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Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 23 February 2017.
On 20 February 2017, the International Regulatory Strategy Group (IRSG) published a paper on central counterparties (CCPs) post-Brexit, which looks at the current regulatory and legal status of CCPs and the effects on UK CCPs and the markets generally if there is no change after Brexit.
On 16 February 2017, the Financial Conduct Authority (FCA) issued its Regulation Round-up for February 2017. Hot topics in this issue focus on the role of competition in financial services and potential competition law infringements that the FCA has uncovered.
On 15 February 2017, the European Parliament published a resolution on the EU Banking Union—Annual Report 2016. It focuses on the areas of supervision, resolution and deposit insurance.
On 16 February 2017, the European Banking Authority (EBA) published a revised work programme for 2017, which includes some amendments from the previous draft published in September 2016.
On 16 February 2017, the City of London Law Society (CLLS) published its response to the consultation launched by the FCA in October 2016 on its future mission. In the letter, the CLLS Regulatory Law Committee agrees with the FCA that introducing a directly enforceable duty of care for financial firms would be unnecessary.
On 17 February 2017, the General Secretariat of the Council of Europe released an update on the state of play of legislative proposals in the field of financial services.
On 17 February 2017, Decision (EU) 2017/274 of the ECB of 10 February 2017 laying down the principles for providing performance feedback to national competent authority sub-coordinators was published in the Official Journal of the EU. The Decision entered into force on 15 February 2017. Decision (EU) 2016/3 is repealed.
On 21 February 2017, the British Bankers’ Association (BBA) published its response to the FCA Mission Statement of 26 October 2016. Setting out its own views on the best regulatory approach, the BBA says the FCA’s Mission Statement can deliver those goals to create a proactive, forward-thinking, growth-orientated sector willing to invest in innovations. But the BBA also asked the FCA to consider importing ‘regulated self-assuring’ and ‘earned recognition’ principles into its Mission Statement, with an emphasis on outcomes, rather than on a rules-based approach.
On 17 February 2017, the European Central Bank (ECB) launched a public consultation on draft amendments to Regulation (EU) 2015/234 of the ECB on reporting of supervisory financial information. The proposed amendments result from the changes to be introduced to Commission Implementing Regulation (EU) 680/2014 on supervisory reporting of institutions with regard to financial reporting (FINREP) following the changes to International Accounting Standards. Other changes are also proposed, based on experience gained since the ECB regulation was first implemented on 31 December 2015. The deadline for comments is 27 March 2017.
On 16 February 2017, the Prudential Regulation Authority (PRA) published consultation paper CP2/17: Occasional Consultation Paper (OCP) which sets out a number of proposed changes to PRA rules and existing supervisory statements (SS), and is relevant to all PRA authorised firms.
On 16 February 2017, the PRA published a revised supervisory statement SS25/15: Solvency II: regulatory reporting, internal model outputs and a revised supervisory statement SS26/15: Solvency II: ORSA and the ultimate time horizon—non-life firms. The updates to these statements and accompanying templates and LOG files were consulted on in PRA Consultation Paper (CP) 31/16 ‘Updates to SS25/15 and SS26/15’.
On 17 February 2017, the EBA published a table indicating which EEA competent authorities comply or intend to comply with the EBA’s guidelines on communication between competent authorities supervising credit institutions and the statutory auditor(s) and the audit firm(s) carrying out the statutory audit of credit institutions. The guidelines were published in July 2016 and will apply from 31 March 2017.
On 17 February 2017, the Single Resolution Board (SRB) published a report setting out the steps it took in 2016 in developing a minimum requirement for own funds and eligible liabilities (MREL), which the Bank Recovery and Resolution Directive (BRRD) requires so that banks can absorb losses and restore their capital position in the event of a crisis. The report also sets out the SRB’s plans for developing the MREL going forward.
On 17 February 2017, FIA, the Clearing House Association and the Securities Industry and Financial Markets Association (SIFMA) responded to the Financial Stability Board’s (FSB) guidance on continuity of access to Financial Market Infrastructures (FMIs) for a firm in resolution (released on 16 December 2016).
On 17 February 2017, the Global Association of Central Counterparties (CCP12) and the European Association of CCP Clearing Houses (EACH) made a joint response to the FSB's consultation on Guidance on Continuity of Access to FMIs for a firm in resolution (released on 16 December 2016).
On 21 February 2017, the FCA published a a speech by the FCA's chief economist Peter Andrews, to the Cornerstone Research dinner in London on 31 January 2017, where he assessed the risks and rewards of shadow banking and said it could bring significant welfare gains if monitored carefully. He also said it can efficiently lower the costs of credit intermediation, avoid externalities (because losses fall on investors) and make competition more intense.
On 21 February 2017, the PRA published a letter dated 7 February 2017, from the Chancellor of the Exchequer, Philip Hammond, replying to a 27 January 2017 letter from the chair of the Treasury Select Committee, Andrew Tyrie MP, on the Capital Requirements Regulation (EU) 575/2013 (CRR) and the Fourth Capital Requirements Directive 2013/36/EU (CRD IV). Mr Tyrie had relayed the concerns of the PRA about EU regulatory proposals with respect to intermediate holding companies (IHCs) and the leverage ratio. Saying the plans were ‘as illogical as they are unreasonable’, Mr Tyrie wanted to know if the government agreed. Mr Hammond said he had told ECOFIN counterparts that the UK government shared the PRA’s concerns over the proposals for IHCs, but backed the proposals on the leverage ratio.
On 21 February 2017, the ECB published a letter to the management of significant institutions on its plan to develop comprehensive Single Supervisory Mechanism (SSM) guides on the Internal Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity Adequacy Assessment Process (ILAAP). ICAAP and ILAAP play a key role in the SSM Supervisory Review and Evaluation Process (SREP) methodology.
On 21 February 2017, the Deputy Governor for Financial Stability of the Bank of England (BoE), Sir Jon Cunliffe, gave a speech at the Official Monetary and Financial Institutions Forum examining operational risk, in particular cyber risk, prudential risk, and the regulation and supervision of cross-border infrastructure.
On 20 February 2017, the Joint Committee of the European Supervisory Authorities (ESAs) published an opinion on the risks of money laundering and terrorist financing affecting the EU's financial sector.
On 16 February 2017, Express Gifts Ltd, a direct mail order and online business with permission to sell general insurance products, agreed with the FCA that it will provide £12.5m redress to approximately 330,000 customers who were sold insurance that offered little or no value.
On 16 February 2017, the Complaints Commissioner (CC) upheld complaints against the FCA and made recommendations in two separate decisions. One case involved the FCA’s handling of correspondence with the complainant about its regulation of the Co-operative Bank (Co-op), and the other related to misleading information on the Financial Services Authority (FSA) register about two former directors of a financial advice firm.
In a recent opinion, following a request for a preliminary ruling from the European Court of Justice (ECJ) by the District Court of Verona, Advocate General Saugmandsgaard (the AG), among other matters, considered the relationship between Directive 2008/52/EC (the Mediation Directive) and Directive 2013/11/EU (the ADR and Consumer Disputes Directive) in light of a consumer dispute which brought into focus certain requirements of Italian mediation law.
On 22 February, the Financial Reporting Council (FRC) announced that, following an admission of misconduct, the former Chief Financial Officer and Actuaries of RSA Insurance Ireland Ltd (RSAII) have agreed to sanctions including a £35,000 fine and a three-year exclusion from of the Chartered Institute of Management Accountants (CIMA). The sanctions follow the conclusion of the FRC's investigation into financial irregularities at the company in respect of the year ended 31 December 2012 and relevant prior periods.
On 16 February 2017, the BoE published a supplementary consultation on reform of the SONIA benchmark. The supplementary consultation, which follows earlier consultations in November 2015 and December 2016, revises the BoE’s proposed approach on one specific issue relating to the averaging methodology to be used for SONIA, and seeks further feedback on the new proposal.
On 16 February 2017, the CLLS published its response to the third consultation by the FCA on the Markets in Financial Instrument Directive (MiFID II) implementation, which was launched in September 2016. The CLLS Regulatory Law Committee, which prepared the response, queries the extra-territorial impact of certain UK-specific gold-plating aspects of MiFID II implementation. It also raises some concerns regarding the FCA’s proposed research requirements and its plan to extend taping requirements to non-MiFID firms.
On 17 February 2017, the International Organisation of Securities Commissions (IOSCO) published public comments received in response to the consultative report entitled ‘Harmonisation of critical OTC derivatives data elements (other than UTI and UPI)—second batch’, which IOSCO and the Committee on Payments and Market Infrastructures (CPMI) published in October 2016.
On 17 February 2017, the ECB published a working paper (No 2020/February 2017) which considers high frequency trading (HFT) and its effect on market liquidity. The paper, authored by Giovanni Cespa and Xavier Vives, uses the US Treasury Bond flash crash of 15 October 2014 as a test case in looking at the fragility of markets that may be exacerbated by HFT.
On 20 February 2017, the Board of IOSCO published a report, ‘Findings of the Survey on Loan Funds’, which describes how the market for loan funds has evolved in different jurisdictions and explains how regulators are addressing the risks associated with loan funds.
On 22 February 2017, the BoE and the FCA announced they had reviewed their performance in 2016 under their Memorandum of Undertanding (MoU) on co-operation in regard to supervision of market infrastructure and concluded that the MoU’s arrangements for co-operation remain effective, with appropriate co-ordination and no material duplication.
On 21 February 2017, ESMA issued an updated guidelines compliance table listing competent authorities complying or intending to comply with ESMA’s guidelines on exemption for market making activities and primary market operations under the Short Selling Regulation (EU) 236/2012 (SSR) (ESMA/2013/74).
On 15 February 20147, the Information Commissioner’s Office (ICO) announced that it has fined credit broker Digitonomy Ltd £120,000 for being responsible for millions of marketing texts sent without proper consent.
On 15 February 2017, the Personal Finance Society (PFS) again called on the government to stop using the word ‘advice’ where, in the PFS’s view, it means ‘guidance’ or ‘signposting’. The PFS wants the word substituted in all branding, marketing and communications associated with the new single public financial guidance body. In a response to the government consultation on public financial guidance, the PFS says the term ‘advice’ should be used only when specifically referring to regulated financial advice provided by a professional financial adviser.
On 16 February 2017, the Association of British Insurers (ABI) said the government should not punish people who access pension freedoms early by reducing the maximum amount of pension savings that qualify for tax relief—known as the Money Purchase Annual Allowance—from £10,000 to £4,000.
On 17 February 2017, the European Insurance and Occupational Pensions Authority (EIOPA) published a Decision on the Collaboration of the Insurance Supervisory Authorities from all the EU Member States in line with the requirements laid down in the Solvency II Directive (Directive 2009/138/EC).
On 17 February 2017, the Lloyd’s Market Association issued new guidance on Own Risk & Solvency Assessment (ORSA) reports. ORSA reports are produced annually by chief risk officers (CROs) for board members and regulators. They provide the insurer’s own assessment of current and future risks, including a judgement about their ability to respond to potential capital needs.
On 21 February 2017, the BoE published a speech on ‘Solvency II one year in’ given by David Rule, its executive director of insurance supervision, at the Association of British Insurers. In the speech Mr Rule looks back at how the Solvency II Directive (2009/138/EC) was designed to work for the UK insurance industry, and the PRA's approach to implementation and experience of operating the Solvency II framework in the first year of its life, identifying areas where Solvency II needs improvement.
On 21 February 2017, EIOPA published a speech by the chair of EIOPA, Gabriel Bernardino. Speaking at a conference on Occupational Pensions between European Union Rules and National Solutions in Vienna on 17 February 2017, Mr Bernardino said the EU faces severe concerns about sustainable and adequate pensions, given an ageing population, labour market changes and pressures on national budgets. The speech set out EIOPA’s work to harmonise Institutions for Occupational Retirement Provisions (IORPs) and the thinking behind the IORP II Directive, the proposals for a pan-European Personal Pension Product (PEPP), and a second regime for Defined Contribution Occupational Pensions Schemes.
On 21 February 2017, EIOPA published three new sets of Q&As relating to the Solvency II Directive 2009/138/EC, (Solvency II).
On 21 February 2017, the CEO of the Lloyd’s Market Association, David Gittings, listed the association’s three top priorities for 2017: Brexit, market modernisation, and supporting the London Market Group.
On 16 February 2017, the EBA published a consultation on its draft guidelines on the complaints procedures to be taken into consideration by competent authorities (CAs) in order to ensure and monitor effective compliance by payment service providers (PSPs) of the revised Payment Services Directive (Directive (EU) 2015/2366) (PSD2). The draft guidelines are part of the EBA’s work to support the core objectives of the PSD2 of strengthening the integrated payments market across the European Union, ensuring a consistent application of the legislative framework and promoting transparency.
On 16 February 2017, the European Payments Council published all the comments it received in relation to its consultation on first rulebook version of the SEPA Instant Credit Transfer (SCT Inst) scheme, as well as the EPC’s position on each of them.
On 16 February 2017, the Payment Systems Regulator (PSR) announced it had received its first application under section 57 of the Financial Services (Banking Reform) Act 2013 (FSBRA 2013), which gives the PSR the power to vary the terms of agreements relating to access to payment systems. In its application, a payment services provider (PSP) has asked the PSR to use its powers to vary the agreement it has with an indirect access provider (IAP).
On 21 February 2017, the BoE director of financial market infrastructure, David Bailey, delivered a speech on the infrastructure underpinning retail payment systems, examining the role of innovation in the sector and outlining the BoE’s thinking across four main areas. The speech, ‘From design to delivery: stability in the new retail payments infrastructure’, was given at the Westminster Business Forum Keynote Seminar: The future for UK payments policy—infrastructure, regulation and consumer priorities, on 21 February 2017.
On 21 February 2017, the EBA published a speech on the future of payments policy given by the chair of the EBA, Andrea Enria, at the Westminster Forum on 21 February 2017. The speech focuses on the second Payment Services Directive (EU) 2015/2366 (PSD2), setting out why PSD2 and the main policy choices made at the EU level remain relevant for the UK, notwithstanding the imminent triggering of Article 50 by the UK government.
On 22 February 2017, the FCA and the Ontario Securities Commission (OSC) agreed to refer to one another innovative FinTech businesses seeking to enter the other’s market.
On 21 February 2017, the International Monetary Fund (IMF) adopted a set of proposals on Islamic banking and called for a more comprehensive set of policies to ensure financial stability in countries where it takes place, to support the sound development of the industry.
Visa Inc settled a £500m antitrust damages case with 13 of 14 retailers, Law360 reports. The companies were seeking damages for overcharging of bank-to-bank interchange fees on transactions. The settlement was discussed during a High Court hearing on 16 February in a separate interchange fees suit between MasterCard and the merchants.
 UKUT 0082 (TCC)
The Upper Tribunal permitted the FCA to make all except one of its requested amendments to its Statement of Case in relation to the reference made by Mr Bittar on 12 May 2015.
 UKUT 0548 (TCC)
The Upper Tribunal refused an application for a direction to suspend a decision notice issued by the Financial Conduct Authority (FCA) to the applicant (Montana).
CP16/37: Implementing information prompts in the annuity market
the abolition of stage 2 and 3 discounts to penalty in settlement
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