Weekly highlights—22 September 2016

Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 22 September 2016.

Brexit

Treasury Committee—preserving existing passporting arrangements at risk

On 20 September 2016, the House of Commons Treasury Committee published correspondence from the Financial Conduct Authority (FCA) CEO Andrew Bailey on the number of UK financial services firms holding passports to conduct business in other EU Member States. Mr Bailey also set out the number of European Economic Area (EEA) firms holding passports to conduct business in the UK. Chairman of the Treasury Committee, Andrew Tyrie, believes businesses' passporting arrangements could be put at risk following Brexit.

Financial Conduct Authority updates

FCA issues update on its February 2016 discussion paper—ageing population

On 15 September 2016, the FCA published an update to its discussion paper (DP16/1) on the needs of older customers first published in February 2016, examining how the financial services sector can meet the needs of older consumers. Key areas of focus include determining how firms can help consumers better engage with products and services in retail banking, assessing what happens as the mind ages, and what that means in terms of products, services, and distribution, and determining if there is more that can be done to help consumers navigate markets where upper age limits exist.

FCA occasional paper on asymmetries in dark pool reference prices

On 15 September 2016, the FCA published occasional paper 21: 'Asymmetries in dark pool reference prices'. The aim of the paper is twofold: (1) to examine the prevalence of trades at stale reference prices, their costs and impact on different market participants, and (2) investigate questions concerning the choice of reference price when implementing best execution where a dark pool references a worse price than the lit market.

FCA regulation round-up September 2016

On 16 September 2016, the FCA published its regulation round-up for September 2016.

Prudential requirements

European Parliament briefing—Single Supervisory Mechanism—the evolution of SSM banks’ performances since 2013

On 16 September 2016, the European Parliament published a briefing paper analysing the financial performance of the banks that are directly supervised by the European Central Bank (ECB), on the basis of their financial statements as at 31 December 2013, 2014 and 2015. The performances of banks directly supervised by the ECB have significantly improved since 2013. Most indicators point to a healthier banking sector, albeit the operational profitability has slightly deteriorated for some banks and most banks have increased their exposure to sovereign risk.

CRD IV Implementing Regulation for templates, definitions and IT solutions adopted by the Commission

On 19 September 2016, the European Commission adopted an Implementing Regulation laying down implementing technical standards (ITS) for templates, definitions and IT-solutions to be used by institutions when reporting to the European Banking Authority (EBA) and to competent authorities in accordance with Article 78(2) of CRD IV (Directive 2013/36/EU).

ECB executive board member speech on the implications of low growth and low interest rates

On 19 September 2016, Yves Mersch, a member of the executive board of the ECB made a speech focusing on the implications of the low growth and low interest rate environment that banks are currently operating in, and the as yet incomplete implementation of the tougher regulatory regime imposed on banks following the financial crisis triggered by the collapse of Lehmann Brothers eight years ago.

House of Commons European Scrutiny Committee considers the Capital Markets Union and CRD IV remuneration

On 20 September 2016, the European Scrutiny Committee of the House of Commons issued two reports on the following EU legislation considered by the Committee: the Capital Markets Union (CMU); and the remuneration rules contained in the amended Capital Requirements Directive and associated Regulation (together CRD IV).

Risk Management and Controls—financial crime

HM Treasury consults on transposition of MLD4

On 15 September 2016, HM Treasury published a consultation paper on the government’s approach to implementation of the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4), and those aspects of the Wire Transfer Regulation (Regulation (EC) 1781/2006) (WTR) that need to be transposed into national law.

Commission Delegated Regulation on anti-money laundering published in the Official Journal

On 20 September 2016, Commission Delegated Regulation (EU) 2016/1675 (of 14 July 2016) supplementing MLD4 of the European Parliament and of the Council by identifying high-risk third countries with strategic deficiencies was published in the Official Journal of the EU.

FFA launches ‘Take Five’ campaign to stop fraud

On 20 September 2016, Financial Fraud Action UK (FFA) launched the 'Take Five' campaign in an effort to protect people from customer targeted financial fraud, such as email phishing or phone and text-based scams. The FFA is leading the campaign on behalf of retail banks, card issuers and acquirers. It encourages consumers and businesses to stop and think before giving out personal information over the phone or through email.

Markets and Trading

FESE first European equity market report

On 15 September 2016, the Federation of European Security Exchanges (FESE) published the first European Equity Market Report which gathers data from all the market segments operated by FESE members (including Regulated Markets and Multilateral Trading Facilities) as well as from the major MTFs operated by investment firms in the European market. The FESE statistics methodology used in the report was agreed by all the trading venues involved, both RM and MTFs. For the first time since the start of MiFID, the report allows for an accurate comparison of trading statistics across trading venues.

European Parliament publishes amendments to the proposed Prospectus Directive

On 15 September 2016, the European Parliament published its requested amendments to the proposed Prospectus Directive.

Opportunities for greater standardisation in derivatives markets

On 16 September 2016, the International Swaps and Derivatives Association (ISDA) published a new whitepaper which identified a number of opportunities for greater standardisation and automation of derivatives trade processes, in order to achieve improved efficiency, reduced complexity and lower costs for market participants. ISDA, amongst other things, underlines the need to agree on common objectives, be they short-term solutions to current infrastructure challenges or longer-term objectives associated with process redesign.

Finance Bill 2016–2017 receives Royal Assent

On 16 September 2016, the Finance Bill 2016-2017 received Royal Assent and the text of the Finance Act 2016 was published. The Finance Act 2016 grants certain duties and amends the law relating to National Debt and the Public Revenue in relation to numerous types of income including income from transactions in securities.

ICE Clear Europe receives EMIR authorisation

On 19 September 2016, Intercontinental Exchange (NYSE:ICE) announced that the Bank of England (BoE) had authorised ICE Clear Europe as a central counterparty (CCP) in accordance with EMIR (European Market Infrastructure Regulation (EU) 648/2012).

CPMI launches task force to review the security of wholesale payments

On 16 September 2016, the Committee on Payments and Market Infrastructures (CPMI), the global standard setter for payment, clearing and settlement services announced that it had established a task force to look into the security of wholesale payments that involve banks, financial market infrastructures and other financial institutions.

Bank of England speech marks 20th anniversary of CREST

On 20 September 2016, the BoE published a speech given by Andrew Hauser; executive director for banking, payments and financial resilience at the CREST twentieth anniversary event in London. Mr Hauser explores the history of the CREST payments system, which now processes approximately a quarter of a trillion pounds’ worth of payments every day.

European leveraged finance issuance increases by 22% in Q1 2016

On 20 September 2016, the Association for Financial Markets in Europe (AFME) published a report showing that European leverage finance issuance had increased by 22% in Q1 2016.

ESMA updates list of authorised CCPs under EMIR

On 20 September 2016, the European Securities and Markets Authority (ESMA) published an updated list of Central Counterparties authorised to offer services and activities in the EU under EMIR (European Market Infrastructure Regulation (EU) 648/2012).

ESMA seeks views on implementation of MiFIR

On 21 September 2016, ESMA published a discussion paper (ESMA/2016/1389) regarding the trading obligations for derivatives under MiFIR. ESMA will consider all comments received by 21 November 2016.

HM Treasury consults on the amendment of the RAO definition of ‘financial advice’

On 21 September 2016, HM Treasury launched an eight-week public consultation seeking views on the costs, benefits and risks of amending the UK definition of ‘financial advice’. The deadline for responses is 15 November 2016.

The consultation follows the Financial Advice Market Review (FAMR), which examined the regulatory framework governing the provision of financial advice. Following FAMR, HM Treasury and the FCA recommended that the government should consult on amending the definition of regulated advice in Article 53 of the existing Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO), to bring it in line with the EU definition set out in the Markets in Financial Instruments Directive (MiFID).

Insurance and Pensions

European Parliament publishes the text of its resolution rejecting PRIPs

On 15 September 2016, the European Parliament published the text of the legislative resolution rejecting the European Commission's proposed Delegated Regulation supplementing the Regulation on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) Regulation 1286/2014 (PRIIPs Regulation) with regard to regulatory technical standards (RTS) on the presentation, content, review and revision of KIDs.

European Forum of Deposit Insurers publishes model Cooperation Agreement

On 16 September 2016, the European Forum of Deposit Insurers (EFDI) published its model Cooperation Agreement and supporting Rule Book, which it recommends to European Union Deposit Guarantee Schemes (DGS), with support of the EBA.

Insurance Europe showcases digitalisation highlights from European insurers

On 16 September 2016, Insurance Europe launched a dedicated online showcase of the ways that European insurers are embracing digitalisation. The showcase demonstrates how digitalisation and big data can benefit how insurance is sold and to detect or tackle fraud.

The showcase also provides information on how insurers can keep their customers’ data secure, and consumers can see how digitalisation is affecting:

  1. insurance distribution
  2. different product lines
  3. data protection and privacy
  4. cyber risks

FCA publishes feedback statement on big data in retail general insurance

On 21 September 2016, the FCA issued a feedback statement FS16/5 following its November 2015 call for input (on Big Data in retail general insurance focused on private motor and home insurance) to gain a better understanding of the use of data by firms, and how Big Data affects consumer outcomes or competition in the general insurance sector.

The FCA found broadly positive consumer outcomes resulted from the use of Big Data and stated Big Data can be used by firms to transform how consumers deal with insurance firm, allowing firms to develop new products as well as reducing form filling, streamlining sales and claims processes.

PRA Consultation Paper (CP32/16)—dealing with a market turning event in the general insurance sector

On 21 September 2016, the Prudential Regulation Authority (PRA) issued Consultation Paper (CP32/16) on dealing with a market turning event in the general insurance sector. The consultation paper sets out a draft supervisory statement on its expectations of general insurance firms regulated by the PRA in relation to significant general insurance loss events which might affect firms’ solvency and future business plans. The deadline for responses to the consultation is 21 December 2016.

Solvency II—PRA consults on proposed updates to supervisory statements SS25/15 and SS26/15

On 21 September 2016, the PRA issued Consultation Paper (CP31/16) on proposed updates to SS25/15 ‘Solvency II: regulatory reporting, internal model outputs’ and SS26/15 ‘Solvency II: ORSA and the ultimate time horizon’. The Consultation Paper is relevant to non-life UK insurance firms within the scope of Solvency II and to the Society of Lloyd’s in respect of syndicates and in respect of outputs of the Lloyd’s internal model. The deadline for responses for CP31/16 is 21 December 2016.

Council of the EU publishes ‘I/A’ item notes regarding PRIIPs

On 21 September 2016, the General Secretariat of the Council of the EU published three "I/A" revisions of a note (Revision 1, Revision 2, Revision 3) addressed to its Permanent Representatives Committee (COREPER), relating to the objection by the European Parliament and Council of the EU over the European Commission's proposed Delegated Regulation supplementing the Regulation on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) Regulation 1286/2014 (PRIIPs Regulation), with regard to regulatory technical standards (RTS) on the presentation, content, review and revision of KIDs and the conditions for fulfilling the requirement to provide KIDs.

Financial Services and Markets Act 2000(Qualifying EU Provisions) (Amendment) Order 2016

On 16 September 2016, the Financial Services and Markets Act 2000 (Qualifying EU Provisions) (Amendment) Order 2016 was published (SI 2016/936). The statutory instrument amends the Financial Services and Markets Act 2000 (FSMA 2000) in stating that directly-applicable regulations made under Solvency II (Directive 2009/138/EC) on the taking-up and pursuit of the business of insurance and reinsurance are specified as qualifying EU provisions for the purposes of various provisions of FSMA 2000. The changes come into force on 12 October 2016.

FCA speech sets out macroeconomic perspective on pensions and savings

On 16 September 2016, FCA Chief Executive Andrew Bailey delivered a speech at the 24th Pensions and Savings Symposium. The key points covered by the speech included: (a) pensions and long-term retirement savings being top of the FCA's agenda in terms of their importance to society, (b) the lifetime model being a core building block of macroeconomics which remains an essential lens through which to assess today’s challenges around retirement income and pensions, (c) the cost of the life cycle model—a home and a pension—in real terms has risen, and (d) whether pension saving would be assisted by people holding more housing in their stock of pension assets, based on the real appreciation in the value of housing.

Bank of England Insurance Supervision speech ‘Managing risk in a soft market’ published

On 21 September 2016, the BoE published the text of a speech given by David Rule, Executive Director of Insurance Supervision, on managing risk in a soft market.

Solvency II—PRA publishes a supervisory statement to internal models used by UK insurance firms

On 21 September 2016, the PRA published a supervisory statement (SS12/16) on changes to internal models used by UK insurance firms under the Solvency II Directive (2009/138/EC). The supervisory statement is relevant to firms with an internal model approval under Solvency II. It may also be of interest to UK Solvency II firms seeking approval to use an internal model in the future and also to UK Solvency II firms that are part of EEA or non-EEA groups with a group internal model.

Payment Services

Bank of England consults on Real-Time Gross Settlement (RTGS)

On 16 September 2016, the BoE published a consultation paper on 'A new RTGS service for the United Kingdom: safeguarding stability, enabling innovation'. RTGS lies at the heart of safeguarding the Bank’s mission for monetary and financial stability, providing the platform for sterling central bank reserves (the electronic counterpart to banknotes), and the ultimate risk-free means of final payment.

Payment Services Directive ECJ case opinion published

On 15 September 2016, Advocate General of the Court of Justice of the EU, Michal Bobek, delivered his opinion on BAWAG PSK Bank fur Arbeit und Wirtschaft und Osterreichische Postsparkasse AG v Verein fur Konsumenteninformation (Case C-375/15).

HM Treasury sets out UK compliance with the Payment Accounts Directive

On 18 September 2016, HM Treasury published a policy paper setting out how the UK has met its responsibilities under the EU Payment Accounts Directive (Directive 2014/92/EU or PAD). The UK government was required to have implemented PAD by 18 September 2016.

BRC annual survey shows decline of cash payments

On 20 September 2016, the British Retail Consortium (BRC) published its annual payments survey for 2015, which highlights a decline in cash usage caused by contactless payments. According to the survey, cash was used for less than half of all retail transactions across the UK in 2015. The use of cash in retail purchases has fallen almost 5% when compared to its total UK usage in 2014.

Investigations, enforcement and discipline

FCA issues final notice to Money Matcher Limited

On 14 September 2016, the FCA issued a final notice to Money Matcher Limited due to its inability to meet the threshold conditions, specifically the FCA was not satisfied that Money Matcher Limited had the appropriate non-financial resources to be able to meet paragraph 2D and 2E of the Financial Services and Markets Act 2000. The FCA refused the firms’ application for Part 4A permission.

CFO Lending customer redress scheme

On 19 September 2016, the FCA announced that payday lending firm, CFO Lending had entered into an agreement with the FCA to reimburse 97,000 customers £34m of redress for CFO’s unfair practices. This included £31.9m writing off customers’ outstanding balances and £2.9m in cash payments to customers. The unfair practices date back to CFO’s launch in April 2009.

Newmafruit Farms Ltd and others v Pither and others [2016] All ER  (D) 66 (Sep)

The Queen's Bench Division dismissed, in part, the claimants' application for summary judgment on a claim for repayment of loans which the first claimant had allegedly made to the first defendant in respect of a property development. The defendant had a reasonable prospect of establishing defences that some of the loans were unenforceable under the Consumer Credit Act 1974 and/or FSMA 2000. This was due to the first claimant allegedly carrying on a business of entering into 'regulated credit agreements' without a licence or authorisation or permission to do so and where the loans had been made and were being enforced in the course of that business. Summary judgment was granted in respect of some of the loans where none of the other defences relied upon in relation to them had any prospect of success.

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