Weekly highlights—17 January 2019

Brexit

 

Markets expect Brexit will be delayed, BoE's Carney says

The governor of the Bank of England (BoE) told a panel of lawmakers that sterling rose following the landslide defeat for the government’s draft withdrawal agreement because financial markets believe the prospect of a no-deal Brexit ‘may have been diminished’. Mark Carney said markets think that the terms of Britain's departure from the European Union could be softened, or that Brexit could even be cancelled, after Prime Minister Theresa May's landslide defeat on Tuesday night. The pound briefly crashed below $1.27 before rebounding strongly to almost $1.29 after lawmakers voted by 432 to 202 against May’s draft plan.

Financial services trade bodies respond to Brexit meaningful vote result

A number of comments were made by financial services trade bodies on the UK Parliament’s meaningful vote on Brexit. The Association for Financial Markets in Europe (AFME), the CityUK, the Investment Association (IA) and the Personal Investment Management and Financial Advice Association(PIMFA) each bemoan the continuing lack of certainty and express their disappointment at the ongoing possibility of a no-deal Brexit.

Credit Institutions and Insurance Undertakings Reorganisation and Winding Up (Amendment) (EU Exit) Regulations 2019

SI 2019/38: This enactment is made in exercise of legislative powers under the European Communities Act 1972 and the European Union (Withdrawal) Act 2018 (EU(W)A 2018) in preparation for Brexit. This enactment amends UK subordinate legislation in relation to the reorganisation and winding up of credit institutions and insurance undertakings in order to address deficiencies in retained EU law which arise as a result of the withdrawal of the UK from the EU. It comes into force partly on exit day.

Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019

SI 2019/Draft: This draft enactment is laid in exercise of legislative powers under the EU(W)A 2018 in preparation for Brexit. This draft instrument proposes to amend UK subordinate legislation and retained direct EU legislation in relation to requirements concerning packaged retail and insurance-based investment products (PRIIPs) in order to address deficiencies in retained EU law arising from the withdrawal of the UK from the EU. This instrument will therefore ensure that the UK’s regulatory regime concerning these products continues to operate effectively once the UK leaves the EU.

Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019

SI 2019/Draft: This draft enactment is laid in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. This draft enactment proposes to amend UK subordinate legislation in relation to the European Economic Area’s (EEA) ‘financial services passport' which allows firms in EEA states to offer services in any other EEA state on the basis of their home state authorisation and to non-UK central counterparties and trade repositories which provide certain services in the UK under the European Market Infrastructure Regulation in order to address deficiencies in retained EU law. Without this instrument, where these firms do not enter the UK’s temporary regimes, they may not be able to meet existing contractual obligations or provide services. This could be detrimental to UK-based customers and could lead to disruption of services.

Draft Financial Services Brexit SI: The Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019

The draft Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019 statutory instrument (SI) published by HM Treasury on 14 January 2019 will make amendments to UK primary and secondary legislation relating to financial services passporting rights between the UK and Gibraltar to ensure that Gibraltar-based financial services firms continue to enjoy access to UK markets, once the UK leaves the EU, in a no deal scenario. HM Treasury intends to lay the SI before Parliament before exit. The SI adds to explanatory information, on the same issue, which was published on 19 December 2018.

House of Commons European Scrutiny Committee considers progress of the revised EU prudential framework for investment firms, the banking reform package and proposed Regulation on sustainable finance disclosures

The House of Commons European Scrutiny Committee published details of documents considered at its meeting on 9 January 2019. The Committee looks at the significance of EU proposals and decides whether to clear the document from scrutiny or withhold clearance and ask questions of the government. The Committee is now looking at documents in the light of the UK decision to withdraw from the EU. From a financial services perspective, the 9 January 2019 meeting considered the progress of the revised EU prudential framework for investment firms, EU regulation of crowdfunding platforms and the proposed Regulation on sustainable finance disclosures.

Guidance on European Investment Bank Group financing in no-deal Brexit published

HM Treasury published guidance on how UK project contracts with the European Investment Bank and European Investment Fund (EIB Group) are affected if there is no Brexit deal between the UK and the EU. The guidance says that existing project contracts should be protected and organisations in receipt of financing for a UK project from the EIB Group do not need to take action. The guidance says the EIB Group’s operating rights for such projects are preserved through section 4 of EU(W)A 2018.

CBI, PwC warn demand is falling for UK financial services

Demand for Britain's financial services fell for the first time in five years, the Confederation of British Industry and PricewaterhouseCoopers said, blaming regulatory demands and uncertainty surrounding the UK's impending exit from the EU. Banks and insurers say they fear Brexit because it will tear up the passporting rights that for years provided them with an easy trade route into the rest of the bloc.

 

Financial Conduct Authority updates

 

FCA—retail and wholesale financial sectors could produce better outcomes for users

The Financial Conduct Authority (FCA) published Sector Views, its annual analysis of the changing financial landscape. This analysis will feed into the FCA's Business Plan 2019/20. Sector Views describe financial sectors, the issues and developments the FCA is seeing within them, the impact of change, and the actual or potential harm to consumers or markets and are based on the data available and the FCA's views at mid-2018.

The FCA's response to the Complaints Commissioner's Report addendum to FCA00269

The FCA responded to an addendum to a final report by the Complaints Commissioner about a claim concerning the interest rate hedging product (IRHP) compensation scheme. The FCA states that it does not agree with the Commissioner's findings, however it already announced that it will commission a lessons learned review into it’s handling of the IRHP Redress Scheme and made clear, that review will be independently conducted.

FCA Webinar—CMCs, are you ready for FCA regulation?

The FCA is holding a live webinar on Friday 18 January 2019 for claims management companies (CMCs), to help them prepare for FCA regulation of CMCs from 1 April 2019. The webinar will summarise the rules CMCs will need to follow, and the processes for registering for temporary permission and applying for full authorisation.

FEES TP 20: FCA announces error in drafting

The FCA announced that there is a conflict between the Financial Services Compensation Scheme (Funding Review) Instrument 2018 (FCA 2018/22) and the Fees (Claims Management Companies) Instrument 2018 (FCA 2018/59). Both added FEES TP 20, FCA 2018/59 with effect from 1 January 2019 and FCA 2018/22 with effect from 1 April 2019. According to the FCA, this is an error in drafting that they will look to correct with an administrative change in January 2019.

 

Prudential requirements

 

Basel Committee Oversight Committee endorses 2019 work programme and finalises revisions to market risk framework

The oversight body of the Basel Committee on Banking Supervision (BCBS), the Group of Central Bank Governors and Heads of Supervision (GHOS), endorsed a set of revisions to the framework governing minimum capital requirements for market risk. The revised framework, along with an explanatory note, was published by the BCBS. GHOS also endorsed the BCBS strategic priorities and work programme for 2019.

ECB Recommendation on dividend distribution policies (ECB 2019/1)

The European Central Bank (ECB) published its Recommendation dated 7 January 2019 to credit institutions on paying dividends in 2019 for the financial year 2018 (ECB 2019/1). The Recommendation is made in light of the need for credit institutions to continue preparing for the full application of the Capital Requirements Regulation (EU) No 575/2013 (CRR), the Capital Requirements Directive 2013/36/EU (CRD IV), and for the expiration of the IFRS 9 transitional arrangements provided by Regulation (EU) 2017/2395.

ECB letter on variable remuneration policies

Andrea Enria, Chair of the Supervisory Board of the ECB, wrote a letter to financial institutions regarding their variable remuneration policies. Firms are urged to consider the potentially detrimental impact of their remuneration policy on maintaining a sound capital base, especially taking into account the transitional requirements set out in CRD IV, and the transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds pursuant to Article 473a of the CRR.

SRB Publishes Second Part of 2018 MREL Policy

The Single Resolution Board (SRB) published the second part of its 2018 policy on the minimum requirement for own funds and eligible liabilities (MREL) pertaining to the second wave of resolution plans, i.e. the plans for the most complex banking groups. MREL represents one of the key tools in enhancing banks’ resolvability. The SRB continues to develop its MREL policy, step by step. This gives banks the clarity needed on the SRB’s requirements for them to build up MREL.

EBA annual assessment of the consistency of internal model outcomes—2018 Market Risk and Credit Risk Benchmarking Reports

The European Banking Authority (EBA) published two reports on the consistency of risk weighted assets across all EU institutions authorised to use internal approaches for the calculation of capital requirements. The reports are entitled ‘Results from the 2018 Low and High Default Portfolios Exercise’ and ‘Results from the 2018 Market Risk Benchmarking Exercise’. The results confirm previous findings with the majority of risk-weights variability explained by fundamentals. The EBA’s annual benchmarking exercises are described as a supervisory and convergence tool to address unwarranted inconsistencies and restore trust in internal models.

European Parliament to consider political agreement on CRR amendments addressing non-performing exposures

The European Parliament announced that it will consider the proposed regulation amending the CRR in relation to minimum loss coverage for non-performing exposures (NPEs) at its plenary on 11-14 March 2019. The Parliament reached a provisional political agreement with the Council of the EU on 18 December 2018.

PRA publishes Consultation Paper (CP1/19) on Credit risk mitigation—eligibility of financial collateral

The Prudential Regulation Authority (PRA) published Consultation Paper (CP)1/19 ‘Credit risk mitigation: Eligibility of financial collateral’, setting out its proposed changes to Supervisory Statement (SS) 17/13 ‘Credit risk mitigation’ to clarify expectations regarding the eligibility of financial collateral as funded credit protection under Part Three, Title II, Chapter 4 (Credit risk mitigation) of the CRR. Feedback is requested by 10 April 2019.

PRA notifies ESRB of three G-SIIs and fifteen O-SIIs under CRD IV

The European Systemic Risk Board (ESRB) published two notifications from the PRA, notifying the ESRB of three institutions the PRA designated as global systemically important institutions (G-SIIs) and fifteen institutions it designated as other systemically important institutions (O-SIIs) under Article 131 of CRD IV.

Bank of England publishes letter from Victoria Saporta on disclosures about IFRS 9 expected credit losses

The BoE published a letter from Victoria Saporta, Executive Director, Prudential Policy at the PRA addressed to CFOs of selected firms on disclosures about IFRS 9 expected credit losses. The letter concerns the work carried out by the Taskforce on Disclosures about Expected Credit Loss, which includes representatives from preparers and market participants, including representatives of the selected firms.

ECB working paper: Interest rates and foreign spillovers

As part of its Working Paper Series, the ECB published Working Paper (WP) No 2221 / January 2019 ‘Interest rates and foreign spillovers’. The WP considers the role of foreign spillovers in the dynamics of medium-term money markets rates. The WP demonstrates that medium-term interest rates in the euro area, Japan, UK and US are affected by domestic and foreign shocks. The authors conclude that US rates are the main source of spillovers globally and are less exposed to foreign shocks.

 

Regulatory architecture

 

European Parliament Plenary debate discusses ECB Annual Report 2017 and Banking Union Annual Report 2018

The European Parliament and the Bank of International Settlements (BIS) published Vice-President Valdis Dombrovskis’s introductory statement and a speech by Mario Draghi, President of the ECB, at plenary debate of the European Parliament about the ECB’s Annual Report 2017 in Strasbourg on 15 January 2019. The Parliament also published Vice-President Valdis Dombrovskis’s introductory statement at the plenary debate on the  Banking Union Annual Report.

ECON approves Commission proposals to enhance power of ESAs

ECON voted to approve the European Commission's proposals to upgrade the European Supervisory Authorities (ESAs) framework to ensure they can assume an enhanced responsibility for financial market supervision, and to amend MiFID II and Solvency II to strengthen the role of the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA).

ECON reports on proposals to enhance powers of ESAs

ECON published Reports on Commission proposals to upgrade the ESAs framework to ensure they can assume an enhanced responsibility for financial market supervision (Report A8-0013/2019), and to amend MiFID II and Solvency II to strengthen the role of ESMA and EIOPA (Report A8-0012/2019). The European Parliament also published Report A8-0011/2019 on the Commission’s proposal to amend Regulation (EU) 1092/2010 to strengthen the role of the ESRB.

ECB publishes single Code of Conduct for high-level officials

The ECB published a single Code of Conduct for all ECB decision-makers and high-level officials. The code is the latest measure undertaken by the ECB to further strengthen and refine its good governance and integrity frameworks. The ethical rules take into account the ECB’s specificities as a central bank, a banking supervisor and an EU institution.

EU auditors press ECB for disclosure on supervisory activities

The European Court of Auditors (ECA) published its communication (dated 13 December 2018) to the European Parliament on the problems the ECA encountered in obtaining access to information from the ECB. The ECA calls on the European Parliament to intervene and ensure the ECB allows full access to documents for audits related to banking supervision and expresses concern that the ECB's current position on access to documents and information prevents the ECA from carrying out its work properly.

 

Authorisation, approval and supervision

 

Treasury minister updates Parliament committees on ESFS proposal

The government published letters from John Glen MP, economic secretary to the Treasury, to Sir William Cash, chair of the House of Commons European Scrutiny Committee, and Lord Boswell of Aynho, chair of the House of Lords European Union Committee, providing an update on the progress of negotiations on the European Commission's European System of Financial Supervision (ESFS) proposal.

 

Risk management and controls

 

GLEIF publishes global overview of regulatory activities involving LEI

The Global Legal Entity Identifier Foundation (GLEIF) published an overview listing the current and proposed regulatory activities which include the use of legal entity identification (LEI) in regulatory reporting and supervision. GLEIF will update the list regularly. GLEIF closely monitors initiatives relevant to legal entity identification in regulatory reporting and supervision. The overview sets out by jurisdiction the current and proposed regulatory activities, including upcoming legislation relevant to LEI adoption.

FMSB finalises new Statement of Good Practice

The FICC Markets Standards Board (FMSB) published the final version of its Statement of Good Practice on Suspicious Transaction and Order Reporting under its remit to improve conduct and raise standards in the wholesale Fixed Income, Commodity and Currency markets. The Statement of Good Practice deals with the identification of suspicious transactions and orders and their reporting to the relevant regulator.

 

Financial crime

 

Council of EU Presidency suggests COREPER invite Council to start negotiations with EP on AML/CT as part of ESFS policy debate

The Council of EU Presidency published 5108/19 in which it confirms that the Presidency is ready to commence negotiations with the European Parliament on the anti-money laundering and countering the financing of terrorism (AML/CFT) component of the European Commission’s ESFS proposal, with a view to reach an agreement as soon as possible. The Presidency therefore suggests that the Permanent Representatives Committee (COREPER) invite the Council to agree to frontload and start negotiations with the European Parliament on the AML/CFT component of the ESFS package on the basis of the text agreed by COREPER on 19 December 2018.

EU banking supervisors agree on AML cooperation mechanism

The European Commission announced that the ECB and national authorities supervising financial institutions’ compliance with EU AML obligations, in close cooperation with the Commission and the ESAs, reached an agreement on a new cooperation mechanism which clarifies the actions that need to be taken when a weak link is discovered in the system and how exactly information will be exchanged, so that cooperation in the fight against money laundering takes place in an efficient and timely way. The new mechanism contains detailed rules on what type of information should be exchanged, under which conditions, and what confidentiality and data protection safeguards will apply to protect citizens’ and companies’ financial data, and forms part of the enhanced cooperation arrangements required by the Fifth Money Laundering Directive (EU) 2018/843 (MLD5).

ESAs announce multilateral agreement on the exchange of information between the ECB and AML/CFT competent authorities

The ESAs approved on 10 January 2019 the content of the Multilateral Agreement on the practical modalities for exchange of information between the ECB and all competent authorities (CAs) responsible for supervising compliance of credit and financial institutions with AML/CFT obligations under the fourth Money Laundering Directive (MLD4). The Agreement is intended to create a clear framework for exchanging information between the ECB and CAs.

UK government joins fight against £14B cost of financial crime

The government joined forces with the financial services industry on a new taskforce to battle economic crime such as money laundering and fraud, which costs the UK £14.4bn ($18.5bn) each year, the Treasury said. A cross-departmental board led by Chancellor Philip Hammond and Home Secretary Sajid Javid will work with senior figures across the City to crack down on financial crimes including corruption and bribery. The new task force, which convened for the first time Monday, will be known as the Economic Crime Strategic Board. It will set priorities, direct resources and scrutinise performance in the fight against organised economic crime. Its members include bosses at some of the UK’s biggest banks, including Barclays PLC, Lloyds Banking Group PLC and Santander UK PLC, as well as lawyers and enforcement figures.

FCA defends probe of Credit Suisse over $2bn African 'fraud'

The chief executive of the FCA told a parliamentary committee on Tuesday that the regulator is considering taking action against Credit Suisse Group AG over potential failures of its internal controls in connection with an alleged $2bn loan scandal in Africa, as well as against individual bankers who potentially acted improperly. Three former London-based Credit Suisse bankers were charged in New York with defrauding US investors on 3 January 2019 after loans arranged to set up a state fishing fleet in Mozambique vanished, prosecutors say.

Insider dealing case gets re-trial date

The re-trial of Fabiana Abdel-Malek and Walid Anis Choucair was listed for 15 April 2019. The case concerns five counts of insider dealing.

 

Enforcement and redress

 

UK Government rejects Committee's calls to regulate SME lending

The Treasury Select Committee published responses from the UK Government and the FCA to the Committee's report on small and medium size enterprise (SME) Finance report, which was published in October 2018. While the government welcomes the report, it does not believe that there is a clear case for bringing SME lending into regulation and rejected the Committee's calls for the creation of a Financial Services Tribunal.

APPG letter to FCA raises concerns over inquiries and FCA investigations related to SMEs

Kevin Hollinrake, MP and Co-Chair of the All-Party Parliamentary Group on Fair Business Banking (APPG) wrote to Andrew Bailey, Chief Executive of the FCA, raising concerns regarding various inquiries and FCA investigations relating to the treatment of SMEs. Mr Hollinrake requests further details on: (1) Phase 2 of the inquiry into the treatment of SMEs by RBS GRG (2) the Griggs and Dobbs Reviews (3) the FCA investigation relating to Lloyds Banking Group/HBOS Reading fraud (4) the treatment of whistleblower Sally Masterton and (5) the establishment of a compensation scheme for SMEs proposed by UK Finance and modified by the APPG.

FCA issues final notices to two Keydata executives

The FCA issued two final notices confirming that it is imposing a fine and a prohibition on Stewart Owen Ford and  Mark John Owen, the former CEO and sales director respectively of Keydata Investment Services Ltd (Keydata). The FCA’s decision was upheld by the Upper Tribunal on 6 November 2018. The FCA fined Mr Ford £76m, and Mr Owen £3,240,787 respectively.

FSCS issues update on Active Wealth claims

The Financial Services Compensation Scheme (FSCS) updated its approach to claims against Active Wealth (UK) Limited in order to ensure full and fair compensation for former members of the British Steel Pension Scheme (BSPS). This follows meetings with steelworkers, their representatives and Members of Parliament. Active Wealth and other independent financial advisers wrongly advised British Steel workers to transfer their pension from a British Steel defined benefit scheme into self-invested personal pensions (SIPPs) holding other investments. Last year FSCS declared Active Wealth in default, as it was unable to pay claims against it. The FSCS paid around £1.1m in compensation to former Active Wealth clients, including former BSPS members.

 

Markets and trading

 

ESMA reports on accepted market practices under MAR

ESMA published its annual report on the application of accepted market practices (AMP) in accordance with the Market Abuse Regulation. AMPs are a defence against allegations of market manipulation. In particular, dealings in financial markets which are carried out for legitimate reasons and in conformity with an established AMP will not constitute market manipulation.

AFME establishes new high yield investor group

AFME announced, following a meeting of its High Yield Board, that it will establish an independent associate group—the European Leveraged Finance Alliance Investor Group (the ELFA Investor Group). The ELFA Investor Group will represent the buy-side community within the European high yield and leveraged finance market and is intended to help promote a transparent, efficient and resilient leveraged finance market in Europe.

ISDA summary chart of derivatives subject to margin rules

The International Swaps and Derivatives Association (ISDA) published a compilation and comparison summary chart of derivatives projects which are subject to regulatory initial and variation margin requirements in jurisdictions which impose final requirements for regulatory margin. The chart, dated 8 January 2019, sets out the instrument type, relevant regulators and jurisdiction.

 

Regulation of capital markets

 

Council adopts position concerning the amendment of Annex IX (Financial Services) to the EEA Agreement

The Council of the European Union published a decision on the position to be adopted, on behalf of the European Union, within the EEA Joint Committee, concerning the amendment of Annex IX (Financial Services) to the EEA Agreement. According to the Decision, Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the EU and on central securities depositories, is to be incorporated into the EEA Agreement.

AFME states Europe’s leaders must push Capital Markets Plan

AFME published a letter from Simon Lewis OBE, AFME Chief Executive, in which he stated that 2019 will be a year of major structural and institutional change in Europe. Whatever form Brexit finally takes, there will likely be disruption to Europe’s capital markets. High up on the new Commission’s agenda should be taking forward the capital markets union project.

ICMA publishes its Quarterly Report—First Quarter 2019

The International Capital Market Association (ICMA) published its Quarterly Report, First Quarter 2019—Assessment of Market Practice and Regulatory Policy. The Report reviews developments in 2018 and provides an outlook for the year ahead. In particular, the Report includes feature articles on preparations for Brexit in international capital markets and the transition to risk-free rates. The ICMA Quarterly Report also covers international capital market practice and regulatory developments in the primary markets, secondary markets, repo and collateral markets, green, social and sustainability bond markets, and asset management, including a series of reviews on the first year of MiFID II/R.

ICMA ERCC briefing note: European repo market at 2018 year-end

The European Repo and Collateral Council (ERCC) of ICMA published a briefing note on the European repo market at 2018 year-end. The report analysed and documented European year-end repo market activity and behaviour since the 2016 ‘turn’, which saw unprecedented market stress and pricing dislocations. The report explains that banks still face pressures to reduce their balance sheets in order to comply with entity or jurisdictional specific reporting obligations.

 

Investment funds and asset management

 

Commission publishes report on operation of AIFMD as part of wider AIFMD review

The European Commission published a report, produced by KPMG, on the operation of the Alternative Investment Fund Managers Directive 2001/61/EU (AIFMD). The report sets out the findings of a survey carried out by KPMG on behalf of the Commission as part of its wider AIFMD review. The report confirms the AIFMD's significant contribution to creating an internal market for alternative investment funds (AIFs) by establishing a harmonised and stringent regulatory and supervisory framework for AIFs, and identifies several areas requiring further in-depth analysis.

ESMA Statistical Report on cost and performance of retail investment products

ESMA published its first Annual Statistical Report on the cost and performance of retail investment products. The Report covers Undertakings for Collective Investment in Transferable Securities (UCITS), AIFs sold to retail investors (retail AIFs) and Structured Retail Products. The Report documents the significant impact of costs on the final returns that retail investors make on their investments.

EBA report on cost and performance of structured deposits

The EBA published its first annual report on the costs and performance of structured deposits in the EU. The report is a response to a request the EBA had received from the EU Commission as part of the implementation of it Capital Market Union Action Plan and concludes that the market for structured deposits in the EU appears to be limited in size and that data on costs and performance is not widely available. The report, therefore, also sets out the steps the EBA will take to enhance the data quality in the future.

Investment Association’s monthly statistics of UK investor behaviour—November 2018

The IA published its November 2018 statistics of UK investor behaviour. Chris Cummings, Chief Executive of the IA, noted that fixed income funds experienced a second month of significant outflows, which, alongside the sell-off of UK and European equity funds, contributed to the largest net retail outflow since the EU referendum of £2.1bn.

UK Finance urges Basel Committee to reconsider minimum haircut floors for SFTs

Simon Hills, Director of Prudential Policy at UK Finance, urged the BCBS to reconsider the application of the minimum haircut floors to securities financing transactions (SFTs) undertaken by regulated asset managers. He suggested that greater transparency by asset managers could be the answer to the build-up of leverage in the non-banking system.

 

Banks and mutual

 

European Commission call for advice from EBA on benchmarking of national loan enforcement frameworks

The EBA published a Call for Advice from the European Commission for the purposes of a benchmarking of national loan enforcement frameworks (including insolvency frameworks) from a bank creditor perspective. As announced in the Communication on completing the Banking Union, and as a follow-up to the Council of the EU's request in the context of its action plan to tackle non-performing loans (NPLs) in Europe, the EU Commission services are undertaking a benchmarking of national loan enforcement frameworks (including insolvency frameworks) from a bank creditor perspective (the benchmarking). The purpose of the benchmarking is to understand the efficiency of enforcement procedures in terms of recovery rates and times to recovery.

Bank of England reports on PRA Conference for CEOs of Non-Systemic UK Banks and Building Societies

The BoE issued a press release noting that Melanie Beaman, Director of UK Deposit Takers, hosted the annual conference for the CEOs of non-systemic UK banks and building societies on Tuesday 15 January. The conference provided feedback on current regulatory matters, set out the PRA's supervisory strategy, key risks and highlighted major prudential policy initiatives for 2019.

FCA announces new online portal for mutual societies

The FCA announced that it launched a new online portal for mutual societies. The portal is a gateway to its Mutuals Team and provides a quicker and easier way for societies to manage their information, submissions and applications. Mutual societies can now complete tasks online that were previously managed via post or email. The aim of the portal is to make it easier for mutual societies to work with the FCA by enabling faster responses to applications and submissions, as well as giving societies access to live information. The FCA will continue to gather feedback and improve the service over the coming weeks and months.

EFDI reports on status of Deposit Guarantee Scheme stress tests

The European Forum of Deposit Insurers (EFDI) published a paper on the current state of play of Deposit Guarantee Scheme stress testing, which is required by the Deposit Guarantee Schemes Directive (DGSD). The paper, which is based on a survey of the EFDI's Stress Test Working Group, summarises the lessons to date and next steps. The content and results will be updated from time to time.

FSI insight paper (No.15)—Regulation and supervision of financial cooperatives

The BIS published a Financial Stability Institute (FSI) insight paper outlining challenges faced by financial cooperatives (FCs), including changes in technical developments which may be eroding certain competitive advantages enjoyed by FCs over the commercial banking sector. The paper considers the responses to these challenges including increased cooperation between FCs, policy intervention and the role of regulators.

 

Consumer credit, mortgage and home finance

 

Commission Consultation—Evaluation of the Consumer Credit Directive

The European Commission is conducting an open public consultation on the functioning of the Consumer Credit Directive (2008/48/EC). The consultation forms part of the Commission’s second evaluation to assess whether the Consumer Credit Directive remains fit for purpose given the significant market developments arising since 2008. Stakeholders may contribute to the consultation by filling out an online questionnaire by 8 April 2019.

Treasury Committee publishes FCA statement on vulnerability and access-focused initiatives in 2019

The Treasury Committee published the FCA’s written submission to the Committee inquiry on consumers’ access to financial services. The FCA’s submission is in response to the Committee’s inquiry which looks at consumers’ access to financial services and whether certain groups of consumers are excluded, both in terms of obtaining a basic level of service from financial services providers as well as access to products. The inquiry is focussed on the provision of financial products and services for vulnerable consumers.

FCA must act swiftly to help 140,000 mortgage prisoners

The Treasury Committee published a letter from Andrew Bailey, Chief Executive of the FCA, addressed to Nicky Morgan MP, Chair of the Treasury Committee, to provide an update on the FCA’s work on the issue of improving switching options for mortgage customers who are currently unable to do so. The FCA’s analysis suggests that there are 140,000 mortgage customers unable to switch. Commenting on the correspondence, Nicky Morgan MP said ‘The regulator must now act swiftly to help these 140,000 mortgage prisoners, and not use this consultation to kick the issue into the long grass’.

UKAR CEO updates Treasury Select Committee Chair on sale of NRAM assets and protection of mortgage prisoners

The government published a letter from the CEO of UK Asset Resolution (UKAR) to Nicky Morgan MP, the Chair of the Treasury Committee, on the topic of mortgage prisoners. In the letter, CEO Ian Hares confirms that UKAR is engaged in a confidential sales process with the aim of selling NRAM Limited’s remaining residential mortgage and unsecured personal loans and explains how UKAR approaches the sales process to ensure it achieves value for money for taxpayers while safeguarding the treatment of customers.

 

Payment services and systems

 

ECON endorses agreement on cross-border payments regulation

ECON unanimously endorsed the provisional agreement resulting from interinstitutional negotiations on the European Commission's proposal for a regulation amending Regulation (EC) 924/2009 as regards charges on cross-border payments in the EU and currency conversion charges. The agreement between the Council of the EU, the Parliament and the Commission was reached on 11 December 2018.

UK Finance applies on behalf of UK financial services and payments industry to remain in SEPA

David Song, Principal of EU Personal Finance Policy at UK Finance, announced that UK Finance formally made an application on behalf of the UK financial services and payments industry to maintain participation in the Single Euro Payments Area (SEPA). UK Finance states that it is supporting its members in their efforts to retain access to key euro payments systems to ensure SEPA payments can still be made. A formal final determination will be made by a European Payments Council (EPC) Board decision on 7 March 2019.

 

Insurance and pensions

 

EU rules on occupational pension funds apply from 13 January 2019

The revised Directive on occupational pension funds, known as IORP II, will become applicable as of 13 January 2019. The rules, which were adopted by the EU on 14 December 2016, make it easier for pension funds to do cross-border business and to invest in sustainable and long-term assets, strengthening their role in the Capital Markets Union. The new rules encourage and facilitate access to work pensions, improve and modernise the way pension funds are governed and enhance the clarity of information provided to pension funds members and beneficiaries.

EIOPA Report analyses costs and past performance of insurance and pension products

EIOPA published its first Report on Costs and Past Performance of insurance and pension products. The report provides aggregate data on the costs of insurance-based investment products (IBIPs) across the EU as well as for certain similar personal pension products (PPPs) and sets out the net performance for the period between 2013-17. The publication follows a request of the European Commission to the ESAs to periodically report on costs and past performance of retail investment, insurance and pension products.

IAIS stakeholder events on holistic framework for systemic risk and ICS

The International Association of Insurance Supervisors (IAIS) published details of a stakeholder event entitled the ‘Holistic Framework for Systemic Risk in the Insurance Sector’ which took place on 15 January 2019, in addition to an upcoming event on the global insurance capital standard (ICS) scheduled for 1 February 2019.

EU privacy reform could hamper innovation, insurers warn

European Commission proposals to reform the bloc’s electronic privacy laws are ‘unclear’ and will create ‘legal uncertainty’, Europe’s insurers said, as they warned that the regulation could limit the ability of insurance companies to offer innovative policies to their customers. Insurance Europe, a lobby group, called on the commission to scrutinize its proposed ‘e-privacy’ regulation to ensure that it does not prevent insurers from storing and processing data that allows them to offer tailored insurance policies based on telematics. These products use a ‘black box’ device fitted to the policyholders' car that monitors their driving ability. The group, which represents EU insurers and reinsurers, suggested that the Commission should add an exemption to the rules to allow insurers to process data, ensuring legal clarity on whether they can offer telematics policies.

 

Fintech and virtual currencies

 

Council of the European Union—ESMA covering letter to report on ICOs and crypto-assets

The Council of the European Union circulated the advice of ESMA to the European Union institutions on initial coin offerings (ICOs) and crypto-assets (5313/19). Correspondence from the chair of ESMA, Steven Maijoor to Valdis Dombrovskis, the Commission’s vice president for financial stability, financial services and Capital Markets Union, is included. Mr Maijoor explains that ESMA’s advice examines the business models of crypto-assets related activities, the risks typically arising and the legal qualification of crypto-assets under EU law. It then sets out ESMA’s view on the applicability of the existing EU regulatory framework to such activities and the gaps and issues that exist in current rules, first where crypto-assets qualify as MiFID financial instruments and second where they do not.

 

Sustainable finance

 

Commission TEG on sustainable finance—report on climate-related disclosures

The Technical Expert Group (TEG) on Sustainable Finance set up by the European Commission in July 2018 published its first  report on companies’ disclosure of climate-related information. It contains recommendations that will allow the Commission to update its non-binding guidelines on non-financial reporting with specific reference to climate-related information, in line with the recommendations of the Task Force on Climate-related Financial Disclosures established by the Financial Stability Board (FSB), and with the Commission proposal on a ‘taxonomy’ of sustainable economic activities. Stakeholders are invited to submit written comments on the TEG report by 1 February.

ECON publishes report on proposed regulation amending BMR on low carbon benchmarks and positive carbon impact benchmarks

ECON published its report on the proposal of the European Commission for a regulation amending Regulation (EU) 2016/1011 (the Benchmarks Regulation) on low carbon benchmarks and positive carbon impact benchmarks. The report was adopted by the Committee on 13 December 2018. The proposed regulation aims to enhance transparency in sustainable financing by establishing clear criteria on sustainability and by fighting 'greenwashing'.

UK Finance—the evolution of green finance

UK Finance published an article by Gabrielle Samuels, expertise counsel at Ashurst, entitled ‘Green Lending: Light green is better than brown’. The article examines green finance and the Green Loans Principles (GLPs). The article relates to UK Finance’s upcoming seminar on the evolution of green finance. Ms Samuels notes that green bonds have been in the market for the past decade and now the Loan Market Association and the Asia-Pacific Loan Market Association are helping to promote a green loans market via the launch of the GLPs in March 2018. 

 

Dates for your diary

 

DateSubjectEvent

 

18 January 2019

 

Regulation of capital markets

 

According to Articles 10 and 17 of the Securitisation Regulation, ESMA is mandated to draft regulatory and implementing technical standards covering the application requirements for firms seeking to register with ESMA as securitisation repositories. ESMA is mandated (see executive summary) to submit these draft standards to the European Commission by 18 January 2019.

 

18 January 2019Risk management and controls

The deadline for responses to the House of Common’s Treasury Committee’s inquiry into IT failures in the financial services sector is 18 January 2018.

 

18 January 2019Sustainable finance

UK finance is holding an event ‘Foreign Banks Seminar—The evolution of green finance’ on 18 January 2019. The event considers current green financing tools and trends and considers what the future holds for green finance.

 

21 January 2019Regulatory architecture

The deadline for written submissions to the International Trade Committee inquiry on the UK's trade in services is 5pm on 21 January 2019.

 

21 January 2019Brexit

The deadline for responses to PRA CP32/18: UK withdrawal from the EU: Further changes to 'PRA Rulebook and Binding Technical Standards' and 'Resolution Binding Technical Standards' is 21 January 2019.

 

22 January 2019PRA rulebook

The deadline for feedback to chapters 3-7 of PRA ‘CP24/18: Occasional Consultation Paper’ is on 22 January 2019.

 

22 January 2019Alternative Investment Funds

Depending on ESMA recommendation, the European Commission may turn-off private placement.

 

 

Area of Interest