Rely on the most comprehensive, up-to-date legal content designed and curated by lawyers for lawyers
Work faster and smarter to improve your drafting productivity without increasing risk
Accelerate the creation and use of high quality and trusted legal documents and forms
Streamline how you manage your legal business with proven tools and processes
Manage risk and compliance in your organisation to reduce your risk profile
Stay up to date and informed with insights from our trusted experts, news and information sources
Access the best content in the industry, effortlessly — confident that your news is trustworthy and up to date.
With over 30 practice areas, we have all bases covered. Find out how we can help
Our trusted tax intelligence solutions, highly-regarded exam training and education materials help guide and tutor Tax professionals
Regulatory, business information and analytics solutions that help professionals make better decisions
A leading provider of software platforms for professional services firms
In-depth analysis, commentary and practical information to help you protect your business
LexisNexis Blogs shed light on topics affecting the legal profession and the issues you're facing
Legal professionals trust us to help navigate change. Find out how we help ensure they exceed expectations
Lex Chat is a LexisNexis current affairs podcast sharing insights on topics for the legal profession
Printer Friendly Version
Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 20 July 2017.
The European Securities and Markets Authority (ESMA) published three opinions setting out sector-specific principles in the areas of investment firms, investment management and secondary markets. The opinions are aimed at creating consistency of approach in authorisation, supervision and enforcement related to the relocation of entities, activities and functions from the UK.
The Financial Markets Law Committee (FMLC) published a paper warning of market disruption if the UK becomes a 'third country' from the perspective of European legislation, with no treaty provision governing the supply of financial services into the EU single market.
The government needs to ensure an uninterrupted data flow between the UK and EU after Brexit to maintain stability and certainty for businesses and security, a report from the House of Lords has warned. The EU Home Affairs Sub-Committee says without a transitional arrangement, the lack of fall-back options would raise concerns about the UK’s ability to maintain police and security co-operation with the EU following Brexit, and urges the government to gain a role for the Information Commissioner’s Office (ICO) on the European Data Protection Board.
The Financial Conduct Authority (FCA) published its latest policy development update, which provides information on its recent and upcoming publications. The FCA's second consultation paper on implementation of the Insurance Distribution Directive is now expected in July 2017. The consultation is expected to last three months. The FCA is also expecting to launch a two-month consultation in July 2017 on information about current account services.
The Financial Reporting Council (FRC) issued a revision of Section A of the International Standards on Auditing (UK) (ISA (UK)) 250, which considers laws and regulations when auditing financial statements. The changes provide a framework for accountants identifying non-compliance with laws or regulations when doing reports. The revisions include, among other things, amendments to the definition of non-compliance which now covers a wider range of instances that are contrary to the prevailing laws or regulations and will apply to audits of financial statements commencing on or after 15 December 2017.
The Estonian Presidency of the Council of the EU set out its work programme for July to December 2017. On financial services, the report says a stable and resilient banking sector will help to prevent economic and financial crises, and the further reduction of risks is a necessary step towards completing the banking union.
To help firms identify and deal with risks and issues when assessing fitness and propriety (F&P), the Banking Standards Board (BSB) is consulting on proposed supporting guidance. Following this consultation, the BSB will publish final guidance to aid member firms and the sector more widely. The consultation closes on 29 September 2017.
The European Commission referred Spain to the Court of Justice of the EU for failure to notify it of measures for fully implementing the EU rules on whistle-blowers.
Ten European trade associations signed a joint letter complaining about the lack of preparation time for stakeholders in consultations on the development of guidelines under the EU General Data Protection Regulation (GDPR). The associations also expressed concerns that the guidelines effectively introduce additional rules, which are not in line with the agreement by co-legislators in the Level 1 text.
Consultation paper (CP) 13/17 sets out PRA proposals on a cashflow mismatch risk (CFMR) framework and other PRA methodologies for assessing firms’ liquidity risk, under the Pillar 2 liquidity framework. Also included are proposed updates to supervisory statements 24/15 and 34/15, draft reporting rule changes, a draft reporting template and instructions relating to CFMR. The consultation closes on Friday 13 October 2017.
The European Banking Authority (EBA) released its workplan for mapping and monitoring external credit assessment institutions (ECAIs), and a revised decision confirming the quality of unsolicited credit assessments assigned by certain ECAIs for calculating institutions' capital requirements. The decision has been revised to reflect the recognition of five new credit rating agencies (CRAs) and the deregistration of one, and confirms that unsolicited credit assessments do not differ in quality from solicited ratings. In addition, the revised decision also considers an ECAI that issued only solicited ratings when the EBA decision was first published in May 2016, but started issuing unsolicited ratings subsequently. Simultaneously, the joint committee of ESAs launched a public consultation to amend the Implementing Regulations on the mapping of credit assessments of ECAIs for credit risk.
The EBA published a report including some qualitative and quantitative observations of its second impact assessment of IFRS 9. In parallel, it also launched a public consultation on its guidelines on uniform disclosure of IFRS 9 transitional arrangements to ensure institutions' Pillar 3 disclosures on capital and leverage ratios are consistent across the EU during the transitional period. The consultation runs until 13 September 2017.
The European Systemic Risk Board (ESRB) published a report on the financial stability implications of IFRS 9, the new accounting standard for the classification and measurement of financial instruments, issued in response to the mandate received from the G20 in the light of the performance of accounting standards during the global financial crisis. IFRS 9 replaces the rules-based classification system under IAS 39 with a clearer principles-based approach. The EU endorsed IFRS 9 in November 2016 for mandatory application from 1 January 2018 onwards.
The high-level expert group (HLEG) on sustainable finance presented its interim report, first published on 13 July 2017, at a public meeting in Brussels. The HLEG also presented a questionnaire aimed at gathering targeted feedback on the analysis and reflections in the interim report and informing the preparation of the HLEG's final report. The final date for responses to the questionnaire is 20 September 2017.
The Companies Court gave directions in respect of four claims concerning the ring-fencing transfer schemes that each of the major deposit-taking banks in the United Kingdom was required by statute to have in place by 1 January 2019. The claims were made prospectively, and concerned the claimant banks' expected future applications, under section 107 of the Financial Services and Markets Act 2000 (FSMA 2000) for orders sanctioning the schemes, under section 110 of that Act. The court held that the procedural innovation provided by the claim forms was well within the court's inherent jurisdiction and it made various orders concerning, among other things, notification in respect of applications under section 110, and the timetable for the future conduct of the substantive applications. The judgment is available at:  EWHC 1482 (Ch).
The European Parliament’s economic governance support unit released a briefing on the state of play of non-performing loans (NPLs) in the euro area, providing an overview of the various measures implemented across Member States to facilitate their resolution. The briefing also takes stock of the various workstreams at European level, including the work of the Council of the EU’s financial services committee and the action plan adopted on 11 July.
The Council of the EU published a European Commission staff working document assessing the relevance, effectiveness, efficiency, coherence and EU added value of the Financial Conglomerate Directive 2002/97/EU (FICOD) and its implementation to date.
The secondary legislation scrutiny committee (SLSC) of the House of Lords raised concerns about the scrutiny that was given to the assessment of the effectiveness and value for money of the bureaucratic process of three sets of Regulations implementing the EU Fourth Money Laundering Directive, which gives effect to updated global standards for combating money laundering, terrorist financing and other threats to the international financial system.
The FCA fined David Watters £75,000 for failing to exercise due skill, care and diligence in his role as a compliance oversight officer. Following an investigation, the FCA found that Mr Watters failed to take reasonable steps to ensure that the process for giving advice on enhanced transfer value (ETV) pension transfer exercises was adequate and met regulatory standards.
The Financial Services Compensation Scheme (FSCS) published its annual report and accounts for 2016/17, reviewing key developments from the past year. During the year, total compensation payments made were £351m, up from £271m in 2015/16. This increase largely reflects a significant rise in general insurance claims resulting from the failures of two non-UK insurance companies.
The FCA published its response to comments made about it in the Office of the Complaints Commissioner (OCC) annual report 2016-17. The OCC made observations on delays in the FCA’s complaint-handling, a perceived tendency to adopt a defensive position, and how it follows up OCC recommendations.
ESMA opened a consultation on draft guidelines on certain aspects of the suitability requirements under the Markets in Financial Instruments Directive (MiFID II). Comments are sought by 13 October 2017.
The FCA updated the application forms for a passport under MiFID II. MiFID II passporting forms should only be submitted once firms have received confirmation that their MiFID II authorisation or variation of permission application has been processed.
The FCA updated its ‘MIFID II ancillary activity exemption—notification guide’, which is available on its website. The guide is designed to assist with the submission of the annual notification confirming use of the ancillary activity exemption under article 2(1)(j) MiFID II.
The FCA provided guidance, application forms and notes for firms seeking authorisation to provide a data reporting service (DRS) as a regular occupation or business, under the new MiFID rules. Approved reporting mechanisms and trade data monitors currently operating reporting services in the UK will need to submit new applications to be authorised as DRSPs if they wish to continue providing these services from 3 January 2018.
The Futures Industry Association (FIA) published a briefing notes document identifying some of the potential compliance obligations that may arise for US futures commission merchants (FCMs) and their clients as a result of MiFID II and the Markets in Financial Instruments Regulation (MiFIR). The briefing notes were drafted by Katten Muchin Rosenman UK LLP on behalf of FIA.
The European Commission adopted a regulation laying down implementing technical standards (ITS) with regard to standard forms, templates and procedures for the consultation process between relevant competent authorities in relation to the notification of a proposed acquisition of a qualifying holding in an investment firm in accordance with MiFID and MiFID II.
The FCA published a webpage giving information on the Market Data Processor (MDP) entity portal, a web application for external users which will provide an interface to the MDP system.
The FCA launched a consultation on proposals to create a new category within its premium listing regime to cater for companies controlled by a shareholder that is a sovereign country. The consultation paper (CP17/21) follows on from discussion paper 17/2, ‘Review of the effectiveness of primary markets’, which discussed the role of listed primary markets and the structure of the UK listing regime in supporting that role. Comments are sought by 13 October 2017.
ESMA published a report on the procedure and policy around the reporting of circuit breakers’ parameters by national competent authorities (NCAs) to ESMA. The report formalises a common standard and procedure for NCAs to adhere to in reporting the parameters to halt or constrain trading used by the trading venues under their jurisdiction to ESMA, without prejudice to the possibility for NCAs to require those trading venues to report to them the parameters using a different and, where appropriate, more granular format.
ESMA published the results of a peer review of how national competent authorities (NCAs) comply with ESMA's guidelines on enforcement of the financial information requirements of the Transparency Directive. The report identifies areas where NCAs can improve their enforcement and makes recommendations to support these improvements.
The Department for Exiting the European Union (DExEU) published an HM Treasury memorandum dated 11 July 2017 (the memorandum) on the European Commission’s proposed Regulation amending the ESMA Regulation (Regulation (EU) 1095/2010) and EMIR (Regulation (EU) 648/2012) regarding the procedures and authorities involved for the authorisation of central counterparties (CCPs) and requirements for the recognition of third-country CCPs.
The European Commission-established high-level expert group on sustainable finance delivered its first report outlining the creation of a financial system that supports sustainable investments. The Commission intends to investigate key early recommendations to take further steps towards a low carbon, more resource-efficient and sustainable economy.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published the fourth update to the level 1 assessments of implementation monitoring of the principles for financial market infrastructures (PFMI). The result shows that some progress has been made among those participating jurisdictions that had not completed their implementation measures at the time of the previous update in 2016.
Lloyd’s released a report setting out six guiding principles on how it would respond to a market turning event (MTE)—an insurable loss so significant it results in a rapid upturn in pricing. The principles were developed and influenced by the industry ‘dry run’ exercise carried out by the London Market in November 2016.
The Prospectus Rules (Miscellaneous Amendments) Instrument 2017 was published by the FCA on 7 July 2017—from 20 July 2017 it amends the FCA Handbook and the Prospectus Rules sourcebook to build in certain provisions of the Prospectus Regulation that apply from that date.
The Bank of England (BoE) released a speech given by its executive director for markets, Chris Salmon, at a roundtable on sterling risk-free reference rates, in London on 6 July 2017. Mr Salmon outlined the need for a broad transition away from sterling LIBOR towards SONIA in order to build a safer financial system and to better match the risks firms are hedging.
The Official Journal of the EU published a summary of the order sought in Crédit Agricole and Crédit Agricole Corporate and Investment Bank v Commission (case T-113/17) on 20 February 2017. The case concerns the annulment in part of European Commission Decision C(2016) 8530 final of 7 December 2016 concerning Euro interest rate derivatives, imposing a fine of €114 654 000 on the applicants. In the alternative, the applicants seek a very significant reduction in that penalty.
ESMA issued an official opinion agreeing to the renewal of the emergency short selling prohibition, for a period of two months, by the Comisión Nacional del Mercado de Valores (CNMV) on net short positions in Liberbank, S.A. (Liberbank) shares under Article 20(2)(a) and 20(2)(b) of Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012—the Short Selling Regulation.
ICE Benchmark Administration (IBA) was chosen as the new administrator for the LBMA Silver Price, commencing in autumn 2017. IBA will take over from CME Group and Thomson Reuters.
The FCA published the terms of reference for the Investment Platforms Market Study, clarifying the scope and topics that will be covered. The study will look at both investment platforms and firms that provide similar services by allowing investors or their advisers to access retail investment products through an online portal. The FCA is looking to establish whether they use their bargaining power to get investors a good deal. The FCA welcomes feedback on the topics to be explored, by 8 September 2017.
The FCA published a thematic review: Customer understanding: Retail banks and building societies (TR17/1), reminding firms of their obligation to ensure that customers have had a reasonable opportunity to understand a transaction, having regard to their knowledge and personal circumstances, and to provide understandable information to consumers.
The House of Lords delegated powers and regulatory reform committee released its first report for the 2017-19 session, in which it analyses delegated powers in the Financial Guidance and Claims Bill. The Bill is to create a new financial guidance body, tasked with giving free and impartial financial guidance and debt advice to the public, replacing three existing bodies. The committee takes issue with three delegated powers in the Bill.
The Lending Standards Board (LSB) published its business plan for 2017–20, setting out areas it will focus on and actions it will take to ensure that personal and business customers are adequately protected. Areas of focus include continuing evolution of LSB standards, increasing consumer protection and a review of the LSB internal governance framework.
The Financial Services Consumer Panel (FSCP) published research it says shows financial firms appear to compete vigorously, but deliberately inhibit consumers’ ability to shop around by developing complicated products, with obscure or misleading prices and terms and conditions. The FSCP say regulators rely too heavily on active consumer engagement to drive competition, but this won’t work because the number of engaged consumers is not large enough to drive competition or to make firms change their behaviour, and even those who are engaged can’t usually assess whether switching would get them a better deal.
The European Insurance and Occupational Pensions Authority (EIOPA) published a package of documents including draft amendments to ITS on reporting and disclosure under Solvency II and the final version 2.2.0 of the EIOPA XBRL taxonomy. The package also includes a feedback statement and impact assessment on the proposed ITS amendments.
EIOPA published new sets of Q&As on the templates for the submission of information to the supervisory authorities and the procedures, formats and templates of the solvency and financial condition report.
EIOPA published an updated version of the source code used for the monthly risk-free interest rate term structures (RFR) calculation. The RFR coding is based on the calculations of the last technical documentation published on 27 June 2017.
The DExEU published a memorandum prepared by HM Treasury on the European Commission’s proposal for a pan-European pension product (PEPP) and related documents. The memorandum notes that the proposal is not intended to replace or harmonise existing national personal pension schemes, but complement them by adding a pan-EU framework for pensions for those who wish to use it as a savings plan. But HM Treasury says it doubts that the proposal would contribute to Capital Markets Union objectives and believes that personal pension products can already be offered in all Member States.
The Financial Stability Board (FSB) welcomed the final publication of the International Financial Reporting Standards (IFRS) 17, which it says sets out a single, consistent approach to accounting for insurance contracts. The standard aims to help insurers better understand their risk exposure, profitability and financial position.
The Chartered Insurance Institute (CII) is preparing the launch of a new pension transfers qualification following the FCA’s proposals to tighten the advice requirements for the transfer of safeguarded benefits. The CII said it would work closely with the regulator to ensure pension transfer specialists were equipped with any new qualification and knowledge requirements resulting from the current consultation.
The Pensions Regulator (TPR) is speaking to pensions professionals across the UK to help them prevent their clients falling victim to fraudsters. TPR’s industry liaison team is touring the country over the next three months meeting financial advisers and spreading the warning message about scams.
Hungary, Ireland and Poland released a joint statement following the Council of the EU’s announcement on 11 July 2017 that it would not object to a Commission Delegated Regulation amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates). The statement says there are technical mistakes in the text of the draft Regulation that need to be corrected.
The International Association of Insurance Supervisors (IAIS) published the July 2017 edition of its newsletter. The issue outlines news, committee activities, seminars and other events, and reports from the 10th annual IAIS global seminar in Old Windsor on 29 June 2017.
The FCA issued a consultation paper, CP17/22: Revised Payment Services Directive (PSD2) implementation: draft authorisation and reporting forms, which is a short follow-up to its first PSD2 consultation paper (CP17/11), which it issued in April 2017. Comments are sought by 18 August 2017.
HM Treasury announced that the transposition of the recast Payment Services Directive will outlaw additional card charges on transactions. Dubbed ‘surcharging’, many businesses including airlines and takeaway apps charge customers to make payments by card. The government said that while many industries absorb the cost and do not pass it on to customers, the rules will bring an end to surcharging entirely.
The European Central Bank (ECB) amended guideline ECB/2012/13 to reflect the replacement of the Payment and Settlement Systems Committee by the Market Infrastructure and Payments Committee, the establishment of the Market Infrastructures Board, and the replacement of the T2S Advisory Group by AMI SeCo.
The European Payments Council (EPC) published updated rules for the Single Euro Payments Area (SEPA) for implementing the interbank ‘instant’ ISO 20022 XML message standards, based on version 1.0 of the 2017 SEPA Instant Credit Transfer (Inst) rulebook, which takes effect on 21 November 2017 at 08:00 CET.
HM Treasury announced a new regulatory regime for FinTech firms which will come into force in January 2018. The regime will allow the FinTech firms to, at the request of the individual, access data from all of the consumer’s bank accounts and may lead to an app which enables the consumers to manage all of their accounts in one. The aim is for consumers to be able to ‘budget more effectively’ and help them ‘avoid unwanted overdrafts by making automatic payments between bank accounts when funds are running low’.
The FCA raised concerns about the use by payment institutions and e-money institutions of online currency converters that reference the interbank rate. The FCA says such tools could mislead customers, as they will show better rates than will ultimately be offered. By the time customers see the true rate, the FCA says they will likely be too far down the process to be willing to shop around.
ESMA published a speech given on 12 July 2017 by Patrick Armstrong, a senior risk analysis officer in its innovation and products team. In the speech—Regulatory technology: reshaping the supervisor-market participant relationship—Mr Armstrong focused on what he called an emerging field with immense potential for finance and regulation: regulatory technology or RegTech.
The US Securities and Exchange Commission (SEC) published remarks given by its chair, Jay Clayton, at the Economic Club of New York on 12 July 2017. In the speech Mr Clayton outlines eight principles that he states will guide his time chairing the SEC.
The Regulatory Policy Committee (RPC) published a statement that during the period 6 May 2015 – 5 May 2017, the Payment Services Regulator (PSR) did not have any qualifying regulatory provision for the purposes of the government’s business impact target (BIT), as required to be published by the government under the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015).
0330 161 1234