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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 14 June 2018.
Yves Mersch, a member of the executive board of the European Central Bank (ECB), made a keynote speech at the Frankfurt Finance Summit entitled ‘Euro Clearing—the open race’. In his speech, Mr Mersch examined the impact of Brexit on central counterparties (CCPs).
Verena Ross, executive director of the European Securities and Markets Authority (ESMA), gave a speech entitled 'Towards a genuine single European financial market—the role of regulation and supervision'. Among other issues, the speech highlighted that Brexit requires ESMA to strengthen the Capital Market Union and reform third country treatment.
The House of Commons European Scrutiny Committee (ESC) considered a European Commission proposal to change the legal framework underpinning the Single European Payments Area (SEPA) to bring the costs of euro payments down for consumers and businesses in Member States that do not use the single currency locally. In light of Brexit, the ESC has asked for further information and brought the matter to the attention of HM Treasury.
The Financial Conduct Authority (FCA)’s executive director of strategy and competition, Christopher Woolard, delivered a speech at a conference on the relationship between antitrust, innovation and investment. Mr Woolard said innovation boosts competition, sees firms serve new niches, streamlines processes and shakes up the status quo. He also said the FCA was increasingly applying new technologies to its day-to-day supervisory work.
The FCA published the response it received from the all-party parliamentary group (APPG) on fair business banking to the FCA consultation on SME access to the Financial Ombudsman Service (FOS). The response notes that SMEs are not on a level playing field in terms of size and negotiating power when it comes to their dealings with the big banks.
The Prudential Regulation Authority (PRA) published an update on the independent investigation into the supervision of the Co-operative Bank plc which Norval Bryson, the senior responsible officer for the investigation on behalf of the PRA, has provided to the economic secretary to the Treasury, John Glen MP. Dr Bryson has written in similar terms to the chair of the Treasury Committee, Nicky Morgan MP.
The Treasury Select Committee announced that it has ‘lost confidence’ in Paul Pester as CEO of TSB, questioning his ability to provide a full and frank assessment of the IT problems at the bank, or to deal with them in the best interests of its customers. After hearing evidence on 7 June 2018 the chair of the Committee, Nicky Morgan MP, wrote to the chair of TSB suggesting its board should give ‘serious consideration’ as to whether Dr Pester’s position was sustainable. Ms Morgan asked TSB to consider it as a matter of urgency.
The European Commission welcomed the agreement reached by the European Parliament and the EU Member States on 7 June 2018 to strengthen criminal law measures to counter money laundering. The new measures harmonise the definition of criminal offences and sanctions related to money laundering, including the proceeds of cybercrime, and remove obstacles to cross-border judicial and police co-operation. At the same time, the new rules bring EU norms in line with international obligations in this area.
His Honour Judge Grieve QC, sitting at the Central Criminal Court, increased the value of a confiscation order made against Benjamin Wilson, a convicted fraudster, from £1 to £31,905.33. The increased order must be paid within 28 days or Mr Wilson will face an additional 14 months in prison.
The European Commission published the findings of a study and a public consultation on restricting payments in cash to combat terrorist-financing. The study concluded that restrictions on cash payments would not significantly hamper the financing of terrorist activities but would have a positive impact on the fight against money laundering. Responses to the consultation indicated that restricting cash payments is a sensitive issue for European citizens and that many of them view the possibility to pay in cash as a fundamental freedom which should not be disproportionally restricted. At this stage, the Commission is not considering any legislative initiative on this matter.
The Economic and Monetary Affairs Committee of the European Parliament (ECON) will hold a hearing on the mis-selling of financial products on 19 June from 11.00 to 12.30 Brussels time.
The FCA is consulting on a proposed change to its technical note FCA/TN/506.2—Periodic financial information and inside information. The proposed changes cover the delay in the disclosure of inside information under Article 17(4) of the Market Abuse Regulation (MAR). Feedback is sought by 23 July 2018.
The FCA published a feedback statement to its consultation issued in July 2017 on proposals to create a premium listing category for sovereign-controlled companies, which the FCA believes could greatly benefit investors if corporate issuers agree to meet these additional premium requirements.
The European Securities and Markets Authority (ESMA) updated its public register with the latest set of double volume cap (DVC) data under the Markets in Financial Instruments Directive (MiFID II). It includes data and calculations for the period of 1 May 2017 to 30 April 2018, as well as updates to already published DVC periods.
The European Money Markets Institute (EMMI) announced that two-week, two-month and nine-month Euribor will not be published from 3 December 2018 onwards. Following EMMI's announcement, the International Swaps and Derivatives Association (ISDA) reminded its members of the effects of the 2013 ISDA Discontinued Rates Maturities Protocol (2013 Protocol).
The European Parliament voted to adopt the proposed Regulation amending the European Market Infrastructure Regulation (EU) 648/2012 (EMIR) as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for over-the-counter derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories.
The International Swaps and Derivatives Association (ISDA) published an article in its derivatiViews series, by its CEO Scott O'Malia. The article discusses the work needed to reduce the complexity caused by firms having different sets of representations for events and processes that occur during the life of a typical derivatives trade. ISDA has launched a Common Domain Model (CDM) and is encouraging its members to download, test and provide feedback on it.
The ECB released statistics on euro area securities issues for the first quarter of 2018. The annual growth rate of the outstanding amount of debt securities issued by euro area residents was 1.5% in April 2018, the same as in March. For the outstanding amount of listed shares issued by euro area residents, the annual growth rate increased from 1.0% in March 2018 to 1.3% in April.
The European Parliament has published draft amendments to Article 22 of the Statute of the European System of Central Banks and of the European Central Bank. The draft report by Gabriel Mato and Danuta Maria Hübner contains proposed amendments 5-48. Yves Mersch said that amending Article 22 would help establish ‘a comprehensive legal framework to address the risks CCPs pose to the Union—both its financial markets and its currency’.
The Money Market Funds Regulations 2018 (SI 2018/698) amending the FCA Handbook and FSMA 2000 to enable the FCA to authorise MMFs and to enforce the provisions of the Money Market Funds Regulation when it comes into force on 21 July 2018 were laid before Parliament on 11 June 2018.
According to EY's ninth annual ‘Risk and regulation in a digitalised world study’, UK asset management firms are busy re-focusing their risk and regulatory priorities. The study, based on one-to-one interviews with 50 UK asset managers of varying sizes and types, also revealed that firms are reassessing their business models in a number of different areas.
ESMA issued its first annual report regarding supervisory measures carried out and penalties imposed by national competent authorities (NCAs) under the European Market Infrastructure Regulation (EMIR).
The Bank of England (the BoE) released its final statement of policy on valuation capabilities to support resolvability. The policy document also discusses responses to the consultation paper published in August 2017. The statement of policy is provided in accordance with section 3B(9) of the Banking Act 2009.
The PRA published Policy Statement 11/18 (PS11/18), which provides feedback on responses to Consultation Paper 1/18 (CP1/18), ‘Resolution planning: MREL reporting’. It also sets out the PRA's final expectations for the reporting on the minimum requirement for own funds and eligible liabilities (MREL). The appendices to PS11/18 set out the updated supervisory statement (SS) 19/13, 'Resolution planning' (Appendix 1) and the reporting templates and guidance (Appendix 2).
The FSB published a speech by its secretary general, Dietrich Domanski, in which he outlined the history of bank resolution and recovery planning by regulators in the years following the financial crisis. Mr Domanski said significant implementation work remains, both in the EU and beyond, to operationalise resolution plans and make firms resolvable, particularly on a cross-border basis.
According to a report published by a European Parliament thinktank, despite all the progress made in designing the 2018 EBA EU-wide stress test exercise, there remain critical areas concerning the application of a static-balance sheet assumption, the under-representation of liquidity risk and the implications of the lack of a fail-pass threshold. According to the report, improvements in these areas could enhance reliability of stress test results and empower their role as external and internal communication tools.
The Financial Conduct Authority (FCA) published its latest data bulletin, focusing on new analysis of the retail intermediary sector based on the data firms have submitted to the FCA via the retail mediation activities return.
The BoE and the FCA published mortgage lenders and administrators statistics for the first quarter of 2018. The figures show a decrease in mortgage lending activity when compared with the previous quarter. New commitments (new lending that lenders have agreed to advance in coming months) are at their lowest level since 2016 Q3, and there has been a decrease in the amount of lending to first time buyers. The shares of buy-to-let and re-mortgaged loans have increased since last quarter.
The FCA announced that its investigation into the fair treatment of longstanding customers by Scottish Widows has concluded, and there is insufficient basis for taking any enforcement action. The FCA will be raising a number of issues uncovered as part of the investigation with the firm in its supervisory engagement.
The European Insurance and Occupational Pensions Authority (EIOPA) published an interview given by its chair, Gabriel Bernardino, to Swedish financial news outlets Pensioner & Förmåner and Dagens Industri. Mr Bernardino said the implementation of Solvency II in 2016 went smoothly and was a success, and that he was happy with how supervisory convergence with Solvency II is developing in collaboration with the national supervisors.
In the trial of preliminary issues arising from the first and second claimants' claims, the Commercial Court held, among other things, that while some elements of the claim arose from the circumstances notified to the 2008/2009 primary policy, other elements of the claim fell within the 2009/2010 primary policy. Further, that the first defendant primary professional indemnity insurer had a right of set-off in relation to those costs it had incurred in defending the second claimant's claim in an arbitration, which had been over and above what it had been contractually required to pay under the insurance policy. The judgment is available at:  EWHC 1083 (Comm).
The Council of the European Union published a Presidency compromise text on the proposal for a Regulation of the European Parliament and of the Council on a pan-European personal pension product (PEPP).
The ECB released statistics on euro area insurance corporations for the first quarter of 2018. They show that total assets of euro area insurance corporations amounted to €7,949bn, €53bn higher than in the fourth quarter of 2017. Total insurance technical reserves amounted to €6,009bn, €32bn higher than in the fourth quarter of 2017.
The Payment Systems Regulator (PSR) published Discussion Paper 18/1 about data in the payments industry. Payments-related data is becoming increasingly important, and its use is growing fast. As a result, the PSR is examining how this can affect the payments industry and consumers.
The EBA published an opinion and a consultation paper (CP) on draft guidelines to clarify a number of issues identified by market participants in relation to the regulatory technical standards (RTS) on strong customer authentication and common and secure communication (SCA and CSC) made under the revised Payments Services Directive (Directive (EU) 2015/2366) (PSD2). The RTS will apply from 14 September 2019. Feedback on the CP is sought by 13 August 2018.
The FCA sent a Dear CEO letter to banks, setting out good practice on how to handle the financial crime risks posed by crypto-assets. The FCA says crypto-assets are open to abuse as they offer potential anonymity and the ability to move money between countries.
Lithuania's Ministry of Finance published a document entitled 'ICO Guidelines'. The guidelines cover four sections, namely regulation, taxation, accounting, and anti-money laundering/combating the financing of terrorism (AML/CFT). Despite its title, the sections, other than the regulatory section, predominantly focus on cryprocurrencies rather than initial coin offerings (ICOs).
The Financial Stability Board (FSB) regional consultative group (RCG) for the Americas published a summary of its meeting on 6 June 2018. The meeting included discussion on the regulatory treatment of sovereign exposures, FinTech and RegTech, crypto-assets and the role of governance frameworks in mitigating misconduct risk.
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Chris is a member of the New York Bar with more than two decades of experience as a financial services and capital markets lawyer in London. Before joining LexisNexis in 2016, Chris worked as a Senior Professional Support Lawyer at Linklaters LLP, supporting the firm’s market-leading Financial Regulation Group, with a particular focus on MiFID II. Chris also worked as Legal Analyst at Bloomberg, where he drafted analytical articles on EU, UK and US financial services law and regulation for Bloomberg journals and developed practical guidance content for the award-winning Bloomberg LAW legal research platform. Prior to that, Chris was a partner in the U.S. law group at Allen & Overy, advising issuers and underwriters on a wide range of capital markets and corporate finance transactions including SEC-registered and Rule 144A debt and equity offerings and mergers and acquisitions, as well as providing general U.S. securities law advice. He also co-founded the firm’s Microfinance Working Group and advised on a variety of matters including two landmark securitisations of loans to microfinance institutions.
Chris has written extensively on legal and regulatory issues for numerous publications and lectured on financial regulation, microfinance and capital markets.
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