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Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 19 April 2018.
The UK government published a draft statutory instrument—Financial Regulators' Powers (Technical Standards) (Amendment etc.) (EU Exit) Regulations 2018—the purpose of which is to help inform parliamentary scrutiny of the European Union Withdrawal Bill, and to provide Parliament with as much detail as possible on HM Treasury's proposal to allocate responsibility for 'onshored' EU financial services regulation to UK authorities.
The Bank for International Settlements (BIS) published details of a speech given by the deputy governor (prudential regulation) of the Central Bank of Ireland (CBI), Mr Ed Sibley, to the DCU Brexit Institute, Dublin, in which he noted that when it comes to the financial sector, Brexit will have broad, fundamental impacts, and will substantively alter the functioning of the UK, Irish, and European financial systems.
The FCA released a video and transcript of its CEO Andrew Bailey discussing the FCA’s business plan for 2018/19.
The European Central Bank (ECB) issued an opinion on a proposal to amend the regulation establishing the European Banking Authority (EBA) (Regulation (EU) 1093/2010) and related legal acts. The ECB said it welcomes the proposed regulation's objective of fostering effective and consistent prudential supervision and regulation across Europe, but it raised a number of issues and recommended several amendments to the proposal.
The Global Financial Markets Association (GFMA), which brings together three of the world's leading financial trade associations to address the increasingly important global regulatory agenda and to promote co-ordinated advocacy efforts, released principles for achieving consistent regulatory regimes and supervisory practices.
The Council of the EU published its conclusions on two special reports of the European Court of Auditors: Special Report No 23/2017 ‘Single Resolution Board: Work on a challenging banking union task started, but still a long way to go’ and Special Report No 2/2018 ‘The operational efficiency of the ECB's crisis management for banks’. The conclusions were adopted at the Council's meeting on 12 April 2018.
The European Insurance and Occupational Pensions Authority (EIOPA) published its 2017 Oversight activities report, setting out the tools it used to support national supervisory authorities in their tasks to deliver high-quality effective supervision, as well as overseeing the level playing field and appropriate application of supervisory measures within the EU.
The European Supervisory Authorities (ESAs) appointed new members to their board of appeal. Professors Marco Lamandini, Michele Siri, and Niamh Moloney were appointed for five-year terms. The other current members were reappointed for another five-year term in November 2016.
The EBA published final drafts of amendments to the implementing technical standards (ITS) on supervisory reporting and a new ITS on reporting for resolution plans, together with the corresponding data point model (DPM) and XBRL taxonomy. The changes form part of the EBA reporting framework version 2.8, which will be applicable for submissions of data as of December 2018. The EBA says the taxonomy will lead to greater efficiency and convergence of reporting and the usage of a common data dictionary will enhance the supervisory practices across Members States.
The EBA is consulting on its guidelines regarding the types of exposures to be associated with high risk under Article 128(3) of the Capital Requirements Regulation (CRR). The guidelines specify which types of exposures, other than those mentioned in Article 128 (2) CRR, are to be associated with particularly high risk and under which circumstances. The consultation runs until 17 July 2018.
The EBA updated its XBRL filing rules. Although primarily addressed to those (mostly technical staff) within the national and supranational authorities responsible for preparation or submission of XBRL instance files directly to the EBA, the filing rules will also be of value to individual reporters (ie financial institutions or groups of institutions) reporting to those authorities, which may utilise the EBA filing rules or XBRL format, or derivatives of them.
The European Parliament's Economic and Monetary Affairs Committee (ECON) published a draft report on the European Commission's proposal for a Directive on the prudential supervision of investment firms. ECON also published a draft report on the European Commission's proposal for a Regulation on the prudential supervision of investment firms. ECON broadly supports the Commission's objectives and approach, but recommends a number of changes to increase regulatory certainty, introduce more flexibility, and provide a fair, level playing field for third-country firms.
The Financial Markets Law Committee (FMLC) published a paper highlighting legal and practical risks which may arise in the context of the European Commission's proposal to amend the moratorium powers under the Bank Recovery and Resolution Directive 2014/59/EU (BRRD). The FMLC recommends that the proposed new moratorium powers should be synchronised with international standards.
The Council of the EU published a decision by the European Commission not to propose an implementing act to reject a proposed national measure by France under Article 458(4) of the CRR.
HM Treasury published a summary of responses to its public consultation on the cash ratio deposit (CRD) scheme, which ended on 9 March 2018. All eligible institutions under the CRD scheme were invited to respond, including 146 institutions that currently pay into the scheme, as well as trade associations. HM Treasury received three responses.
HM Treasury published its response to the European Commission’s consultation on the EU implementation of the Basel III international prudential standards. HM Treasury said the UK was committed to the ‘full, timely and consistent’ implementation of the reforms, but stressed the need to apply the rules in a proportionate manner.
The European Commission published a draft Implementing Regulation on the extension of the transitional periods related to own funds requirements for exposures to central counterparties (CCPs) set out in the CRR and the European Markets Infrastructure Regulation (Regulation (EU) 648/2012) (EMIR).
The ICMA’s European Repo and Collateral Council (ERCC) called for caution when assessing the way in which further measures of the finalised Basel III framework, particularly regarding haircuts, are calibrated.
The FCA updated consultation paper CP18/10, FCA regulated fees and levies: Rates proposals 2018/19, to provide some additional information to be consistent with CP7/18 published by the Prudential Regulation Authority (PRA). Responses are sought by 1 June 2018.
The ESAs published its latest report on risks and vulnerabilities in the EU financial system. The report considers that the key risks to the stability of the EU financial system are Brexit, asset repricing and cyber-attacks, and recommends policy actions to mitigate these risks.
The European Securities and Markets Authority (ESMA) responded to the Article 29 Working Party's consultation on draft guidelines on Article 49 of the General Data Protection Regulation 2016/679 (GDPR). ESMA's comments focus on the so called 'public interest derogation', which is applicable to international transfers of personal data necessary for important reasons of public interest under Article 49(1)(d) of the GDPR.
MEPs are due to vote on Thursday 19 April 2018 on the proposed update of the 4th Anti-Money Laundering Directive (Directive (EU) 2015/849) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing) (MLD4). The proposed directive, to be known as the 5th Anti Money Laundering Directive (MLD5), is intended to increase transparency and respond to the latest technological developments.
New figures reveal that the UK’s Dedicated Card and Payment Crime Unit (DCPCU) made 136 arrests and prevented almost £30m in fraud in 2017. The specialist police unit secured 89 convictions in 2017, a 14% increase compared to 78 convictions in 2016. As well as this, it recovered over 21,000 compromised card numbers.
The European Commission published the responses it received to its consultation on broadening law enforcement access to centralised bank account registries. The consultation sought views on possible new EU legislation giving access to a targeted number of public authorities in order to disrupt the activities of organised crime groups and terrorists.
ICE Benchmark Administration Limited (IBA) is consulting on a draft revised code of conduct for LIBOR, setting out the framework within which LIBOR contributor banks are expected to operate. In accordance with Article 15 of the new EU Benchmarks Regulation, administrators of a benchmark based on input data from contributors must develop a code of conduct clearly specifying contributors' responsibilities with respect to the contribution of input data.
ESMA said that it is widening its analytical framework in order to identify operational risks in its remit and monitor their development and complexity. In its article 'Operational risk assessment—the ESMA approach', published in ESMA's latest Report on Trends, Risks and Vulnerabilities, ESMA underlines the importance of operational resilience of market participants in its remit, such as central counterparties (CCPs), central securities depositories (CSDs) and trading venues.
ESMA says that a recent analysis of net short positions reported under the EU Short Selling Regulation (EU) 236/2012 (SSR) demonstrates that the public disclosure threshold influences the market outcome of net short positions, which seems driven by investors seeking to avoid crossing the threshold in order to keep their strategy secret.
ESMA published an opinion on the intended accepted market practice (AMP) on liquidity contracts notified by the French Autorité des Marchés Financiers (AMF) pursuant to Article 13 of the Market Abuse Regulation (EU) 596/2014 (MAR). While ESMA does not object to the regular functioning of the AMP, it considers the proposed use of waivers to be non-MAR compliant and has invited the AMF to reconsider this part of the AMP.
The International Swaps and Derivatives Association (ISDA) published a guide setting out the steps firms should take when preparing to comply with regulatory initial margin requirements. Each September until 2020, increasing numbers of entities will be required to meet initial margin regulations as the threshold level for compliance reduces. ISDA warns that preparation for meeting the requirements will take significant time, and will involve intensive work to ensure systems, processes and documentation are in place.
On 12 April 2018, the Association for Financial Markets in Europe (AFME) and PwC published a report which examines the impact of post-crisis regulation on banks' capital markets activities.
On 16 April 2018, AFME published a view from Michael Lever commenting on the findings in the report.
The World Federation of Exchanges (WFE) published a joint report with Oliver Wyman on the role of exchanges and central counterparties (CCPs) in supporting market integrity. According to the report, regulatory and other developments since the financial crisis have expanded the mandate of market infrastructures, which requires significantly more focus, and resource, on risk management and supervisory practices.
The Financial Reporting Council (FRC) is setting up a new Investor Advisory Group (IAG), which will provide a regular forum for the FRC to engage with representatives from across the investment chain. Nominations for membership of the group are sought from asset managers, pension funds, sell-side analysts, ratings agencies, proxy advisors and sovereign wealth funds. The deadline is 18 May 2018.
The PRA published a Dear CEO letter to insurance firms in run-off. The PRA observes that certain capital extraction requests have been inadequate, reminds firms of the relevant rules and clarifies its expectations surrounding capital extractions requests.
The European Commission published a draft amendment to Commission Delegated Regulation (EU) 2015/35 (the Solvency II Regulation) as regards the calculation of regulatory capital requirements for securitisations and simple, transparent and standardised securitisations held by insurance and reinsurance undertakings. The draft is open for feedback until 15 May 2018.
The European Insurance and Occupational Pensions Authority (EIOPA) published a number of sets of Q&As.
Pension schemes hold large amounts of personal data and assets which can make them a target for fraudsters and criminals. Trustees and scheme managers need to take steps to protect their members and assets, which includes protecting them against the ‘cyber risk’, and The Pensions Regulator (TPR) issued a guide on cyber security principles for pension schemes.
Following a two-year industry initiative to make pensions language simpler, clearer and more consistent, the Association of British Insurers (ABI) reports that thousands of changes have been made to consumer materials. The improvements will make it easier for consumers to understand their options at retirement, particularly in the wake of new and sometimes confusing options arising from pension freedoms.
The Competition and Markets Authority (CMA) published a working paper which sets out its initial analysis of trustee engagement with investment consultancy and fiduciary management. The working paper is part of the CMA’s investment consultants market investigation, and it considers the extent to which pension scheme trustees are able to assess the value for money of alternative providers, and (where necessary) to act on the outcome of that assessment.
In an important milestone relating to its work to facilitate greater innovation and competition in the payments industry in order to improve financial stability, the Bank of England (BoE) announced that TransferWise, a FCA-regulated payment services provider (PSP) facilitating the international transfer of payments, has joined a UK payment system settling in central bank money and is now a direct participant in the UK's Faster Payments system.
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