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Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 2 February 2017.
On 26 January 2017, the European Banking Authority (EBA) published its Management Board—Final Minutes, (dated 10 November 2016). The EBA stated that it will delay a decision to relocate its headquarters from London.
On 31 January 2017, the British Bankers’ Association (BBA) continued its series of reports on Brexit and the financial services sector with two reports: ‘Data protection and Transfer’ (no 5) and ‘Time to adapt—the need for transitional arrangements?’ (no 6). Among other things, the BBA highlights the challenges the sector faces as regards data protection and transitional arrangements following Brexit.
On 1 February 2017, the Loan Markets Association (LMA) issued a response to the HM Treasury Committee’s call for evidence on the UK’s exit from the European Union (EU) and the transitional arrangements, in preparation for the start of official negotiations upon the triggering of Article 50. The call for evidence is particularly important as the UK government forms its strategy on exiting the EU and sets its priorities.
On 26 January 2017, the Financial Conduct Authority (FCA) issued its Regulation Round-up for January 2017. Hot topics in this issue look at the emerging themes for 2017, the Asset Management Market Study and firms' resilience to third party trading platform outages.
On 26 January 2017, the FCA and HM Revenue and Customs (HMRC) issued a memorandum of understanding (MoU) dated November 2016 in respect of an exchange of information. The MoU is not a contract nor legally binding, but is an essential role in documenting the processes and procedures agreed between the organisations, and aids the organisations in meeting their obligations under the Data Protection Act 1998 (DPA 1998), the Human Rights Act 1998 (HRA 1998), the Commissioners for Revenue and Customs Act 2005 (CRCA 2005) and section 348 of the Financial Services and Markets Act 2000 (FSMA 2000).
On 26 January 2017, the FCA Board made a number of changes to the Handbook and issued a Handbook Notice to outline them. The more substantive changes are amending MCOB to remove barriers to the development and take-up of lifetime products and to ensure that the mortality data referenced in MCOB is updated; amending FUND to close a significant information gap on the activities and risks incurred by alternative investment fund managers that have a large presence in the UK financial markets; and amending DEPP to implement the recommendations of the HMT Review and Green Report.
On 30 January 2017, the FCA published a letter from Andrew Bailey, CEO of the Financial Conduct Authority (FCA) to the chief executive of Standard Chartered Bank (SCB), Bill Winters, regarding the appointment of Tracey McDermott. The letter sets out the agreement between the FCA and SCB for Tracey McDermott to maintain all confidentiality obligations to the FCA in her new role at SCB.
On 31 January 2017, the FCA released information about fines published during the calendar year ending 2017. The total so far is £163,076,224, made up entirely of a penalty for Deutsche Bank.
On 26 January 2017, Andrew Bailey, the chief executive of the FCA, said in a speech at the Economic Council Financial Markets Policy Conference in Berlin, that free trade and open markets are the best way to secure stronger growth, but they require global regulatory standards.
On 31 January 2017, in a speech, first deputy governor of the Sveriges Riksbank, Ms Kerstin af Jochnick—delivered at the Centre for Business and Policy Studies, Stockholm—has examined what impact Basel III would have on Swedish banks.
On 31 January 2017, the Vice-President of the European Commission, Valdis Dombrovskis, delivered a speech at the Association for Financial Markets in Europe and European Forum for Manufacturing Roundtable in Brussels. Mr Dombrovskis said the EU needs to strike the right balance between managing risk in the financial sector and allowing it to finance investment and the real economy. Regulation should sharpen the focus on deepening of capital markets.
On 1 February 2017, the Bank of England and Financial Services (Consequential Amendments) Regulations 2017, SI 2017/80 (the instrument) were published together with an explanatory memorandum. The Bank of England and Financial Services Act 2016 (BEFSA 2016) ends the status of the Prudential Regulation Authority (PRA) as a subsidiary of the Bank of England (BoE) by making the BoE the PRA. The BEFSA 2016 also creates the Prudential Regulation Committee, through which the BoE must exercise its functions as the PRA.
On 1 February 2017, the BBA responded to the House of Lords Constitution Committee’s call for evidence on the delegation of powers. In the response, dated January 2017, the BBA submits that in the majority of cases financial services secondary legislation transposing the EU acquis could be appropriately dealt with via the negative resolution process.
On 26 January 2017, the Basel Committee on Banking Supervision (BCBS) published responses to frequently asked questions (FAQs) on the standard minimum capital requirements for market risk. The questions and answers include clarifications both to the standardised approach and the internal models approach.
On 25 January 2016, the EBA published a list of 11 EU regional governments and local authorities treated as exposures to central governments in accordance with Article 115(2) of the Capital Requirements Regulation EU 575/2013 (CRR).
On 27 January 2017, the chair of the Treasury Committee, Andrew Tyrie MP, wrote to the Chancellor of the Exchequer relaying concerns in a letter from the deputy governor for prudential regulation at the Bank of England and CEO of the Prudential Regulation Authority (PRA), Sam Woods, about EU regulatory proposals for banks. Saying the plans were ‘as illogical as they are unreasonable’, Mr Tyrie wanted to know if the government agreed.
On 27 January 2017 the PRA published a variation to previous Modifications by Consent to the Leverage Ratio r 1.2, the Public Disclosure r 1.1 and the Reporting Leverage Ratio r 1.2. The original Modifications by Consent were published on 4 August 2016.
On 30 January 2017, the Organisation for Economic Co-operation and Development (OECD) addressed in a report the conditions for the establishment of subsidiaries and branches in the provision of banking services by non-resident institutions. The report finds that the conditions for the establishment of a branch and a subsidiary are the same or equivalent as those for local banks in most cases.
On 30 January 2017, the European Central Bank (ECB) published an interview with the chair of its Supervisory Board, Danièle Nouy, with Italian newspaper La Repubblica, where points of discussion included the Basel Committee’s January 2017 delay in considering Basel IV, a further reform package to the Basel III capital requirements. The Basel IV reforms are expected to make it harder for banks to avoid the higher Basel III capital requirements that were put in place following the financial crisis.
On 30 January 2017, the EBA reminded competent authorities of the deadlines to comply with the submission of data needed to perform the 2017 supervisory benchmarking exercise. Amended Implementing Technical Standard (ITS) on benchmarking are pending approval by the European Commission, but the EBA still requires compliance with the proposed deadlines.
On 30 January 2017, the chair of the EBA, Andrea Enria, gave a wide-ranging presentation on risks and recovery in the EU banking sector at the European Stability Mechanism’s seminar ‘European banks’ risks and recovery—a single market perspective’. The presentation singles out non-performing loans (NPLs), which are an ‘urgent and actionable’ problem.
On 30 January 2017, the PRA published XBRL taxonomy and the related Data Point Model (DPM) dictionary, annotated templates and validation rules covering the requirements for forecast capital resources and requirements (Capital+) reporting as set out in PRA Policy Statement PS32/16, which takes effect from 1 October 2017.
On 1 February 2017, the Financial Stability Board (FSB) published a consultation paper: Guidance on Central Counterparty Resolution and Resolution Planning together with Overview of Responses to the Discussion Note on Essential Aspects of CCP Resolution Planning (the Discussion Note) first issued on 16 August 2016.
On 1 February 2017, ESMA published the framework for its 2017 pan-EU stress test exercise on central counterparties (CCPs). The exercise covers 17 EU CCPs including all products currently cleared by these CCPs, and will assess resilience and safety from a systemic risk viewpoint.
On 1 February 2017, the PRA released a new version of Supervisory Statement 'SS8/16—Ring-fenced bodies (RFBs)', following publication of Policy Statement 3/17, The implementation of ring-fencing: reporting and residual matters—responses to CP25/16 and Chapter 5 of CP36/16. The SS sets out the PRA’s expectations of an RFB and members of its group in relation to the ring-fencing of core activities and services.
On 1 February 2017, following publication of PS3/17 ‘The implementation of ring-fencing: reporting and residual matters—response to CP25/16 and Chapter 5 of CP36/16’, the PRA updated policy and supervisory statements.
On 25 January 2017, the Crown Prosecution Service (CPS) announced that two city traders have been convicted of conspiring to defraud a Russian bank of more than £141m in a series of complex frauds. Georgy Urumov was convicted of two counts of conspiracy to defraud, two counts of conspiracy to commit fraud by false representation and one count of conspiracy to commit money laundering. Vladimir Gersamia was convicted of two counts of conspiracy to defraud and one count of conspiracy to commit money laundering. The pair were sentenced on 27 January 2017.
On 26 January 2017, the Wealth Management Association (WMA) hosted its Annual Financial Crime Conference in London on 26 January 2017. The delegates discussed policy and legislation, risk analysis, cyber defence, cyber liability and the impact of financial crime.
On 31 January 2017, the FCA announced it had fined Deutsche Bank £163m following an investigation. The investigation looked at whether Deutsche Bank had taken reasonable care to organise and control its affairs responsibly and effectively and to establish and maintain an effective anti-money laundering (AML) control framework in its Corporate Banking & Securities (CB&S) division in the UK between 1 January 2012 and 31 December 2015. It found the AML control framework was ‘substantially inadequate’.
On 1 February 2017, the European Parliament updated its procedure file on the proposed Fifth Money Laundering Directive (MLD5), which amends the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4). Recent terrorist attacks have brought to light emerging new trends, in particular regarding the way terrorist groups finance and conduct their operations. The amendments to MLD 4 set out a series of measures to better counter the financing of terrorism and to ensure increased transparency of financial transactions and of corporate entities under the preventive legal framework in place in the Union.
On 26 January 2017, the Financial Services Consumer Panel proposed that the Financial Services and Markets Act 2000 (FSMA 2000) should be amended to require the Financial Conduct Authority (FCA) to make rules specifying what constitutes a ‘reasonable’ duty of care that financial services providers should owe to their customers. The panel says it would bring clarity to the rules governing the relationship between firms and their customers.
On 26 January 2017, consumers were warned by the Financial Services Compensation Scheme (FSCS) to be on their guard over a scam in which an email claiming to be sent by FSCS promises a high value payment. The scam promises a US$5.7m compensation payment and tries to deceive people into providing their personal information.
On 30 January 2017, the chief executive of the FSCS, Mark Neale, welcomed the implementation of the new £85,000 deposit protection limit on 30 January 2017. Mr Neale said increasing the limit means the FSCS can protect more money and more people.
On 30 January 2017, the chair of the Treasury Committee, Andrew Tyrie MP, wrote to the Chancellor of the Exchequer, Philip Hammond MP, objecting to the Treasury’s powers to block public reviews. These can be exercised even when the regulators, the Treasury Committee and the public may consider a review essential. Mr Tyrie says the power could prevent legitimate scrutiny of government executive action and could also be seen to be used ‘to cover up the government’s own mistakes’.
On 31 January 2017, the Complaints Commissioner (CC) issued a final report in which it refused to uphold a claim against the FCA on the grounds the FCA is not responsible for investigating individual complaints against financial services firms.
On 1 February 2017, the PRA and the FCA announced changes to their enforcement procedures, to implement recommendations and address relevant responses to consultation paper (CP) 14/16, ‘Proposed Implementation of the Enforcement Review and the Green report’. Many of the changes concern information and dialogue during investigations, and are aimed at increasing transparency.
On 25 January 2017, ESMA published Opinion (ESMA70-708036281-13) dated 25 January 2017 on the exemption of certain Spanish pension schemes from the clearing obligation under Article 89(2) of Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR).
On 27 January 2017, the European Securities and Markets Authority (ESMA) published its 2017 Regulatory Work Programme.
On 27 January 2017, ESMA published an updated version of its Q&A document (ESMA70-21038340-40) on the Market Abuse Regulation (EU 596/2014).
On 27 January 2017, ESMA published a new Q&A document on the Guidelines on Alternative Performance Measures (APMs), which ESMA published in October 2015.
On 30 January 2017, the FCA published a Direction under sections 55U and 60, and related provisions, of the Financial Services and Markets Act 2000 (FSMA 2000).
On 30 January 2017, the FCA included a market data processor (MDP) application form on its updated webpage under MIFID II. The MDP system is designed to manage the large changes in the volumes and range of data that entities with an obligation to report any of the market data types need to submit to the FCA under MiFID II. Entities that need to submit data to the FCA should follow its on-boarding process and timetable to be ready for when the new regime comes into application in January 2018. The FCA’s current Zen system will be replaced by the MDP system.
On 30 January 2017, ESMA wrote to the European Commission to request that it considers a number of issues relating to ESMA’s supervisory and sanctioning powers under EMIR, in the context of the Commission’s ongoing EMIR Review. The letter also raises similar supervisory issues in relation to credit rating agencies (CRAs).
On 30 January 2017, the Loan Market Association (LMA) published its response to a consultation by the ECB on the development of consistent definitions, measures and monitoring with regards to leveraged transactions. The LMA welcomed global regulatory consistency and supports the ECB’s efforts to strengthen the level playing field for financial institutions by aligning supervisory expectations and practices. The LMA believes, however, that the guidelines need to be more aligned to those in the US.
On 31 January 2017, ESMA updated two Q&A documents on implementation issues relating to transparency and market structure under MiFID II/MiFIR.
On 31 January 2017, the European Association of Corporate Treasurers (EACT) published, together with other associations representing corporate end-users of derivatives, its comments on the EMIR review report published by the European Commission on 23 November 2016. EACT highlights the need to maintain the corporate hedging exemption, and not to replace it with clearing and margin requirements based simply on the volume of transactions.
On 26 January 2017, the FCA issued the Alternative Investment Fund Managers Directive (Reporting) Instrument 2017 (FCA 2017/3) (dated 25 January 2017), amending the Investment Funds (FUND) sourcebook. This instrument comes into force on 29 June 2017.
On 30 January 2017, ESMA announced it had tightened the rules on different types of units or shares (share classes) within the same Undertakings for Collective Investment in Transferable Securities (UCITS), having found diverging approaches in different EU countries. ESMA has set out four principles for share classes, in a move to harmonise the rules across the EU. The new rules will phase in over 18 months.
On 1 February 2017, ESMA issued a call for candidates in order to renew the composition of its Consultative Working Group (CWG), which advises ESMA’s Investment Management Standing Committee (IMSC).
On 1 February 2017, the FCA published its findings following a review of investment advisory firms’ practices when acquiring clients from other firms. The review assessed how firms treated clients they acquired from advisory firms or client banks and was the result of increased acquisition activity in the investment advice market since the introduction of the Retail Distribution Review (RDR) in December 2012.
On 26 January 2017, the European Insurance and Occupational Pensions Authority (EIOPA) chairman, Gabriel Bernadino, delivered a keynote speech on the future of the European insurance industry in a digital era: turning challenges into opportunities. In it, he set out the implications of the digital revolution on the insurance sector, and the strategic direction of building a common European supervisory culture.
On 25 January 2017, the Association of British Insurers (ABI) responded to the FCA general insurance value measures, agreeing with the FCA that customers should not buy insurance products on price alone.
On 31 January 2017, the FCA launched consultation CP17/3 on its proposed changes to the Handbook to incorporate the new regulated activity of insurance risk transformation. This includes changes to cover insurance linked securities (ILS), which are an alternative form of risk mitigation for insurance and reinsurance firms, offering a means for them to transfer risk to the capital markets through Insurance Special Purpose Vehicles (ISPVs). Responses are sought by 14 March 2017.
On 31 January 2017, EIOPA updated the technical documentation for deriving the risk-free interest rate term structures. The changes will be taken into account in the production of the technical information for the end of January 2017.
On 31 January 2017, EIOPA released new Q&A documents on questions which have arisen on the implementation of Directive 2009/138/EC (Solvency II).
On 1 February 2017, EIOPA published Technical Advice to the European Commission on possible Delegated Acts concerning the Insurance Distribution Directive (IDD). The Technical Advice was developed at the request of the European Commission and was subject to extensive public consultation.
On 1 February 2017, one year into Solvency II, Insurance Europe, the European insurance federation, said its implementation was a success, but it risks harming consumers, long-term investment and the economy if it is too conservative. Policymakers need to take action to make the framework more reflective of reality.
On 25 January 2017, Dr Jens Weidmann, president of the Deutsche Bundesbank and chairman of the board of directors of the Bank for International Settlements (BIS), at the G20 conference 'Digitising finance, financial inclusion and financial literacy', warned that fintechs should not base their business models on regulatory loopholes, as using lax regulation to attract business is a mistake that was made before the latest financial crisis. He also stated ‘whatever we do, we need to avoid a regulatory race to the bottom. Rather, we should go for a level playing field’.
On 26 January 2017, the Payment Systems Regulator (PSR) corrected an inconsistency between the fees rules, as set out in the FCA handbook (FEES 9.2.2R), and the timetable for collecting fees the PSR published in its consultation paper CP16/35, PSR Regulatory Fees 2017/18 (November 2016).
On 26 January 2017, in a speech, the governor of the Bank of England (BoE) and chair of the FSB, Mark Carney said FinTech can both generate and reduce systemic risk, so regulation must be robust yet proportionate. The remarks came in a wide-ranging speech at the Deutsche Bundesbank G20 conference in Wiesbaden on ‘Digitising finance, financial inclusion and financial literacy’.
On 26 January 2017, the chair of the Treasury Committee, Andrew Tyrie MP, commented on the news that members of LINK did not reach a resolution on ATM transaction fees.
On 31 January 2017, ECB executive board member Yves Mersch delivered a speech on ‘Digital transformation—Europe’s integrated market of tomorrow’ at the Joint ECB and European Commission Conference ‘Into the future: Europe’s digital integrated market’ in Frankfurt. The talk looked at integration in the post-trade area, integration of securities issuance, and TARGET instant payment settlement (TIPS).
On 1 February 2017, the Committee on Economic and Monetary Affairs (ECON) published a draft report (dated 27 January 2017), which called on the European Commission to draw up a comprehensive FinTech Action Plan, to boost its Capital Markets Union (CMU) and Digital Single Market (DSM) strategies and aim at a competitive financial system, financial stability and consumer and investor protection.
 EWHC 81 (Comm)
The Commercial Court dismissed the defendant bank's application for a stay of proceedings commenced against it in the English jurisdiction, where related proceedings had already been commenced in the courts of Singapore. The defendant had not established that Singapore was clearly and distinctly the more appropriate forum than London.
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