Rely on the most comprehensive, up-to-date legal content designed and curated by lawyers for lawyers
Work faster and smarter to improve your drafting productivity without increasing risk
Accelerate the creation and use of high quality and trusted legal documents and forms
Streamline how you manage your legal business with proven tools and processes
Manage risk and compliance in your organisation to reduce your risk profile
Stay up to date and informed with insights from our trusted experts, news and information sources
Access the best content in the industry, effortlessly — confident that your news is trustworthy and up to date.
With over 30 practice areas, we have all bases covered. Find out how we can help
Our trusted tax intelligence solutions, highly-regarded exam training and education materials help guide and tutor Tax professionals
Regulatory, business information and analytics solutions that help professionals make better decisions
A leading provider of software platforms for professional services firms
In-depth analysis, commentary and practical information to help you protect your business
LexisNexis Blogs shed light on topics affecting the legal profession and the issues you're facing
Legal professionals trust us to help navigate change. Find out how we help ensure they exceed expectations
Lex Chat is a LexisNexis current affairs podcast sharing insights on topics for the legal profession
Printer Friendly Version
Welcome to the weekly Financial Services highlights from the Financial Services team for the week ending 23 November 2017.
The House of Commons International Trade Committee (ITC) published the government's response to the ITC's March 2017 report into UK trade options beyond 2019 following Brexit. In relation to trade in financial services, in recommendation 9, the report stated that the government should seek the nearest achievable approximation to passporting and in recommendation 14 that there should be a plan in place for transitional arrangements to ensure that passporting in financial services will not come to a sudden end. The report also sought clarity in recommendation 10, regarding how complex disputes in the financial sector would be resolved without the involvement of the European Court of Justice (ECJ).
In a speech to the Centre for European Reform on the future of the EU, the EU’s chief Brexit negotiator, Michel Barnier, underlined the desire for the EU27 to seek a ‘close relationship with the UK’ once Brexit happens. Barnier spoke about building a ‘stronger’ EU and addressed matters such as the Eurozone, Ireland and the single market, highlighting in particular that, while the UK will lose the benefits of the single market, the EU ‘does not want to punish’.
The European Central Bank (ECB) reprimanded several banks for seeking to move some of their regulated services from the UK to the EU as a result of Brexit on the basis that their banking applications were inadequate as they involve setting up 'empty shell' operations in the EU that are not properly staffed.
The EBA welcomed the Council of the EU’s decision on its relocation to Paris, given the UK's intention to withdraw from the EU. The EBA says the decision reassures its staff over the new location and puts an end to a period of uncertainty.
UK Finance published a report proposing an alternative model for a future trade framework for banking and capital markets services between the EU and the UK. The report says the model is ‘both robust and flexible’.
The International Swaps and Derivatives Association (ISDA) published a webinar update on the implications of Brexit for the derivatives market. The webinar covers the current state of UK/EU negotiations, the UK's European Union Withdrawal Bill, and central counterparty supervision and location policy.
The Financial Conduct Authority (FCA) published the November 2017 edition of its regulation round-up. Topics discussed include the first of its Approach documents—the FCA's Future Approach to Consumers. The round-up also includes details about the terms of reference for the FCA's wholesale insurance broker market study, as well as the publication by the Treasury of its update to the National Risk Assessment (NRA) of money laundering and terrorist financing.
The FCA announced details of the first set of regional events taking place in 2018 for regulated mortgage and general insurance firms, as part of its Live & Local programme.
The Chancellor of the Exchequer announced several measures relevant to financial services, including an expansion of the Open Banking initiative and a new strategy for the UK investment management industry in the Autumn Budget 2017. The government says it is committed to supporting competition in banking, and the Autumn Budget set out several actions which are intended to promote innovation in banking services, strengthen challenger banks, and improve access to affordable credit for consumers.
The Joint Committee of the European Supervisory Authorities (ESAs) released its work programme for 2018, setting out the ways the European Insurance and Occupational Pensions Authority (EIOPA), the EBA and the European Securities and Markets Authority (ESMA) will work together. The Committee says it will continue to focus its work on consumer protection issues such as supporting the implementation of the new Packaged Retail and Insurance-based Investment Products (PRIIPs) rules, analysing the adequacy of cross-border supervision of financial services, and FinTech developments.
The chair of ESMA, Steven Maijoor, delivered a speech on ESMA’s priorities for 2018, in which he discussed costs and charges of investment funds, investment fund stress testing, and supervisory convergence in the context of Brexit.
The vice-president of the European Commission, Valdis Dombrovskis, spoke on the EU’s ‘two flagship projects’—banking union and capital markets union—and sketched out forthcoming proposals to help strengthen the single currency ‘in the face of unforeseen challenges’. Mr Dombrovskis said further integrating financial markets would help to absorb shocks through private risk-sharing, better protect taxpayers from having to pay for the mistakes of the banking sector, and reduce the need for public risk-sharing within the Economic and Monetary Union.
The ECB published a speech by Sabine Lautenschläger, a member of its executive board and vice-chair of its supervisory board, in which she discussed non-performing loans (NPLs), Brexit, and risk management. Ms Lautenschläger called on the banks to devise ambitious, realistic and credible plans to get rid of their NPLs and suggested now was the time to do so as economic conditions were fair. Concerning Brexit, Ms Lautenschläger warning to the banks was stark: ‘Don’t procrastinate. No one will wait for you’.
The Bank for International Settlements (BIS) announced that it has decided to reactivate the Financial Stability Institute (FSI) Advisory Board that was originally created in 1998 (and ceased to operate some time later) to help achieve closer interaction with central banks and financial supervisory agencies, which are its main stakeholders.
The Financial Guidance and Claims Bill received its third reading by the House of Lords on 21 November 2017. The Lords passed the Bill with a number of amendments and sent it to the Commons for its consideration. Among other things, the amendments envisage the creation of a debt respite scheme and call for a fee cap for claims management services provided in connection with a payment protection insurance (PPI) claim.
The FCA updated its webpage giving information on how to cancel an authorisation.
The Law Society published a response to the FCA's consultation on Individual accountability: Extending the Senior Managers & Certification Regime (SM&CR) to all FCA firms. The Law Society remains strongly of the view that the legal function should be excluded from the scope of the SM&CR.
ESMA published a final report on the Money Market Funds Regulation (EU) 2017/1131 (MMF Regulation), containing final versions of the technical advice, draft implementing technical standards (ITS), and guidelines on stress test scenarios carried out by MMF managers under the MMF Regulation. The key requirements relate to asset liquidity and credit quality, the establishment of a reporting template and stress test scenarios carried out by MMF managers.
The EBA published its final guidelines on the estimation of risk parameters for non-defaulted exposures. The guidelines cover the probability of default (PD) and the loss given default (LGD) and the treatment of defaulted exposures under the advanced IRB Approach, including estimation of parameters such as ELBE and LGD in-default. The guidelines, which are part of the EBA's regulatory review of the IRB approach, aim to restore market participants' trust in internal models by reducing the unjustified variability in their outcomes, ensuring comparability of risk estimates while at the same time preserving risk sensitivity of capital requirements.
The Council of the EU published a draft Commission Delegated Regulation supplementing the Bank Recovery and Resolution Directive (Directive 2014/59/EU) (BRRD) on the regulatory technical standards (RTS) specifying the methodology for the valuation of the difference between the treatment that shareholders or creditors of an institution under resolution have received, and the treatment they would have received had the institution entered normal insolvency proceedings.
The Council of the EU published a draft Commission Delegated Regulation supplementing the BRRD on the RTS specifying the criteria relating to the methodology for assessing the value of assets and liabilities of institutions or entities. The RTS set out the methodology to be used for valuation in a resolution scenario.
The EBA published its final methodology for the 2018 EU-wide stress test. The methodology covers all relevant risk areas and, for the first time, incorporates IFRS 9 accounting standards. The stress test exercise will be formally launched in January 2018, with the results to be published by 2 November 2018.
The Financial Stability Board (FSB) published the 2017 list of global systemically important banks (G-SIBs), using end-2016 data and an assessment methodology designed by the Basel Committee on Banking Supervision (BCBS). The list still comprises 30 banks, but with Royal Bank of Canada joining and Groupe BPCE having been removed.
The EBA published a presentation given at a public hearing on 17 November 2017 on draft ITS amending Commission Implementing Regulation (EU) 650/2014 on the format, structure, contents list and annual publication date of the supervisory information to be disclosed by competent authorities in accordance with Article 143(3) of the Capital Requirements Directive 2013/36/EU (CRD IV).
The EBA published its third annual report on the convergence of supervisory practices across the EU. The report reviews consistency in the application of the Supervisory Review and Evaluation Process (SREP) in order to promote comparable supervisory approaches and consistency in supervisory outcomes across the single market.
The EBA published a presentation on its review of the implementing technical standards on reporting for resolution plans, delivered at a public hearing on 26 September 2017.
The Prudential Regulation Authority (PRA) published a webpage providing information about how to serve the PRA with copies of written statements to a firm's ring-fencing transfer scheme (RFTS).
The Financial Reporting Council (FRC) announced that, in 2018/19, it will supplement its routine monitoring programme with a series of thematic reviews of corporate reports and audits. The objective of the supplementary reviews is to stimulate improvement in corporate reporting and auditing.
The EBA published its sixth updated list of capital instruments that competent authorities across the EU have classified as Common Equity Tier 1 (CET1). The list was last updated in May 2017.
The FRC opened an investigation in relation to the preparation and approval of the financial statements for Mitie Group plc for the year ended 31 March 2016. The FRC also has an ongoing investigation in relation to the conduct of Deloitte LLP’s audit of Mitie under the audit enforcement procedure.
The chief operating officer at the FCA, Nausicaa Delfas, delivered a speech on how to address cyber issues within firms at the Cyber Security Summit and Expo 2017. Ms Delfas said the FCA’s role was to help firms to become more resilient to cyber attacks, to enhance market integrity and to protect consumers, but she also pointed out that cyber resilience is in a sense ‘beyond compliance’—it should be business led.
The director general for market infrastructure and payments at the ECB, Marc Bayle de Jessé, delivered a speech setting out the ECB’s views on the regulation of cyber security. Mr Bayle de Jessé warned that if the European system of central banks or the financial ecosystem were compromised, it could not only cause disruption but potentially undermine confidence in the financial system, majorly impact the Eurosystem’s reputation and affect financial stability.
The ECB published the text of a speech by a member of its supervisory board, Pentti Hakkarainen, on the role of internal auditors in ensuring sound governance, setting out how supervisors and internal auditors can work together.
The Sanctions and Anti-Money Laundering Bill, the first Brexit bill to be scrutinised by the House of Lords, contains inappropriately broad powers for ministers, the Lords Constitution Committee warned. The Committee is particularly concerned by a provision under the Bill which allows ministers to create criminal offences punishable by up to ten years’ imprisonment, while also setting the rules on evidence consideration and defence to those offences.
A woman has been jailed for six years and three months after being convicted of four counts of money laundering at Kingston Crown Court. A National Crime Agency (NCA) investigation found she was part of a Chinese money laundering group which paid more than £1.8m in criminal cash into London high street banks between 30 July and 15 August 2016. Two others have also been prosecuted in relation to the money laundering.
The Joint Money Laundering Steering Group (JMLSG) proposed minor revisions to its anti-money laundering and counter-terrorist financing guidance. The guidance was most recently updated in June 2017 to reflect the entering into force of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, SI 2017/692 (2017 MLRs). The deadline for comments on the new revisions is 4 December 2017.
A Bill to make provision enabling sanctions to be imposed where appropriate for the purposes of compliance with United Nations obligations or other international obligations or for the purposes of furthering the prevention of terrorism or for the purposes of national security or international peace and security or for the purposes of furthering foreign policy objectives; to make provision for the purposes of the detection, investigation and prevention of money laundering and terrorist financing and for the purposes of implementing Standards published by the Financial Action Task Force relating to combating threats to the integrity of the international financial system; and for connected purposes. The House of Lords committee stage (day 2) is due 29 November 2017.
Three directors of a payday loan company who used money from a pension liberation scheme to pay off company debts have been banned for a total of 20 years following an investigation by the Insolvency Service.
ESMA published a consultation on its proposed guidelines on position calculation under the European Market Infrastructure Regulation 648/2012 (EMIR). The purpose of the guidelines is to ensure that trade repositories (TRs) calculate positions in derivatives in a harmonised and consistent manner in accordance with Article 80(4) of EMIR. The consultation closes on 15 January 2018.
Two Commission Delegated Regulations on RTS for indirect clearing arrangements under EMIR and Markets in Financial Instruments Regualtion /600/2014 (MiFIR) were published in the Official Journal of the EU. The regulations shall apply from 3 January 2018.
Commission Delegated Regulation (EU) 2017/2155 of 22 September 2017 amending Delegated Regulation (EU) No 149/2013 with regard to RTS on indirect clearing arrangements
The Council of the EU published a compromise text on the proposal for a regulation amending EMIR. The regulation seeks to contribute to reducing systemic risk by increasing the transparency of the over-the-counter (OTC) derivatives market and reducing the counterparty credit risk and the operational risk associated with OTC derivatives.
The European Commission adopted the Commission Delegated Regulation of 17.11.2017 supplementing MiFIR with regard to RTS on the trading obligation for certain derivatives (C(2017) 7684 final).
The European Commission published a Commission Delegated Regulation supplementing the Securities Financing Transactions Regulation (Regulation (EU) 2015/2365) (SFTR) with regard to the fees charged by ESMA to trade repositories. In its annex, the Delegated Regulation specifies the calculation method and payment terms for the first-year interim supervisory fees defined in Article 13. The Commission is seeking feedback on the text by 14 December 2017.
The Council of the EU adopted rules to develop a securitisation market in Europe, which it says will help create new investment possibilities and provide an additional source of finance, particularly for SMEs and start-ups. The Council set out that the new rules are part of the EU’s plan to develop a fully functioning capital markets union by the end of 2019.
The European Commission published a report on improving European corporate bond markets, saying integrated, efficient and resilient corporate bond markets are a vital and core pillar of a successful capital markets union. The Commission says strong corporate bond markets will give businesses access to more diverse sources of funding and offer Europeans more investment opportunities.
Article 4(1)(14) of Directive (EC) 2004/39 (MiFID) should be interpreted as meaning that the concept of a 'regulated market' within the meaning of that provision covered a trading system in which multiple fund agents and brokers represented, respectively, 'open end' investment funds and investors, the sole purpose of which was to facilitate those investment funds in their obligation to execute the purchase and selling orders for shares placed by those investors. The Court of Justice of the European Union so held in proceedings concerning the imposition of charges on the applicant companies for costs incurred by the Netherlands Financial Markets Authority in performing its supervisory duties. The judgment is available at: C-658/15.
The FCA fined Paul Walter, a former Bank of America Merrill Lynch International Limited (BAML) bond trader, £60,090 for engaging in market abuse. The FCA found that Mr Walter, an experienced trader, had engaged in market abuse by creating a false and misleading impression as to supply and demand in the market for Dutch State Loans (DSL) on 12 occasions in July and August 2014.
ESMA published an update to its Q&A on the application of the Credit Rating Agencies Regulation (CRA Regulation) (Regulation (EC) 1060/2009) to add a new section in Part VI to cover organisational requirements.
ESMA published updated guidelines on the application of the regime for endorsement of third-country ratings under Article 4(3) of the CRA Regulation. The guidelines replace the earlier guidelines adopted in May 2011.
ESMA published an update of its Q&As on practical questions regarding EMIR.
ESMA published an update of its Q&As on the implementation of the Central Securities Depository Regulation (CSDR). The updated Q&S provide detailed answers to questions on relevant authorities, conduct of business rules, protection of securities and prudential requirements.
ESMA updated its Q&A document regarding the implementation of the Market Abuse Regulation. ESMA has added two new Q&As, which relate to the interpretation of Article 19 on insider dealing and on the types of ‘transaction’ by a person discharging managerial responsibilities prohibited during a closed period.
ESMA staff recently participated in a Global Financial Markets Association (GFMA) webinar on the topic of Legal Entity Identifier (LEI) requirements under MiFID II and EMIR. A full video of the webinar can be viewed on ESMA’s YouTube channel (ESMA’s participation begins at the 09:20 minute mark) or download the presentation slides.
HSBC Private Bank (Suisse) SA, the Hong Kong branch of the Switzerland-based private banking business of HSBC Group, has been fined a record sum of HK$400m, or over £38m. This comes after the Securities and Futures Appeals Tribunal (SFAT) upheld the Securities and Futures Commission (SFC’s) disciplinary action against the bank for ‘material systemic failures in relation to the sale of derivative products’. The failures were against Lehman Brothers-related Notes and Leveraged Forward Accumulators, in the run-up to the global financial crisis in 2008. The SFAT concluded that the bank’s culpability was ‘extensive, putting many clients at unnecessary risk of loss and indeed resulting in substantial losses for many’.
The Global Foreign Exchange Committee (GFXC) issued a press release concerning its meeting on 14 November 2017, in which it discussed the response received to its request for feedback on Last Look practices in the Foreign Exchange Market.
The European Association of CCP Clearing Houses (EACH) responded to the European Commission’s consultation on post-trade in a capital market union: dismantling barriers and strategy for the future. The consultation seeks views on a range of issues, including the current state of post-trade markets, the main trends and challenges faced by post-trade services providers and users, and the best ways to remove barriers, including through financial technology.
The Joint Committee of the European Supervisory Authorities (ESAs) published an updated version of the Q&A document relating to the key information document (KID) requirements for PRIIPs, as laid down in Commission Delegated Regulation (EU) 2017/653.
The FCA published a summary of points discussed by the Fund Objectives Working Group at its meeting on 25 September 2017, and papers setting out the issues to be raised in the first and second sessions of the working group, including some initial thoughts on the questions for discussion.
The Association of British Insurers (ABI) published guidance to help firms in the long-term savings market better identify, understand and support vulnerable customers. The ABI says the guide was developed by a working party of leading life and pension providers, and draws on examples of good practice to raise awareness across the market of how to best identify and support vulnerable customers.
The chair of EIOPA, Gabriel Bernardino, says that more supervisory convergence is needed to ensure financial stability and protect policyholders in the EU. Speaking at EIOPA's 7th Annual Conference in Frankfurt, Mr Bernardino also gave an update on EIOPA's review of Solvency II, and suggested some priorities for the roll-out of the proposed European Personal Pension Product (PEPP).
The European Parliament asked the Commission to adopt a legislative proposal to postpone the application date of the Insurance Distribution Directive (EU) 2016/97 (IDD) until October 2018. It says a proposal is needed swiftly in order to enhance legal certainty concerning the provisions applicable and to allow for the necessary organisational and technical changes needed to comply with the provisions.
The Council of the EU published the European Commission's proposal for a Council decision on the position to be taken on behalf of the EU in the EU-Switzerland Joint Committee (ESJC) on a technical revision of the agreement on direct insurance other than life insurance (COM(2017) 666 final). The Annex to the proposal contains a form of decision to be adopted by the ESJC.
EIOPA published survey results analysing trends in the investment behaviour of European insurers over the past five years, which revealed trends that could be associated with search-for-yield behaviour in the insurance industry.
Recent government reforms and rapid market changes have led to reduced consumer choice over pensions products, leaving the UK facing a potential crisis in the retirement income market, according to a report from the Pensions Institute.
The Organisation for Economic Co-operation and Development (OECD) published an updated version of its guidelines on insurer governance. The guidelines have been revised and expanded for the second time since they were first adopted in 2005 to reflect evolving market practices and updates to international guidance following the financial crisis.
The Financial Stability Board (FSB), in consultation with the International Association of Insurance Supervisors (IAIS) and national authorities, decided not to publish a new list of global systemically important insurers (G-SIIs) for 2017. The policy measures set out in the FSB’s 2016 communication on G-SIIs, as updated in February 2017, on the higher loss absorbency (HLA) standard, will continue to apply to the firms listed in the 2016 communication.
Two ECB regulations and two decisions on systemically important payment systems (SIPS) were published in the Official Journal of the EU.
Decision (EU) 2017/2098 of the ECB of 3 November 2017 on procedural aspects concerning the imposition of corrective measures for non-compliance with Regulation (EU) No 737/2014
In advance of the European Parliament's Committee on Economic and Monetary Affairs (ECON) scrutiny session on 21 November 2017, ECON published a briefing on the revised Payment Services Directive (PSD2) (Directive (EU) 2015/2366) and the RTS on Strong Customer Authentication and Secure Communication and the RTS on the separation of payment card schemes and processing entities under the Interchange Fee Regulation (IFR) (Regulation (EU) 2015/751).
The European Payments Council (EPC) announced that the SEPA Instant Credit Transfer scheme is operational. The system allows for transfers of up to 15,000 euros in less than ten seconds. The EPC called the launch a ‘significant step towards faster, more innovative and digital payments in Europe’.
The EPC published a number of updated guidelines and clarification papers for rulebooks relating to the Single Euro Payments Area (SEPA).
The Competition and Markets Authority (CAT) published a summary of notice of a claim for damages brought under section 47A of the Competition Act 1998 by British Telecommunications plc, EE Limited, Plusnet plc and DABS.COM Limited against MasterCard. The claim is for damages resulting from an alleged overcharge for credit card transactions over the period 11 September 2011 to 9 December 2015 following the introduction and operation of Multilateral Interchange Fee (MIFs). The claimants argue they have suffered loss and damage as a result of this overcharge and claim damages as the difference between the MIF which the claimants paid and the MIF which the claimants would have paid had a lawful scheme been in operation.
The FCA published a speech given by its head of behavioural economics and data science, Stefan Hunt, on the power of machine learning and artificial intelligence for regulators. In the speech, which was delivered on 19 October 2017 at the Beesley Lecture Series on regulatory economics, Mr Hunt explores how machine learning can improve regulatory tools and improve the efficiency and effectiveness of regulators.
TheCityUK, Santander UK and Shearman & Sterling published a report setting out how greater collaboration between financial services institutions and FinTechs can smooth the path to developing innovative new digital products and services.
0330 161 1234