Feedback is sought by 6 November 2017.
Commission Delegated Regulation (EU) 2017/1799 of 12 June 2017 supplementing Regulation (EU) 600/2014 of the European Parliament and of the Council (MiFIR), as regards the exemption of certain third countries central banks in their performance of monetary, foreign exchange and financial stability policies from pre- and post-trade transparency requirements was published in the Official Journal of the EU.
Commission Delegated Regulation (EU) 2017/1800 of 29 June 2017 amending Delegated Regulation (EU) 151/2013 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council (EMIR) was published in the Official Journal of the EU.
The General Secretariat of the Council of the European Union recommended that the Council confirms that it will not object to delegated regulations adopted by the European Commission with regard to non-equity consolidated tape providers (CTPs) under MiFID II, indirect clearing under EMIR and MiFIR, and standardised terminology for representative services linked to a payment account under the Payment Accounts Directive.
In separate 'I/A' item notes, the General Secretariat suggested that the Permanent Representatives Committee (Coreper) recommend that the Council confirm that it has no intention to object to the following delegated regulations:
The Council of the European Union announced that it would not object to the Delegated Regulation supplementing Regulation (EU) 600/2014 on markets in financial instruments with regard to package orders.
The Council of the European Union adopted new venture capital rules aimed at boosting investment in start-ups and innovation. The regulation is part of the EU's plan to develop a fully functioning capital markets union.
The European Commission adopted a Delegated Regulation setting out a non-exhaustive list of conditions that competent authorities should take into account when deciding whether to permit the use of an existing benchmark that does not meet the requirements of the Benchmarks Regulation.
ESMA issued a Q&A on post-trading issues regarding the implementation of MiFID II and MiFIR. The new Q&A concerns straight through processing.
ESMA published a template delegation agreement for tasks under Article 22(1) and 27(1) of MiFIR, Article 4(1) of the Market Abuse Regulation and Article 81(3) of EMIR. Delegation of tasks may in certain cases be a useful instrument in the network of supervisors forming part of the European System of Financial Supervision in order to reduce the duplication of supervisory tasks, to foster co-operation and to reduce the burden imposed on financial market participants.
The International Swaps and Derivatives Association (ISDA) launched the 2017 Venezuela Additional Provisions Protocol which is intended to help market participants that have entered into credit derivatives transactions referencing Venezuela or Petroleos de Venezuela, S.A. following the imposition of sanctions on Venezuela by the US. The protocol is open for adherence for ISDA members and non-members from 11 October 2017 until 18 October 2017.
ESMA published a briefing on the Legal Entity Identifier (LEI) as part of its efforts to raise industry awareness and facilitate compliance with the LEI requirements under MiFID II ahead of its 3 January 2018 launch.
The European Commission asked the EBA for technical advice on its plan to create an EU framework on covered bonds and assess the case for European Secured Notes (ESNs) for SME bank loans and infrastructure bank loans. The ESN asset class would aim to cover a funding segment located between traditional covered bonds and STS securitisations. The Commission says it could increase the variety of funding tools available to banks, unlocking more financing for SMEs and infrastructure projects, and contributing to economic growth and investment.
The European Central Bank (ECB) delivered an opinion on the proposal for a regulation amending the ESMA Regulation (Regulation (EU) 1095/2010) and EMIR with regard to the procedures and authorities involved for the authorisation of central counterparties (CCPs) and the recognition of third country CCPs. The ECB strongly supports the initiative set out in the Commission’s proposal to enhance the role of the relevant members of the European System of Central Banks—as central banks of issue of the currencies of financial instruments cleared by CCPs—in the process for the supervision of Union CCPs and the recognition of third country CCPs.
The Financial Stability Board (FSB) published a report 'Reforming major interest rate benchmarks' covering progress on implementation of the FSB's recommendations to reform major interest rate benchmarks. The report concludes that administrators of key interbank offered rates (IBORs) have continued to take important steps to implement the FSB's recommendations, but in the case of some IBORs, such as LIBOR and EURIBOR, underlying reference transactions in some currency-tenor combinations are scarce and submissions therefore necessarily remain based on a mixture of factors including transactions and judgement by submitters.
The Board of the International Organization of Securities Commissions (IOSCO) published a report on 11 October 2017 on Other CRA Products (OCPs), which provides market participants with a better understanding of certain non-traditional products and services offered by credit rating agencies (CRAs).
ESMA updated today its list of central counterparties (CCPs) based in third countries that can offer services and activities in the EU. Three Indian clearing houses have been added to the list: Indian Clearing Corporation Limited ICCL, National Securities Clearing Corporation Limited, and MCX-SX Clearing Corporation.
The Basel Committee on Banking Supervision (BCBS) agreed to allow national discretion for the net stable funding ratio (NSFR) treatment of derivative liabilities. The BCBS says this should facilitate the implementation of the NSFR, which is expected to begin on 1 January 2018.
IOSCO issued a statement on the research carried out by the IOSCO taskforce on over-the-counter derivatives regulation into the functioning of the International Swaps and Derivatives Association (ISDA) Credit Derivatives Determinations Committee (DC) and credit default swap (CDS) auction processes.
The Australian Securitisation Forum, the Global Financial Markets Association, the International Capital Market Association, and the Institute of International Finance made a joint response to the Basel Committee on Banking Supervision and International Organization of Securities Commissions (IOSCO) consultation on the criteria for and capital treatment of simple, transparent and comparable short-term securitisations (July 2017). The criteria were designed to help the parties to such transactions to evaluate the risks of a particular securitisation across similar products and to assist investors with their conduct of due diligence on securitisations.
The Futures Industry Association (FIA) released a statement commending a US Department of the Treasury report: ‘A financial system that creates economic opportunities’, concerning capital markets. FIA President and CEO Walt Lukken praised the report for addressing important capital market issues that impact on centrally cleared derivatives, particularly the recommendations concerning initial margin and a suggested alternative to the current exposure method for calculating capital requirements.
The chair of ESMA, Steven Maijoor, gave a speech on financial education and investor protection at the International Organization of Security Commissions World Investor Week. Mr Maijoor said investors who are more financially literate should be able to take more rational investment decisions and should be less prone to ‘sheep-like behaviours that are disruptive for the stability of financial markets’.
The Bank of England (BoE) executive director for markets, Chris Salmon, spoke at the 13th Annual Central Bank Conference on the Microstructure of Financial Markets in London about the implications of the trend toward more electronic and automated trading. According to Mr Salmon, regulators need to remain vigilant and deepen their understanding of the risks and benefits of fast markets, so they can take appropriate action in the future if necessary, either from a macro-prudential or supervisory perspective.
ESMA published updated Q&As on the application of the Undertakings for the Alternative Investment Fund Managers Directive (AIFMD) and the Collective Investment in Transferable Securities Directive (UCITS).
World Investor Week 2017, organised by IOSCO, concluded, with securities regulators and other stakeholders from more than 80 countries having led a programme of events to educate and protect investors. The International Forum for Investor Education and the Financial Planning Standards Board also supported the campaign.
The FCA published a Notice of Undertaking given by PPRO Financial Limited (PPRO) in which PPRO has agreed to make changes to its consumer terms and conditions, dated April 2016. PPRO uses these terms and conditions in contracts with its prepaid card customers (VIABUY Prepaid MasterCard).
The chief executive of the FCA, Andrew Bailey, gave a speech on consumer credit, long-term savings, and the impacts of an ageing population. The speech looks at how social issues and the public interest impact on financial services and the City.
Research firm Kantar issued a report finding that financial services organisations could be missing billions of pounds worth of business opportunities by not winning over women. The report, Winning Over Women, suggests that UK financial institutions are failing to connect with female customers at every stage of the buying journey, from advertising to offerings.
The European Insurance and Occupational Pensions Authority (EIOPA) published guidelines on ‘execution-only’ sales with respect to insurance-based investment products (IBIPs), in line with Articles 30(7) and (8) of the Insurance Distribution Directive (IDD). The guidelines aim to minimise the risks of consumer detriment arising from misselling of IBIPs while also setting a suitable framework to allow for ‘execution-only’ sales of products.
Decisions (Council Decision (EU) 2017/1792 and Council Decision (EU) 2017/1793) and the agreed text of the bilateral agreement between the EU and the US on prudential measures regarding insurance and reinsurance have been published in the Official Journal.
The EIOPA published new Q&As on the Solvency II regulations. The questions cover the templates for the submission of information to the supervisory authorities, the procedures, formats and templates of the solvency and financial condition report, and the Commission Delegated Regulation (EU) 2015/35 supplementing Directive 2009/138/EC.
Insurance Europe (IE) and the European Fund and Asset Management Association (EFAMA) published updated PRIIPs information exchange templates. The templates were originally published in June 2017 and are meant to provide a functional description of the set of data to be exchanged from asset managers and banks to insurers to help them fulfil their PRIIPs regulatory obligations.
Insurance Europe developed a template for data breach notifications under the General Data Protection Regulation (GDPR). The aim is to facilitate the development of the EU cyber-insurance market, by giving insurers access to anonymised data collected under the GDPR and Network Information Security Directive.
The chair of EIOPA, Gabriel Bernardino, delivered a statement at the hearing of the European Parliament’s Economic and Monetary Affairs Committee, setting out EIOPA’s work on supervisory convergence, consumer protection and financial stability.
The Bank for International Settlements (BIS) published a report based on a survey of insurance supervisory authorities, examining the effect of low interest rates on life insurers. The paper look at the tools available to supervisors for dealing with firms in difficulties, and says some supervisors could benefit from additional powers that may require legislative changes.
The European Commission adopted a Delegated Regulation with regard to regulatory technical standards (RTS) setting out what payment card schemes and processing entities must do to ensure their independence in terms of accounting, organisation and decision-making processes under Regulation (EU) 2015/751 on interchange fees for card-based payment transactions (the Interchange Fee Regulation).
The Committee on Payments and Market Infrastructures (CPMI) published a preliminary version of 2016 statistics on payment, clearing and settlement systems in the CPMI countries. A final version will be published in December 2017.
The Payment Systems Regulator (PSR) published the text of a speech given by its head of policy, Paul Smith, at the Payments Innovation Conference in Johannesburg, South Africa. Mr Smith discussed the unique role of the PSR, noting that there is no institution in the world with quite the same role and powers. He discussed the establishment and the jurisdiction of the PSR and its three statutory objectives, which are to promote competition, promote innovation, and to act in the interests of service-users.
The executive director for banking, payments and financial resilience at the BoE, Andrew Hauser, announced the firms the bank will be working with in the latest cohort of proofs of concept (PoCs) at the FinTech Accelerator. Speaking to FinTech firms at a meeting in Cambridge, Mr Hauser also reflected on the work of the Accelerator since its launch in June 2016.
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