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Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 16 March 2017.
On 9 March 2017, the London Market Group (LMG) called for a guarantee that the London insurance market will be considered to have regulatory equivalence with the EU post-Brexit and a trade deal that gives both UK and EU insurers, reinsurers and brokers continued rights to undertake cross-border activity. LMG also called on the government to secure early agreement on an implementation period to avoid a cliff edge on the day the UK leaves the EU.
On 10 March 2017, the House of Commons Library published a briefing paper on Brexit and financial services examining the views of banks and regulators on the road ahead.
On 14 March 2017, the Bank of England (BoE) announced it is reconfiguring reporting lines and has commissioned a review by its non-executive directors in light of the resignation of its deputy governor for markets and banking, and chief operating officer, Charlotte Hogg. Ms Hogg had failed to declare a potential conflict of interest, relating to her brother’s role at Barclays.
On 14 March 2017, the chair of the Treasury Select Committee, Andrew Tyrie MP, said the resignation of Charlotte Hogg as deputy governor of the BoE is ‘a regrettable business with no winners’, but said it is right she should resign and it is right that the BoE is launching a review into the controversy.
On 10 March 2017, the director of competition at the Financial Conduct Authority (FCA), Mary Starks, spoke at an industry conference in London about the FCA’s approach to its competition remit. Ms Starks discussed how the FCA’s work on its future mission will clarify its competition remit. She said that the FCA sees competition as a complement to regulation, not an alternative, and the FCA’s role is to enable competition, not control it. Ms Starks also discussed the FCA’s asset management market study.
On 13 March 2017, the vice-chair of the supervisory board of the European Central Bank (ECB), and member of its executive board, Sabine Lautenschläger, gave a speech on challenges facing European and global financial regulators. Speaking at the Institute of International and European Affairs in Dublin, Ms Lautenschläger argued the case for a strong regulatory framework with global application, and assessed European Commission proposals on how to adapt and amend financial regulation.
On 13 March 2017, the Bank for International Settlements (BIS) published a speech by the president of the Deutsche Bundesbank and chair of the board of directors of the BIS, Dr Jens Weidmann, which set out three priorities for discussions between finance ministers and central bank governors during Germany’s presidency of the G20: enhancing resilience, promoting investment (especially in Africa), and shaping digitalisation. Dr Weidmann was addressing the 9th annual IIF G20 conference in Frankfurt.
On 15 March 2017, the Bank for International Settlements (BIS) published a speech by a member of the executive board of the Deutsche Bundesbank, Dr Andreas Dombret, entitled ‘Between global competition and the regional principle—which bank needs which rules?’ at a conference in Berlin on the G20 and locally focused banks. The speech set out a number of proposals which Dr Dombret suggested could better align the supervisory rules with the low-risk operations of small credit institutions while still adhering to international standards.
On 8 March 2017, the Prudential Regulation Authority (PRA) and the FCA announced a seminar to be hosted on 9 June 2017 on setting up a new bank in the UK. It is aimed at those working in or with organisations thinking about becoming a bank in the UK, firms currently going through the bank authorisation process, and recently authorised banks who are now navigating the regulatory requirements.
On 8 March 2017, the European Banking Authority (EBA) issued an Opinion to the European Parliament, Council and Commission proposing that the decision-making framework for adopting supervisory reporting requirements be made more efficient by replacing the Commission’s implementing technical standards (ITS) with decisions adopted directly by the EBA.
On 8 March 2017, the EBA released its final guidelines on liquidity coverage ratio (LCR) disclosure to complement the disclosure of liquidity risk management under Article 435 of the Capital Requirements Regulation (EU) 575/2013 (CRR) (EBA/GL/2017/01). The guidelines harmonise and specify the disclosures required under the general principles on liquidity and, in particular, on the LCR in the CRR.
On 9 March 2017, the EBA published an updated table indicating which EU national competent authorities comply or intend to comply with the EBA’s guidelines on the minimum list of services or facilities that are necessary to enable a recipient to operate a business transferred to it under Article 65(5) of the Bank Recovery and Resolution Directive (BRRD). According to the table, almost all national regulators comply or intend to comply with the guidelines.
On 10 March 2017, the EBA issued a revised list of validation rules in its ITS on supervisory reporting, highlighting those which have been deactivated either for incorrectness or for triggering IT problems.
On 10 March 2017, the European Central Bank (ECB) issued an opinion on the European Commission’s proposal to amend the Bank Recovery and Resolution Directive (BRRD) with regard to the ranking of unsecured debt instruments in the insolvency hierarchy. The ECB says it welcomes the proposed amending directive, which it believes should be adopted as soon as possible, but notes that it only provides for partial harmonisation. The ECB says that additional reforms would be useful to promote further harmonisation in the hierarchy of creditor claims in bank insolvency, and it calls for a general depositor preference rule, based on a tiered approach, in particular.
On 13 March 2017, the World Federation of Exchanges (WFE) fed back on the Financial Stability Board's (FSB) consultation on central counterparty (CCP) resolution and resolution planning. The WFE argues that recovery must be given every opportunity to succeed before resolution proceedings are invoked, but says it is important nonetheless to have clear resolution plans and expectations in the event the recovery plan has been exhausted.
On 13 March 2017, the FSB published responses to its December 2016 consultation on ‘Continuity of Access to Financial Market Infrastructures for a Firm in Resolution’. The consultation formed part of the FSB’s framework to end ‘too-big-to-fail’.
On 13 March 2017, the FSB published responses to its December 2016 consultation on ‘guiding principles on the internal total loss-absorbing capacity of G-SIBs (internal TLAC)’. The consultation proposed a set of high-level guiding principles to assist home and host authorities in the implementation of internal TLAC mechanisms consistent with the FSB’s TLAC standard which was published in November 2015.
On 14 March 2017, the EBA set up a webpage to centralise information on resolution cases and the use of deposit guarantee scheme (DGS) funds in the EU. This will make the information available to all interested parties in an easily accessible and consistent fashion.
On 15 March 2017, the EBA updated the 2016 list of Other Systemically Important Institutions (O-SIIs) in the EU. O-SIIs, along with Global Systemically Important Institutions (G-SIIs), are those deemed systemically important under the EBA guidelines. This list also reflects the additional capital buffers that the relevant authorities have set for the identified O-SIIs.
On 15 March 2017, the EBA published an Opinion following the notification by the National Bank of Belgium (NBB) of its intention to modify capital requirements in order to address an increase in macroprudential risk. Based on the evidence submitted by the NBB, the EBA does not object to the adoption of the proposed measures, which are based on Article 458 of the Capital Requirements Regulation (CRR). Global Systemically Important Institutions (G-SIIs), are those deemed systemically important under the EBA guidelines. This list also reflects the additional capital buffers that the relevant authorities have set for the identified O-SIIs.
The Basel Committee on Banking Supervision (BCBS) has issued a second consultative document on the identification and management of step-in risk, ie the risk that a bank might support entities beyond its contractual obligations in order to protect itself from any adverse reputational risk stemming from its connection to the entities. If not appropriately anticipated, the materialisation of step-in risk could affect a bank’s capital and liquidity positions. Responses are sought by 15 May 2017.
On 8 March 2017, the executive vice president of the legal group of the Federal Reserve Bank of New York, Michael Held, gave a speech on reforming culture and conduct in the financial services industry, in which he said lawyers should play important roles in financial firms as advisors not just on law—what is legal or illegal—but also on culture.
On 9 March 2017, the Information Commissioner’s Office (ICO) published an updated discussion paper on the implications of big data, artificial intelligence (AI) and machine learning on data protection. The ICO’s main conclusions are that, while data protection can be challenging in a big data context, the benefits of big data will not be achieved at the expense of data privacy rights, and meeting data protection requirements will benefit both organisations and individuals. The ICO makes six key recommendations for organisations using big data analytics, and discusses the practicalities of conducting privacy impact assessments in a big data context.
On 14 March 2017, the European Parliament passed a resolution on the revised Shareholders’ Rights Directive, aimed at increasing transparency and access to information for shareholders, and giving them a ‘say on pay’ to curb excessive directors’ remuneration. The final adoption step will take place in the European Council shortly. The directive will enter into force two years after its publication in the official journal. The new rules aim to contribute to the long-term sustainability of EU companies, enhance the efficiency of the chain of intermediaries, and encourage long-term shareholder engagement.
On 9 March 2017, HM Treasury (Office of Financial Sanctions Implementation) updated the consolidated list of asset freeze targets and the list of persons subject to restrictive measures in view of Russia's actions destabilising the situation in Ukraine.
On 9 March 2017, the European Parliament published a report by the Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties, Justice and Home Affairs on the proposal for a fifth Anti-Money Laundering Directive (MLD5). The report includes a draft resolution for the Parliament to adopt its position at first reading, with the amendments to the proposal set out in the report.
On 13 March 2017, HM Treasury issued an advisory notice in response to the statements published by the Financial Action Task Force on 24 February 2017 identifying overseas jurisdictions with strategic deficiencies in their anti-money laundering and counter-terrorist financing regimes.
On 13 March 2017, the UK signed a memorandum of understanding (MOU) with Panama, which will mean the two countries work more closely to combat serious and organised crime. The agreement will enable the sharing of information and best practice on issues such as intelligence collection, development and analysis, money laundering, port security and criminal justice.
On 14 March 2017, former director Daniel Edgar was disqualified as a director for 14 years for selling coloured diamonds as an investment at vastly inflated prices, the Insolvency Service announced. Edgar was a designated member of Reco Commodities LLP, a fraudulent investment company which was wound up in the public interest by the High Court in 2015 following an investigation by the Insolvency Service. He has signed a disqualification undertaking which means he is disqualified from 15 March 2017 and cannot promote, manage, or be a director of a limited company until 2031.
On 15 March 2017, the House of Lords proposed amendments to the Criminal Finances Bill which would enable corporate criminal liability to be extended to the failure to prevent economic crime. However, legal experts believe any such amendment are unlikely to be passed before the conclusion of a call for evidence on the issue of corporate liability for economic crime. Lawyers feel the amendments are a signal for corporates to install procedures to prevent such behaviour. The Bill begins its first Committee stage in the House of Lords on 28 March 2017.
On 15 March 2017, HM Treasury launched a policy consultation (PC) on the draft Money Laundering Regulations 2017 (MLRs). This follows an earlier consultation launched on 15 September 2016, ‘Transposition of the Fourth Money Laundering Directive (MLD4) and Fund Transfer Regulation (FTR)’ (the Consultation) which aimed to set out how the government intended to implement MLD4 and the FTR, and sought views and evidence on the steps it proposed to take or should take, to transpose MLD4 and those aspects of the FTR that need to be transposed into national law. The PC closes on 12 April 2017.
On 9 February 2017, the Office of the Complaints Commissioner (CC) published its final decision where it refused to uphold a complaint about the way the Financial Conduct Authority (FCA) released a firm’s confidential information to HMRC. However, it suggested that the FCA could be clearer when responding to complaints.
On 9 February 2017, the CC published its final decision regarding a complaint about the FCA requiring a firm to complete a survey by clicking on a link inside an email. The firm complained that the FCA should not send emails containing links, as fraudsters could send emails purporting to be the FCA. The firm also complained that the domain address of the data collection firm was not a UK firm, and therefore was a security threat. The CC did not uphold the second complaint, and noted that the FCA has agreed to amend the body of its survey emails to invite firms to alert the FCA contact centre if they do not wish to click on a link.
On 9 March 2017, the London Stock Exchange Group announced the establishment of the International Securities Market (ISM), an exchange-regulated multilateral trading facility which will provide an additional market for the issuance of primary debt targeted at institutional and professional investors. The ISM is expected to launch in Q2 2017, subject to regulatory approval.
On 9 March 2017, the BoE published minutes from the December 2016 meetings of its Money Markets Liaison Committee (MMLC) and Securities Lending and Repo Committee (SLRC), in which it was confirmed that the two committees will be replaced by a single ‘Money Markets Committee’ to focus on more strategic issues, with technical subcommittees to focus on more technical issues.
On 9 March 2017, the European Money Markets Institute (EMMI) published a position paper presenting its analysis on the legal grounds for the reforms to the Euribor benchmark that were proposed in its October 2015 Consultative Position Paper on the Evolution of Euribor. The proposed reforms seek to clarify the Euribor specification and align the current methodology with the EU Benchmarks Regulation, International Organization of Securities Commission (IOSCO) Principles and other regulatory recommendations, as well as to adapt the methodology to better reflect current market conditions.
On 10 March 2017, an opinion of the European Economic and Social Committee (EESC) of 14 December 2016 on the proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 345/2013 on European venture capital funds and Regulation (EU) No 346/2013 on European social entrepreneurship funds was published in the Official Journal of the EU.
On 10 March 2017, Commission Delegated Regulations and Commission Implementing Regulations relating to Regulation (EU) 909 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/64/EC and Regulation (EU) 236/2012 (CSDR) on central securities depositories, were published in the Official Journal of the EU:
On 10 March 2017, a Corrigendum to Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (MiFID II) was published in the Official Journal of the EU.
On 10 March 2017, the European Parliament updated its procedure file on the proposed Regulation on money market funds. The Parliament had been scheduled to debate the Regulation in plenary on 15 March 2017, and a vote in plenary was scheduled for 16 March 2017, but these dates have now been removed, and the debate and vote have not been rescheduled.
On 10 March 2017, the FCA updated its Connect webpage to include references to new MiFID application forms, including in relation to the Article 3 exemption, which were issued on 30 January 2017. Applicants will need to apply using the new forms from 1 April 2017.
On 10 March 2017, the International Capital Market Association (ICMA) responded to the European Commission’s consultation on Capital Markets Union (CMU) mid-term review 2017. ICMA offers detailed answers on specific areas where it is involved, but also makes more general observations on the impact and consequences of Brexit on the CMU, and the need for globally competitive regulation.
On 13 March 2017, as part of its role to build a common supervisory culture by promoting convergent supervisory approaches and practices, the European Securities and Markets Authority (ESMA) released its first set of Q&As on the consistent application of CSDR. It provides responses to questions posed by the general public, market participants and national competent authorities (NCAs) in relation to the practical application of CSDR. The Q&As follow the publication in the Official Journal of the CSDR Level 2 package (except for settlement discipline which is still pending) on 10 March 2017.
On 13 March 2017, the FSB opened a consultation on proposed governance arrangements for the unique transaction identifier (UTI), designed to facilitate effective aggregation of transaction reports about over-the-counter (OTC) derivatives markets. Responses are sought by 5 May 2017.
On 13 March 2017, draft Q&As on position reporting under Article 58 of MiFID II were submitted to ESMA by the Futures Industry Association (FIA), the Global Financial Markets Association (GFMA), the International Swaps and Derivatives Association (ISDA) and the European Federation of Energy Traders (EFET).
On 8 March 2017, the European Commission adopted a Commission Delegated Regulation supplementing the Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs Regulation), by laying down RTS with regard to the presentation, content, review and revision of key information documents (KIDs) and the conditions for fulfilling the requirement to provide such documents. This is a modified version of the Commission Delegated Regulation adopted on 30 June 2016, to which the European Parliament objected on 14 September 2016.
On 10 March 2017, an opinion of the European Economic and Social Committee (EESC) of 17 November 2016 on the proposal the PRIIPs Regulation as regards the date of its application was published in the Official Journal of the EU.
On 10 March 2017, the Council of the EU adopted a Commission Delegated Regulation which supplements the PRIIPs Regulation and lays down RTS with regard to the presentation, content, review and revision of KIDs and the conditions for fulfilling the requirement to provide such documents.
On 13 March 2017, the European Parliament’s committees on budgets and on economic and monetary affairs issued a draft report on the proposal for a regulation of the European Parliament and of the Council amending Regulations (EU) 1316/2013 and (EU) 2015/1017 as regards the extension of the duration of the European Fund for Strategic Investments (EFSIs) as well as the introduction of technical enhancements for that Fund and the European Investment Advisory Hub.
On 9 March 2017, the chair of the European Insurance and Occupational Pensions Authority (EIOPA), Gabriel Bernardino, outlined EIOPA’s plans for the pan-European pension in a speech on ‘Pensions when the guarantees disappear’ by video to the Finanstilsynet Conference 2017.
On 10 March 2017, EIOPA published its 2016 Market Development Report on Occupational Pensions and Cross-border Institutions for Occupational Retirement Provisions (IORPs). The report provides a comprehensive overview of the European occupational pensions landscape, giving a detailed insight into IORPs active nationally and those operating on a cross-border basis.
On 10 March 2017, the Society of Lloyd's published updated model change guidance notes and submission requirements for 2017. The document collates all model change guidance previously issued together into one document. Key changes for the 2017 year of account and onwards include four oversight and governance changes and four process changes.
On 10 March 2017, the PRA published updates to its National Specific Template (NST) firm submission workbook and LOG files. The changes are relevant to all UK Solvency II firms required to submit NSTs and Lloyd’s.
On 10 March 2017, proposals for updating the methodology used to calculate the redress owed to consumers who were given unsuitable advice to transfer out of a defined benefit pension scheme to a personal pension were published by the FCA. Comments on the proposals should be submitted by 10 June 2017.
On 15 March 2017, EIOPA published a speech delivered by its chair, Gabriel Bernardino, at the second IVASS conference on Solvency II and small and medium-sized insurers on 3 March 2017. Mr Bernardino looked at proportionality in Solvency II, both from a regulatory and supervisory perspective, supervisory convergence in the EU insurance market, and the challenges and opportunities of digitalisation.
On 15 March 2017, the Pensions and Lifetime Savings Association (PLSA) launched a guide providing simple information to help trustees when benchmarking and selecting an index.
On 15 March 2017, EIOPA released the text of an address made by its chair, Gabriel Bernardino, to the committee on economic and monetary affairs (ECON) at the European Parliament in Brussels on 9 March 2017. Mr Bernardino was setting out EIOPA’s position on third-country equivalence. Mr Bernardino noted that, as EIOPA’s role is shifting from regulation to supervision, it will not only have to monitor the regulatory developments in third countries, but also monitor factual implementation and the supervisory approach.
On 9 March 2017, the Payment Systems Regulator (PSR) published its second report on access to payment systems and the governance of payment system operators in the UK, updating stakeholders on the progress of its work programme. Among other things, the PSR says there has been a significant improvement in the choice of access options available to payment service providers (PSPs). Direct participation in the interbank systems is rising and looks set to increase considerably in 2017, and there are now more indirect access providers (IAPs).
On 9 March 2017, the Financial Services Agency of Japan (JFSA) and the Financial Conduct Authority (FCA) exchanged letters on a co-operation framework to support innovative FinTech companies. The two authorities will provide a regulatory referral system for innovator businesses from Japan and the UK seeking to enter the other’s market, reducing regulatory uncertainty and launch time.
On 7 March 2017, in a speech at the Swiss Finance Council, the director-general of the European Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union (FISMA), Olivier Guersent, has said it is crucial that the European policy and regulatory framework supports and encourages firms to harness the opportunities from innovation, while ensuring the safety and soundness of the market and that consumers and investors are protected. While FinTech offers a huge opportunity to create a single market in financial services, anti-money laundering rules and know-your-client had to be factored into all digital offerings.
On 13 March 2017, a reference for a preliminary ruling from the Court of Justice of the European Union by the High Court (Queen’s Bench Division (Administrative Court)) in American Express Co v The Lords Commissioners of HM Treasury (Case C-643/16) was published in the Official Journal of the EU.
On 13 March 2017, the PSR published a summary of its Payment System Operator delivery group (PSODG) meeting. The meeting, which took place on 7 February 2017, addressed aspects of corporate governance, board structure and funding in the context of the new Payment System Operator (NPSO).
On 14 March 2017, the European Payments Council (EPC) updated its white paper on mobile payments following a public consultation organised in 2016. It includes new types of mobile proximity payments and addresses new stakeholders and technologies that have entered the sector since the previous edition. The overall aim is to contribute to the harmonisation of mobile payments in Europe.
On 14 March 2017, the International Association of Insurance Supervisors (IAIS) released a report, FinTech developments in the insurance industry, which highlights that new technologies will ‘change fundamentally the way the insurance sector serves policyholders’. It says FinTech will have impacts across the insurance sector, including on competitiveness, consumer choice, interconnectedness, business model viability and regulatory oversight.
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