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Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 22 June 2017.
On 15 June 2017, the Financial Conduct Authority (FCA) announced that, from July 2017, it will be travelling across the UK with a series of events for regulated firms. The FCA will hold a regular schedule of events aimed at retail investment and general insurance firms. It will also hold ad hoc events for various sectors that the FCA chair and members of its executive committee will attend, as well as additional events focusing on the FCA’s business plan priorities.
On 18 June 2017, it was announced that the chair of the FCA and the Payment Systems Regulator (PSR), John Griffith-Jones, is to leave both organisations at the end of his term of office, on 31 March 2018. Mr Griffith-Jones was appointed as the first FCA chair with effect from 1 April 2013 and became chair of the PSR when it was established in April 2014. His term of office at both organisations expires on 31 March 2018.
On 16 June 2017, the Bank of England (BoE) published its Quarterly Bulletin for 2017 Q2, which explores monetary and financial stability topics. This edition features an article introducing the Bank's recently improved dividend discount model, which it uses to help understand past moves in equity prices.
On 20 June 2017, the governor of the BoE, Mark Carney, gave his delayed Mansion House speech. The speech stressed that Brexit and building an economy that works for all promoting the common good during challenging times where we have been reminded of fine balances in decisions, parliament and life. Mr Carney stressed a cautious approach and appeared to suggest that UK interest rates will remain at their current record low throughout 2017 and possibly until 2019.
On 15 June 2017, the three European Supervisory Authorities—the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA)—published their annual reports for 2016, detailing what they have achieved in the past year and outlining areas of focus in the future:
On 15 June 2017, EIOPA and the World Bank signed another operational memorandum of understanding, replacing a 2013 version. In their collaboration, EIOPA and the World Bank will pursue joint actions such as sharing knowledge, ideas, materials, best practice and lessons learned on common matters. They will also share information data and analytical tools, provide support to relevant stakeholders, and facilitate the organisation of seminars, workshops and conferences.
On 16 June 2017, the Banking Standards Board (BSB) published its annual review for 2016/17, providing an overview of its work over the past year, setting out priorities for the coming year and reporting publicly on the overall outcomes of the 2016 Assessment.
On 16 June 2017, ESMA published a new webpage on delegation agreements, which provides information on the delegation of tasks and responsibilities from one National Competent Authority (NCA) to another or to ESMA.
On 16 June 2017, the BoE said climate change, and society’s responses to it, present financial risks which impact upon the Bank’s objectives. The risks arise through two primary channels: the physical effects of climate change and the impact of changes associated with the transition to a lower-carbon economy.
On 19 June 2017, the chair of the supervisory board of the European Central Bank (ECB), Danièle Nouy, gave the introductory statement at a meeting of the European Parliament’s Economic and Monetary Affairs Committee. Ms Nouy discussed non-performing loans, Brexit and key issues of the banking legislation package from the supervisory perspective.
On 19 June 2017, the European Parliament published details of an economic dialogue and exchange of views with the President of the Council on 19 June 2017. In its discussion of the Banking Union, the meeting identified three areas of priority: further reinforcing prudential management and strengthening market discipline, taking action against non-performing loans, and assessing the features of loan enforcement and insolvency systems which have an impact on banks’ balance sheets.
On 19 June 2017, ESMA released detail of a meeting of the Board of Supervisors on 29 March 2017.
On 21 June 2017, the European Commission published an overview of the contributions to the public consultation on the operations of the European Supervisory Authorities (ESAs), which ran from 21 March to 16 May 2017. Among the findings were that the ‘vast majority’ of respondents felt that sectoral supervision functions well and satisfactorily.
On 16 June 2017, the Council of the EU agreed its position on the European Commission’s draft directive on the ranking of unsecured debt instruments in insolvency proceedings and draft regulation on transitional arrangements to phase in the regulatory capital impact of IFRS 9. The draft regulation also contains a phase-out of provisions on the large exposures treatment of public sector debt denominated in non-domestic EU currencies.
On 16 June 2017, the EBA received a notification regarding the resolution action taken by the Single Resolution Board (SRB) in respect of Banco Popular Español as the conditions for resolution were met. The SRB adopted a resolution scheme providing for the application of the sale of business tool. Following a marketing process, the SRB decided to transfer Banco Popular to Banco Santander S.A. and to exercise the power of write-down and conversion of capital instruments prior to the transfer in order to address the shortfall in the value of the Institution.
On 19 June 2017, the ECB published the text of the emergency liquidity assistance (ELA) agreement following a decision by its governing council on 17 May 2017, with the aim of further increasing transparency regarding ELA.
On 19 June 2017, the Prudential Regulation Authority (PRA) updated its remuneration rules webpage to inform firms that it has updated the notes section of the Remuneration Policy Statement (RPS) Table 7 to notify firms that they may include information in relation to the malus applied to buy-out awards within Part C of table 7, where appropriate.
On 19 June 2017, the PRA set out guidance to assist firms applying for permissions under the Capital Requirements Regulation (CRR). The PRA lists the information that should accompany applications and provides notes to assist firms on common applications and the issues that arise.
On 20 June 2017, a corrigendum to Commission Delegated Regulation (EU) 2015/63 of 21 October 2014 supplementing Directive 2014/59/EU of the European Parliament and of the Council (the Bank Recovery and Resolution Directive, (BRRD)), with regard to ex ante contributions to resolution financing arrangements, was published in the Official Journal of the EU.
On 20 June 2017, the BoE published the materials to be used by the firms participating in the IFRS 9 exercise run alongside the 2017 concurrent stress test (CST).
On 20 June 2017, the ECB published a working paper on the trade-off between additional loss-absorbing capacity and potentially higher bank risk-taking associated with the introduction of the Basel III Leverage Ratio. The authors suggest that a leverage ratio requirement would lead to a significant decline in the distress probability of highly leveraged banks.
On 21 June 2017, the PRA published consultation paper CP9/17, which proposes a new supervisory statement (SS) on recovery planning that would supersede SS18/13 'Recovery planning' and which sets out additional expectations of firms. The consultation closes on 21 September 2017.
On 21 June 2017, the ECB published a letter it sent to banks within the scope of the Single Supervisory Mechanism Regulation (EU) 1024/2013 (SSM Regulation on its competence to exercise supervisory powers granted under national law.
On 21 June 2017, the PRA issued a consultation on a proposal on counterparty credit risk (CCR). It concerns the threshold for, and objective criteria to waive, the requirement to disclose the template ‘EU CCR5-B—Composition of collateral for exposures to CCR’ (CCR5-B) of the European Banking Authority (EBA) guidelines on disclosure requirements under Part 8 of Regulation (EU) 575/2013 (the Capital Requirements Regulation). The consultation closes on 21 August 2017.
On 16 June 2017, the executive director for UK deposit takers supervision at the BoE, James Proudman, reminded banks that ring-fencing is coming soon, with implementation due by 1 January 2019. Speaking at the British Bankers' Association, Mr Proudman provided an overview of the implementation of the new regime, and said that the BoE would require 'full and prompt implementation' by the 2019 deadline.
On 19 June 2017, the ECB published a speech by Sabine Lautenschläger, a member of its executive board and vice-chair of its supervisory board, delivered at the High-Level Meeting on Cyber Resilience in Frankfurt. Ms Lautenschläger said one of the most important defences against cyber threats was basic IT security, and that the ECB was looking to harmonise regulation in this area across Europe.
On 20 June 2017, the Financial Stability Board (FSB) published for public consultation draft supplementary guidance on the FSB principles and standards on sound compensation practices, regarding the use of compensation tools to address misconduct. The proposed guidance supplements the principles and standards that say compensation should be adjusted for all types of risk. Once finalised, the guidance will provide firms and supervisors with a framework to consider how compensation practices and tools, such as in-year bonus adjustments, malus and clawback, can be used to reduce misconduct risk and address misconduct incidents.
On 15 June 2017, the International Securities Services Association (ISSA) issued a revised version of its ‘Financial crime compliance principles for securities custody and settlement’. The Principles aim to protect the global securities custody and settlement infrastructure and its participants from criminal activity. The new edition makes minor technical amendments aiming at consistency and recommended by the Financial Crime Compliance Working Group to the Board of ISSA. It does not reflect a substantial review of the Principles.
On 16 June 2017, the FCA instituted criminal proceedings against Fabiana Abdel-Malek, a former compliance officer employed by UBS AG's London branch, and Walid Anis Choucair following a joint investigation with the National Crime Agency.
On 20 June 2017, the Serious Fraud Office (SFO) charged Barclays Plc, as well as four individuals formerly connected with the bank, with conspiracy to commit fraud and the provision of unlawful financial assistance contrary to the Companies Act 1985. The charges relate to the 2008 banking crisis, during which Barclays raised £11.8bn from Qatar, and gave the country a £3bn loan, in order to avoid a taxpayer bailout. The defendants will appear before Westminster magistrates’ court on 3 July 2017.
On 15 June 2017, the FCA published a speech by its director of investigations, Jamie Symington, entitled ‘Our investigations—the evolving approach’, given at the Legal Week Banking Litigation and Regulation Forum. Mr Symington highlighted that the point of an FCA investigation is to find out what has happened in any given situation, and not necessarily as a precursor to enforcement. He noted that, in this respect, the approach that the FCA is taking to investigations is changing in line with its mission and the future challenges faced by the industry.
On 16 June 2017, the Financial Ombudsman Service (FOS) issued a consultation on proposed amendments to its standard terms affecting businesses subject to its voluntary jurisdiction. The FOS wants to bring its voluntary jurisdiction rules for PPI claims into line with the Financial Conduct Authority (FCA) rules under the compulsory jurisdiction. The change would set a deadline by which PPI complaints would—other than in limited circumstances—need to be made to firms or the FOS, or the right to have them assessed would be lost. The consultation closes on 12 July 2017.
On 21 June 2017, the government announced it intends to introduce legislation to establish a new single financial guidance body to replace the three current providers of publicly funded financial guidance, namely The Money Advice Service (MAS), The Pensions Advisory Service (TPAS) and the Department for Works and Pensions' ‘Pension Wise’ guidance. Following its announcement in the government's March 2016 Budget, the legislation also seeks to strengthen the regulation of claims management companies by transferring regulatory responsibility to the FCA.
On 15 June 2017, the Global Financial Markets Association (GFMA) published video highlights from a panel session marking the launch of the FX Global Code on 25 May 2017. In the panel, which was hosted by the GFMA in conjunction with other trade bodies, some of the key figures behind the development of the Code discuss issues such as the background to the Code, its main elements and plans for promoting adherence.
On 15 June 2017, the European Money Markets Institute (EMMI) issued a consultation on a new reference index for the Euro repo market. The consultation paper sets out a specification and a calculation methodology for a new pan-European repo benchmark. It intends to provide the market with a credible and robust index which is aligned with regulatory requirements and fills the gap left following the discontinuation of Eurepo. Views are sought by 14 July 2017.
On 15 June 2017, the chief executive of the International Swaps and Derivatives Association (ISDA), Scott O'Malia, warned that lack of clarity around how the equivalence process will work under the EU Benchmarks Regulation is creating risks that EU entities may be unable to use new third-country benchmarks from next year. Speaking at an ISDA symposium on financial benchmarks, Mr O'Malia also raised similar concerns regarding EU-administered benchmarks.
On 16 June 2017, Scott O'Malia, chief executive of ISDA, called for a review of the new MiFID II position limits regime after it is implemented in 2018. In a speech given to industry experts and public authorities on 14 June 2017, Mr O'Malia warned that the roll-out of the new rules will be impacted by the technical complexity of developing a methodology for calculating the position limits, as well as the short time provided to implement the rules and the global nature of the markets.
On 16 June 2017, Commission Implementing Regulation (EU) 2017/1005 of 15 June 2017 laying down implementing technical standards (ITS) with regard to the format and timing of the communications and the publication of the suspension and removal of financial instruments pursuant to Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments (MiFID II) was published in the Official Journal of the EU.
On 17 June 2017, Commission Delegated Regulation (EU) 2017/1018 of 29 June 2016 supplementing MiFID II with regard to regulatory technical standards (RTS) specifying information to be notified by investment firms, market operators and credit institutions was published in the Official Journal on 17 June 2017.
On 19 June 2017, ESMA issued a consultation paper on trading obligation for derivatives under the Markets in Financial Instruments Regulation (EU) 600/2014 (MiFIR) (ESMA70-156-71). The consultation paper presents ESMA’s approach for determining which derivatives should be subject to the trading obligation (TO) based on feedback and comments received from stakeholders following the publication of a discussion paper in September 2016. ESMA will consider all comments received by 31 July 2017.
On 19 June 2017, the FCA issued a reminder for firms that need to change their regulatory permissions as a result of MiFID II should submit a complete application for authorisation or a variation of permission to the FCA without delay.
On 20 June 2017, the European Commission published the text of a draft Delegated Regulation amending Delegated Regulation (EU) 2017/565 regarding the specification of the definition of systematic internalisers (SIs).
On 20 June 2017, ESMA published a working paper ‘Collateral scarcity premia in Euro area repo markets’. The role of collateral became increasingly significant since the global financial crisis, partly due to regulatory reforms. Using bond-level data from both repo and securities lending markets, the working paper introduces a new measure of collateral reuse and studies the drivers of the cost of obtaining high-quality collateral, ie the collateral scarcity premium, proxied by government bond repos.
On 21 June 2017, Commission Implementing Regulation (EU) 2017/1093 of 20 June 2017 laying down implementing technical standards (ITS) with regard to the format of position reports by investment firms and market operators has been published in the Official Journal of the EU.
On 13 June 2017, the European Ombudsman ruled that the European Central Bank (ECB) was right to refuse to intervene in a dispute between a borrower and a Dutch bank about the interest rate of a mortgage. The Ombudsman agreed that the ECB did not have the power to intervene in the matter because its tasks under the Single Supervisory Mechanism (SSM) do not include consumer protection.
On 14 June 2017, the Finance & Leasing Association (FLA) and the UK Cards Association launched a new guide that helps finance providers identify and support customers in vulnerable situations during the credit application process. ‘Vulnerability: a guide for lending’ focuses on supporting customers with a mental capacity limitation that may affect their decision-making abilities.
On 19 June 2017, the PRA issued a Policy Statement (PS13/17) providing feedback on responses to consultation paper 29/16 ‘Residential mortgage risk weights’. The consultation paper sets out proposed changes to the calculation of risk-weighted capital requirements in relation to residential mortgage portfolios. The Policy Statement, which is relevant to banks and building societies that use the internal ratings-based (IRB) approach to calculate credit risk capital requirements for residential mortgages, contains the final amendments to Supervisory Statement 11/13 ‘Internal ratings-based (IRB) approaches’.
On 21 June 2017, the government announced it intends to introduce legislation to deliver a consumer credit market that provides a better deal for consumers. They are proposing, among other things, to repeal the Bills of Sale Acts and replace them with a Goods Mortgage Act that will allow individuals to use their existing goods (such as a vehicle) as security for a loan.
On 15 June 2017, EIOPA published new sets of Q&As on (EU) No 2015-2450 with regard to the templates for the submission of information to the supervisory authorities, and on Commission Delegated Regulation (EU) 2015/35 supplementing the Solvency II Directive 2009/138/EC.
On 15 June 2017, Insurance Europe responded to the European Commission’s consultation on ‘Fintech: a more competitive and innovative European financial sector’, warning that care should be taken not to impede growth or stifle the use of innovative technologies through regulation that is obstructive or that quickly becomes out of date. The response called for technology-neutral and activity-based regulation, to ensure consumers are effectively and equally protected regardless of the service provider.
On 16 June 2017, Admiral agreed with the FCA to contact customers who renewed their policies after 1 April 2017, who may have received inaccurate information in their renewal documents. If affected customers choose to go to another insurer, they will be able to cancel without penalty and will have their premium refunded.
On 16 June 2017, EIOPA published a speech given by its chair, Gabriel Bernardino, on 8 June 2017, in which he discusses EIOPA's approach to EU regulation and supervision, in particular with regard to Solvency II. Mr Bernardino also discusses EIOPA’s approach to Brexit, its expectations of EU insurance companies, and the development of international capital standards.
On 19 June 2017, EIOPA published a supervisory statement outlining the first supervisory experiences on how European (re)insurance companies have implemented the Own Risk and Solvency Assessment (ORSA) process. The assessment is part of the undertakings' risk management and regulated by Article 45 of the Solvency II Directive.
On 20 June 2017, EIOPA published its June 2017 financial stability report on the reinsurance and occupational pensions sectors in the European Economic Area (EEA).
On 20 June 2017, the FCA is sought views and evidence on access issues related to insurance. It is particularly interested to hear about challenges firms face in providing travel insurance for consumers who have, or have had, cancer, and the challenges for these consumers in accessing insurance. The paper is also looking at the reasons for pricing differences in premiums quoted.
On 21 June 2017, the FCA issued a consultation on new proposals on advice relating to pension transfers where consumers have safeguarded benefits, primarily for transfers from defined benefit to defined contribution pension schemes. The consultation closes on 21 September 2017.
On 15 June 2017, the FCA provided an update on its regulatory sandbox and published a list of firms that were successful in their applications to begin testing in the second round of the sandbox.
On 15 June 2017, the EBA responded to the European Commission’s consultation on ‘Fintech: a more competitive and innovative European financial sector’, calling for a bespoke EU regulatory regime for smaller platforms, and saying it welcomes the prospect of RegTech.
On 15 June 2017, the British Bankers’ Association (BBA) and Payments UK (PUK) issued a joint response to the European Commission’s consultation ‘FinTech: A more competitive and innovative European financial sector’, published on 23 March 2017. The BBA and PUK broadly welcome the co-ordination of the EU FinTech agenda, but warn that due to the extensive amount of work progressing at pace across the EU, there is a risk of duplication and error if there is not proper co-ordination.
On 16 June 2017, EIOPA responded to the European Commission consultation on FinTech: A more competitive and innovative European Financial Sector, saying EIOPA will continue to monitor digitalisation developments and address key aspects through its Consumer Trends and Financial Stability reports. EIOPA will also continue considering emergent supervisory issues, including in the areas of Big Data, cyber risks and supervisory approaches to financial innovation.
On 19 June 2017, Insurance Europe outlined its views on the anticipated proposals from the European Commission for a pan-European personal pensions product (PEPP). Insurance Europe welcomes the project of a PEPP as a way to increase both the share of the population with private pensions and the allocation of funds to long-term investments.
On 20 June 2017, the Payment Systems Regulator (PSR) published its final decisions on the remedies it has proposed as part of its market review 15/2.5 into the ownership and competitiveness of central payment systems infrastructure provision. In July 2016 the PSR published its final report on the central infrastructure that supports the three interbank payment systems—Bacs, Faster Payments Service (FPS) and LINK. The market review is part of wider work the PSR has been doing over the past two years to encourage competition and innovation across the payments industry.
On 20 June 2017, the Competition and Markets Authority (CMA) announced it is consulting on draft rules of procedure to govern appeals that may be made to it under the Financial Services (Banking Reform) Act 2013, s 79 (the Act) in respect of certain decisions made by the Payment Systems Regulator under the Act. The CMA is also consulting on a draft guide intended to assist participants in such appeals. Period for comment ends on 12 July 2017.
On 20 June 2017, the UK Cards Association reported a 146% increase in the number purchases made using credit and debit cards between 2006 and 2016. The growth in the number of card transactions has outstripped the rise in the amount spent, showing consumers increasingly prefer to use cards instead of cash for lower value payments.
On 21 June 2017, the EBA set out its reasons for disagreeing with three of the proposals in the European Commission’s draft regulatory technical standards on the separation of card payment schemes and processing entities under the Interchange Free Regulation (IFR). The IFR aims to enhance competition in the internal market for card-based payments.
On 12 June 2017, the US Department of the Treasury issued the first in a series of reports to President Trump examining the US’s financial regulatory system and detailing executive actions and regulatory changes that can be immediately undertaken. Among other things, the report concludes that community financial institutions, such as banks and credit unions, are ‘critically important to serve many Americans’. Further, capital, liquidity and leverage rules ‘can be simplified to increase the flow of credit’.
The Court of Justice of the European Union gave a preliminary ruling in which it decided that Article 4(1)(2) of Directive (EC) 2004/39, read in conjunction with point 1 of Section A of Annex I to that directive, should be interpreted as meaning that the investment service consisting in the reception and transmission of orders in relation to one or more financial instruments did not include brokering with a view to concluding a contract covering portfolio management services.
The Court of Justice of the European Union gave a preliminary ruling in which it decided, among other things, that Directive 2013/11/EU should be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which prescribed recourse to a mediation procedure, in disputes referred to in Article 2(1) of that directive, as a condition for the admissibility of legal proceedings relating to those disputes, to the extent that such a requirement did not prevent the parties from exercising their right of access to the judicial system.concerning the interpretation of Directive 2013/11/EU and of Directive 2008/52.
 EWCA Civ 428
The Court of Appeal, Civil Division, allowed the claimant bank's appeal against the judge's decisions, upholding the defendant Italian local authority's defences to claimant's claim for money owing under interest rate swap. The defendant had had capacity to enter the swaps, its financial defences failed, as the mandatory rules of Italian law had no application to the swaps and it had not been entitled to counterclaim for damages on the basis of a statutory tort arising from the claimant's alleged breaches of its obligations.
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