Weekly highlights—18 May 2017

Weekly highlights—18 May 2017

Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 18 May 2017.

Financial Conduct Authority updates

FCA increases functionality on Handbook website

On 11 May 2017, the FCA launched new features on its Handbook website that will allow users to search by key topics within the Conduct of Business Sourcebook (COBS). At the moment the new features only apply to COBS, but the FCA wants to roll them out to the whole of the Handbook, depending on user feedback.

FCA director discusses regulator’s role in promoting innovation

On 11 May 2017, the executive director of strategy and competition at the FCA, Christopher Woolard, gave a speech on how regulators think about competition and regulation, how they approach their competition duties and powers, and how they promote innovation.

FCA to conduct strategic review of retail banking business models

On 11 May 2017, the FCA announced it is to evaluate the impact of economic, technological, social and regulatory changes on competition and conduct in the retail banking sector. It is conducting the review in order to understand how the changes affect retail banking business models, and the implications for the FCA objectives to protect consumers and promote effective competition, with the ultimate aim of ensuring its regulatory approach remains fit for purpose.

Regulatory architecture

Council of the EU approves plan for consumer role in FS policymaking

On 11 May 2017, a new programme to promote the involvement of consumers in policymaking in financial services was approved by the Council of the EU. The programme follows on from moves to restore confidence in the financial sector in the wake of the financial crisis.

FMLC on legal uncertainty in the use of Q&A documents by ESAs

On 12 May 2017, the Financial Markets Law Committee (FMLC) issued a response to the European Commissions public consultation seeking views on the operation of the European Supervisory Authorities (ESAs), in respect of the use of Q&A documents.

G7 says it remains committed to international financial co-operation

On 15 May 2017, the G7 released a communiqué setting out the decisions and agreements reached at the meeting of G7 Finance Ministers and Central Bank Governors on 13 May 2017 in Bari, Italy. The communiqué says the G7 remains committed to international economic and financial co-operation and will use all policy tools—monetary, fiscal and structural—individually and collectively to achieve the goal of strong, sustainable, balanced and inclusive growth.

A true banking union requires harmonised rules, says ECB chair

On 15 May 2017, the chair of the supervisory board of the European Central Bank (ECB), Danièle Nouy, said that, despite good progress, there is still fragmentation within the EU regulatory rulebooks, and called for further alignment as a spur to make banks ‘more European’.

FSB regional group discusses risk and regulation

On 15 May 2017, the FSB regional consultative group (RCG) for the Middle East and North Africa (MENA) met in Abu Dhabi to review the FSB’s recent activities and policy priorities for 2017. In particular, the group discussed the FSB work on transforming shadow banking into resilient market-based finance, making derivatives markets safer, ending too-big-to-fail and the initiatives to assess the effects of the financial reforms.

EBA may need stronger powers to drive convergence and consistency

On 15 May 2017, an executive director of the European Banking Authority (EBA), Adam Farkas, delivered a speech at the Annual Conference on the Banking Union, in Frankfurt, in which he says there are two important preconditions for developing further an integrated EU financial system: convergence and consistency in regulation and supervision. Mr Farkas says, although significant progress has been achieved by the EBA and competent supervisory authorities in enhancing EU supervisory convergence, further work is needed, and some of the EBA’s powers might need to be strengthened by legislative changes.

ESMA stakeholder group comments on Brexit and supervisory architecture

On 16 May 2017, the Securities and Markets Stakeholders Group (SMSG) of the European Securities and Markets Authority (ESMA) published its response to the Public Consultation on the Operations of the European Supervisory Authorities (ESAs). The response covers a number of subjects, including consumer protection, supervisory convergence, Brexit, enforcement and data, but also has to deal with the question of ESA architecture and whether the European Banking Authority and the European Insurance and Occupational Pensions Authority should be merged.

Authorisation, approval and supervision

PRA updates individual accountability regime for banks and insurers

On 12 May 2017, the Prudential Regulation Authority (PRA) published a policy statement (PS12/17) with final rules and guidance designed to strengthen the Senior Managers and Certification Regime (SM&CR) and Senior Insurance Managers Regime (SIMR) and to implement changes introduced by the Bank of England and Financial Services Act 2016 (BEFSA Act 2016). PS12/17 also provides feedback to responses to the PRA’s September 2016 consultation paper (CP34/16), in which the changes were proposed.

ECB clarifies supervisory criteria for determining board member suitability

On 15 May 2017, the ECB published a guide clarifying the criteria and process for performing fit and proper assessments of the suitability of bank board members. Fit and proper supervision is one of the fields of competence for which the ECB has exclusive responsibility under Article 4(1)(e) of the Single Supervisory Mechanism (SSM) Regulation.

EFTA Court holds EEA states may maintain stricter national rules on authorisation

On 16 May 2017, a judgment handed down found that European Economic Area (EEA) states may maintain stricter national rules on authorisation provided that they are compatible with freedom of establishment under the EEA Agreement.

Prudential requirements

Lending conditions improve in CESEE countries, but NPLs remain an issue

On 11 May 2017, the European Bank Co-ordination Initiative (ECBI), also known as the ‘Vienna Initiative’, reported an improved outlook for bank lending in emerging Europe as funding conditions stabilise, stocks of bad loans fall and banks’ strategies in the region become more selective. However, bad loan levels continue to have a negative effect on the local economy in several countries, and more action is needed.

BBA raises concerns over Brexit and dismantling of Dodd-Frank

On 11 May 2017, the British Bankers’ Association (BBA) submitted its response to the Treasury Committee’s call for evidence for the first stage of its capital inquiry on recovery and resolution. The BBA submission warns that Brexit may introduce further systemic risk as the global financial landscape adapts to the change, and is likely to impede progress in this area as banks adapt to the loss of passporting arrangements and other, potentially unforeseen, consequences of exiting the EU. Brexit-driven restructuring of banking businesses could also see firms seeking to operate more complex business models to serve EEA-based clients.

EBA final guidelines on banks’ credit risk management practices and accounting for expected credit losses

On 12 May 2017, the EBA published final guidelines (EBA/GL/2017/06) on credit institutions' credit risk management practices and accounting for expected credit losses. The guidelines are intended to ensure sound credit risk management practices for credit institutions associated with the implementation and ongoing application of the accounting for expected credit losses.

ECB targets balance sheet risk reduction and further banking union

On 15 May 2017, a member of the supervisory board of the ECB, Ignazio Angeloni, delivered a speech on the repair of banks’ balance sheets and non-performing loans (NPLs), the assessment and oversight of business models, and building an ‘effective and level regulatory playing field’. Mr Angelino has said the challenges faced by the sector required ‘a high degree of understanding and co-operation between supervisors, regulators and the banks’.

BBA seeks clarity on ‘secured guarantees’

On 16 May 2017, the BBA published its response to Chapter 2 of the Prudential Regulation Authority's (PRA) consultation paper CP2/17 on credit risk mitigation—secured guarantees, warning that the lack of a definition of the term ‘secured guarantee’ in the Capital Requirements Regulation (CRR) means the proposed treatment of them in CP2/17 is unclear. This results in divergent interpretations and in uncertainty about how it should be implemented. The BBA recommends the PRA specifies the exact scope and intent of the CP’s ‘clarification’.

ECB leveraged transaction guidance aims to bolster risk management practices

On 16 May 2017, the ECB published its guidance on leveraged transactions, seeking to aid the identification of leveraged transactions by means of an overarching definition encompassing all business units and geographical areas. It aims to give a bank’s senior management a comprehensive overview of the bank’s leveraged lending activities. It also outlines expectations regarding the risk management and reporting requirements for leveraged transactions.

Risk management and controls

EBA releases final guidelines on assessment of ICT risks

On 11 May 2017, the EBA set out its final guidelines (EBA/GL/2017/05), addressed to the competent authorities, on the assessment of information and communication technology (ICT) risks in the context of the Supervisory Review and Evaluation Process (SREP).

FCA issues advice on national cyber attack

On 13 May 2017, the FCA advised firms affected by the ongoing cyber attacks to contact Action Fraud through its website or on 0300 123 2040, and let regulator(s) know through the usual route.

Financial crime

European Parliament objects to delegated regulation on MLD4 and calls for roadmap

On 10 May 2017, the European Parliament objected to a Commission Delegated Regulation as regards deleting Guyana from, and adding Ethiopia to, the list identifying high-risk third countries with strategic deficiencies on anti-money laundering and countering terrorist financing (AML/CTF). The European Parliament argued that the Commission should not be bound by Financial Action Task Force (FATF) standards when drawing up its own blacklist, whether that means keeping a third country on its list even if delisted by FATF, or by including additional countries. Responding, the Commission has said that this would require more resources than it has available.

Money-laundering blacklist rejected again by European Parliament

On 17 May 2017, in a plenary session of the European Parliament, MEPs again voted against the European Commission’s list of countries at risk of money laundering and the financing of terrorism, saying the EU should have an independent, autonomous process for judging whether countries pose a threat of financial criminality rather than relying on the judgment of an external body.

Enforcement and redress

Overcharging clients lands Barclays a US$ 97m payout

On 10 May 2017, the US Securities and Exchange Commission (SEC) reached a settlement agreement with Barclays Capital in which the company agreed to settle three sets of violations that resulted in clients being overbilled by nearly US$ 50m.

Call for submissions for independent review of FRC sanctions

On 11 May 2017, following its announcement, on 30 March 2017, of an independent review of the sanctions imposed under its enforcement procedures, the Financial Reporting Council (FRC) issued a call for submissions and evidence. The deadline for responses is 30 June 2017.

Markets and trading

ICMA calls for pan-EU approach on MiFID II post-trade transparency

On 11 May 2017, the International Capital Market Association (ICMA) called on all EU competent authorities to adopt a four-week deferral period for qualifying fixed-income trades under the post-trade transparency regime being introduced by the Markets in Financial Instruments Regulation (MiFIR). The alternative, it argues, is fragmented liquidity across the EU.

ICMA responds to FSB’s proposed evaluation of G20 reforms

On 11 May 2017, ICMA responded to the FSB consultation document on the main elements of the proposed framework for post-implementation evaluation of the effects of the G20 financial regulatory reforms. While ICMA says the FSB’s efforts to develop the proposed framework are ‘a positive step’, it highlights corporate bond and repo market liquidity, and systemic risk as applied to asset managers, as priorities for further evaluation work.

EU investigation: Case AT.39861—Yen interest rate derivatives (YIRD)—summary and non-confidential version of decision imposing fine published

On 12 May 2017, the European Commission published a summary and the non-confidential version of its decision of 4 February 2015 issuing an infringement decision and imposing a fine of €14.9m on UK-based broker ICAP for facilitating several cartels in the sector of Yen interest rate derivatives (YIRD) (Case AT.39861—Yen interest rate derivatives). This follows the Commission's infringement decision (and fines totalling over €669m) issued to UBS, RBS, Deutsche Bank, Citigroup, JPMorgan and on the broker RP Martin in December 2013, after these companies admitted their involvement in one or more cartels, allowing the Commission to settle the case with them. ICAP chose not to settle the case, and the Commission discovered ICAP facilitated six of the seven cartels in the YIRD sector through various actions that contributed to the anticompetitive objectives pursued by the cartelists.

ICMA policy paper on CSDR settlement discipline

On 15 May 2017, the ICMA published a policy paper on the Central Securities Depositories Regulation (CSDR) settlement discipline, calling for the cash penalties for bonds to be increased when implemented in 2019, while mandatory buy-ins should not be implemented.

Council of the EU adopts Prospectus Regulation

On 16 May 2017, the Council of the EU adopted the Prospectus Regulation. This is the final legislative hurdle and the Regulation will enter into force on the 20th day following its publication in the Official Journal of the EU.

CLLS and the Law Society comment on FCA listing regime consultation

On 16 May 2017, the Law Society and the City of London Law Society (CLLS) published their joint response to the FCA’s consultation CP 17/4, 'Review of the effectiveness of primary markets: enhancements to the listing regime'. The joint response focuses on two areas: whether there any other possible enhancements to the calculation of the profits test that could be made, and on the question of retaining the rebuttable presumption of suspension for shell companies upon announcement or leak of a reverse takeover.

Investment funds and wealth management

Corrigendum to PRIIPs RTS Regulation published in the Official Journal

On 11 May 2017, a corrigendum to Commission Delegated Regulation (EU) No 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards (RTS) with regard to the presentation, content, review and revision of key information documents and the conditions for fulfilling the requirement to provide such documents was published in the Official Journal of the EU.

FCA provides more detail on PRIIPs definition

On 12 May 2017, the FCA updated its webpage on key information documents for PRIIPs. The page now provides extra detail on what products the PRIIPs Regulation will or will not apply to.

Council of EU adopts Money Market Funds Regulation

On 16 May 2017, the Council of the EU adopted the Money Market Funds (MMF) Regulation, which will enter into force on the 20th day following its publication in the Official Journal of the EU.

Consumer credit, mortgage and home finance

Cross-market study measures consumer detriment in the EU

On 12 May 2017, the European Commission published a study which seeks to identify, measure and quantify the incidence and magnitude of personal consumer detriment, both financial and non-financial, in markets across the EU. The results have informed the Commission's Fitness Check on Consumer and Marketing Law.

Insurance and pensions

Council endorses EU/US agreement on prudential measures on insurance and reinsurance

On 11 May 2017, the General Secretariat of the Council of the EU invited the Permanent Representatives Committee (COREPER) and the Council to approve the signing and provisional application of the bilateral agreement between the EU and the US on prudential measures regarding insurance and reinsurance, which was submitted by the European Commission to the Council on 5 April 2017. COREPER and the Council are also invited to ask for the European Parliament’s consent.

EIOPA updates Q&A on Solvency II

On 12 May 2017, the European Insurance and Occupational Pensions Authority (EIOPA) published two new sets of Q&As on implementing technical standards and guidelines under the Solvency II Directive.

FCA consults on guidance for the review of insurance business transfers

On 15 May 2017, the FCA launched guidance consultation GC17/5: Proposed guidance on the FCA’s approach to the review of Part VII insurance business transfers, which sets out how it proposes to review insurance business transfers schemes. The guidance is designed to help with both the process and considerations of a Part VII Transfer. Responses to the consultation are required by 15 August 2017.

EIOPA’s latest risk dashboard shows mixed results

On 16 May 2017, EIOPA published its updated risk dashboard based on the fourth-quarter 2016 data. It shows the risk exposure of the insurance sector in the EU remained overall stable, and some positive market developments were identified. Solvency II ratios are stronger due to higher market values of assets and the increase of the risk free curve used for discounting the technical provisions. Volatility has decreased and inflation rates have slowly started to converge to desired target levels.

Insurance sector needs its own regulator, says Insurance Europe

On 16 May 2017, responding to the European Commission’s public consultation on the operations of the European Supervisory Authorities (ESAs) launched in March 2017, Insurance Europe said transferring some responsibilities away from EIOPA, or merging it with another ESA, would reduce the effectiveness of consumer protection and prudential oversight.

Pensions Dashboard interim project agreed to maintain momentum

On 17 May 2017, the Association of British Insurers (ABI) announced it will establish and lead an interim phase of the Pensions Dashboard project to maintain momentum with the development of the service.

Payments and fintech

FCA enters into FinTech agreement with Hong Kong regulator

On 12 May 2017, the FCA announced a co-operation agreement with Hong Kong’s Securities and Futures Commission (SFC) to promote collaboration on financial technology (FinTech) innovation support. The two bodies will share information and referrals of innovative firms seeking to enter each other’s markets.

PSR seeks views on tackling authorised push payment scams

On 16 May 2017, the Payment Systems Regulator (PSR) issued a call for views from payment service providers (PSPs) to help inform its work on authorised push payment (APP) scams. The PSR says PSPs are well placed to provide views on whether there is any more that could potentially be done to reduce harm from APP scams. Frequently operating across multiple geographies and jurisdictions, PSPs may be aware of practices in other systems that the PSR could consider as part of its work, and elements of individual PSPs’ fraud prevention and mitigation strategies may be usable at the centre of payment systems. The PSR seeks responses by 30 June 2017.

EU Parliament adopts text on FinTech and the future of the financial sector

On 17 May 2017, the European Parliament adopted the text of FinTech: the influence of technology on the future of the financial sector. The text notes that FinTech developments, in particular in the area of domestic and cross-border payment solutions, can support the continued development of a single market in goods and services.


The Chancery Division
Jazztel plc v Revenue and Customs Commissioners

[2017] EHCH 677 (Ch)

The Chancery Division ruled on a claim for the repayment of stamp duty reserve tax (SDRT), which the taxpayer had paid, at the higher rate, to the defendant Revenue and Customs Commissioners (the Revenue), prior to its having been declared unenforceable under European Community law. The claim was for restitution for money paid or other enrichment conferred under a mistake, and was designated as the test claim for the purposes of resolving some of the remaining issues in the stamp taxes group litigation. Among other things, the court considered whether the Revenue had a limitation defence based on section 320 of the Finance Act 2004 (FA 2004), which purported to abrogate section 32(1)(c) of the Limitation Act 1980 (LA 1980) in certain cases; whether section 320 was retrospective; and, if so, whether it infringed European Community law.

Supreme Court
Supreme Court rules on Lehman administration appeal

[2017] UKSC 38

The Supreme Court delivered its ruling on issues arising in the administrations of the Lehman Brothers group. The court has disagreed with some of the earlier rulings in the case, including on the issues of foreign currency creditors' rights and statutory interest.

European Court of Justice
Landeskreditbank Baden-Württemberg—Förderbank v European Central Bank


The Landeskreditbank brought an action before the General Court against the decision of the European Central Bank (ECB) classifying it as a ‘significant entity’. The consequence of that classification is that, under the single supervisory mechanism (SSM), it is subject to direct supervision by the ECB, whilst under the same mechanism entities classified as ‘less significant’ come under the direct supervision of the national authorities. The Landeskreditbank takes the view that, given that its profile showed a low degree of risk, the objective of protection of financial stability will be sufficiently achieved by the German authorities’ exercising their supervision, so that it should be classified as a ‘less significant’ entity. By today’s judgment, the General Court, sitting in extended composition, dismisses the action brought by the Landeskreditbank. The Court points out that the supervision of institutions classified as ‘less significant’ by the national authorities under the SSM is not the exercise of autonomous competence, but rather a decentralised implementation of an exclusive competence of the ECB. The Court observes that, under the relevant rules, unless justified by particular circumstances, a bank is to be classified as a ‘significant entity’ and therefore subject to direct supervision by the ECB, inter alia where the value of its assets exceeds €30 billion. The Court further holds that that classification may be avoided only if there are specific factual circumstances entailing that direct prudential supervision by the national authorities is better able to attain the objectives and safeguard the principles of the relevant rules including, in particular, the need to ensure the consistent application of high supervisory standards.

Dates for your diary

Key Date Subject Event
19 May 2017 Investment funds and wealth management Deadline for responses to the Investment Association's consultation on the standardisation of disclosure for charges and transaction costs.
22 May 2017 Insurance Distribution Directive Deadline for responses to HM Treasury's consultation on the implementation of the Insurance Distribution Directive (IDD).
23 May 2017 International—financial services and related sectors Deadline for responses to the BoE's consultation on Shari’ah compliant liquidity facilities—establishing a fund based deposit facility.
24 May 2017 Reporting requirements Deadline for responses to the International Accounting Standards Board's (IASB) proposed amendments to the financial instruments Standard, IFRS 9.
24 May 2017 Authorisation, approval and supervision Deadline for responses to PRA consultation paper 'CP4/17: Regulated fees and levies—rates proposals 2017/18'.
24 May 2017 Solvency II Deadline for responses to EIOPA's call for evidence on the treatment of unlisted equity and debt without an external credit assessment institution (ECAI) rating in the standard formula.

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About the author:
Prior to joining LexisNexis in 2016 as a paralegal, Lauren was an adjudicator at the Financial Ombudsman Service. There she resolved consumers’ complaints, and gained knowledge about a wide variety of financial products. Before this she studied Law at Nottingham Trent University.