Weekly highlights—15 June 2017

Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 15 June 2017.

Financial Conduct Authority updates

FCA’s quarterly Handbook consultation issued

On 12 June 2017, the Financial Conduct Authority (FCA) published its quarterly consultation on proposed miscellaneous amendments to the Handbook. Comments are sought for Chapters 2 and 3 by 12 July 2017​​​​​, and for Chapter 4 by 12 August 2017.

FCA June 2017 policy development update

On 13 June 2017, the FCA updated its policy development update webpage. The update includes recent FCA publications and a list of upcoming publications arranged under the blocks of the FCA Handbook where the policy is likely to be given effect.

Bank of England updates

BoE reappoints Andrew Haldane to the MPC

On 12 June 2017, the Bank of England (BoE) announced that its chief economist and executive director for monetary analysis and statistics, Andrew Haldane, had been reappointed for a further three-year term as a member of the Monetary Policy Committee, effective from 12 June 2017.

Regulatory architecture

ECB chair calls for more harmonisation of banking rules

On 6 June 2017, the chair of the supervisory board of the European Central Bank (ECB), Danièle Nouy, said in a recent interview that further harmonisation of rules is needed to achieve banking union and a truly European banking market. She also urged banks to adapt their business models to the current environment of low interest rates.

Head of FIA Europe addresses IDX 2017

On 7 June 2017, the chief executive of the Futures Industry Association (FIA) Europe, Simon Puleston Jones, set out the issues and challenges FIA faces, and how it seeks to help its members address them. Mr Jones was giving the opening remarks at IDX 2017 and looked at the industry through the three lenses of the political, the economic and the technical.

Sabine Lautenschläger discusses top supervisory priorities

On 12 June 2017, the ECB published a speech by Sabine Lautenschläger, a member of its executive board and vice-chair of its supervisory board, at the International Monetary Conference in London. Ms Lautenschläger said the four main priorities for banking supervision were maintaining a global approach, Brexit, non-performing loans (NPLs) and risk management.

Council of the EU reports on banking reform proposals

On 12 June 2017, the Council of the EU published a progress report on initiatives to strengthen the EU banking union and to establish risk-reduction measures.

Authorisation, approval and supervision

PRA consults on proposed changes to the Senior Insurance Managers Regime

On 13 June 2017, the PRA issued a consultation on its proposed amendments and optimisations to the Senior Insurance Managers Regime (SIMR) (chapter 2). It also includes a proposal to strengthen governance through requiring insurers to take steps to encourage board diversity (chapter 3). The consultation also proposes consequential amendments to the Senior Managers Regime (SMR) forms following Policy Statement (PS) 12/17 ‘Strengthening accountability in banking and insurance: amendments and optimisations’ (chapter 4).

Prudential requirements

ECON report on mitigating IFRS 9

On 6 June 2017, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) issued a draft report on the proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements and the Capital Requirements Regulation (Regulation (EU) 648/2012) (CRR).

Methodology for the 2018 stress test released by the EBA

On 7 June 2017, the European Banking Authority (EBA) issued a draft methodological note for the 2018 EU-wide stress test. It describes the common methodology that defines how banks should calculate the stress impact of the common scenarios and, at the same time, sets constraints for their bottom-up calculations. In addition to setting these requirements, it aims to provide banks with adequate guidance and support for performing the test.

BIS issues further FAQs on liquidity coverage

On 8 June 2017, the Bank for International Settlements (BIS) updated ‘Basel III—the liquidity coverage ratio framework: frequently asked questions’ to include a second set of FAQs on the framework, inclusive of the FAQs previously published in April 2014. The FAQs respond to a number of interpretation questions received by the Basel Committee related to the January 2013 publication of ‘Basel III: The liquidity coverage ratio and liquidity risk monitoring tools’.

EBA revises list of validation rules for supervisory reporting

On 8 June 2017, 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.

Council to endorse RTS on preferential rates for cross-border liquidity support under CRR

On 8 June 2017, the General Secretariat of the Council of the EU recommended that the Council endorse the European Commission's draft regulatory technical standards (RTS) further specifying the additional objective criteria for the application of a preferential liquidity outflow or inflow rate for cross-border undrawn credit or liquidity facilities within a group or an institutional protection scheme under the CRR.

ECB Opinion gives qualified welcome to Belgium’s proposed finance and tax law

On 12 June 2017, the ECB published its Opinion on Belgium’s draft law for a new category of debt instruments, new macroprudential tool, the creation of a new category of settlement institution and the exclusion of set-off rights.

ECB calls for pan-European insolvency and restructuring rules

On 12 June 2017, the ECB published its Opinion on the proposal for a Directive of the European Parliament and of the Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU (CON/2017/22). While welcoming the key objectives of the Directive, the ECB says it does not go far enough in harmonising national insolvency regimes.

Vice-president Dombrovskis comments on review of support measures under BRRD

On 12 June 2017, the European Parliament published vice-president Dombrovskis' response to a written question on the Commission's obligation to review, by 31 December 2015, whether there is a continuing need for recapitalisation support measures under Article 32(4)(d)(iii) of the Bank Recovery and Resolution Directive 2014/59/EU (BRRD). The review has not been carried out and, in the meantime, the Italian bank Monte dei Paschi di Siena has been recapitalised from public funds.

Commission VP thanks EBA for input to the CRR/CRD review

On 12 June 2017, the EBA published a letter from the vice-president of the European Commission, Valdis Dombrovskis, to the chair of the EBA, Andrea Enría, on the Commission’s proposal for the CRR and the Capital Requirements Directive (CRD IV) review. Mr Dombrovskis was replying to a letter in which Mr Enria set out the supervisory community’s views on the proposal.

EBA to report on investment firms’ new prudential regime progress

On 13 June 2017, the EBA announced it will hold a public hearing on 3 July 2017 at 14:00 UK time to update all relevant stakeholders on the progress made so far on the possibility of developing a new prudential regime for MiFID investment firms.

ECB VP outlines ways to tackle NPLs

On 14 June 2017, the vice-president of the ECB, Vítor Constâncio, gave a speech on the challenges facing the European banking sector, focusing on the large stock of non-performing loans (NPLs), cost inefficiency and excess capacity. Mr Constâncio suggested one key strategy for banks may be to offload their NPLs to specialist asset managers.

Risk management and controls

PRA updates Remuneration Policy Statement questionnaires and tables

On 6 June 2017, the PRA updated the Remuneration Policy Statement (RPS) questionnaires and tables on its website (with the exception of RPS Annex 1—Malus, and RPS Tables 7 and 8) to reflect submission deadlines and document references.

BoE director examines operational resilience

On 13 June 2017, the BoE's director of supervisory risk specialists, Charlotte Gerken, gave a speech on the Bank’s approach to operational resilience. She shares some of the work the Bank has underway and also touches on how its approach incorporates cyber resilience.

Financial crime

JMLSG seeks views on revised money-laundering guidance

On 10 June 2017, the Joint Money Laundering Steering Group (JMLSG) revised its risk-based guidance on electronic money in line with the proposed new Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations. Comments on the amended guidance are sought by 20 June 2017.

FCA consults on amendments to DEPP and EG following MLD4 implementation

On 12 June 2017, the FCA announced it is consulting on its proposals to ensure that its guidance, policies and procedures relating to the use of its powers under the new money laundering regulations are up to date, effective and proportionate. Responses are sought by 7 July 2017. The changes relate to the Decision Procedure and Penalties manual (DEPP) and Enforcement Guide (EG).

European Parliament to consider MLD5 in October

On 12 June 2017, the European Parliament provisionally scheduled its plenary session commencing on 23 October 2017 for consideration of the proposed Fifth Money Laundering Directive (MLD5). MLD5 will amend the Fourth Money Laundering Directive 2015/849/EU (MLD4), which will be implemented across the European Economic Area (EEA) on 26 June 2017.

Enforcement and redress

FSCS to compensate Plough and Share Credit Union members

On 7 June 2017, the Financial Services Compensation Scheme (FSCS) announced it is to compensate members of Plough & Share Credit Union Limited, which has stopped trading. The credit union is now in default and cannot repay deposits to its 2,550 members. The FSCS says it will compensate the vast majority of members within seven days.

Markets and trading

Commission sets out its mid-term review of the CMU action plan

On 8 June 2017, the European Commission published a number of documents which set out details of the further steps it is taking to drive forward the Capital Markets Union (CMU), a pivotal project of the Juncker Commission to boost jobs and growth in Europe.

ESMA reviews work on Benchmarks Regulation rules

On 8 June 2017, at its meeting, ECON discussed the level 2 measures being developed under the Benchmarks Regulation. In an introductory statement at the ECON session, the European Securities and Markets Authority (ESMA) provided an overview of the work that has been done so far.

ESMA publishes official translations of CSD guidelines

On 9 June 2017, ESMA published the official EU language versions of two sets of guidelines under the Central Securities Depository Regulation (CSDR). National competent authorities now have two months to notify ESMA whether they comply or intend to comply with the guidelines.

European Commission reports on third-country exemptions and other entities under MiFIR

On 9 June 2017, the European Commission published a report on exemptions for third-country central banks and other entities under the Markets in Financial Instruments Regulation (EU) 600/2014 (MiFIR). The study analyses the pre- and post-trade transparency rules that apply when third countries’ central banks trade in securities, as well as the extent to which these central banks trade in securities within the Union.

European Commission looks to develop EU covered bonds

On 9 June 2017, the European Commission published an Inception Impact Assessment (IIA), for the initiative on an integrated covered bond framework. The IIA aims to inform stakeholders about the Commission’s work in order to allow them to provide feedback on the intended initiative and to participate effectively in future consultation activities.

Amended list of exempted entities under EMIR published in the Official Journal

On 10 June 2017, Commission Delegated Regulation (EU) 2017/979 of 2 March 2017 amending Regulation (EU) 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (EMIR) with regard to the list of exempted entities was published in the Official Journal of the EU.

Implementing Regulations laying down ITS under MiFID II published in the Official Journal

On 10 June 2017, Commission Implementing Regulation (EU) 2017/980 and Commission Implementing Regulation 2017/981 both of 7 June 2017 laying down ITS in accordance with Directive 2014/65/EU of the European Parliament and of the Council (MiFID II) were published in the Official Journal of the EU.

FCA consults on LIBOR contributions

On 12 June 2017, the FCA issued a consultation on its powers in relation to London Interbank Offered Rate (LIBOR) contributions (CP 15/17). Responses are sought by 12 August 2017.

ESMA approves short-selling ban for Liberbank SA shares

On 12 June 2017, ESMA issued an official opinion agreeing to an emergency short selling prohibition, for a period of one month, by the Comision Nacional del Mercado de Valores (CNMV) on net short positions in Liberbank SA shares under the Short Selling Regulation.

Commission adopts delegated regulation supplementing MiFIR on third country central bank exemptions

On 12 June 2017, the European Commission adopted a Delegated Regulation extending the exemptions from pre- and post-trade transparency requirements granted by Articles 1(6) and (7) of the MIFIR. These exemptions will now apply to transactions entered into by the BIS and a number of third country central banks in performance of their monetary, foreign exchange and financial stability policies.

Implementing Regulation on trading venues published in the Official Journal

On 13 June 2017, Commission Implementing Regulation (EU) 2017/988 of 6 June 2017 laying down ITS with regard to standard forms, templates and procedures for cooperation arrangements in respect of a trading venue whose operations are of substantial importance in a host Member State in accordance with MiFID II was published in the Official Journal of the EU.

Commission proposes a pan-European approach to CCP supervision

On 13 June 2017, the European Commission announced proposals for more robust supervision of central counterparties (CCPs). The Commission says that CCPs from the EU are already well regulated and equipped to deal with financial distress, thanks to a raft of measures adopted in the wake of the financial crisis. But further reforms are required to ensure a more consistent and robust supervision of CCPs in EU and non-EU countries in the face of emerging challenges. The proposal introduces a more pan-European approach to the supervision of EU CCPs, to ensure further supervisory convergence and accelerate certain procedures.

BoE head of sterling markets division gives briefing on financial markets social infrastructure

On 13 June 2017, the BoE’s head of sterling markets division, Sarah John, gave a briefing on progress on financial markets codes of practice to the Association of Corporate Treasurers. Ms John noted that, in order to rebuild public trust in the financial markets, we need to ensure that there are appropriate infrastructures in place—not just physical infrastructures such as trading venues and settlement systems, but also ‘social’ infrastructures such as standards of market practice and codes of conduct.

IOSCO report seeks to minimise conduct risk in wholesale markets

On 13 June 2017, the International Organization of Securities Commissions (IOSCO) published a report setting out the tools and approaches its members use to discourage, identify, prevent and sanction misconduct by individuals in wholesale markets. The report aims to minimise misconduct risks arising from the particular characteristics of wholesale markets, such as a decentralised market structure, opacity, conflicts of interest involving market makers, size and organisational complexity of market participants, and increasing automation.

FIA responds to Commission proposal on clearing

On 13 June 2017, the FIA responded to a European Commission legislative proposal on further amendments to EMIR, setting out its support but warning against forced relocations.

ESMA dashboard shows risks high but broadly stable

On 14 June 2017, ESMA released its latest risk dashboard, covering risks in the EU’s securities markets for the first quarter of 2017. The overall risk assessment remains high—unchanged from the last quarter of 2016. Political events, including Brexit negotiations and the election calendar in the EU, are the most important potential sources of risk in 2017.

Better Finance report on robo-investing

On 13 June 2017, Better Finance, the European Federation of Investors and Financial Services Users, published a report on robo-investing. Also known as robo-advice, it involves the use of computer programs and algorithms that use input provided by the consumer regarding their background, risk tolerance and financing needs in order to direct customers to the appropriate investments.

Investment funds and wealth management

​European Parliament to consider amendments to EuVECA and EuSEF Regulations in October

On 12 June 2017, the European Parliament provisionally scheduled its plenary session commencing on 2 October 2017 for consideration of the proposed regulation amending the European Venture Capital Funds Regulation (EU) 3458/2013 (EuVECA Regulation) and the European Social Entrepreneurship Funds Regulation (EU) 346/2013 (EuSEF Regulation).

ESMA appoints Martin Moloney to chair its Investment Management Standing Committee

On 9 June 2017, the Board of Supervisors of ESMA appointed Martin Moloney, head of the markets policy division of the Central Bank of Ireland, to serve as the chair of the Investment Management Standing Committee.

ECB Opinion supports Austrian systemic risk law

On 12 June 2017, the ECB published its Opinion on an Austrian draft law regarding macro-prudential measures to limit systemic risks in real estate financing. The purpose of the draft law is to create a legal basis for macro-prudential tools to counteract systemic risks arising from third-party financing of property in Austria. The draft law enables the Austrian Financial Market Authority (FMA) to impose certain measures if increased systemic risks arising from real estate financing are identified.

Consumer credit, mortgage and home finance

FOS annual review shows big rise in credit problems

On 13 June 2017, the Financial Ombudsman Service published its annual review for 2016/17, setting out data on the 1.4m enquiries it received in that period, together with the Chair’s foreword and the Chief Ombudsman’s report. PPI dominated the FOS’s activity, but there was also a rise in enquiries from people with credit issues. There were around three times last year’s volumes of complaints about payday loans, and over the same period—while the numbers involved are smaller—complaints about instalment loans and guarantor loans rose by 318% and 182% respectively.

Insurance

EIOPA releases monthly Solvency II technical information

On 8 June 2017, the European Insurance and Occupational Pensions Authority (EIOPA) published monthly updates for Solvency II relevant risk-free interest rate term structures, and symmetric adjustment of the equity capital charge.

EIOPA update Solvency II Q&As

On 8 June 2017, EIOPA published two new Q&As on the Solvency II Directive (Directive 2009/138/EC).

FCA findings on pension lifestyle investment strategies

On 14 June 2017, having contacted life insurers to understand their approach to pension lifestyle investment strategies in light of the pension reforms in 2015 and the resulting changes in consumer behaviour, the FCA published the findings from its review of life insurance companies' pension lifestyle investment strategies.

Commission amends Solvency II Delegated Regulation on infrastructure corporates

On 8 June 2017, the European Commission amended the Commission Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates), following technical advice from EIOPA. The Commission say the changes to the definition and qualifying criteria for infrastructure projects as advised by EIOPA avoid the inadvertent exclusion of investments in infrastructure projects with a better risk profile and are acceptable.

PRA begins consultation on Solvency II reporting

On 12 June 2017, the PRA issued a consultation paper on its proposed expectations for the reporting of sensitivities of solvency positions to key market risks by firms with material exposure to market risk. It is relevant to Solvency II insurance and reinsurance firms holding, or intending to hold, material quantities of assets exposed to market risk. The consultation closes on 7 August 2017.

​Commission adopts delegated regulation on the calculation of Solvency II capital requirements for infrastructure corporates

On 12 June 2017, the European Commission adopted a Delegated Regulation modifying the regulatory capital treatment of corporates carrying out infrastructure projects (infrastructure corporates) under Solvency II. The Delegated Regulation reflects technical advice provided by EIOPA on infrastructure corporates in June 2016 (EIOPA 16 490).

Payments and fintech

ECB executive looks at the future of banking

On 9 June 2017, the ECB published a speech by Sabine Lautenschläger, a member of its executive board and vice-chair of its supervisory board, in which she said banks have to find their way in a digital world and have benefitted from stricter rules, with some proportionality for smaller firms. Ms Lautenschläger also considered the impact of very low interest rates and called for cross-border bank mergers to help strengthen the banking union.

BoE chief cashier on keeping cash fit for purpose

On 13 June 2017, the BoE’s chief cashier, Victoria Cleland, gave a speech at ATM & Cash Innovation Europe, in which she discusses the future of cash. Ms Cleland encourages the cash industry to continue to innovate, evolve, and to keep cash relevant and fit for purpose.

LSB reviews customer outcomes and digital technology

On 14 June 2017, the Lending Standards Board (LSB) published the results of a review of its Standards examining whether they needed amending in light of developments in online banking and other digital technologies. Overall it found that the Standards did not detract from achieving good customer outcomes where digital technologies were concerned. The report contains examples of good practice which the LSB will incorporate into the next edition of its Information for Practitioners document.

Cases

The Administrative Court
Mazarona Properties Ltd v Financial Ombudsman Service

[2017] EWCH 1135 (Admin)

The Administrative Court, in dismissing the claimants' application for judicial review of the defendant Financial Ombudsman Service's (FOS) decision, declining to uphold its complaint about a bank's withdrawal of an offer of compensation for non-compliant swap sales, held that a financial service did not mean the payment of compensation for the manner in which such a service was provided. Accordingly, the FOS had correctly found the complaint outside its remit, as it had not been about a redress determination or financial service.

Dates for your diary

Key Date Subject Event
20 June 2017 Money Laundering Regulations Deadline for responses to the Joint Money Laundering Steering Group's (JMLS) consultation on its revised risk-based guidance on electronic money in line with the proposed Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations.
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