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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 17 May 2018.
During a speech given at the BIBA 2018 annual conference & exhibition in Manchester, the Financial Conduct Authority’s (FCA) CEO Andrew Bailey discussed elements of the FCA business plan as relevant to the general insurance sector. Mr Bailey also discussed the impact that Brexit and the EU General Data Protection Regulation (GDPR) will have on the sector.
The executive director of international banks supervision at the Bank of England (BoE), Sarah Breeden, gave a speech on the shared response to climate change: turning momentum into action. The speech is based on remarks made on 19 March 2018 following the second formal meeting of the Green Finance Initiative and Green Finance Committee in London. Ms Breeden stressed that climate change is a core financial risk for companies. She explained that it is a shared challenge for the private sector and financial authorities and that they need to take action together in order to respond to it.
SI 2018/Draft: Amendments are made to legislation to expand the definition of alternative finance investment bonds (AFIBs) to allow these to be admissible for trading on additional types of financial trading venues, known as multilateral trading facilities (MTFs) and organised trading facilities (OTFs). These are markets for the issuing and trading of debt securities which are regulated by the platform’s operator, the London Stock Exchange for example.
Commission Implementing Regulation (EU) 2018/708 of 17 April 2018 laying down implementing technical standards (ITS) with regard to the template to be used by managers of money market funds (MMFs) when reporting to competent authorities, as stipulated by Article 37 of Regulation (EU) 2017/1131 of the European Parliament and of the Council on MMFs, was published in the Official Journal of the EU.
The economic secretary to the Treasury, John Glen, wrote to the chair of the Commons European Scrutiny Committee, Sir William Cash, to provide an update on the progress of negotiations on the European Commission's risk reduction package, which amends bank capital and resolution rules.
The chair of the supervisory board of the European Central Bank (ECB), Danièle Nouy, said that the efforts of Greek banks to improve their finances are starting to bear fruit, but there are still challenges to be addressed. In an interview with Greek broadcaster Alpha TV, Ms Nouy discussed Greek capital controls, consumer protection and non-performing loans (NPLs).
The Council of the European Union announced that it has formally adopted the proposed Fifth Money Laundering Directive (MLD5), amending the Fourth Anti Money Laundering Directive (Directive (EU) 2015/849) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing).
The FCA secured confiscation orders totalling £1.69m against convicted insider dealers. HHJ Pegden QC, sitting at Southwark Crown Court, made an order of £1,074,236 against Martyn Dodgson and £624,521 against Andrew Hind. The orders must be paid within three months or Mr Dodgson will face a further seven and a half years in prison and Mr Hind will face a further five and a half years.
The Financial Services Compensation Scheme (FSCS) announced that, following a competitive procurement process, it has awarded its strategic sole partner contract to Capita for the provision of a claims handling service. The contract will run from July 2018 until 2023, with an option to extend for up to an additional two years.
The Advertising Standards Authority (ASA) upheld a complaint against a radio advert for Ocean Finance, a trading name of Intelligent Lending Ltd. The case concerned whether the advert needed to include a representative annual percentage rate (RAPR), as set out in the FCA’s Consumer Credit sourcebook (CONC) rules, and the associated guidance.
The Council of the EU adopted a decision on the position to be adopted, on behalf of the EU, within the European Economic Area (EEA) Joint Committee concerning the amendment of Annex IX (Financial services) to the Agreement on the EEA to include EMIR Level 2 measures.
The European Securities and Markets Authority (ESMA) updated its transparency calculations webpage and FAQs to reflect the fact that the MiFID II and MiFIR transitional transparency calculations (TTCs) with respect to the liquidity assessment for bond instruments—other than exchange-traded commodities (ETCs) and exchange-traded notes (ETNs) —will no longer be applicable and the quarterly liquidity assessment will now apply.
Following consultation, the FCA retired finalised guidance FG12/15, ‘Retail Distribution Review: independent and restricted advice’, and FG14/1, ‘Supervising retail investment advice: inducements and conflicts of interest’. In policy statement PS18/10, the FCA says the guidance has been largely superseded by recent changes to its rules, including those implementing MiFID II.
The Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) issued criteria for identifying simple, transparent and comparable (STC) short-term securitisations. The criteria maintain and build on the principles in the criteria for identifying STC securitisations issued by BCBS-IOSCO in July 2015.
ICE Benchmark Administration Limited (IBA) published statements on three benchmarks it administrates, covering LIBOR, the London Bullion Market Association gold and silver prices, and the ICE swap rate. The statements set out management, governance and calculation details for the three benchmarks.
The Futures Industry Association (FIA), the Association for Financial Markets in Europe (AFME) and UK Finance submitted a joint response to the Prudential Regulation Authority (PRA) consultation paper CP5/18 on algorithmic trading. The associations asked the PRA to clarify the policies in several areas, align its policies with other market integrity regulations, and reassess the timing of any policy changes given the proximity to MiFID II implementation.
The CEO of the International Swaps and Derivatives Association (ISDA), Scott O’Malia, gave a speech on benchmark regulation and transition, in which he described the work being done to ensure a smooth transition from inter-bank offered rates (IBORs) to risk-free rates (RFRs), and explained ISDA’s work to develop robust fallbacks for derivatives contracts that reference certain key IBORs.
ISDA published the latest issue of SwapsInfo Quarterly Review, covering Q1 2018. The report examines cleared and non-cleared activity and trading volumes executed on swap execution facilities and bilaterally, as well as by product and currency.
The Competition and Markets Authority (CMA) published a working paper which sets out its analysis on whether pension schemes which are more engaged with the market receive better outcomes (in terms of price) than those that are less engaged. The CMA found that engaged schemes pay significantly less, and disengaged schemes pay significantly more, when schemes transition into fiduciary management (FM) with the same provider as they used for investment consultancy (IC) services. The CMA concludes that this is indicative that the market is not working well for disengaged schemes, or schemes facing barriers to engagement.
The FCA released a video in which its head of asset management, Nick Miller, presents the findings of the FCA’s 2017 multi-firm review of how asset management firms value so-called ‘hard to value’ assets. Mr Miller sets out what the FCA looked at during the review, what it found, examples of good practice, and areas for improvement. A transcript of the video is also available.
IOSCO is holding its 43rd annual conference in Budapest, focusing on protecting investors, ensuring fair, efficient and transparent markets, and mitigating systemic risk.
The Futures Industry Association (FIA) responded to the consultation issued by IOSCO on the mechanisms used by trading venues to manage extreme volatility and preserve orderly trading. FIA says it broadly supports the recommendations made and agrees with IOSCO that there is no single one-size-fits-all approach to how volatility mechanisms (including circuit breakers) or other forms of market integrity protection should work.
HM Treasury published its findings after considering the responses it received to its consultation of 22 September 2017 on the proposal to reform the Bills of Sale Acts. HM Treasury announced that, given the concerns that were raised in the consultation, the small and reducing market and wider work on high-cost credit, the government is not intending to introduce new legislation at this point in time.
Financial Guidance and Claims Act 2018: Provisions are made to ensure members of the public are able to access free and impartial money guidance, pensions guidance and debt advice, and to ensure that they are able to access high-quality claims handling services by strengthening the regulation of claims management companies. Provisions include establishing a new financial guidance body and providing a power to make regulations prohibiting unsolicited direct marketing in relation to pensions and other consumer financial products and services.
The European Insurance and Occupational Pensions Authority (EIOPA) launched its fourth stress test for the European insurance sector, encompassing 42 European firms—close to 78% of the total European market coverage. The 2018 scenarios involve a combination of market and insurance specific risks, including a natural catastrophe. Firms must respond to their national competent authority by 16 August 2018. Publication of the results is planned in January 2019.
The European Parliament published a briefing note on Solvency II ahead of the Economic and Monetary Affairs Committee (ECON) scrutiny session on 16 May 2018, which will review the implementing measures contained in Delegated Regulation (EU) 2015/35 (Solvency II Delegated Regulation).
Insurance Europe (IE) responded to EIOPA consultation on corrections and amendments to the ITS for Solvency II reporting and disclosure, which included more than 300 new validations. IE said that it would be difficult to implement the new validations in time for Q4 2018 reporting, particularly for complex groups, and that they should not be obligatory for the first year of application.
The Council of the EU published a third Presidency compromise text on the proposal for a regulation of the European Parliament and of the Council on a pan-European personal pension product (PEPP).
The Work and Pensions Select Committee published a letter from the FCA chief executive, Andrew Bailey, to the committee following the publication of the committee's reports on the Pensions Freedoms and British Steel Pension Scheme (BSPS). In the letter, which is dated 4 May 2018, Mr Bailey responds to a number of recommendations for the FCA that were contained in the reports. Among other things, Mr Bailey says that the FCA is planning to introduce a new public register in 2019 for individuals certified under the Senior Managers and Certification Regime (SM&CR).
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