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Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 23 March 2017.
The European Union (Notification of Withdrawal) Act 2017 received Royal Assent on 16 March 2017. It confers power on the Prime Minister to notify, under Article 20(2) of the Treaty on European Union, the United Kingdom’s intention to withdraw from the EU. This has effect despite any provision made by or under the European Communities Act 1972 or any other enactment.
On 20 March 2017, Sir Tim Barrow, the Permanent Representative to the EU, informed European Council President Donald Tusk that the UK government will trigger Article 50 of the Lisbon Treaty on 29 March 2017, Secretary of State for Exiting the EU, David Davis, has announced. In his announcement, Mr Davis reiterated the government’s commitment to seeking a deal which ‘works for every nation and region of the UK and indeed for all of Europe’.
On 21 March 2017, a meeting of the European Council was called for 29 April 2017 to adopt Guidelines for the Brexit talks, EU President Donald Tusk has announced prior to the EU–Japan Leaders’ meeting. Mr Tusk said the Council’s main priority for the negotiations must be to create as much certainty and clarity as possible for all citizens, companies and Member States that will be negatively affected by Brexit, as well as for the EU’s partners around the world.
On 21 March 2017, the government responded to the House of Lords European Union Committee report, ‘Brexit: financial services’, published on 15 December 2016. The government said it is trying to establish a close, new, relationship with the EU, with transitional provisions to avoid the cliff-edge scenario the Lords had warned of. It is seeking to negotiate the freest possible trade in goods and services, including financial services, between Britain and the EU, allowing British companies to trade with and operate within European markets—and let European businesses do the same in Britain.
On 21 March 2017, in a statement at the Association for Financial Markets in Europe (AFME) Board Meeting in Frankfurt, Sabine Lautenschläger, vice-chair of the supervisory board of the European Central Bank (ECB), considered the standards that will apply to UK banks which seek to obtain banking licences in Member States in the eurozone following Brexit. Among other things, Ms Lautenschläger highlights that UK banks seeking such licences will have to apply for one from the ECB. The ECB will resist any supervisory or regulatory 'race to the bottom'. Any bank that moves to the euro area will have to meet the ECB's standards. Further, the ECB will not accept empty shell companies. She further stresses all entities in the euro area must have adequate local risk management, sufficient local staff and operational independence.
On 17 March 2017, the Bank of England (BoE) published its Quarterly Bulletin for Q1 2017, which includes articles on how the Bank uses market intelligence to shape policy, why bank bondholders may be a good source of market discipline, and the impact of driverless cars on the insurance sector. The bulletin also includes the results of a survey on business investment and financing decisions.
On 16 March 2017, the Financial Conduct Authority (FCA) issued its Regulation Round-up for March 2017. Hot topics in this issue focus on the need for firms to apply for authorisation or variation of permission due to the implementation of MiFID II and the FCA's recent discussion paper on the practice of investing in illiquid assets through open-ended funds and the challenges it can pose.
On 21 March 2017, the FCA issued a warning about an email purporting to be from email@example.com. The email was not sent by the FCA and recipients should delete it without opening it.
On 21 March 2017, the FCA announced that HM Treasury had appointed Nick Stace as a non-executive director of the FCA for an initial term of three years, commencing 1 April 2017.
On 21 March 2017, the European Commission launched a consultation on the operations of the European Supervisory Authorities (ESAs)—the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA). The consultation is designed to, among other things, gather evidence on the tasks and powers, governance, supervisory architecture and funding of the ESAs, as well as identify areas where the effectiveness and efficiency of the ESAs can be strengthened and improved, while respecting the legal limitations imposed by the EU Treaties. It further seeks to provide a basis for concrete and coherent action by way of a legislative initiative, if required. The closing date for responses is 16 May 2017.
On 22 March 2017, Guideline (EU) 2017/469 of the ECB of 7 February 2017 amending Guideline ECB/2008/8 on data collection regarding the euro and the operation of the Currency Information System 2 has been published in the Official Journal.
On 21 March 2017, the governor of the BoE, Mark Carney, said in a speech to the Banking Standards Board Panel that there has been a sea change in UK banking culture, and changes to incentives, new codes and a clearer mapping of responsibilities are helping to improve conduct and lay the groundwork for better culture. Mr Carney also highlighted that, in view of the Senior Managers Regime (SMR), senior managers are increasingly focusing on building cultures of risk awareness, openness and ethical behaviour.
On 15 March 2017, in an interview with Greek television channel SKAI TV, the chair of the Supervisory Board of the ECB, Danièle Nouy, spoke of her meetings with Greek banks and identified non-performing exposures (NPEs) as Greece’s chief challenge.
On 15 March 2017, the Bank for International Settlements (BIS) published a speech by Dr Andreas Dombret, member of the executive board of the Deutsche Bundesbank, at the Bundesbank symposium concerning Basel III. Dr Dombret stated that regulators were very close to concluding the Basel reforms.
On 16 March 2017, the European Parliament’s Economic and Monetary Affairs Committee published a report it commissioned on issues related to the restructuring of troubled banks in the EU. The report sets out the argument for a systematic, centralised approach at the EU level to deal with legacy assets in bank restructuring to maintain fair recovery rates, and examines the potential benefits of a Eurozone Level Bad Bank (EZ-BB).
On 16 March 2017, the British Bankers’ Association (BBA) responded to the Prudential Regulation Authority (PRA) consultation on changes to reporting requirements arising from the introduction of International Financial Reporting Standard 9 (IFRS 9) (PRA CP 46/16). The BBA says it welcomes the proposed reduced reporting requirement for firms with balance sheets below £5bn, but suggests that implementation of the reporting requirement be pushed back a year to 1 January 2019.
On 17 March 2017, the Financial Stability Board (FSB) published a letter sent by its chair, Mark Carney, to G20 finance ministers and central bank governors in advance of their meeting in Baden-Baden on 17 and 18 March 2017. In the letter, Mr Carney remarks on the progress made in implementing post-crisis reforms, and warns against losing momentum. He also outlines the FSB’s priorities under the German G20 presidency, which began on 1 December 2016.
On 17 March 2017, the ECB published a speech that was given by Ignazio Angeloni, a member of the ECB Supervisory Board, at a conference on ‘Banks, Systemic Risk, Measurement and Mitigation’ in Rome on 17 March 2017. Mr Angeloni considers the main lessons that can, from a supervisory perspective, be drawn from recent research on bank capital, systemic risk and governance. He describes the analyses used by the ECB to assess bank risks and quantify capital requirements, and outlines the ECB activities that are specifically focused on governance, including the fit and proper test of bank managers and administrators.
On 17 March 2017, Commission Implementing Regulation (EU) 2017/461 of 16 March 2017 laying down implementing technical standards (ITS) with regard to common procedures, forms and templates for the consultation process between the relevant competent authorities for proposed acquisitions of qualifying holdings in credit institutions, as referred to in Article 24 of Directive 2013/36/EU of the European Parliament and of the Council (Capital Requirements Directive), was published in the Official Journal.
On 20 March 2017, following its 2016 consultation on non-performing loans (NPLs), the ECB issued final guidance to banks on tackling the issue. The ECB does not stipulate quantitative targets to reduce NPLs. Instead, it asks banks to devise a strategy that could include a range of policy options such as NPL work-out, servicing, and portfolio sales. The guidance will now form part of the day-to-day supervisory dialogue with individual banks.
On 21 March 2017, the European Systemic Risk Board (ESRB) issued a summary compliance report on the ESRB recommendation on funding of credit institutions published in December 2012 (the 2012 recommendation). The report grades compliance by the 28 Member States: 22 (including the UK) were graded fully compliant, and the remainder were graded largely compliant.
On 21 March 2017, the G20 issued a report which stated it aims to further strengthen international financial architecture and the global financial safety net, according to a communiqué following the G20 meeting of finance ministers and central bank governors on 17-18 March 2017. The report provides a summary update of G20 work on risk and vulnerability.
On 22 March 2017, Decision (EU) 2017/468 of the European Central Bank of 26 January 2017 amending Decision ECB/2010/10 on non-compliance with statistical reporting requirements has been published in the Official Journal.
On 22 March 2017, the chair of ESMA, Steven Maijoor, delivered a statement to a hearing on central counterparty (CCP) recovery and resolution organised by the European Parliament’s Economic and Monetary Affairs Committee. Mr Maijoor shares his views on the legislative draft—covering recovery planning, resolution tools and governance of the resolution process—and also some considerations inspired by ESMA’s practical experiences in relation to CCPs’ resilience—particularly on the progress made in establishing a regulatory framework for this sector and CCP stress-testing.
On 22 March 2017, the EBA published its 2016 annual assessment of EU supervisory colleges. The level and quality of engagements in supervisory colleges have been further improved in 2016, the EBA said—which are established for the effective supervision of EU cross-border banking groups. The report highlights a number of achievements made by colleges in the course of 2016, and also identifies areas for improvement as well as topics for supervisory attention for 2017.
On 22 March 2017, the European Banking Authority’s Banking Stakeholder Group (BSG) responded to the EBA’s consultation paper on supervision of significant branches (EBA-CP-2016-24), welcoming the EBA’s initiative to improve the convergence of supervisory practices between home and host supervisors. The BSG says that the rules should, on the one hand, clearly determine the scope of the branches subject to host supervision and, when this is the case, aim at minimising the burden that host authorities may impose on branches.
On 22 March 2017, the European Parliament released a briefing note ahead of the presentation of the 2016 annual report on the Single Supervisory Mechanism (SSM) by its chair, Danièle Nouy. The note lists the SSM’s priorities for direct supervision in 2017, the key risks road map for 2017, the supervisory banking statistics for the third quarter 2016, recent relevant publications by the SSM, and a summary of external briefing papers on conduct risk.
On 16 March 2017, the FCA published details of a speech by its chief executive, Andrew Bailey, given at the Hong Kong Monetary Authority Annual Conference for Independent Non-Executive Directors in which he examined the role of culture in financial institutions and said firms need to identify the drivers of behaviour within the firm and control the risks that these drivers create.
On 16 March 2017, the FCA published a guidance consultation (GC17/2) concerning how financial services firms should treat customers who are politically exposed persons (PEPs) when meeting their anti-money laundering obligations.
On 16 March 2017, the mandate and powers of the new Office for Professional Body Anti-Money Laundering Supervision (OPBAMLS), including their power to monitor professional bodies’ activities, were set out by HM Treasury (HMT) for consultation. The deadline for responses to the draft powers is 26 April 2017.
On 20 March 2017, Lloyds Banking Group announced it had appointed Professor Russel Griggs OBE as the independent reviewer to the HBOS Reading customer case review following the conclusion of the trial in which a number of individuals were convicted, including two former HBOS employees. The move follows consultation with the FCA.
On 21 March 2017, the Joint Money Laundering Steering Group (JMLSG) launched a consultation on proposed revisions to Part I of its guidance on the prevention of money laundering and the financing of terrorism for the UK financial services industry. The revisions align the guidance with the draft Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 published by HM Treasury on 15 March 2017.
On 21 March 2017, HM Treasury (Office of Financial Sanctions Implementation) updated the consolidated list of asset freeze targets and the list of designated persons for Syria. The Office is responsible for the implementation and administration of international financial sanctions in effect in the UK, for domestic designations under the Terrorist Asset-Freezing etc Act 2010, licensing exemptions to financial sanctions, and directions given under Schedule 7 to the Counter-Terrorism Act 2008, and under Council Regulation (EU) 833/2014, concerning Russia's actions in Ukraine.
On 21 March 2017, the City of London Police announced that a man who masterminded the theft of more than £1.8m from the insurance underwriting agency he worked for has been sentenced to five years for fraud by abuse of position of trust. The investigation by City of London Police found the defendant doctored insurance claims emails to ensure payments were made to third parties for personal items and services for himself, including house renovations, luxury cars and to clear an existing mortgage. Detectives from the City of London Police fraud squad, working with Arthur J Gallagher, uncovered more than 50 false payments made by the defendant to the value of £1,810,779.
On 17 March, the Complaints Commissioner (CC) published its final decision where it rejected a complaint against the FCA in relation to the mis-sale of a packaged bank account (PBA). The complainant had complained to their bank and to the Financial Ombudsman Service (FOS) but the complaint had been ruled out of time. The complainant was therefore unable to pursue the matter or obtain a refund and was informed by the FOS that the time limit rules were set by the FCA.
On 15 March 2017, the chair of the Treasury Committee, Andrew Tyrie, wrote to the chief executive of the FCA, Andrew Bailey, calling for an investigation into reports that Office for National Statistics (ONS) figures may be being leaked prior to their official release, and that this information is being used for inappropriate gain in financial markets.
On 16 March 2017, the European Parliament updated its procedure file on the proposed Regulation on money market funds, with a debate in plenary scheduled for 4 April 2017 and a vote the next day.
On 16 March 2017, the European Commission adopted a Delegated Regulation (C(2017) 1658 final) relating to three delegated regulations under the European Markets Infrastructure Regulation (EMIR) concerning the deadline for compliance with clearing obligations for certain counterparties dealing with OTC derivatives. This Delegated Regulation prolongs, by two years, the phase-in period for financial counterparties with a limited volume of OTC derivatives activity.
On 17 March 2017, the AFME responded to the European Commission’s public consultation on the capital markets union (CMU) mid-term review 2017 and suggested three main objectives: addressing Europe’s shortage of risk capital, maintaining and promoting well-functioning secondary markets, and finalising the projects highlighted in the CMU Action Plan in 2015.
On 17 March 2017, ICE Benchmark Administration (IBA) published Issue 4 of its LIBOR Code of Conduct. Issue 4 of the Code supersedes Issue 3 and will apply to a contributing bank from the date on which it transitions to the methodology set out in the Roadmap that was issued by IBA in March 2016.
On 17 March 2017, the European Securities and Markets Authority (ESMA) published a summary of conclusions from the 9 February 2017 meeting of the Securities and Markets Stakeholder Group (SMSG), at which ESMA and the SMSG discussed the impact of Brexit, other ongoing issues and upcoming initiatives.
On 17 March 2017, ESMA published two compliance tables indicating that all EU Member States comply or intend to comply with the MAR Guidelines for persons receiving market soundings (ESMA/2016/1477) and the MAR Guidelines on delay in the disclosure of inside information (ESMA/2016/1478).
On 20 March 2017, ESMA identified political and policy uncertainty, such as potential repercussions from the upcoming elections in some EU Member States, as the main risk drivers for 2017. In its latest report on trends, risks and vulnerabilities, ESMA says market and credit risks remain at the highest level, while liquidity and contagion risk also remain high.
On 20 March 2017, ESMA established five memoranda of understanding (MoUs) under EMIR. The MoUs establish co-operation arrangements, including the exchange of information, regarding central counterparties (CCPs) which are established and authorised or recognised in Brazil, Japan, India, the Dubai International Financial Center or the United Arab Emirates, and which have applied for EU recognition under EMIR.
On 21 March 2017, the FCA updated its list of confirmed industry guidance to include the ICE LIBOR code of conduct, which is confirmed for a period of three years from 17 March 2017.
On 20 and 21 March 2017, the European Commission issued corrigenda to Commission Delegated Regulations supplementing the Markets in Financial Instruments Directive 2014/65/EU (MiFID II) and the Markets in Financial Instruments Regulation 2014/600/EU (MiFIR). The corrected Commission Delegated Regulations are:
Commission Delegated Regulation of 8 June 2016 supplementing MiFID II with regard to RTS concerning the data to be published by execution venues on the quality of execution of transactions (C(2016) 3333 final) (Corrigendum)
On 22 March 2017, AFME and the Investment Association (IA) completed a new code of conduct for the communication of indications of interest (IOIs), used by brokers to express their willingness to buy or sell shares at a given price. The Associations have updated the classification model by adding in a complementary IOI category to the ‘client’ class to offer investment managers the opportunity to see orders which can be filled in their entirety and those that can be proportionally met.
On 20 March 20174, the FCA updated the webpage for its investment and corporate banking market study (MS15/1) to indicate that it now expects to publish a Policy Statement in Q2 2017. The FCA previously expected to publish the final rules in early 2017.
On 21 March 2017, following a Commission Delegated Regulation supplementing the PRIIPs Regulation (EU) 1286/2014 which laid down regulatory technical standards with regard to the presentation, content, review and revision of key information documents (KIDs) and the conditions for fulfilling the requirement to provide such documents published on 8 March 2017, the Commission has published seven annexes to the Delegated Regulation.
The Registered Pension Schemes (Authorised Payments) (Amendment) Regulations 2017 (SI 2017/397) were published on 16 March 2017. Existing regulations are amended to provide that a pension advice allowance payment by a registered pension scheme will be an authorised payment for the purposes of the Finance Act 2004 if the conditions set out in a newly added regulation are met. Further, the conditions that must be met for the payment to be an authorised payment are also set out. ‘Arrangement’, ‘retirement financial advice’ and ‘regulated financial advice’ are also defined. These changes become effective on 6 April 2017.
On 16 March 2017, the Treasury Committee published a letter (dated 3 March 2017) from the deputy governor of the Prudential Regulation Authority (PRA), Sam Woods, to Andrew Tyrie MP, the chair of the Treasury Committee, providing further information on the PRA’s views on Solvency II. Mr Woods’ view is that the fundamental regime of Solvency II is sensible and has many similarities with the previous ICAS regime in the UK, but that there are adjustments that need to be made to address issues in important areas. Most notably, the design of the risk margin is excessively volatile due to its sensitivity to risk-free interest rates.
On 16 March 2017, the European Insurance and Occupational Pensions Authority (EIOPA) published new sets of Q&As on Commission Implementing Regulation (EU) 2015/2450 with regard to the templates for the submission of information to the supervisory authorities, Commission Implementing Regulation (EU) 2015/2452 with regard to the procedures, formats and templates of the solvency and financial condition report, and the risk-free interest rate financial market data.
On 20 March 2017, the BoE's Independent Evaluation Office (IEO) published a report on the approach taken by the PRA with regard to its insurance objective. According to the report, the PRA’s approach to policyholder protection has been ‘somewhat crowded out’ by live supervisory issues and the implementation of Solvency II. While it finds no evidence of overreach or of PRA supervisors failing to meet their policyholder protection duties, the IEO recommends that the PRA fully articulate its approach to policyholder protection.
On 20 March 2017, Insurance Europe responded to the European Commission’s public consultation on the capital markets union (CMU) mid-term review 2017, calling for bolder and quicker action to address concerns regarding investment and other barriers. It says that Solvency II remains a key regulatory challenge for insurers, as it ‘wrongly assumes that insurers act like traders and are fully exposed to market volatility’, thus forcing them to hold unnecessarily high capital.
On 20 March 2017, the International Association of Insurance Supervisors (IAIS) published its stakeholder engagement plan for 2017, setting out how it will explain IAIS policy formulation and the decision making process, and involve stakeholders in these activities and processes.
On 22 March 2017, the Association of British Insurers (ABI) highlighted the approaching implementation day of the rules to give consumers a better understanding of their renewal premium and options when their retail insurance policies come up for renewal. Among other things, the ABI stresses that while price will be a factor, it is more important for consumers to check that the policy cover meets their needs.
On 22 March 2017, Insurance Europe published its response to the ESAs joint discussion paper on the use of big data by financial institutions, agreeing with the ESAs that increasingly sophisticated data analytics tools open up new possibilities, such as insuring new risks, offering more tailored products, and better loss prevention advice to consumers. It also argues that the existing EU legal framework is appropriately addressing the issues described in the ESAs' joint discussion paper.
On 16 March 2017, the European Parliament's Committee on Economic and Monetary Affairs (ECON) published proposed amendments concerning a draft report produced by ECON on the influence of technology on the future of the financial sector. The draft report, published at the end of January 2017, called on the European Commission to draw up a comprehensive FinTech action plan, to boost its capital markets union and digital single market strategies, aiming at a competitive financial system, financial stability and consumer and investor protection.
On 16 March 2017, the Payment Systems Regulator (PSR) published minutes of the 8th Payment System Operator delivery group (PSODG) meeting held on 28 February 2017. At the meeting, the PSODG discussed its work so far on possible values for the new payment systems operator (NPSO), as well as input on this topic that it had received from PSO and UKPA staff. The meeting also covered feedback received so far from the Boards of Bacs Payment Schemes Ltd (BPSL), Cheque and Credit Clearing Company (C&CCC) and the Faster Payments Scheme Ltd (FPSL), and the PSODG's work more generally.
On 16 March 201, the City Minister, Simon Kirby, delivered a speech to the LSE Global FinTech Investor Forum, discussing UK FinTech in a global context, and telling delegates ‘my door is very much open to British FinTechs’.
On 17 March 2017, the BoE FinTech Accelerator launched a new community, which brings FinTech-related organisations together to engage with the BoE, share insights on trends, and support the development of the sector. The BoE has also announced its third round of proofs of concept and the new firms it will be working with.
On 17 March 2017, David Geale, director of policy at the FCA, spoke on the FinTech Insider podcast about the FCA’s work to promote competition and innovation through Project Innovate.
On 20 March 2017, the Cheque and Credit Clearing Company (C&CCC) launched a consultation with interested parties on key documents relating to the image clearing system (ICS) which will launch later in 2017. The ICS will use image processing to speed up the clearing of cheques and other paper instruments such as bankers' drafts, postal orders, government payable orders, warrants, travellers' cheques and bank giro credits. The consultation closes on 28 April 2017.
On 22 March 2017, Payments UK published research which found just 31% of people sharing their personal information online in return for a service check the T&Cs. With major changes to payment systems and data use imminent, Payments UK says the results show the industry needs to ‘build customer understanding’.
On 22 March 2017, the European Parliament's Committee on Economic and Monetary Affairs published a briefing to support the work on scrutiny of delegated acts, in particular the discussion of 27 March 2017 on the final draft regulatory technical standards (RTS) on strong customer authentication and secure communication (SCA) submitted by the European Banking Authority (EBA) to the Commission for endorsement under Article 98 of the revised Payment Services Directive 2015/2366/EU (PSD2).
On 20 March 2017, the FCA published a new webpage with information on six new debt limitations for consumer credit firms. Full permission firms that carry out debt management activities will need to review the limitations held and vary their permissions if necessary.
 UKSC 19
The Supreme Court, in allowing an appeal by the Financial Conduct Authority (FCA), held that the respondent former international chief investment officer of JP Morgan Chase Bank NA, which had been fined by the Financial Conduct Authority after incurring losses of $6bn in respect of a trading portfolio, was not a third party for the purposes of s 393 of the Financial Services and Markets Act 2000. Accordingly, he had not been entitled to be notified in notices sent to the bank by the FCA, under s 393. The court held, among other things, that, on the true construction of s 393 of the Act, a person was 'identified' in a notice, under that section, if he was identified by name or by a synonym for him, such as his office or job title.
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