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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 18 January 2018.
Three QC’s have written an opinion and a letter to the Prime Minister saying that Article 50 is revocable. Jessica Simor QC from Matrix Chambers, Marie Demetriou QC from Brick Court Chambers and Tim Ward QC from Monckton Chambers, say the United Kingdom may withdraw the Article 50 notification at any time prior to 29 March 2019 without needing to seek the agreement of the other EU member states. The trio says the mechanism for doing so would be a matter for Parliament and the executive but legally, there is nothing to prevent it from happening.
The Prime Minister Theresa May chaired a roundtable meeting with senior executives from some of the world’s leading financial institutions to discuss the opportunities and challenges for the financial sector posed by Brexit. Ms May gave an overview of the UK’s position and updated on Brexit negotiations—including the UK’s aim to agree an implementation period by the end of March. The business leaders gave their views on how to maximise the benefits of an implementation period.
A ‘no deal’ hard Brexit could lead to a ‘lost decade’ or longer of significantly lower growth, Mayor of London Sadiq Khan warned in a report setting out new independent economic analysis. The report also shows that London could suffer much less from Brexit than the rest of the country, resulting in increased geographic inequalities across the UK. It sets out five possible scenarios showing possible outcomes of the UK’s future relationship with the EU.
The International Swaps and Derivatives Association (ISDA) published a set of FAQs addressing the possible UK position post-Brexit, ie after conclusion of the exit process under Article 50 of the Lisbon Treaty. ISDA notes that there is still considerable uncertainty as to the format of the UK's relationship with the EU after conclusion of the exit negotiations, so that the responses to the FAQs involve an assessment of the various outcomes of the exit negotiations and the consequences of those outcomes, so it is not possible in all cases to give a definitive answer.
The European Central Bank (ECB) updated its FAQs on its supervisory expectations of banks considering relocating to the euro area. Topics include the ECB’s expectations concerning authorisations and banking licences, internal governance and risk management, internal models in banks, and ongoing supervision.
The Financial Conduct Authority (FCA) published the latest version of its policy development update, which provides information on its recent and upcoming publications. Future developments include consultation papers on the EU money markets fund regulation and on payment services and electronic money.
The Financial Stability Board (FSB) published its fourth annual report on its key activities, publications and decisions over the course of the year, together with its audited annual financial statements for the 12-month period ended 31 March 2017. The report describes the increasing focus of the FSB’s work on monitoring implementation and evaluating the effects of the G20 financial regulatory reforms.
The European Securities and Markets Authority (ESMA) published summaries of the conclusions reached at a joint meeting of the Board of Supervisors and the Securities and Markets Stakeholder Group(SMSG) on 8 November 2017.
The European Parliament’s committee on economic and monetary affairs (ECON) published the agenda for its meeting on 24 and 25 January 2018.
The Council of the EU published an update on the state of play of legislative proposals in the field of financial services, in advance of a meeting of the Economic and Financial Affairs Council (ECOFIN) on 23 January 2018. The update covers all the major regulations and directives, but also notes that trilogues are to start on amending the European Banking Authority (EBA) regulation as regards the EBA’s relocation.
The EBA published its final guidelines on the disclosure requirements of International Financial Reporting Standard 9 (IFRS 9) or analogous expected credit losses (ECLs) transitional arrangements. The aim of the guidelines is to ensure consistency and comparability of the data disclosed by institutions during the transition to the full implementation of the new accounting standard, and to foster market discipline.
The EBA published a report on the implementation of its guidelines (published pursuant to Article 13(3) of the Deposit Guarantee Schemes Directive), on methods for calculating contributions to deposit guarantee schemes (DGSs). The report assesses authorities' compliance with the principles outlined in the guidelines, and concludes that further analysis and greater experience of the risk-based systems in use is needed before proposing any changes to the current guidelines.
The European Commission published a roadmap setting out a new initiative to adopt a single Commission Delegated Regulation in Q2 2018 to supplement the Money Market Funds Regulation.
HM Treasury published a record of the December 2017 meeting between the Chancellor of the Exchequer and Governor of the Bank of England on the bank's Financial Stability Report (FRC). As part of its ongoing work the Financial Policy Committee (FPC) publishes an FSR twice a year. After the publication of each FSR, the Chancellor and the Governor are required, by the Bank of England Act 1998, to meet to discuss the report and other matters related to financial stability.
The Prudential Regulation Authority (PRA) wrote a Dear CFO letter setting out its expectations as to the minimum transition disclosures about expected credit loss accounting (ECL). The PRA says the objective of the transition disclosures is to help market participants understand how ECL works, what its implications are, and what the implications are of the choices the firm has made in implementing ECL.
The General Secretariat of the Council of the EU informed the Permanent Representatives Committee (COREPER) of its decision not to oppose adoption of the Commission Regulation (EU) .../... of amending Regulation (EC) 1229/2008 adopting certain international accounting standards in accordance withRegulation (EC) 1606/2002 of the European Parliament and of the Council as regards International Financial Reporting Standard 9 (IFRS 9).
A report on the ECB’s framework for crisis management found that resources for the assessment of bank recovery plans and the supervision of banks in crisis appear satisfactory. However, the report, published by the European Court of Auditors (ECA), also found some weaknesses in initial planning and a need to improve the allocation of staff to the most urgent situations. The ECA’s report says that guidance to staff for early intervention assessments as well as for ‘failing or likely to fail’ assessments should be enhanced.
The ECB published a letter from the chair its supervisory board, Danièle Nouy, to Alfred Sant MEP with regard to the publication of methodologies for the supervision of less significant institutions (LSIs). In the letter, dated 10 January 2018, Ms Nouy explains the ECB's approach to publication of methodologies and policies for the supervision of LSIs in general, as well as its methodological guidance for International Financial Reporting Standard 9 (IFRS 9). For further information see LNB News 12/01/2018 93.
The chair of the supervisory board of the ECB, Danièle Nouy, wrote a letter to Paloma López Bermejo MEP, in which she describes the resolution process for Banco Popular Español (BPE), which resulted in the sale of BPE to Santander S.A. in June 2017. According to Ms Nouy, the experience demonstrates that the system is operationally effective, though she acknowledges that there are lessons to be learned from recent bank failures.
The EBA published its risk dashboard based on Q3 2017 data. Using quantitative risk indicators, along with the opinions of banks and market analysts from its risk assessment questionnaire, the EBA identified ongoing improvements in the repair of the EU banking sector but also residual risks in non-performing loans (NPLs) and profitability. The questionnaire found that cyber risk and data security are considered the main drivers for the increase in operational risk, and are also assumed to be the main factors that might negatively influence market sentiment, along with the uncertainties around Brexit.
The European Parliament provided an updated indicative date for its consideration of the proposed Fifth Money Laundering Directive (MLD 5). The plenary session has been set for 16-19 April 2018.
The Sanctions and Anti-Money Laundering Bill began its report stage in the House of Lords, where it will be further examined and potentially amended. Members are expected to discuss subjects including the protection of civilians in conflict zones, licences for government funded humanitarian programmes and public registers of companies in the British Overseas Territories.
The European Union Agency for Network and Information Security (ENISA) published its 2017 report on the cyber-crime threat landscape, noting that trends for 2017 included increasing complexity of attacks and a greater ability by criminals to hide their trails. The ENISA report analyses current main threats to cyber-infrastructure, and provides recommendations on how ENISA will react in future.
The Complaints Commissioner issued final report FCA00286 relating to disclosure of a complainant's identity by the FCA to a bank in 2013. The Complaints Commissioner found that the FCA's decision letter did not demonstrate a sufficient emphasis on the importance of considering the confidentiality of potential whistleblowers (and others supplying information) very carefully before disclosing names. The Complaints Commissioner recommended that the FCA should apologise for its failure, in the explanations it gave in response to the complaint, to recognise the importance of establishing the wishes of whistleblowers and others supplying information in respect of confidentiality.
The FCA responded to a final report by the Complaints Commissioner about a claim concerning the interest rate hedging product (IRHP) compensation scheme. The complaint accused the FCA of failings in its investigation of a bank accused of misconduct and causing consequential loss. The Commissioner found that the ‘heart’ of the complaint was that the bank’s redress letter was misleading in claiming that it had rejected the claim because a 40-day limitation period had lapsed.
The Treasury Select Committee published a 20 December 2017 letter written to the chief executive of RBS, Ross McEwan, seeking documents ahead of his evidence session before the Committee on 30 January 2018. The two documents sought are the memorandum dated 9 December 2008 referred to in paragraph 4.6 of the Clifford Chance review of Global Restructuring Group (GRG), and the document entitled ‘Just Hit Budget’, referred to in a BBC News article of 20 October 2017, ‘Police conduct inquiries into Royal Bank of Scotland unit’.
Four Commission Delegated Regulations under Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (the Benchmark Regulation) were published in the Official Journal of the EU:
Commission Delegated Regulation (EU) 2018/64 of 29 September 2017 supplementing Regulation (EU) 2016/1011 with regard to specifying how the criteria of Article 20(1)(c)(iii) are to be applied for assessing whether certain events would result in significant and adverse impacts on market integrity, financial stability, consumers, the real economy or the financing of households and businesses in one or more Member States
Commission Delegated Regulation (EU) 2018/67 of 3 October 2017 supplementing Regulation (EU) 2016/1011 with regard to the establishment of the conditions to assess the impact resulting from the cessation of or change to existing benchmarks
For the European Parliaments non—objection to the Regulations see the two stories below.
The European Parliament raised no objection to three Commission Delegated Regulations supplementing the Benchmark Regulation:
Commission Delegated Regulation of 29.9.2017 specifying technical elements of the definitions laid down in paragraph 1 of Article 3 of the Benchmark Regulation (C(2017) 6474 final)
Commission Delegated Regulation of 29.9.2017 specifying how the criteria of Article 20(1)(c)(iii) of the Benchmark Regulation are to be applied for assessing whether certain events would result in significant and adverse impacts on market integrity, financial stability, consumers, the real economy or the financing of households and businesses in one or more Member States (C(2017) 6469 final)
The Council of the EU raised no objection to these Commission Delegated Regulations in November 2017—they will therefore enter into force on the 20th day following publication in the Official Journal of the EU.
The European Parliament confirmed that it would not object to a Delegated Regulation supplementing the Benchmark Regulation with regard to the establishment of the conditions to assess the impact resulting from the cessation of or change to existing benchmarks. The Delegated Regulation will now enter into force 20 days after its publication in the Official Journal of the EU.
Commission Delegated Regulation (EU) 2018/63 of 26 September 2017 amending Delegated Regulation (EU) 2017/571 supplementing Directive 2014/65/EU of the European Parliament and of the Council (MiFID II) with regard to regulatory technical standards (RTS) on the authorisation, organisational requirements and the publication of transactions for data reporting services providers was published in the Official Journal of the EU.
ESMA published a practical guide which summarises the main rules and practices applicable across the European Economic Area (EEA) in relation to notifications of major holdings under national law in accordance with the Transparency Directive. The guide is intended as an aide to market participants and may be particularly helpful to shareholders with notification obligations under national law in accordance with the Transparency Directive.
ESMA published a Thematic Report on fees charged by credit rating agencies (CRAs) and trade repositories (TRs), following the conclusion of its supervisory review of the current fee structures in the credit rating and trade repository industries. ESMA says it has concerns over transparency and disclosure, the fee-setting process and the interaction with entities related to CRAs and TRs.
The FCA published a list of 94 firms without FCA authorisation that it believes are offering binary options trading to UK consumers. Since 3 January 2018, firms involved in binary options trading in the UK have been required to be authorised by the FCA, and to trade without authorisation is a breach of section 19 of the Financial Services and Markets Act 2000, which is a criminal offence.
The FCA published a new instrument reference data errors and omissions notification form for use by trading venues and systematic internalisers when complying with their obligations under Article 6(2) of Commission Delegated Regulation (EU) 2017/858 (a MiFIR level 2 measure) to notify the FCA that previously submitted instrument reference data is incomplete or inaccurate. The form can be downloaded from the FCA's Instrument Reference Data webpage.
ESMA and the EBA are to hold a joint public hearing on the new EU Securitisation Regulation (EU) 2017/2402. The hearing will cover the two consultation papers recently published by ESMA and EBA on draft RTS under the Securitisation Regulation. The hearing will be held on 19 February 2018 at the EBA’s premises, beginning at 10:00 am.
The International Swaps and Derivatives Association (ISDA) published a webinar ‘Are you ready for the Systematic Internaliser Regime?’, which explores some of the issues related to the MIFID II systematic internaliser regime.
The Council of the EU confirmed that it does not intend to raise objections to a delegated act which supplements the European long-term investment funds (ELTIFs) Regulation ((EU) 2015/760).
The Competition and Markets Authority (CMA) published directions to Nationwide Building Society under the Retail Banking Market Investigation Order 2017, to ensure the firm complies with the requirement to release personal and business account data sets as part of the Open Banking remedy. In December 2017 similar directions were issued to Bank of Ireland, Barclays, HSBC, RBS and Santander.
The PRA sent a letter to the chairs of relevant firms following up on its review of PRA-regulated firms’ consumer credit lending in the first half of 2017, covering credit cards, personal loans and motor finance. The letter, from executive director of UK deposit takers supervision James Proudman, and director of supervisory risk specialists Charlotte Gerken, communicates the PRA’s key findings and sets out points for firms to action.
Banks and building societies have begun carrying out checks on the immigration status of all UK personal current account holders as part of government measures to encourage who are illegally living and working in the UK to leave. The checks will be done against the details of known illegal migrants which the Home Office is sharing with anti-fraud organisation Cifas.
The PRA is consulting on changes to insurance reporting requirements designed to reduce the burden for Solvency II firms and mutuals whilst maintaining the PRA’s ability to meet its statutory objectives and to supervise firms. Responses are sought by 13 April 2018.
HM Treasury and the PRA responded (PRA response/HMT response) to the Treasury Select Committee’s conclusions and recommendations on the Solvency II Directive 2009/138/EC and its impact on the UK insurance industry.
The House of Commons Work and Pensions Committee says responses it has published from the FCA, financial advice firm Active Wealth and ‘introducer’ firm Celtic Wealth, following evidence on the British Steel Pension Scheme (BSPS) in Parliament in December, raise a series of further questions about the FCA's actions in regard to the BSPS, which it will be pressing them further on.
The European Parliament published a letter from the Committee on Economic and Monetary Affairs (ECON) to the Chair of COREPER II, dated 9 January 2018, welcoming the European Commission proposal to postpone the application date of the Insurance Distribution Directive (2016/97/EU) (IDD) by seven months to 1 October 2018. The letter says the proposal is ‘in line with the European Parliament’s recommendation’.
The European Parliament indicated that it will consider the proposed Directive amending the application date of the IDD at its plenary session of 28 February to 1 March 2018.
HM Treasury set out the responses it received to its consultation on the transposition of the IDD, saying that, overall, respondents agreed with the government’s approach and that it has maintained its core position on all of the covered policy areas. HM Treasury also published a draft of the Insurance Distribution (Regulated Activities and Miscellaneous Amendments) Order 2018, which will be laid in Parliament ‘in due course’.
The revised Payment Services Directive (PSD2) applied as of 13 January 2018. The European Commission called on Member States that have not yet transposed the Directive to do so as a matter of urgency. The Commission also published a FAQs document on the legislation.
The EBA published the national registers of payment and electronic money institutions under PSD2. Each Member State, plus Norway and Liechtenstein, is to list authorised or registered institutions at national level, although currently the registers for 10 countries are not available. The information is updated on a regular basis.
The FCA updated its webpages on applications, passporting and reporting requirements for e-money institutions and payment services providers to reflect the implementation of PSD2 on 13 January 2018.
A ban on hidden charges for paying with a debit or credit card came into effect. The move is designed to help consumers avoid fees when spending money. The ban on ‘surcharging’ comes as part of PSD2.
The EBA issued translations of its guidelines on security measures for operational and security risks under PSD2.
RTS and implementing technical standards (ITS) relating to the Payment Accounts Directive 2014/92/EU were published in the Official Journal of the EU:
Commission Implementing Regulation (EU) 2018/34 of 28 September 2017 laying down ITS with regard to the standardised presentation format of the fee information document and its common symbol according to Directive 2014/92/EU
As part of the Payment Systems Regulator (PSR) programme of work on ATMs, the PSR published a letter from its managing director, Hannah Nixon, to the chair of the Treasury Select Committee, Nicky Morgan MP, concerning the PSR's focus on the UK's ATM network. The PSR also published a summary of findings, compiled by Europe Economics, concerning an ATM Impact Study as well as an exploratory analysis, compiled by Regulatory Economics, of the prospects for and potential impacts of ATM scheme competition.
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