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Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 17 November 2016.
The British Bankers’ Association (BBA) has produced a series of four guides on how Brexit will impact on banking. The guides cover staying in or leaving the single market, how to exit the EU in an ‘orderly’ fashion, passporting and equivalence. The BBA says it is working with governments and other sectors across Europe ‘to limit disruption and deliver the most positive outcome for the people of the UK and Europe’.
On 9 November 2016, in a speech to the Economic and Monetary Affairs Committee, Danièle Nouy, chair of the Supervisory Board of the European Central Bank (ECB), covered a number of recent developments in the banking sector, including the profitability of euro area banks remaining low by historical standards, competition from non-banks, and the increased need for investments in information technology to keep up with consumers’ demand for digital services and distribution channels that are partly outdated. Ms Nouy refused to blame low interest rates alone for Euro banks’ poor profitability, and set out the ECB’s action on non-performing loans. The speech also touches on the Supervisory Review and Evaluation Process or SREP for 2016 and outlines the regulatory thinking of the Basel Committee.
On 10 November 2016, the European Banking Association (EBA) published the October 2016 edition of EBA Press. The edition includes a review of internal models and the discrepancies across the European Union together with a directory of key EBA publications for the period June to October 2016.
On 11 November 2016, Decision (EU) 2016/1974 of the ECB dated 31 October 2016 amending Decision (EU) 2016/810 (ECB/2016/10) on a second series of targeted longer-term refinancing operations (TLTRO-II) (ECB/2016/30) was published in the Official Journal.
On 15 November 2016, Sabine Lautenschläger, member of the executive board of the European Central Bank (ECB) and vice-chair of its Supervisory Board, said in a speech at the Euro Finance Week Conference that the recent EBA stress test conducted on European banks confirms their increased resilience. She also said the banks have to adjust to a new economic environment, to the digital world, and to become more efficient to deal with legacy assets.
On 16 November 2016, the Chair of the Supervisory Board of the ECB, Danièle Nouy, warned banks that they have to adjust to tougher rules and harmonised supervision. In a climate ‘low on profitability, but rich in liquidity and competition’, they must not be tempted to take on more risk than they should.
On 9 November 2016, the European Parliament published a motion for a resolution on the reform of the Basel III Accord which was tabled in the Committee on Economic and Monetary Affairs (ECON) on 4 October, calling on the European Commission and the Member States to actively move towards increasing capital requirements and to reconsider the internal approach to bank credit risk assessment.
On 9 November 2016, the EBA published the opening statement given by its chair, Andrea Enria, on 9 October 2016. The address was made before the open coordinators meeting on the 2016 Basel Reform Committee on Economic and Monetary Affairs (ECON) of the European Parliament. The statement addressed the proposed reform of global prudential standards that the Basel Committee intends to finalise by the end of 2016.
On 10 November 2016, the EBA published a report including some qualitative and quantitative observations of its first impact assessment of the International Financial Reporting Standards (IFRS) 9. The exercise helped the EBA understand the way in which institutions are preparing for the application of IFRS 9.
On 10 November 2016, the General Secretariat of the Council of the European Union recommended that the Council confirm that it has no objection to the delegated regulation adopted by the European Commission on 24 October 2016 with regard to regulatory technical standards (RTS) for benchmarking portfolio assessment standards and assessment-sharing procedures under the Capital Requirements Directive 2013/36/EU.
On 11 November 2016, the Assistant Governor (Financial Markets) of the Reserve Bank of Australia, Mr Guy Debelle, gave a talk to the Regulators Panel of the Financial Services Institute of Australasia (FINSIA) on the status of the Global Code of Conduct for the Foreign Exchange Market, the second part of which is due in May 2017.
On 11 November 2016, the European Parliament published a briefing note that was prepared in advance of a public hearing of the Committee on Economic and Monetary Affairs (ECON) on 9 November 2016 attended by Danièle Nouy, chair of the Single Supervisory Mechanism. The note covers the results of the EU-wide stress test carried out by the EBA, an update on revisions to Basel III, the ECB public consultation on guidance on non-performing loans, the EBA’s updated Risk Dashboard, and the ECB’s guidance on options and discretions.
On 14 November 2016, the EBA published a consultation paper (EBA/CP/2016/20) on draft implementing technical standards (ITS) amending the Commission Implementing Regulation on ITS on supervisory reporting (Regulation 680/2014) relating to operational risk and sovereign exposures pursuant to Article 99(5) of the Capital Requirements Regulation (CRR). The ITS aim to collect information on institutions’ compliance with prudential requirements and related technical standards, as well as additional financial information required by competent authorities to perform their supervisory tasks. As such, the ITS on supervisory reporting needs to be updated whenever prudential or supervisory requirements change. The consultation is open until 7 January 2017.
On 14 November 2016, the ECB launched a public consultation on a draft guide to fit and proper assessments for the suitability of prospective bank board members for significant credit institutions in the single supervisory mechanism (SSM). The guide explains how ECB Banking Supervision evaluates the qualifications, skills and proper standing of a candidate for a position on the board of a bank, for example as chief executive officer or supervisory board member. The role of the ECB is to make sure that the banks comply with the rules, which aim to ensure good governance in banks.
On 14 November 2016, the EBA published a letter dated 5 September 2016 from EBA chairman Andrea Enria to the director-general of the European Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union, Olivier Guersent. The letter concerns the status of RTS on conditions for capital requirements for mortgage exposures under Article 124(4)(b) and 164(6) of the Capital Requirements Regulation (Regulation 575/2-13) (CRR).
On 14 November 2016, the Prudential Regulation Authority (PRA) published a policy statement (PS31/16) on ‘Credit union regulatory reporting’. PS 31/16 provides feedback to responses to the consultation ‘Credit union regulatory reporting, CP 24/16’ and sets out final rules, updated notes on completing credit union returns that change the format and frequency of reporting requirements that apply to credit unions, and updated annual and quarterly returns.
On 15 November 2016, Guideline (EU) 2016/1994 of the ECB of 4 November 2016 on the approach for the recognition of institutional protection schemes (IPS) for prudential purposes by national competent authorities (NCA) pursuant to the CRR was published in the Official Journal.
On 15 November 2016, Guideline (EU) 2016/1993 of the ECB of 4 November 2016 laying down the principles for the coordination of assessment pursuant to the CRR and monitoring of institutional protection schemes (ISP) including significant and less significant institutions (ECB/2016/37) was published in the Official Journal.
On 16 November 2016, the EBA issued a consultation paper (EBA/CP/2016/22) on amending the ITS on Implementing Regulation (EU) 680/2014 with regard to additional monitoring metrics for liquidity reporting. Implementing Regulation (EU) 680/2014 supplements the CRR. The consultation is open for 6 weeks as the envisaged date for finalisation of the draft ITS (and submission to the European Commission) is March/April 2017.
On 16 November 2016, the PRA published a policy statement (PS32/16) containing final rules relating to forecast capital resources and requirements data. The policy statement also provides feedback to responses received to the forecast capital data proposals in Chapter 3 of PRA consultation paper CP17/16 ‘Regulatory reporting of financial statements, forecast capital data and IFRS 9 requirements’.
SI 2016/Draft: The Financial Policy Committee (FPC), the UK’s macro-prudential authority, is given powers to direct the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to take action with respect to loan-to-value (LTV) ratios and interest coverage ratios (ICRs) for buy-to-let (BTL) mortgages. The FPC will be able to limit the proportion of new mortgages extended at LTV ratios above or ICRs below a level specified by the FPC.
On 14 November 2016, proposals to improve existing executive director pay practices were set out in a report by Hermes Investment Management. The report identifies some perceived weaknesses of the current model, including excessive pay levels, misalignment to long-term value and complexity of incentive schemes. Overall, Hermes recommends a fundamental shift in the structure of executive remuneration packages.
On 10 November 2016, the European Parliament published a draft report setting out a draft legislative resolution on the proposal for a directive amending Directive 2015/948/EC (MLD4) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directive 2009/101/EC.
On 14 November 2016, the Council of the EU published a compromise text on the proposal for a directive amending Directive 2015/849/EC on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (MLD4) and amending Directive 2009/101/EC.
On 10 November 2016, the Financial Conduct Authority (FCA) hosted a conference on financial crime. Among other events to take place at the conference, the FCA's Chief Executive, Andrew Bailey, delivered a speech: Fighting Financial Crime. Mr Bailey noted that the last ten years have seen a number of crises associated with financial conduct, and ‘this begs the important question, how effective has the financial system been in providing effective prevention of financial crime?’ Mr Bailey added that methods of financial crime were constantly evolving, so he could not promise to beat it entirely, but could promise to continue to focus on tackling the risks it poses to consumers, firms and the integrity of the financial system. Meanwhile, Director of Specialist Supervision at the FCA, Nausicaa Delfas, spoke on Innovation—Impact of Technology in Managing FC/AML Risk. Rob Gruppetta, Head of the Financial Crime Department at the FCA, focused on money laundering and the work the FCA carries out across industry, regulators and government to fight financial crime and its risk-based approach to regulation, focusing its efforts where the risk is greatest. The speeches can be found here as follows:
On 11 November 2016, a response to a consultation on transposition of the Fourth Money Laundering Directive was been published by the Loan Market Association (LMA). The LMA said while it approved of the Directive, several points needed further clarification to avoid accidentally harming legitimate businesses.
On 14 November 2016, the European Parliament published a report setting out a draft legislative resolution on the proposal for a directive amending Council Directive 2011/16/EU on administrative cooperation in the field of taxation as regards access to anti-money-laundering information by tax authorities.
On 14 November 2016, the European Parliament’s Panama Papers Inquiry heard calls for a European register of beneficial owners of companies, consistent handling of suspicious transactions, and enforced transnational cooperation like the US Financial Investigation Unit. A standardised, interconnected, easy-to-use registry of national bank accounts would have a powerful impact on money-laundering and the crimes that lie behind it.
On 14 November 2016, the FCA updated its Gabriel reporting data guide webpage to provide for a new Financial Crime return (REP-CRIM). The webpage has been designed by the FCA to assist firms who use XML submissions, the Gabriel XML data transfer via direct communication (system-to-system), or those that would like to create a report of the data submitted using Excel.
On 14 November 2016, it was announced that the Financial Services Compensation Scheme (FSCS) has paid more than £2m in compensation over the past two weeks on return of premium motor policy claims following the collapse of Enterprise Insurance. Enterprise Insurance, a Gibraltar-based insurance company, was declared insolvent on 22 July 2016. Since the liquidator disclaimed policies on 26 October 2016, FSCS has been paying return of premium claims either directly to policyholders or through their broker or finance company.
On 9 November 2016, the Asia Securities Industry & Financial Markets Association (ASIFMA) released the results of a global survey on investor interest in China’s onshore bond market. The survey revealed that investors still face a number of legal and operational impediments to investment, and covers macro-economics, capital market development and credit information.
On 10 November 2016, the European Securities and Markets Authority (ESMA) reissued the official translations of its final guidelines clarifying the implementation of the Market Abuse Regulation (MAR) for persons receiving market soundings. The reissue of the guidelines in all 22 languages follows linguistic problems with the Polish translation. ESMA confirmed that the re-publication has moved the legal application date to 10 January 2017.
On 10 November 2016, ESMA issued its final report ‘Technical Advice under the Benchmark Regulation (ESMA/2016/1560) to the European Commission (EC) on important aspects of future rules for benchmarks’.
On 10 November 2016, ESMA issued a consultation on draft RTS regarding the treatment of package orders for which there is a liquid market under the amended Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) (Consultation paper ESMA/2016/1562). The consultation closes on 3 January 2016.
On 10 November 2016, the Bank for International Settlements (BIS) published highlights from the combined semiannual and triennial surveys of positions in over-the-counter (OTC) derivatives markets at end-June 2016. Central clearing predominates in the OTC interest rate derivatives markets but is less prevalent for other OTC derivatives, according to the surveys. The surveys captured comprehensive data on positions with central counterparties (CCPs). As of end-June 2016, 75% of reporting dealers' outstanding OTC interest rate derivatives contracts were cleared through CCPs, compared with 37% for credit derivatives and less than 2% for OTC foreign exchange and equity derivatives. Overall, 62% of the US$ 544tr in notional amounts outstanding reported by dealers was centrally cleared.
On 11 November 2016, HM Treasury launched a consultation seeking views on the rules needed, including modifications of general insolvency rules, to ensure that the financial market infrastructure special administration regime can function effectively. The consultation closes on 15 January 2017.
On 11 November 2016, the European Commission adopted a delegated act, three RTS and two ITS under the Central Securities Depositories Regulation (CSDR) ((EU) 909/2014):
On 14 November 2016, ESMA published its final report (ESMA/2016/1585) regarding the amended application of the clearing obligation that financial counterparties with a limited volume of activity in over-the-counter (OTC) derivatives need to comply with under the European Market Infrastructure Regulation (EMIR).
On 14 November 2106, the Council of the EU published a number of draft delegated regulations that supplement the Central Securities Depositories Regulation (CSDR) (EU) 909/2014. Among other things, the draft delegated regulations concern RTS which further specify the content of the reporting on internalised settlements. The draft delegated regulations can be found as follows:
On 15 November 2016, ESMA published a final report on guidelines on the validation and review of Credit Rating Agencies’ (CRAs) methodologies (ESMA/2016/1575). The guidelines are intended clarify how CRAs should validate and review their methodologies, improving the quality of credit rating methodologies and credit ratings, protecting investors and financial stability.
On 15 November 2016, ESMA published an opinion in relation to additional services and activities that require central counterparties to apply for an extension of their authorisation under Article 15 of EMIR. The opinion also sets out a non-exhaustive list of indicators that should be considered by the competent authorities when determining whether a change to a central counterparty’s (CCP) models and parameters ought to be considered as significant for the purpose of Article 49 of EMIR.
On 11 November 2016, EIOPA published a letter the European Commission sent to the three European Supervisory Authorities (ESAs) setting out the amendments it proposes to make to the draft RTS on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs), and asking them to develop guidance in line with the relevant provisions of the RTS on the practical application of credit risk mitigation factors for insurers.
On 14 November 2016, the Financial Reporting Council (FRC) announced it had began categorising signatories to the UK Stewardship Code (Code) into tiers, based on the quality of their Code statements. 40% of signatories are in the top tier, meaning their reporting is of a good quality. Those in the bottom tier, who require significant improvement, have six months to progress or will be dropped as a signatory to the Code.
On 14 November 2016, the European Association of Corporate Treasurers (EACT) published a letter to European Parliament members, the Slovak Presidency and the European Commission on the finalisation of the proposed Money Market Fund Regulation (MMFR). In the letter, EACT confirms that MMFs are an important cash management tool for businesses as they allow corporates to deposit their short-term cash balances in a secure manner, and also allow diversification, thereby reducing counterparty risk.
On 16 November 2016, an agreement on the EU money market funds (MMFs) regulation was struck by the European Parliament, Council and Commission. The move is designed to strengthen MMFs against future runs and brings the EU to par with the US in terms of resilience.
On 16 November 2016, ESMA updated its Q&A document on the application of the Alternative Investment Fund Managers Directive (AIFMD). Its purpose is to promote common supervisory approaches and practices in the application of the AIFMD and its implementing measures.
On 16 November 2016, the FCA published a consultation paper (CP16/32) outlining its proposed approach to regulating the promotion and distribution of the Lifetime ISA (LISA). The FCA seeks comments on the consultation paper by 25 January 2017.
On 16 November 2016, ESMA chair, Steven Maijoor, said in a speech that the European asset management industry, and the regulatory frameworks of the Markets in Financial Instruments Directive (MIFID) and the Undertakings for Collective Investment in Transferable Securities directives (UCITS), have brought economic and social benefits to the EU investor. He warns, however, that more must be done to improve the efficiency and transparency of the investment fund sector.
On 8 November 2016, HM Revenue & Customs (HMRC) produced an updated Code of Practice on Taxation for Banks. It consolidates and replaces all existing published guidance and includes new material on the ‘intentions of Parliament’, the Annual Report, identifying the Code population, the application of the Code to overseas entities, how HMRC will monitor Code compliance, and how the Large Business Compliance Strategy applies to banks which have adopted the Code.
On 9 November 2016, a European Parliament report called on the European Commission to remain ambitious in breaking down barriers and protectionist tendencies that block innovation in retail financial services. The report argued that a true single market will make the EU attractive as the hub for innovative financial services and calls for an update and promotion of the 'FIN-NET' financial dispute resolution network.
On 10 November 2016, the BBA published a ‘One year on review’ by Professor Russel Griggs OBE on the Access to Banking Protocol (the Protocol). The aim of the review was to consider how banks have applied the Protocol in practice since its inception in May 2015, and the extent to which pre-closure assessment, community engagement and local impact assessments have informed the identification of suitable alternative ways to bank. The review also sought to identify instances of best practice in the way in which the protocol has been implemented and make recommendations for the amendment of the protocol to ensure it continues to meet its objectives.
On 15 November 2016, the debt charity StepChange called on the FCA and the UK Government to do more to protect vulnerable borrowers one year after the introduction of stricter rules on payday lending. StepChange said the FCA should take action to should turn its guidance into regulation.
On 11 November 2016, the House of Lords Select Committee on Financial Exclusion announced it is to take evidence from a range of organisations on 15 November 2016 to explore the relationship between digital exclusion and financial exclusion, and how FinTech might help to address financial exclusion.
On 10 November 2016, the Central Bank of Egypt hosted the tenth meeting of the Financial Stability Board (FSB) Regional Consultative Group (RCG) for the Middle East and North Africa (MENA) in Sharm El Sheikh, Egypt. Members discussed the hot topic of technologically-enabled financial innovations (fintech), their potential impact on financial stability, and how to regulate these new institutions and markets.
On 14 November 2016, it was announced that the European Commission launched an internal Task Force on Financial Technology (TFFT) that aims to assess innovation within Fintech, while also developing strategies to address the potential challenges the area poses and shore up financial stability and consumer confidence.
On 14 November 2016, a letter was published from Markus Ferber and Antonio Tajani of the European Parliament to Andrea Enria, chairman of the EBA about the development of RTS on strong customer authentication and secure communications under the Directive on payment services in the internal market ((EU) 2015/2366) (PSD2). In the letter, dated 24 October 2016, Markus Ferber and Antonio Tajani, as the negotiating team for the European Parliament on PSD2, welcomed strongly the development by the EBA of RTS on strong customer authentication and secure communications, which they believe will promote innovation and increasing levels of customer protection in the payment services sector.
On 15 November 2016, the FCA published feedback statement FS16/12, which summarises responses received to the Call for Input on the FCA’s approach to the current payment services regime, which the FCA issued in February 2016. The Call for Input asked for views on the guidance currently provided by the FCA to firms to help them comply with the payment services regime.
SI 2016/1079: Charges that are not to be treated as early exit charges for the purposes of the Financial Services and Markets Act 2000(FMSA 2000) are specified. The changes come into force on 31 March 2017.
On 11 November 2016, the European Commission adopted an Implementing Regulation setting out technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 30 September until 30 December 2016 in accordance with the Solvency II Directive 2009/138/EC.
On 14 November 2016, the Association of British Insurers (ABI) published a new guide setting out the value of trade credit insurance to business ahead of its Annual Conference on 22 November 2016. Trade credit helps companies mitigate risks, such as non-payment, and gives improved access to funding, from banks and financial institutions, often at more competitive rates.
On 14 November 2016, the PRA published a consultation paper (CP39/16) proposing a new supervisory statement setting out its expectations for the prudent management of cyber underwriting risk. For the purposes of CP39/16 and the draft supervisory statement contained within, cyber underwriting risk is defined as the set of prudential risks emanating from underwriting insurance contracts that are exposed to losses resulting from a cyber-attack. The consultation is open until 14 February 2017.
On 15 November 2016, the FCA released a policy statement (PS16/24) which states that from 31 March 2017, early exit charges for consumers eligible to access the government’s pension reforms from age 55 will be capped at 1% of the value of existing contract-based personal pensions, including workplace personal pensions. Early exit charges that are currently set at less than 1% may not be increased, and firms will not be able to apply an early exit charge to personal pension contracts entered into after the rules take effect.
On 15 November 2016, the International Association of Insurance Supervisors (IAIS) concluded its 23rd annual conference. The IAIS conference pressed ahead with key initiatives on Supervising the Conduct of Intermediaries, and agreed to seek stakeholder feedback on its draft Stakeholder Engagement Plan.
On 15 November 2016 the PRA withdrew consultation paper CP37/16 ‘Solvency II: Reporting of National Specific Templates’. The decision was taken following insight that a number of firms plan to report in XBRL-enabled Excel format for the financial year end 2016. The PRA stated that it would replace CP37/16 with two separate consultations and on 16 November 2016 it published consultation paper CP40/16 containing proposals for the reporting of National Specific Templates for the financial year end 2016 and future financial year ends, using only Excel templates designed using XBRL (eXtensible Business Reporting Language) principles.
On 16 November 2016, Commission Implementing Regulation (EU) 2016/1976 of 10 November 2016 laying down technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 30 September until 30 December 2016 in accordance with Solvency II, was published in the Official Journal of the EU.
On 16 November 2016, ESMA published a response to the European Commission’s July 2016 consultation on an EU personal pension framework. As part of the Capital Markets Union action plan, the Commission intends to assess the case for a policy framework to establish European personal pensions. Among other things, ESMA has agreed the sectoral asset management legislation could prove a useful source of inspiration and for assisting in designing governance requirements and product rules relating to the management of European personal pension products (PEPPs).
On 16 November 2016, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) published a letter addressed to the chair of EIOPA following an August 2016 ECON meeting. The letter focuses on an EIOPA initiative concerning a review of the methodology to calculate the ultimate forward rate (UF) under Article 77f of the Solvency II Directive 2009/138/EC, which was implemented through the Omnibus II Directive 2014/51/EU.
On 11 November 2016, the FCA published a co-operation agreement that it has entered into with People’s Bank of China (PBOC) in order to further the promotion of innovation in financial services in their respective markets.
The changes to secondary legislation:
by SI 2016/1023 to reflect the changes made to section 66, and the insertion of sections 66A and 66B in the Financial Services and Markets Act 2000 (FSMA 2000), by the Financial Services (Banking Reform) Act 2013 (FS(BR)A 2013) come into affect on this date.
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