Weekly highlights—18 January 2018

Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 18 January 2018.

Brexit

Article 50 is revocable, three top UK lawyers say

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.

May and Hammond discuss Brexit with financial services business leaders

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.

Jobs and growth will decline after a hard Brexit, report warns

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.

ISDA publishes Brexit FAQs

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.

ECB updates FAQs on bank relocation

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.

Financial Conduct Authority updates

FCA policy development update for January 2018

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.

Regulatory architecture

FSB annual report sets out key activities in 2017

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.

ESMA publishes Board of Supervisors and SMSG minutes

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.

ECON agenda for January 2018 meeting published

The European Parliament’s committee on economic and monetary affairs (ECON) published the agenda for its meeting on 24 and 25 January 2018.

Council of the EU update on financial services proposals

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.

Prudential requirements

EBA issues guidelines on IFRS 9 transition disclosures

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.

EBA report says no need—for now—to change DGS guidelines

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.

Commission publishes roadmap on a delegated act for the Money Market Funds Regulation

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 publishes record of December 2017 Financial Stability Report meeting

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.

PRA expectations on ECL transition disclosures

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.

Council of the EU decision not to oppose IFRS 9 Regulation

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).

European Court of Auditors makes ECB crisis management recommendations

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.

ECB chair explains approach on methodologies for supervision of less significant institutions

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.

ECB chair comments on resolution process for Banco Popular Español

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.

Risk management and controls

EBA risk dashboard reveals ongoing improvements and residual risks

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.

Financial crime

European Parliament to consider MLD5 at April 2018 plenary

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.

Lords examine Sanctions and Anti-Money Laundering Bill

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.

Cybercrimes showed increasing complexity in 2017

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.

Enforcement and redress

Complaints Commissioner criticises FCA's handling of whistleblower confidentiality

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.

FCA responds to Complaints Commissioner over IRHP compensation scheme complaint

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.

Treasury Committee publishes letter seeking RBS GRG documents

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’.

Markets and trading

Delegated Regulations under the Benchmark Regulation published in the Official Journal

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) 2018/65 of 29 September 2017 supplementing Regulation (EU) 2016/1011 specifying technical elements of the definitions laid down in paragraph 1 of Article 3 of the Regulation
  • Commission Delegated Regulation (EU) 2018/66 of 29 September 2017 supplementing Regulation (EU) 2016/1011 specifying how the nominal amount of financial instruments other than derivatives, the notional amount of derivatives and the net asset value of investment funds are to be assessed, and
  • 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.

European Parliament non-objection to Delegated Regulations under Benchmark Regulation

The European Parliament raised no objection to three Commission Delegated Regulations supplementing the Benchmark Regulation:

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.

European Parliament confirms no objection to further Benchmark Regulation rule

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.

MiFID data reporting RTS published in the Official Journal

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.

National rules on notifications of major holdings under the Transparency Directive

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 expresses concern over fees charged by CRAs and TRs

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.

FCA lists firms it suspects of unauthorised binary option trading

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.

FCA publishes instrument reference data E&O notification form

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 EBA announce joint open hearing on the Securitisation Regulation

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.

ISDA webinar on systematic internaliser regime

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.

Investment funds and wealth management

Council of the EU publishes I/A Item Note on ELTIF Regulation delegated act

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).

Banks and mutuals

Retail Banking Market Investigation Order 2017—CMA issues account data directions to Nationwide

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.

Consumer credit, mortgage and home finance

PRA follows up on consumer credit lending review with letter to firms

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 begin immigration status checks on account holders

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.

Insurance and pensions

PRA consults on changes in insurance reporting requirements

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.

HMT and PRA respond to Treasury Committee’s Solvency II report

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.

FCA could be sleepwalking into another huge misselling scandal, says W&P Committee

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.

European Parliament publishes letters on IDD postponement

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’.

European Parliament to consider proposed delay to IDD application date at February 2018 plenary session

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 summarises responses to IDD consultation

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’.

Payment services and systems

PSD2 comes into effect

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.

EBA registers list payment and electronic money institutions under PSD2

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.

FCA updates its PSD2 webpages following 13 January 2018 implementation date

The FCA updated its webpages on applicationspassporting and reporting requirements for e-money institutions and payment services providers to reflect the implementation of PSD2 on 13 January 2018.

Ban on hidden payment fees comes into effect

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.

PSD2—EBA guidelines on security measures for operational and security risks—translations issued

The EBA issued translations of its guidelines on security measures for operational and security risks under PSD2.

Payment Accounts Directive RTS and ITS published in the Official Journal

RTS and implementing technical standards (ITS) relating to the Payment Accounts Directive 2014/92/EU were published in the Official Journal of the EU:

  1. Commission Delegated Regulation (EU) 2018/32 of 28 September 2017 supplementing Directive 2014/92/EU  with regard RTS for the Union standardised terminology for most representative services linked to a payment account
  2. Commission Implementing Regulation (EU) 2018/33 of 28 September 2017 laying down ITS with regard to the standardised presentation format of the statement of fees and its common symbol according to Directive 2014/92/EU, and
  3. 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

PSR sets out its focus on the UK's ATM network

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.

Dates for your diary

Date Subject Event
19 January 2018 FCA conduct requirements Deadline for responses to the FCA’s ‘PS17/25: Policy Statement on Financial Advice Market Review Implementation Part II and Consultation on Retiring FG12/15 and FG14/1’.
19 January 2018 Insurance and pensions Deadline to give views on the FCA’s terms of reference for our wholesale insurance broker market study.
22 January 2018 Investment funds and wealth management Deadline for responses to the European Commissions consultation on institutional investors and asset managers’ duties regarding sustainability.
25 January 2018 Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation Deadline for responses to ESMA ‘Consultation Paper: Amendments to Commission Delegated Regulation (EU) 2017/587 (RTS 1) (ESMA70-156-275)‘.
25 January 2018 Consumer credit, mortgage and home finance Deadline for responses to FCA consultation ‘CP17/43: Credit card market study: Persistent debt and earlier intervention remedies—feedback on CP17/10 and further consultation’.
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