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Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 2 March 2017.
On 23 February 2017, the Financial Services Consumer Panel published a research and a position paper on the implications of Brexit for financial services consumers. The Panel looks at areas where consumers could benefit from the UK’s withdrawal from the European Union as well as protections which currently exist and may be lost. The Panel concludes that if the UK takes control of its financial services legislation, there is an excellent opportunity for the government and regulators to improve consumer protection regulation.
On 24 February 2017, the Treasury Committee published a letter from the chief executive of the Financial Conduct Authority (FCA), Andrew Bailey, to the chair of the Treasury Committee, Andrew Tyrie MP, providing a detailed response on two issues that had arisen in a Committee meeting on 8 November 2016. Mr Tyrie’s Committee had asked for more information about the value of UK financial services that could be lost if access to the EU market were available only on the basis of global standards, and for further detail on transitional arrangements which might be established following the UK’s withdrawal from the EU. The letter also responds to some of the questions in the Committee’s 12 December 2016 call for evidence on transitional arrangements.
On 28 February 2017, Payments UK published a report examining the impact which Brexit could have on consumers, businesses and payment service providers (PSPs). It highlights key payment topics for consideration, such as the Payment Services Directive (PSD), passporting, the Single Euro Payments Area (SEPA) and UK access to euro payment systems.
On 24 February 2017, the FCA published Handbook Notice 41, listing changes made by the Board on 23 February 2017. It also includes feedback on several consultations, which will not have a separate Policy Statement, and provides an update on MiFID II fees.
On 24 February 2017, the Treasury Committee published the response from the FCA to a letter from the Treasury Select Committee regarding the FCA Board’s review of the FCA’s conflict of interest policy, as recommended by the HBOS Review. The Committee asked for clarification as to whether prospective Board members and senior full time employees are required to demonstrate that they were not materially involved in the cause of an enforcement case at a previous employer.
On 1 March 2017, the Prudential Regulation Authority (PRA) Board was replaced by the Prudential Regulation Committee (PRC), and the PRA was brought within the single legal entity of the Bank of England, as required by the Bank of England and the Financial Services Act 2016.
On 1 March 2017, the PRA published its regulatory digest for February 2017. It highlights key regulatory news and publications for February 2017, such as the PRA Board being replaced by the Prudential Regulation Committee on 1 March 2016 and the PRA’s publication consultation on Pillar 2A capital framework.
On 24 February 2017, it was announced that the Mutual Guarantee Societies Bill 2016/17 had been withdrawn and will not progress any further. The Bill had its first reading on Tuesday 10 January 2017 through the Ten Minute Rule procedure. The second reading was expected on Friday 24 March 2017 but was withdrawn.
On 27 February 2017, the European Commission published a draft Commission Staff Working Document setting out an assessment of EU equivalence decisions in financial services policy.
On 28 February 2017, in a speech given at the Structured Dialogue with the European Parliament's Committee on Economic and Monetary Affairs on 28 February 2017, Vice-President Dombrovskis gave an update on the European Commission’s work to make Europe's financial sector stronger and more dynamic.
On 28 February 2017, the Financial Stability Board (FSB) concluded a two-day meeting in Cape Town to review progress on the implementation of post-crisis reforms and the evaluation of their effectiveness. The meeting also discussed progress on the FSB’s development of a consistent and comprehensive framework for evaluating the post-implementation effects of the reforms. The framework will be published before the G20 Summit in July 2017, and will be subject to a consultation.
On 1 March 2017, the Chartered Insurance Institute, the Chartered Institute for Securities & Investment and the Chartered Banker Institute launched the Chartered Body Alliance (the Alliance), to help consumers recognise the benefits of engaging with qualified sector professionals.
On 27 February 2017, HM Treasury (HMT) announced it had decided to change the definition of financial advice for regulated firms. In particular, legislation will be amended so that, with effect from 3 January 2018, most regulated firms will be exempt from the need to hold a permission to advise on certain investments unless the firm is providing a personal recommendation. The HMT's announcement comes as a response to the outcome of its consultation on amending the definition of financial advice, launched in September 2016. In addition, the FCA published an explanatory note.
On 22 February 2017, the FCA updated its Senior Managers and Certification Regime (SM&CR) webpage to show that it is to consult on the extension of the SM&CR to all FSMA-authorised firms under the Bank of England and Financial Services Act 2016. This will affect all firms who offer financial services and are regulated by the FCA.
On 27 February 2017, the Banking Standards Board (BSB) published good practice guidance for banks and building societies putting in place procedures to assess the fitness and propriety of staff under the new Certification Regime.
On 23 February 2017, the PRA issued policy statement PS4/17: ‘Responses to CP36/16 and correction to PS2/16 PIN rules’ (PS). It contains responses, and final rules and supervisory statements (SS) to consultation paper (CP) 36/16 ‘Occasional Consultation Paper’. The PS also contains corrections to the Pre-Issuance Notification (PIN) rules of an administrative error in the final rules presented in PS2/16 ‘Amendments to the Pre-Issuance Notification regime’.
On 24 February 2017, the Basel Committee on Banking Supervision issued a second set of FAQs on Basel III: The Net Stable Funding Ratio. The Committee had received a number of interpretation questions related to the October 2014 publication of the Basel Committee’s Net Stable Funding Ratio (NSFR). The updates since the first publication of this document in July 2016 consist of new FAQs 5.1 (a-d) and 34.
On 24 February 2017, the PRA opened a consultation on proposed adjustments to the Pillar 2A capital framework, which came into force on 1 January 2016. The consultation is relevant to banks, building societies and PRA-designated investment firms. The consultation closes on Wednesday 31 May 2017.
On 24 February 2017, the PRA published a note following a seminar that it held on 24 February 2017 aimed at small and mid-tier banks and building societies considering applying for the Internal Ratings Based (IRB) approach to credit risk. The PRA aims to update its IRB Supervisory Statement (SS11/13) to clarify certain supervisory expectations and will consult on the proposed clarifications in due course.
On 27 February 2017, the European Parliament published a scrutiny paper it has prepared to support the Committee on Economic and Monetary Affairs’ (ECON) work on scrutinising delegated acts. The paper was published in advance of a meeting of ECON which took place on 28 February 2017 where the forthcoming draft measures (Delegated Acts (DAs) and regulatory technical standards (RTS) under the Capital Requirements Directive (2013/36/EU) (CRD IV) and the Capital Requirements Regulation ((EU) 575/2013) (CRR)) would be discussed.
On 27 February 2017, published a letter from the chair of the Chancellor of the Exchequer, Philip Hammond, to the chair of the Treasury Select Committee, Andrew Tyrie MP. In the reply to Mr Tyrie’s letter setting out the PRA’s concerns, the Chancellor of the Exchequer, Philip Hammond, said the UK government was also concerned with the way the Commission introduced the intermediate holding company measure, without prior discussion with Member States or any substantive impact assessment.
On 27 February 2017, the European Banking Authority (EBA) updated its list of institutions for supervisory reporting.
On 27 February 2017, the Board of Supervisors of the EBA agreed in its meeting held on 14 February 2017 on the tentative timeline of the 2018 EU-wide stress test. The exercise is expected to be launched at the beginning of 2018 and the results to be published in mid-year.
On 28 February 2017, the Basel Committee published the results of its latest Basel III monitoring exercise based on data as of 30 June 2016. Data have been provided for a total of 210 banks, comprising 100 Group 1 banks which are internationally active and have Tier 1 capital of more than €3bn and include all 30 banks that have been designated as global systemically important banks (G-SIBs), and 110 Group 2 banks that have Tier 1 capital of less than €3bn or are not internationally active.
On 28 February 2017, the EBA published its eleventh Report of the CRDIV-CRR/Basel III monitoring exercise on the European banking system. This exercise, run in parallel with the one conducted by the Basel Committee on Banking Supervision (BCBS) at a global level, presents aggregate data on capital ratios—risk-based and non-risk-based (leverage)—and liquidity ratios—the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR)—for banks across the EU.
On 28 February 2017, the European Central Bank (ECB) launched a sensitivity analysis of the banking books of banks it directly supervises, with a focus on interest rate changes as part of its annual Supervisory Review and Evaluation Process (SREP). This stress test exercise is designed to provide the ECB with sufficient information to understand the interest rate sensitivity of a bank’s assets and liabilities in the banking book and of net interest income to hypothetical interest rate changes.
On 28 February 2017, the Bank of England (BoE) published v2.0.0 of its Banking XBRL (eXtensible Business Reporting Language) Taxonomy and related technical artefacts following publication of policy statement PS36/16 Financial statements—responses to Chapter 3 of CP17/16 and the feedback request published on 9 February 2017.
On 28 February 2017, the House of Commons European Scrutiny Committee published its thirty-second Report of Session 2016–17 considered by the Committee in its meeting on 22 February 2017. The Committee considered, among other items, proposed amendments to EU legislation relating to resolution and recovery, and capital requirement.
On 1 March 2017, the EBA launched a public consultation on its draft regulatory technical standards (RTS) specifying the nature, severity and duration of an economic downturn according to which institutions shall estimate the downturn loss given default (LGD) and conversion factor (CF). These draft RTS are part of the EBA’s broader work on the review of the internal ratings based (IRB) approach aimed at reducing the unjustified variability in the outcomes of internal models, while preserving the risk sensitivity of capital requirements. The consultation runs until 29 May 2017.
The Local Authority Pension Fund Forum (LAPFF) responded to the Department for Business, Energy & Industrial Strategy’s Green Paper on Corporate Governance Reform, issued in November 2016. LAPFF have given feedback on two areas: ensuring that executive pay is properly aligned to long-term performance, and giving greater voice to employees and consumers in the boardroom.
On 28 February 2017, the European Parliament committees on Economic and Monetary Affairs (ECON) and Civil Liberties, Justice and Home Affairs (LIBE) agreed a revised form of the proposed directive (MLD5) amending the Fourth Anti-Money Laundering Directive (EU) 2015/849 (MLD4).
On 1 March 20147, the FCA urged those aged over 55 to check that investment opportunities are genuine. Research from YouGov, commissioned as part of the FCA’s ScamSmart campaign, has found that only two in five (42%) think they know how to spot a fraudulent investment opportunity. Fraudsters are targeting the growing over-55 population because they are more likely to have money to invest.
On 28 February 2017, the FCA published a Dear CEO letter to firms that operate loan-based crowdfunding platforms to highlight that if a lending business borrows through a platform and then lends that money to others, it may be ‘accepting deposits’ within the meaning of Article 5 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544)) (RAO).
On 22 February 2017, it was announced that the Financial Reporting Council’s (FRC) investigation into financial irregularities at RSA Insurance Ireland Limited (RSAI) saw sanctions imposed on the former Chief Financial Officer (CFO) and two former actuaries. All three admitted misconduct and agreed to fines and other sanctions. The firm has been fined £35,000.
On 23 February 2017, the FCA published a special issue of its regulation round-up, focused on the recent consultation on the future funding of the Financial Services Compensation Scheme (FSCS).
On 24 February 2017, the Treasury Committee published a letter from the FCA to the House of Commons Public Accounts Committee with an update on work it has undertaken following its response to the Committee’s May 2016 report on ‘Financial Services mis-selling: regulation and redress’. In the report, the Committee argued the FCA and the government should do more to understand the extent of financial mis-selling and which regulatory activities work best to prevent it.
On 23 February 2017, the BoE published its annual report into the supervision of financial market infrastructures, dated 22 February 2017. The report, which was presented to Parliament, covers the period 5 March 2016 to 22 February 2017.
On 23 February 2017, the European Supervisory Authorities (ESAs)—the EBA, European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA)—published a statement in response to industry requests relating to operational challenges in meeting the deadline of 1 March 2017 for exchanging variation margin. The ESAs say that neither they nor competent authorities (CAs) possess any formal power to disapply directly applicable EU legal text, and there is not time to seek legislative change.
A former trader convicted for Libor rigging appealed against his lifetime ban from working in financial services on the grounds that he believes he did not receive a fair trial because of his Asperger syndrome. Tom Hayes’ claim against the Financial Conduct Authority (FCA) was listed in the Upper Tribunal on 23 December 2016.
On 23 February 2017, ESMA updated its list of the competent authorities designated in accordance with Article 11(1) of the Central Securities Depositories Regulation (EU) 909/201 (CSDR).
On 23 February 2017, the FCA responded to the statements made by the European Supervisory Authorities and the International Organization of Securities Commissions (IOSCO) on 23 February 2017 concerning the implementation date of the new regime for variation margin. With some firms struggling to meet the 1 March 2017 deadline, the FCA has said it will take a risk-based approach and use judgement in its supervision of firms’ progress, taking into account the position of particular firms and the credibility of the plans they have made.
On 24 February 2017, ESMA published responses to its consultation on draft technical standards on data to be made publicly available by trade repositories under Article 81 of EMIR.
On 24 February 2017, the FCA published changes to the Disclosure Guidance and Transparency Rules (DTRs). The changes relate to DTR 2.5, which deals with the circumstances in which issuers may delay the disclosure of inside information. The move follows the Consultation Paper CP16/38, which closed on 6 January 2017.
On 25 February 2017, Commission Delegated Regulation (EU) 2017/323 of 20 January 2017 correcting Delegated Regulation (EU) 2016/2251 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (EMIR) with regard to regulatory technical standards for risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty was published in the Official Journal of the EU.
On 27 February 2017, the European Commission published a report which assesses how to tackle national barriers with a view to accelerating the Capital Markets Union (CMU) and considers, among other points, fostering the flow of cross-border investments in the EU and the national approaches to crowdfunding. The report forms part of the European Commission’s CMU action plan to work with EU countries to examine the remaining national barriers to the free movement of capital. An expert group comprising experts on barriers to the free movement of capital was set up to exchange views in this area.
On 28 February 2017, the Committee on Payments and Market Infrastructures (CPMI) and IOSCO published technical guidance on rules for a uniform global Unique Transaction Identifier (UTI). The role of the UTI is to uniquely identify each OTC derivatives transaction required to be reported to trade repositories (TRs).
On 28 February 2017, the International Swaps and Derivatives Association’s published its SwapsInfo Q4 2016 review. During the last quarter of 2016 (Q4 2016), interest rate derivatives (IRD) notional volume figures rose by 15% to US$40tn, compared to Q4 2015, the ISDA SwapsInfo Q4 2016 review confirms. Trade count grew by 13.7% to 281,821 over the same period.
On 28 February 2017, ESMA published its final report on draft regulatory technical standards (RTS) regarding the treatment of package orders under the amended Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR).
On 1 March 2017, the FCA has proposed a package of measures to improve the timing, sequencing and quality of information being provided to market participants during the UK initial public offering (IPO) process in its Consultation Paper (CP) 17/5. Responses are sought by 1 June 2017.
On 28 February 2017, the Financial Markets Law Committee (FMLC) published the response of its CEO to the FCAs interim report on its Asset Management Market Study. While welcoming the proposals to boost competition in the market, the FMLC raised concerns about some of the definitions used, which do not follow the FCA Handbook and could lead to confusion.
On 27 February 2017, the Competition and Markets Authority (CMA) sent a letter to Lloyds Banking Group (LBG) which sets out the actions agreed to remedy LBG’s breaches of the Northern Ireland Personal Current Account Banking Market Investigation Order 2008. LBG’s breaches included its failure to issue Switching Leaflets to customers on an annual basis and its failure to issue 14-day pre-notifications to customers before deducting overdraft charges and debit interest.
On 27 February 2017, the PRA published policy statement 5/17 (PS5/17), which provides feedback on responses to Consultation Paper (CP) 44/16, ‘Amendments to the PRA’s rules on loan to income (LTI) ratios in mortgage lending’. It sets out the final rules for the LTI flow limit to operate on a four-quarter rolling basis. All respondents supported the proposal to switch to this system. They agreed that the change is likely to allow firms to manage the limit more effectively, reducing the potential need for sharp changes in lending as a result of the limit.
On 28 February 2017, the CMA published an updated version of the Explanatory Note to the Retail Banking Market Investigation Order 2017 published on 2 February 2017, to insert 'Section 2 – optional information', which had been omitted from Schedule 3, Part A.
On 23 February 2017, the FCA published 'Data Bulletin 8' for February 2017 contains analysis of the latest trends in the retirement income market. The analysis focuses on the different ways consumers access their pension pots and on consumer behaviour in relation to the use of regulated advisers, take up of products from their existing providers, and the take up of pensions with guaranteed annuity rates (GARs).
On 27 February 2017, HM Treasury published a consultation seeking views on the government’s proposals for implementing the Insurance Distribution Directive ((EU) 2016/97) (IDD). Responses are requested by 22 May 2017.
On 28 February 2017, Commission Implementing Regulation (EU) 2017/309 of 23 February 2017 laying down technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 31 December 2016 until 30 March 2017, in accordance with Directive 2009/2009/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II), was published in the Official Journal of the EU.
On 28 February 2017, the European Insurance and Occupational Pensions Authority (EIOPA) published an update of the technical documentation of the methodology to derive the risk-free interest rate term structures.
On 28 February 2017, EIOPA published its Risk Dashboard for the first time since the implementation of the Solvency II Directive 2009/138/EC (Solvency II) regime.
On 28 February 2017, the City of London Law Society (CLLS)’s Insurance Law Committee (ILC) published its response which raised a number of technical queries in response to the PRA's and the FCA's consultation on the authorisation and supervision of insurance special purpose vehicles (ISPVs) (PRA CP42/16 and FCA CP16-34).
On 28 February 2017, the International Association of Insurance Supervisors (IAIS) released Systemic Risk Assessment and Policy Workplan consisting of, among other things, developing an activities-based approach at the insurance sector level. As part of the next three-year cycle for reviewing its approach to systemic risk assessment, scheduled to conclude in 2019, the IAIS is developing an activities-based approach to systemic risk assessment in the insurance sector.
On 28 February 2017, the European Commission submitted a request to EIOPA for technical advice on the review of specific items in the Solvency II delegated regulation (EU) 2015/35.
On 23 February 2017, the managing director of the Payment Systems Regulator (PSR), Hannah Nixon, delivered a speech to the Westminster Business Forum, saying the PSR’s policy of opening the sector up to competition is working well and has driven technological innovation.
On 23 February 2017, the EBA published its final draft Regulatory Technical Standards (RTS) (EBA/RTS/2017/02) on strong customer authentication and common and secure communication. The EBA says the RTS pave the way for an open and secure market in retail payments in the EU.
On 24 February 2017, the CMA launched a consultation on proposed undertakings in lieu to avoid a reference to phase 2 offered by the parties in relation to the anticipated acquisition of VocaLink (VocaLink) by MasterCard UK Holdco Limited. Under the proposed undertakings in lieu, Mastercard and VocaLink have proposed a package of remedies aimed at reducing the cost to the LINK ATM network of switching from VocaLink to alternative suppliers of infrastructure services. This includes VocaLink making its connectivity infrastructure available to a new supplier of infrastructure services to LINK; VocaLink transferring or licensing to LINK the intellectual property rights relating to the LINK LIS5 messaging standard, which members of the network use to communicate when customers use cash machines; and VocaLink contributing to LINK members’ switching costs. The CMA’s provisional view is that the proposed undertakings in lieu, or a modified version of them, are acceptable as a suitable remedy to the competition concerns identified during the phase 1 investigation. The deadline for the CMA to accept the final undertakings is 15 March 2017 (which can be extended to 15 May 2017 if necessary).
On 27 February 2017, the CPMI published a report on distributed ledger technology (DLT) in payment clearing and settlement. The report provides an analytical framework which focuses on the potential implications of the use of DLT in payment, clearing and settlement activities.
On 28 February 2017, the managing director of the PSR, Hannah Nixon, attended the launch of ClearBank, which is the first new organisation to have gained access to all the main UK payment systems from scratch.
On 28 February 2017, the PSR published draft terms of reference setting out how it will review the role of the operators of the Clearing House Automated Payment System and Faster Payments Scheme in minimising consumer harm from authorised push payment (AAP) scams. AAP scams are those where the victim is tricked into transferring money to a fraudster. The PSR is seeking feedback on the draft terms of reference by 21 March 2017.
On 28 February 2017, the European Commission has published a speech, given by the European Commissioner for Financial Stability, Financial Services and the CMU, Valdis Dombrovskis, at the FinTech & Digital Innovation Conference.
 EWHC 323 (Admin)
The Administrative Court dismissed the claimant company's application for judicial review of the defendant Financial Ombudsman Service's decision, upholding the first interested party's complaint against it. The ombudsman had not erred in having found that the portfolio provided to the interested party had not been suitable to her circumstances and, if the inherent risks had been clear to her, she would not have proceeded with the investment.
 EWHC 352 (Admin)
The Administrative Court allowed the claimant insurer's application for judicial review of an defendant Financial Ombudsman Service's decision, rejecting the interested parties' complaint in relation to a joint life insurance policy and upholding it in relation to a single life insurance policy because misrepresentations were innocently made due to a medical condition. The ombudsman's decision had been inadequately reasoned, but had not been Wednesbury unreasonable.
the Senior Managers & Certification Regime-related Financial Conduct Authority requirements, such as the implementation of the ‘full’ certification regime and the rolling out of the Conduct Rules to a wider range of employees
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