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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 13 September 2018.
SI 2018/Draft: This draft enactment is laid in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. This draft enactment proposes repeals and amendments to address deficiencies in retained EU law in relation to the European Economic Area’s (EEA) ‘financial service passport’ which allows firms in EEA states to offer services in any other EEA state on the basis of their home state authorisation which arise from the withdrawal of the UK from the EU.
The Financial Conduct Authority (FCA) published a speech by its CEO, Andrew Bailey, on multilateralism and global co-ordination, making the case for balancing autonomy and co-operation in the interests of financial markets. Speaking at the Eurofi Financial Forum in Vienna, Mr Bailey stressed the importance of keeping the Single Market open to the UK and other third countries post-Brexit.
The CEO of the FCA, Andrew Bailey, gave a wide-ranging speech at the FCA’s annual public meeting for 2018. Mr Bailey said the balance of the risks the FCA has to tackle has shifted towards operational risks, including resilience, technological change and financial crime. He also discussed the FCA’s work on Brexit, and ongoing issues including RBS’s Global Restructuring Group, HBOS and Connaught.
The FCA published a speech given by its chair, Charles Randell, delivered at the annual public meeting at the QEII Centre, Westminster. In his speech, Mr Randell focused on the impact of Brexit and technological developments on the FCA's functions, as well as the FCA's approach to financial crime.
The FCA published Quarterly Consultation Paper No 22 (CP18/24), in which it consults on changes to its supervisory principles and changes to the reporting requirements in the Supervision manual for authorised payment institutions (APIs). The deadline for responses is 7 October 2018 and 7 November 2018, respectively.
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 its fees proposals for claims management companies (CP18/23), which is expected in December 2018.
The governor of the Bank of England, Mark Carney, agreed to extend his term to January 2020, in order to support a smooth exit of the UK from the EU, and an effective transition to the next governor. HM Treasury also announced that Jon Cunliffe has been reappointed as deputy governor for financial stability for a second five-year term.
The European Parliament voted in plenary session to adopt a resolution on relationships between the EU and third countries concerning financial services regulation and supervision.
The vice-president of the European Commission, Valdis Dombrovskis, said that the EU needs to complete the banking union and have the foundations of the capital markets union (CMU) in place before the European Parliament elections in 2019. Speaking at the Eurofi Financial Forum 2018 in Vienna, Mr Dombrovskis warned that the EU needs a strong financial system and a credible currency if it is to ‘stand on its own feet’.
Donald Kohn, a member of the Financial Policy Committee (FPC) at the Bank of England, gave a speech at the 200th anniversary of the Danmarks Nationalbank in Copenhagen, in which he reflected on the lessons learned from the global financial crisis. He argued that countercyclical macroprudential policy is the most effective way to protect against the build-up of vulnerabilities during good economic times.
The Council of the EU published a summary of the Eurogroup’s meeting of 7 September 2018, together with remarks made by the president of the Eurogroup, Mário Centeno. The meeting included discussion of euro area reform and the common backstop to the Single Resolution Fund (SRF), in particular when it starts and who can decide on its activation.
SI 2018/990: Certain provisions of the Bank of England and Financial Services Act 2016 relating to Part V of the Financial Services and Markets Act 2000 (FSMA 2000) will come into force in the UK partly on 13 September 2018, 10 December 2018 and fully on 10 December 2019. Transitional provisions are also made.
Sabine Lautenschläger, a member of the executive board of the European Central Bank (ECB) and vice-chair of its supervisory board, gave a speech at the Eurofi Financial Forum, in which she called for further harmonisation of Member States’ legal and administrative systems and greater co-operation between them in order to promote a truly European system of banking supervision and a common European supervisory culture. She also suggested a single European reporting framework to replace national reporting requirements would reflect this aim.
The ECB launched a public consultation on the risk-type-specific chapters of its guide to internal models. The chapters on credit risk, market risk and counterparty credit risk are intended to ensure a common and consistent approach to the most relevant aspects of the applicable regulations on internal models for banks directly supervised by the ECB. Feedback is sought by 7 November 2018.
The European Banking Authority (EBA) published a revised version of the standardised non-performing loan (NPL) data templates, that aim to facilitate NPL sale transactions across the EU. The revised templates include minor changes following the feedback received from the testing of the original version published in December 2017.
The Prudential Regulation Authority (PRA) is consulting on proposals to update certain PRA reporting requirements to reflect relevant proposals made by the EBA in its open consultations on changes to the implementing technical standards (ITS) on supervisory reporting. Feedback on consultation paper CP19/18 is sought by 12 December 2018.
The EBA released two sets of templates to be used in the 2018 impact assessment of the finalised Basel III standards. The EBA says the two sets of quantitative impact study (QIS) templates, which build on the Basel III regular monitoring templates, will ensure that the data collection burden is proportionate to the institutions' size and complexity.
The European Systemic Risk Board (ESRB) published its third annual EU Shadow Banking Monitor report, which covers data up to end-2017. The report shows that, while little changed in 2017, assets in the shadow banking sector now accounts for around 40% of the EU financial system. While the size of the shadow banking system is important for monitoring purposes, it is not, in itself, a measure of risks and vulnerabilities.
Yves Mersch, a member of the executive board of the ECB, delivered a speech entitled 'Financial Stability and the ECB' in which he considers what role EU law, and especially primary EU law, foresees for the ECB in the field of financial stability.
The chair of the FCA and Payment Systems Regulator (PSR), Charles Randell, said that good quality financial statements are a key building block of effective prudential regulation. In a speech given to the Institute of Chartered Accountants in England and Wales (ICAEW) Canary Wharf Members' Club, Mr Randell called on accountants to help guide firms to put business model analysis and consideration of long-term viability at the heart of their corporate reporting.
The EBA issued a revised list of validation rules in its implementing technical standards (ITS) on supervisory reporting, highlighting those which have been deactivated either for incorrectness or for triggering IT problems. Competent Authorities throughout the EU are informed that data submitted in accordance with these ITS should not be formally validated against the set of deactivated rules.
The European Securities and Markets Authority (ESMA) published its biannual Trends, Risks, and Vulnerabilities (TRV) Report (No 2, 2018), in addition to its quarterly Risk Dashboard No 3, 2018. The TRV report concludes that EU securities markets, infrastructures and investors face new risks in the form of high volatility, in addition to cyber risk and Brexit risks for business operations.
The European Supervisory Authorities (ESAs), the EBA, the European Insurance and Occupational Pensions Authority (EIOPA), and ESMA published their latest report on risks and vulnerabilities in the EU financial system. It highlights abrupt yield increases, Brexit, and repricing of risk premia and potentially increasing interest rates as potential sources of instability.
The European Commission proposed to further strengthen the supervision of EU financial institutions to better address money-laundering and terrorist financing threats. The proposals follow the establishment of a Joint Working Group in May 2018 to initiate a collective reflection on ways of improving the current framework for co-operation between anti-money laundering (AML) and prudential supervisors. The proposals are set out in the Commission's communication, ‘Strengthening the Union framework for prudential and anti-money laundering supervision for financial institutions’. In order to reflect its proposals, the Commission also issued a draft update to its legislative proposal for its Omnibus Regulation on reforms to the European System of Financial Supervision (ESFS).
Members of the European Parliament approved new measures to combat terrorist financing (CTF), by preventing money laundering and tightening cash flow checks. Two laws will make it harder for terrorists and criminals to finance their activities, by closing the loopholes in the current money laundering rules and by making it easier for the authorities to detect and stop suspicious financial flows.
Elizabeth Baker, head of proceeds and crime and international assistance division at the Serious Fraud Office (SFO), gave a speech on economic crime and the topic of unexplained wealth. In a speech delivered on 6 September 2018, Baker discusses the efficiency of the current system, the burden on businesses, whether a focus on unexplained wealth is a partial answer, and what can be done in the future.
The Lloyd's Market Association (LMA) published a new version 1.9 of its Market Reform Contract (Open Market) Guidance to reflect the results of its annual review of the guidance. It has also published a supplementary addendum to the guidance in light of the establishment of a new Brussels-based insurance company by Lloyd's.
ESMA updated its public register with the latest set of double volume cap (DVC) data under the Markets in Financial Instruments Directive (MiFID II). The updates include DVC data and calculations for the period of 1 August 2017 to 31 July 2018 as well as updates to already published DVC periods.
The International Swaps and Derivatives Association (ISDA) published its response to the Financial Stability Board (FSB)'s Derivatives Assessment Team's August 2018 consultative report on incentives to centrally clear over-the-counter (OTC) derivatives. ISDA says that the incentives to clear created by the regulatory framework are not always appropriate and recommends a number of changes.
ESMA published the responses it received to its consultation paper no.6 on the clearing obligation under EMIR. The consultation dealt with an amending draft regulatory technical standards (RTS) regarding the treatment of intragroup transactions with a third-country group entity, and proposed an extension of the temporary intragroup exemption.
ESMA moved its register for benchmark administrators and third-country benchmarks to the ESMA registers database.
The World Federation of Exchanges (WFE), the global industry group for central counterparties (CCPs) and exchanges, responded to the four global standard-setting boards’ consultation on the effectiveness of incentives to centrally clear OTC derivatives. The WFE calls for prompt and concerted action internationally to address issues confirmed in the August 2018 consultation paper.
The CEO of ISDA, Scott O'Malia, commented on a recent announcement by the chair of the US Commodity Futures Trading Commission (CFTC), Christopher Giancarlo, in which Mr Giancarlo announced that a revamp of the US cross-border derivatives framework is in the offing.
The Futures Industry Association (FIA), the Institute of International Finance (IIF), and the Global Financial Markets Association (GFMA) (together the associations) jointly responded to the consultation by the Financial Stability Board’s Derivatives Assessment Team (DAT) on incentives to centrally clear OTC derivatives. The associations agree with the DAT’s findings that there are impediments to accessing central clearing, and urge global regulators to take action.
The European Parliament's Economic and Monetary Affairs (ECON) committee published details of its September 2018 meetings, including consideration of European Commission proposals for a Directive on covered bonds, at its meeting on 10 September 2018.
The Association of Investment Companies (AIC) called for the suspension of key information documents (KIDs), saying they are systematically flawed due to their reliance on past performance as a basis for future projections, and ‘not simply unhelpful’, but ‘actively misleading’. The AIC has also called on the FCA to ‘act swiftly to protect consumers and warn them not to rely on these documents when making investment decisions’.
The government responded to the Scottish Affairs Committee’s report on Royal Bank of Scotland branch closures. The government acknowledges that bank branch closures can impact on vulnerable customers, but says it is a commercial decision for the management team of the bank, and government policy is not to intervene in those decisions.
Commission Delegated Regulation (EU) 2018/1221 (the Solvency II Delegated Act Amendment Regulation) has been published in Official Journal of the EU. This makes changes to Commission Delegated Regulation (EU) 2015/35 (the Solvency II Delegated Act) to ensure alignment with Regulation (EU) 2017/2402 (the Securitisation Regulation) and Regulation (EU) 2017/2401 (the CRR Amendment Regulation).
The Competition and Markets Authority (CMA) launched a limited review of the Payment Protection Insurance Market Investigation Order 2011 (PPI Order) in response to the introduction of the Insurance Distribution Directive (IDD). The CMA invites views on three options for variation of the PPI Order to take account of duplication of obligations on PPI providers resulting from the IDD, by 21 September 2018.
ECON published its final report on the European Commission's proposed regulation on a pan-European personal pension product (PEPP). The report was adopted by ECON on 3 September 2018 and sets out the committee's recommended amendments to the proposal.
The FCA published its latest data bulletin, which focuses on the latest trends in the retirement income market collected through the FCA's Retirement Income Data Request (RIDR). The bulletin provides a summary of the latest data for the period from 1 October 2017 to 31 March 2018. The data show decisions vary considerably based on the size of the pension pots.
EIOPA published technical information on the relevant risk-free interest rate (RFR) term structures with reference to the end of August 2018.
EIOPA published the technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of August 2018.
Insurance Europe (IE) published its response to a consultation by the International Association of Insurance Supervisors (IAIS) on its application paper on the composition and role of boards. IE considers that some of the measures put forward by the IAIS are overly intrusive and urges supervisors to take a proportionate approach when applying requirements to insurers.
The PSR published its response to the first ‘footprint report’ of the UK’s largest cash machine network, LINK, on access to cash points. The PSR is concerned about closures of free-to-use (FTU) ATMs, particularly ‘protected’ ones, ie those 1km or more away from another FTU machine. The PSR has asked LINK to review the closures and consider whether they can be replaced where needed, with a view to replacing them as quickly as possible.
Payment service providers (PSPs) and billers are being invited to register to play their part in developing ‘Request to Pay’—a new way to improve the control, flexibility and transparency of bill payments. It has been launched by the New Payment System Operator (NPSO), which has responsibility to develop best in class payment infrastructure and standards.
The European Commission's vice-president, Valdis Dombrovskis, outlined the Commission's approach to FinTech in a speech in Vienna. Mr Dombrovskis said that the Commission's ambition is to support an innovative European financial sector, while looking after consumers and addressing risks.
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