Weekly highlights—15 February 2018

Weekly highlights—15 February 2018

Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 15 February 2018.


Government defends decision not to publish position paper on FS and Brexit

The Treasury Committee published a letter, dated 2 February 2018, from the economic secretary to the Treasury, John Glen MP, concerning whether to publish a position paper on financial services and Brexit. The chair of the Committee, Nicky Morgan MP, had said on 22 January 2018 that failure to publish a position paper ‘sends all the wrong signals’. Mr Glen said the UK’s intentions for its future relationship with the EU form an integral part of the government’s negotiating strategy, and as negotiations are highly sensitive, the government must ‘carefully consider the timing of any publications that could be used to undermine the UK’s negotiating position’.

Insurance Europe issues proposals for a smooth Brexit

Insurance Europe (IE) published two position papers relating to Brexit. The first paper calls for a transitional arrangement that would help avoid a cliff-edge scenario and allow insurers that operate cross-border to fulfil their obligations to consumers. The second paper relates to the transfer of personal data between the EU/EEA and the UK post-Brexit. It calls on the European Commission and the UK to launch adequate assessment processes as soon as possible, with a view to recognising each other’s data protection frameworks in order to avoid business disruption.

European Commission warns stakeholders of Brexit's impact on financial services

The European Commission published a number of notices to stakeholders from the Directorate-General for Financial Stability, Financial Services and Capital Markets Union on the legal and practical implications of Brexit. These notices, which aim at preparing stakeholders for the withdrawal of the UK from the EU, set out the consequences in a range of policy areas related to financial services, banking and insurance.

European Commission publishes Brexit preparatory discussion slides on services

The European Commission task force for the preparation and conduct of the negotiations with the UK regarding Brexit published slides presented to the Council Working Party (Article 50) on 30 January 2018 regarding services in the internal market, including financial services.

Do not rely on Brexit transition period, German central banker says

Dr Andreas Dombret, a member of the executive board of the Deutsche Bundesbank, warned the financial sector that it needs to prepare for the possibility of a 'no-deal' Brexit scenario. Speaking at UK Finance in London, Dr Dombret said that firms and officials should not rely on a transition period to give them the certainty they crave.

Financial Conduct Authority updates

FCA publishes information on its performance against service standards

The Financial Conduct Authority (FCA) published information on its performance against 62 service standards in the period April to September 2017. The document includes both statutory and voluntary standards.

Regulatory architecture

HMT consults on changes to the cash ratio deposit scheme

HM Treasury opened a consultation on proposed changes to the cash ratio deposit (CRD) scheme, which funds the Bank of England’s (BoE) monetary policy and financial stability functions. Over the last CRD period the scheme did not generate sufficient income to cover the cost of the BoE’s policy functions. The consultation document sets out the findings of the latest review and the amendments the government is considering to make to the scheme. Feedback is sought by 9 March 2018.

Treasury Committee publishes FCA letter on powers and regulatory perimeter

The chief executive of the FCA, Andrew Bailey, wrote to the chair of the Treasury Committee, Nicky Morgan MP, setting out an overview of what the FCA regulates, the aim of regulation, the powers available to the FCA, and specific examples of areas where issues have arisen about the nature and extent of the FCA’s role. Mr Bailey had been asked to provide this information during his appearance at the Committee on 31 October 2017.

Treasury Committee and FCA correspondence on timetable for publishing RBS skilled persons report

On 7 February 2018, the Treasury Committee published correspondence (Treasury Committee to FCA/FCA to Treasury Committee) between committee chair Nicky Morgan MP, and the chief executive of the FCA, Andrew Bailey, on the timetable for publishing the skilled persons report submitted to the FCA relating to its review of the Royal Bank of Scotland (RBS)’s treatment of business customers.

On 9 February 2018, the FCA published a letter from Andrew Bailey, chief executive of the FCA, to Nicky Morgan MP, chair of the Treasury Select Committee, in which Mr Bailey says it is 'highly unlikely' that the FCA will publish the skilled persons' report on the RBS Global Restructuring Group (GRG) by 16 February 2018, the deadline requested by the committee.

On 13 February 2018, Nicky Morgan, chair of the Treasury Committee, confirmed that the Committee had used Standing Order (152)(4)(a) to order the FCA to send it the skilled persons' report into the RBS-GRG by 16 February 2018.

European Parliament publishes draft report on sustainable finance

The European Parliament published a draft report on sustainable finance by the Committee on Economic and Monetary Affairs (ECON). The draft report notes that the urgent need to respond to the threat from climate change has led to innovation in the field of sustainable finance in different EU Member States and proposes that the aim of the European Parliament should be to take the best from this innovation across our the EU and combine it into minimum standards for all, guiding investment to ensure a just and rapid transition towards a sustainable economy and society.

BIS and FSB officials say financial sector authorities need to build capacity

Agustín Carstens, the general manager of the Bank for International Settlements (BIS), and Dietrich Domanski, secretary general of the Financial Stability Board (FSB) spoke on capacity-building in financial sector regulation and supervision at a symposium organised by BIS and the International Monetary Fund in Basel. According to Mr Carstens, financial sector authorities need to ensure they have the capacity to implement and evaluate new international standards, and to make adjustments where necessary.

Council of the EU progress report on FS legislative files

The Council of the EU published an update on the state of play of legislative proposals in the field of financial services, in advance of a meeting of the Economic and Financial Affairs Council (ECOFIN) on 20 February 2018. The update covers all the major regulations and directives, noting that political agreement has been reached on the Anti-Money Laundering Directive (AMLD), and negotiating mandates agreed for the European Market Infrastructure Regulation (EMIR REFIT) and the relocation of the European Banking Authority (EBA).

Authorisation, approval and supervision

BoE consults on formalising CCPs’ IT incident reporting requirement

The BoE launched a consultation on a new rule for central counterparties (CCPs) relating to the reporting of incidents concerning their information technology (IT) systems. As the competent authority with responsibility for the supervision of CCPs, the BoE currently receives these notifications in accordance with a supervisory expectation. The BoE is proposing to formalise this requirement. Feedback is sought by 3 April 2018.

FCA publishes modification by consent of regulatory reference rules

The FCA published a modification by consent direction and associated webpage relating to the obligation to obtain regulatory references set out in chapter 22 of the Senior Management Arrangements, Systems and Controls (SYSC).

PRA publishes modification by consent of Fitness and Propriety 2.7

The Prudential Regulation Authority (PRA) updated its waivers and modifications of rules webpage to include a modification by consent of Fitness and Propriety 2.7. This modification will exempt firms that are part of a group that will become subject to the Ring-fenced Bodies part of the PRA Rulebook on 1 January 2019 from the obligation to request regulatory references from former employers outside the group when transferring large numbers of individuals, in particular those in certification functions, as part of a ring-fencing transfer.

Prudential requirements

'I' Item note on the prudential supervision of investment firms

The Council of the EU published an 'I' Item note to the Permanent Representatives Committee (COREPER) concerning the European Commission’s 21 December 2017 proposal for a directive of the European Parliament and of the Council on the prudential supervision of investment firms and amending Directive 2013/36/EU and 2014/65/EU. The Commission suggested that ECON be consulted on the proposed directive on an optional basis. The Council of the EU asked COREPER to decide on that suggestion and to give its opinion as soon as possible.

EBA publishes letter on CRDIV/CRR regulatory perimeter

The EBA published a letter dated 9 February 2018 from EBA chairperson, Andrea Enria, to Olivier Guersent, director general of the Directorate-General Financial Stability, Services and Capital Markets Union.

EBA publishes corrective update of XBRL taxonomy 2.6 for remittance of 2018 benchmarking exercise

The EBA published a corrective update (version to the XBRL taxonomy that Competent Authorities must use for the remittance of data under the Implementing Technical Standards (ITS) on benchmarking of internal approaches, for the 2018 benchmarking exercise.

Joint conference focuses on bank resolution​: progress and challenges

The Financial Stability Institute (FSI) and the International Association of Deposit Insurers (IADI) organised their eighth joint conference on bank resolution, crisis management and deposit insurance on 31 January-2 February at the BIS in Basel, Switzerland. Speakers at the conference noted the progress that has been made in developing standards and policies for bank resolution, but stressed that more needs to be done to ensure that standards are consistently applied and that national regulators share information.

European Parliament raises no objection to IFRS 9 amendments

The European Parliament declared that it has no objections to the draft Commission regulation amending Regulation (EC) 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) 1606/2002 of the European Parliament and of the Council as regards amendments to International Financial Reporting Standard (IFRS) 9.

Risk management and controls

EBA updates methodological guide on risk indicators and detailed risk analysis tools

The EBA published an updated methodological guide on how to compile risk indicators and detailed risk analysis tools (DRATs). Although it is mainly for internal use, the guidance will also benefit competent authorities and other relevant stakeholders, as it will allow them to follow a consistent approach in their risk assessments.

FCA and ICO publishes joint update on GDPR

The FCA and the Information Commissioners Office (ICO) published an update on the EU General Data Protection Regulation (GDPR), which will apply in the UK from 25 May 2018 and will be regulated and enforced in the UK by the Information Commissioner's Office (ICO). Financial services firms will need to consider how the GDPR will apply to them, and ensure that they are ready to comply with the regulations from May 2018.

Lloyd's Market Association issues market guidance on duty of confidentiality

Lloyd's Market Association (LMA) issued market guidance on the duty of confidentiality at the request of a number of LMA committees. The guidance is a reminder about relevant law and regulation concerning confidentiality and the serious potential consequences of breach of confidentiality, both at a personal member-of-staff level and at corporate level.

FSB publishes consultation responses on Sound Compensation Practices supplementary guidance

Following the FSB’s June 2017 consultation on proposed supplementary guidance to the FSB Principles and Standards on Sound Compensation Practices, the FSB published written comments from interested parties. For further information see LNB News 08/02/2018 166.

Financial crime

SFO brings further charges against Barclays over Qatar loans

The Serious Fraud Office (SFO) charged Barclays Bank Plc with conspiracy to commit fraud by false representation and unlawful financial assistance to Qatari investors in 2008, in the form of a US$3bn loan for the purpose of directly or indirectly acquiring shares in Barclays Plc. The loan was part of an ‘emergency fundraising’ deal by Barclays in 2008 to avoid the bank’s failure. The trial of four former Barclays directors is scheduled to begin on 9 January 2019.

Dharam Prakash Gopee guilty of acting as an illegal money lender

The FCA issued a press release noting that the trial of Dharam Prakash Gopee has concluded at Southwark Crown Court with the jury returning a guilty verdict to the charges brought by the FCA for offences under the Consumer Credit Act 1974 (CCA 1974) and the Financial Services and Markets Act 2000 (FSMA 2000). Dharam Prakash Gopee was sentenced to three and a half years imprisonment, and was also issued with a Serious Crime Prevention Order (SCPO). This is the first time the FCA has sought such an order, which it says underlines the seriousness of his conduct.

MEPs confirm Commission money-laundering blacklist

Members of the European Parliament voted to add Tunisia, Sri Lanka and Trinidad and Tobago to the European Commission’s list of non-EU countries considered to have strategic deficiencies in their anti-money laundering and terrorism financing regimes. The 7 February 2018 vote split 357 in support of the motion, 283 votes against, with 26 abstentions. MEPs were divided on the issue, partly over a feeling that Tunisia should not have been on the list, as it is a burgeoning democracy in need of support and has taken recent steps to strengthen its financial system against criminal activity.

Enforcement and redress

FSCS to protect 5,000 members of Essex Savers net Credit Union Ltd

The Financial Services Compensation Scheme (FSCS) published a press release stating that it has stepped in to protect members of Essex Savers net Credit Union Limited; which has stopped trading and is now in default. This means it cannot re-pay deposits to its 5,000 members.

Marshall Bailey appointed new FSCS chair

The FCA and the PRA appointed Marshall Bailey as chair of the Financial Services Compensation Scheme Ltd (FSCS) with effect from 1 April 2018. Mr Bailey will succeed Lawrence Churchill.

Markets and trading

Algorithmic trading: FCA publishes report and PRA issues consultation paper

The FCA published a report on the supervision of algorithmic trading in wholesale markets.  The PRA also published a consultation paper (CP) on a proposed supervisory statement (SS), which sets out expectations for the prudential aspects of risk management and governance of algorithmic trading at PRA regulated firms. The PRA consultation period ends on 7 May 2018.

IOSCO consults on proposed policy measures to protect retail investors in OTC leveraged products

The International Organization of Securities Commissions (IOSCO) published a consultation report on retail OTC leveraged products. The report aims to identify and promote regulatory approaches that can enhance the protection of retail investors who are offered OTC leveraged products. The closing date for comments is 27 March 2018.

ESMA publishes 2018 work programme for CRAs, trade repositories and third country CCPs

ESMA published its 2017 annual report and 2018 work programme setting out its main supervisory activities for credit rating agencies (CRAs), trade repositories (TRs), and third country central counterparties (TC-CCPs) in the EU. ESMA supervises eight registered TRs, 26 registered CRAs, and four certified CRAs from third-countries. The report also details ESMA's supervisory activities and achievements in 2017.

ESMA publishes 2018 risk assessment work programme

The European Securities and Markets Authority (ESMA) published its risk assessment work programme, setting out its priorities in assessing risks for securities markets for 2018. The work programme provides an overview of the analytical, research, data and statistical activities by ESMA.

FCA provides update on US equivalence and intragroup exemptions under EMIR

The FCA updated its EMIR webpage with information on the Commission’s 13 October 2017 determination that the US is equivalent to EMIR in terms of the legal, supervisory and enforcement arrangements for non-centrally cleared over-the-counter (OTC) derivatives transactions.

FIA statement on Indian exchanges restricting access to indices and data by foreign exchanges

The Futures Industry Association (FIA) issued a statement in response to last week's announcement by three Indian exchanges that they are going to impose restrictions on the licensing of indices and market data for use by foreign exchanges to offer derivatives based on Indian stocks. The FIA considers that the announcement raises serious concerns for FIA members as it appears likely the restrictions will disrupt trading on numerous exchanges around the world and alarm international investors.

Banks and mutuals

European Parliament publishes motion for resolution on banking union

The European Parliament published a report of a plenary meeting that took place on 7 February 2018 to read through ECON annual report on the banking union for 2017 and which contains a motion for a European Parliament resolution in relation to the annual report.

ECB publishes interview with supervisory board member Pentti Hakkarainen

The European Central bank (ECB) published an interview given by Pentti Hakkarainen, ECB representative member on the Supervisory Board since February 2017, in which he discusses the challenges that ECB Banking Supervision is facing, including in his focus areas of budgetary issues, auditing, and technological advancement.

Investment funds and wealth management

European Commission launches AIFMD survey

The European Commission launched a survey about the functioning of the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD). Its aim is to gather the views of stakeholders on the AIFMD's requirements, their experience in applying them, and the market impacts of the directive.

Consumer credit, mortgage and home finance

Lending Standards Board to review standards of lending practice for personal customers

The Lending Standards Board (LSB) opened a review of the standards of lending practice for personal customers. The LSB is seeking input from registered firms, industry bodies, consumer and debt bodies, and other relevant parties whose work may interact with its own to help it consider whether further updates to the standards are required. Responses must be received by 30 March 2018.

FINRA issues paper looking at perspectives on customer outcomes

The Financial Industry Regulatory Authority (FINRA), which regulates US brokerage firms doing business with the public, issued a paper providing perspectives on customer recovery of judgments and awards in the financial services industry. The paper has a particular focus on the arbitration forum operated by FINRA.

Insurance and pensions

Council of the EU approves delay of IDD

The Council of the EU confirmed the final compromise text of the proposal for a Directive amending the Insurance Distribution Directive (EU) 2016/97 (IDD) postponing the date of application of Member States' transposition measures and said the EU ambassadors have confirmed, on behalf of the Council, an agreement to delay the transposition deadline of the IDD to 1 July 2018 and the application date to 1 October 2018.

FCA and TPR to develop joint pensions regulatory strategy

The FCA and The Pensions Regulator (TPR) announced that they are working together on a pensions regulatory strategy, which will set out how they will work together to tackle the key risks facing the pensions sector in the next five-ten years.

Cold calls to be banned to stop pension scammers

In its response to the Work and Pensions Select Committee report on protecting pensions against scams, the government says it will continue to work swiftly to implement a ban on pensions cold calling. It also agrees with the Committee about the need to ensure more people can benefit from pensions guidance.

FCA publishes open letter to pension transfer and opt out firms

The FCA published an open letter address to all firms holding the pension transfer and opt out permission in which the regulator reminds such firms of its requirements when giving pension transfer advice.

EIOPA publishes Q&As on regulation

The European Insurance and Occupational Pensions Authority (EIOPA) published Q&As on Commission Delegated Regulation (EU) 2015/35 supplementing Directive 2009/138 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) Text with EEA relevance. It also published a further Q&A on Commission Implementing Regulation (EU) 2015/2450 laying down implementing technical standards with regard to the templates for the submission of information to the supervisory authorities according to Solvency II.

EIOPA publishes new set of Solvency II statistics

EIOPA published a new set of statistical information on the European insurance sector based on Solvency II regulatory reporting. This set continues the series of quarterly statistics on solo undertakings launched on 28 June 2017. It contains country breakdowns and distributions of key variables based on reporting from solo insurance and reinsurance undertakings for the second quarter of 2017.

EIOPA scopes annual market and credit risk modelling comparative study

EIOPA published a decision of its Board of Supervisors on the market and credit risk modelling comparative study which EIOPA will carry out annually, starting from year-end 2017.

Insurance Europe publishes response to IAIS consultation on revisions to ICP 15 and 16

Insurance Europe (IE) published its response to the International Association of Insurance Supervisors (IAIS) consultation on revisions to insurance core principles (ICP) 15 (Investment) and 16 (Enterprise Risk Management for Solvency Purposes). IE's response notes the significant overlap between ICP 8 and 16, which leads to numerous duplications and inconsistencies. To avoid such duplications, IE suggested that ICPs 8, 16 and the relevant parts of ComFrame should be merged.

Making retirement saving more accessible for the self-employed

A two day innovation event, to be jointly hosted by the Association of British Insurers, the Department for Work and Pensions and HM Treasury on 26-27 March, will explore the next steps in making retirement saving more accessible for nearly 5 million self-employed people across Britain.

Payment services and systems

PSR publishes guide to steps agreed with LINK to protect UK's ATM network

The Payment Services Regulator (PSR) published a reference guide which shows the PSR's requirements of LINK to ensure there continues to be a broad geographical spread of free-to-use ATMs in the UK, what LINK has agreed and what this means for consumers.

EBA publishes PSD2 complaints procedures compliance table

The EBA published a table showing which competent authorities comply or intend to comply with the EBA's guidelines on procedures for complaints of alleged infringements of the revised Payment Services Directive (EU) 2015/2366 (PSD2). The guidelines were published in October 2017 and apply from 9 February 2018.

Fintech and virtual currencies

FCA seeks views on the merits of creating a global sandbox

The FCA added a new webpage to the regulatory sandbox section of its website in which it seeks views on the merits of creating a global sandbox. The FCA's sandbox only permits firms to conduct tests in the UK but many aspects of financial markets and FinTech are global. Some firms value being able to work with other regulators to conduct tests in more than one jurisdiction. The FCA has also observed, supported and learned from the work of many other jurisdictions in how they promote innovation in financial services. .

ESAs ‘concerned’ by proliferation of ‘high risk’ virtual currency purchases

An increasing number of consumers are buying virtual currencies (VC), unaware of the risks involved. This has led the European Supervisory Authorities (ESAs) for securities (ESMA), banking (EBA), and insurance and pensions (EIOPA) to issue a warning to EU consumers regarding the risks.

Abu Dhabi Global Market overseer to consider regulatory framework for virtual currency exchanges

The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) said it is to review the development of a ‘robust, risk-appropriate’ regulatory framework to regulate and supervise activities of virtual currency (VC) exchanges and intermediaries.

Dates for your diary

Date Subject Event
16 February 2018 Enforcement and redress Deadline for responses to PRA and FCA consultation paper ‘PRACP3/18/FCACP18/2: Financial Services Compensation Scheme—management expenses levy limit 2018/19’.
19 February 2018 Financial crime Deadline for responses to the European Commission’s ‘Roadmap: Update of the Commission Anti-Fraud Strategy’.
20 February 2018 Markets and trading Deadline for responses to the European Commissions ‘Inception impact assessment: Sovereign bond-back securities product regulation’.
20 February 2018 Insurance and pensions Deadline for responses to the IAIS’s request for stakeholder input in first stages of development of next strategic plan.
21 February 2018 Consumer credit, mortgage and home finance Deadline for responses to the Ministry of Justice’s consultation on how county court judgments (CCJs) are issued.
21 February 2018 Capital Requirements Regulation Deadline for responses to the European Commission’s ‘Delegated Act amending the Commission Delegated Regulation on the Liquidity Coverage Ratio’.

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About the author:
Prior to joining LexisNexis in 2016 as a paralegal, Lauren was an adjudicator at the Financial Ombudsman Service. There she resolved consumers’ complaints, and gained knowledge about a wide variety of financial products. Before this she studied Law at Nottingham Trent University.