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Welcome to the weekly Financial Services highlights from the Lexis®PSL Financial Services team for the week ending 24 November 2016.
On 17 November 2016, the House of Lords EU Financial Affairs Sub-Committee published written evidence from HM Treasury dated 9 November 2016 and the Association of Foreign Banks (AFB) dated 1 November 2016 in connection with its inquiry into the implications of Brexit for the UK and EU financial services industry.
On 21 November 2016, the House of Commons Library has released a briefing paper considering important issues likely to be raised by the ‘Great Repeal Bill’ (GRB), such as the challenges for converting EU law into UK domestic law, devolution, and UK Courts post-Brexit. The government first announced plans for a GRB in October 2016. Designed to repeal the European Communities Act (ECA 1972) and incorporate EU law into domestic law, commentators say this could be the largest legislative project ever undertaken in the UK.
On 23 November 2016, the Bank of England (BoE) published a speech ‘Uncertainty about uncertainty’ by external MPC member Kristin Forbes, delivered at the JP Morgan Cazenove ‘Best of British’ conference in London. In the speech Forbes analysed UK business attitudes to uncertainty created by Brexit.
On 17 November 2016, the Financial Conduct Authority (FCA) published the November 2016 of edition of its Regulatory Round-up. The latest Round-Up is designed to raise awareness of the FCA’s guidance on the fair treatment of customers with mortgage payment shortfalls.
On 17 November 2016, the FCA issued a consultation on proposed policy changes to how its fees will be raised from 2017/18. Among the issues covered are the costs of implementing the Markets in Financial Instruments Directive (MIFID) and tackling illegal money-lending. The consultation closes on 16 January 2017.
On 17 November 2016, the Financial Ombudsman Service (FOS) published a Statement of Difference: Small and Medium Sized Business (Finance Platforms) Instrument 2016 (FCA 2016/64) (FOS 2016/19) (the Statement), showing the differences between the FCA and the FOS following the FOS’s proposed changes to the voluntary jurisdiction rules, relating to the Small and Medium Sized Business (Finance Platforms) Regulations 2015, SI 2015/1946.
On 17 November 2016, in a speech to the IESE Business School conference on ‘Challenges for the future of banking: regulation, governance and stability’, the general manager of the Bank for International Settlements (BIS), Jaime Caruana, highlighted that, while banks are better capitalised now, ‘dialing back’ to pre-2008 regulation is not an option and that banks should concentrate on profit retention and challenges to their business models.
The Financial Stability Board (FSB) met in London on 17 November 2016 to discuss areas of concern, ongoing policy work and its work plan for 2017. While noting that the global financial system is more resilient as a result of regulatory reforms following the 2008 financial crisis, it emphasised the importance of completing the implementation of agreed reform, including Basel III.
On 18 November 2016, the European Court of Auditors (ECA) produced a report on the way the European Central Bank (ECB) set up the Single Supervisory Mechanism (SSM) and organises its functions, and the challenges it faces. While it finds that the SSM was put in place relatively quickly, the report notes that the system is complex and overly reliant on national supervisors. As a result, the ECB lacks sufficient control over some important aspects of banking supervision.
On 21 November 2016, the European Central Bank (ECB) released its annual review on the significance of credit institutions. Growth at Citibank Holdings Ireland Ltd takes it onto the significant list, meaning it will be directly supervised by the ECB from 1 January 2017.
On 21 November 2016, the FSB published the 2016 list of global systemically important banks (G-SIBs). The FSB list comprises the same 30 banks as the 2015 list.
On 21 November 2016, the Committee on Economic and Monetary Affairs (ECON) of the European Parliament published a draft report setting out amendments to the European Commission’s proposal for a regulation establishing an EU programme to support specific activities enhancing the involvement of consumers and other financial services end-users in EU policy-making in the field of financial services for the period of 2017–20.
On 21 November 2016, a speech in Rome by the chair of the Supervisory Board of the ECB, Danièle Nouy, ‘The European banking sector: New rules, new supervisors, new challenges’, covered the root causes of financial crises, the main regulatory reforms, the Single Supervisory Mechanism, and the key challenges for banks.
On 21 November 2016, the International Organisation of Securities Commissions (IOSCO) announced it had appointed new chairs and vice chairs to the IOSCO board committees, following recent elections.
At a press conference on 23 November 2016, Vice President Valdis Dombrovskis of the European Commission presented a proposal for a comprehensive package of reforms to further strengthen the resilience of EU banks. The proposal builds on existing EU banking rules and aim to complete the post-crisis regulatory agenda by making sure that the regulatory framework addresses any outstanding challenges to financial stability, while ensuring that banks can continue to support the real economy.
On 23 November 2016, the European Systemic Risk Board (ESRB) published a report examining the first five years of its history and providing an overview of its outputs on systemic risk since inception. The report considered the development by the ESRB of processes and tools to enhance its capacity to identify and assess sources of systemic risk in the financial sector.
On 23 November 2016, the FCA published an article by their behavioural scientist, Laura Smart. Ms Smart said to maintain transparency in financial services, it is vital to publish the results of all research, not just the ‘interesting’ findings.
On 23 November 2016, the UK government announced it will be investing over £102m of LIBOR banking fines to support armed forces and emergency services charities.
On 16 November 2016, the European Parliament published a motion for a resolution on the finalisation of Basel III, calling on the European Commission to assess the impact of new reforms. The motion made by the Committee on Economic and Monetary Affairs (ECON), among other things, underlines the importance of sound global standards and principles for the prudential regulation of banks.
On 22 November 2016, HM Treasury announced that the government has now recovered more than £17bn of the £20.3bn injected into Lloyds Banking Group during the financial crisis, once share sales and dividends received are accounted for. Having made further sales of its shares in Lloyds, conducted via the trading plan, the government has reduced its remaining shareholding to less than 8%.
On 23 November 2016, the European Commission published a series of legislative proposals for amendments to the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD), the Regulation for the single resolution mechanism (Regulation 806/2014) (SRM Regulation), and the Capital Requirements Regulation (Regulation 575/2013) (CRR). The proposals can be found as follows:
On 23 November 2016, the European Commission (the Commission) published the results of its Call for Evidence on EU financial services, a public consultation looking at the cumulative effect of the new financial sector rules put in place since the crisis. The Commission says this complete overhaul of EU rules on financial services, including 40 pieces of legislation since 2009, stabilised the markets, made banks better capitalised, restored trust and made the system stronger and more resilient. The Call for Evidence assessed whether the reforms were working as envisaged, and allowed the Commission to assess their combined economic impact and address any unintended consequences, inconsistencies or gaps in the regulatory framework.
On 18 November 2016, the Ministry of Justice (MoJ) proposed in a consultation paper that fee levels paid by claims management companies (CMC) should remain unchanged for 2017/18. Views on the planned fee levels are sought from persons authorised to provide claims management services in England and Wales and parties contemplating making an application for authorisation. The consultation is open until 16 December 2016.
On 18 November 2016, the European Banking Authority (EBA) published a list of public sector entities that may be treated as regional governments, local authorities or central governments for the purposes of the CRR. This list will help EU financial institutions determine the risk weight they should apply to exposures to these entities.
On 21 November 2016, the EBA published its response to the European Commission’s call for advice on the opinion which the EBA issued on 21 December 2015 (EBA/OP/2015/25) on the application of the principle of proportionality to the remuneration provisions in CRD IV.
On 21 November 2016, the Prudential Regulation Authority (PRA) published a consultation paper (CP41/16) on its proposals to restore the deposit protection limit to £85,000. The consultation closes on 16 December 2016.
On 22 November 2016, Andrew Tyrie MP, chair of the Treasury Committee, spoke out against the BoE’s proposed return of the deposit protection limit to £85,000. Mr Tyrie said there been too many changes to the scheme—‘about seven in the last decade’—and this proposal was ‘a recipe for yet more uncertainty’.
On 22 November 2016, the EBA published final draft Regulatory Technical Standards (RTS) (EBA/RTS/2016/07) on the specification of the assessment methodology for competent authorities regarding compliance of an institution with the requirements to use internal models for market risk and assessment of significant share under points (b) and (c) of Article 363(4) of the CRR.
On 18 November 2016, the Insolvency Service announced that Tahseen Goni from Luton had been ordered to pay £2,084,897 and prosecution costs of £118,352.36 after he was convicted of concealing property from the Official Receiver in August 2015.
On 18 November 2016, the Bank for International Settlements published a speech by the vice-chair of the Board of Governors of the Federal Reserve System, Stanley Fischer gave in Washington entitled ‘Do We Have a Liquidity Problem Post-Crisis?’. The speech looks in detail at the interaction of regulatory intervention and liquidity, concluding that, on balance, by enhancing financial stability, regulatory changes have supported liquidity.
On 17 November 2016, the General Secretariat of the Council of the EU recommended that the Council extend the objection period with respect to three delegated acts supplementing the Central Securities Depositories Regulation, which were adopted by the European Commission on 11 November 2016. The objection period will be extended to 11 February 2017.
On 17 November 2016, in a speech given to the Commodity Futures Trading Commission Market Risk Advisory Committee in Washington, the director of financial markets infrastructure supervision at the Bank of England, David Bailey, spoke about default management by central counterparties (CCPs), and the importance of preparation. Mr Bailey focused on the way in which CCPs test their default management preparations and procedures via default management ‘fire drills’, and reviewed the findings from a fire drill that was conducted in 2016 involving two CCPs.
On 18 November 2016, the European Securities and Markets authority (ESMA) published a new Q&A document on market structures topics under MiFID II (Directive 2014/65/EU) and MiFIR (Regulation 600/2014), which provides clarifications on data disaggregation and the mandatory tick size regime. ESMA also updated its Q&A on MiFID II and MiFIR transparency topics with two new questions, which address grandfathering of pre-trade transparency waivers granted in accordance with MiFID I (Directive 2004/39/EC) and the procedure for granting a waiver from pre-trade transparency obligations for illiquid non-equity financial instruments.
On 19 November 2016, Commission Delegated Regulation (EU) 2016/2022 of 14 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council (MiFIR) with regard to RTS concerning the information for registration of third-country firms and the format of information to be provided to the clients was published in the Official Journal of the EU.
On 19 November 2016, Commission Delegated Regulation (EU) 2016/2021 of 2 June 2016 supplementing MiFIR with regard to RTS on access in respect of benchmarks was published in the Official Journal of the EU.
On 19 November 2016, Commission Delegated Regulation (EU) 2016/2020 of 26 May 2016 supplementing MiFIR with regard to RTS on criteria for determining whether derivatives subject to the clearing obligation should be subject to the trading obligation was published in the Official Journal of the EU.
On 23 November 2016, the European Central Bank (ECB) launched a public consultation on Draft Guidance to develop clear and consistent definitions, measures and monitoring with regard to leveraged transactions. The Guidance aims to develop a clear and consistent definition of what constitutes leveraged transactions, and to establish guidelines on how to measure and monitor such exposures while ensuring safe and sound origination and distribution practices to contribute to a smooth financing of the real economy.
On 16 November 2016, the European Supervisory Authorities (ESAs)—the European Insurance and Occupational Pensions Authority (EIOPA), European Securities and Markets Authority (ESMA), and the European Banking Authority (EBA)—published joint guidelines on risk-based supervision (RBS) (ESA 2016 72). The guidelines look at the characteristics of a risk‐based approach to anti‐money laundering and terrorist financing supervision, and the steps to be taken when conducting supervision on a risk‐sensitive basis.
On 18 November 2016, the FCA announced that following an investigation, Charanjit Sandhu of Grays, Essex, appeared before the City of London Magistrates Court charged with conspiracy to defraud, together with offences under the Financial Services and Markets Act 2000 and the Fraud Act 2006.
On 21 November 2016, the Treasury Committee chair, Andrew Tyrie, commented on an exchange of letters with Tom Scholar, permanent secretary to HM Treasury, following reports by the news organisation BuzzFeed that the Treasury received confidential information about the regulator’s investigation into the RBS Global Restructuring Group ahead of a sale of the bank’s shares in August 2015.
On 21 November 2016, the FCA issued guidance to consumer credit firms on steps that can be taken to reduce financial crime risk. The booklet outlines consumer credit firms’ financial crime obligations, and contains guidance and self-assessment questions.
On 22 November 2016, the European Parliament passed a legislative resolution on the proposal for a directive amending Council Directive 2011/16/EU on administrative cooperation in the field of taxation as regards access to anti-money-laundering information by tax authorities.
On 22 November 2016, the 2015 data on enforcement of the Anti-Bribery Convention was published by the Organisation for Economic Co-operation and Development (OECD). OECD's report looks at transnational corruption based on data from the 427 foreign bribery cases concluded since the entry into force of the OECD Anti-Bribery Convention in 1999, and found that 397 individuals and 133 entities had been sanctioned in foreign bribery proceedings between 1999 and 2015.
On 21 November 2016, the Crown Prosecution Service announced two more members of a gang who had defrauded more than £2m from members of the public in a large-scale cold calling fraud have been jailed. Michael Foran and Kallan Henry are the latest of six members of a gang of fraudsters who received jail sentences of between four and 11 years. The gang used seemingly legitimate businesses to convince investors to purchase 'carbon credits' by promising vastly inflated returns which never materialised.
On 23 November 2016, the Basel Committee on Banking Supervision issued a consultation on revision of the annex on correspondent banking. The consultation contains proposals clarifying rules on combating money laundering and terrorist financing in correspondent banking.
On 23 November 2016, the UK government announced it is introducing a new penalty for those helping someone else use a tax avoidance scheme. It will also invest more in HMRC to increase its anti-avoidance activity. The head of the ICAEW Tax Faculty warned that the changes needed to be specifically targeted, or risk harming reputable advisors.
On 16 November 2016, the European Parliament published a draft legislative resolution on the proposal for a regulation amending Regulation (EU) 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) concerning the date of its application.
On 17 November 2016, the chair of ESMA, Steven Maijoor, gave a speech to Börse Stuttgart on 17 November 2016 on the importance of safeguarding retail investors to ensure the success of the Capital Markets Union (CMU).
On 17 November 2016, private equity industry body Invest Europe published an Environmental, Social and Governance Due Diligence Questionnaire. The questionnaire gives fund managers a clear framework for assessing environmental, social and governance (ESG) factors at companies they own or in which they plan to invest. Private equity fund managers and institutional investors in Europe worked together to develop portfolio company-focused due diligence guidance for responsible investment.
On 17 November 2016, the FCA updated its webpage on the UCITS Remuneration Code (SYSC 19E) to say that they do not plan to issue guidance on how to apply the UCITS Remuneration Code. They note that there are many points of correspondence between the remuneration requirements of the UCITS V Directive 2014/91/EU and the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD), and suggest that firms review the European Securities and Markets Authority's guidelines for both.
On 17 November 2016, the General Secretariat of the Council of the EU recommended that the Council agree to delay the application date of the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs) by one year, to 1 January 2018. The delay was proposed by the European Commission on 9 November 2016.
On 18 November 2016, the FCA published the interim findings of its asset management market study, which was launched in November 2015 to assess the effectiveness of competition in the sector. The FCA has found that price competition is weak in a number of areas of the industry, and has proposed a significant package of remedies in order to improve competition and protect those least able to engage actively with their asset manager. The FCA is now seeking feedback on its interim findings, its proposed remedies, and its intention to refer the investment consultancy sector to the Competition and Markets Authority (CMA).
On 21 November 016, ESMA published an updated question and answer document (ESMA/2016/1586) on the application of the Undertakings for the Collective Investment in Transferable Securities Directive (UCITS).
On 17 November 2016, HM Treasury published a response to the Financial Policy Committee's (FPC) consultation on its powers of direction in the buy-to-let market. The FPC should be granted powers of direction relating to buy-to-let mortgages, HM Treasury concluded following the recent consultation process. Secondary legislation to this effect has been laid in Parliament. If approved, the powers will form part of the FPC’s macroprudential toolkit.
On 21 November 2016, the Financial Policy Committee (FPC) issued a draft policy statement on its powers over housing policy instruments.
On 23 November 2016, in pursuit of Open Banking, the Competition and Markets Authority (CMA) publishedthe Retail Banking Market Investigation Order 2017 (the Draft Order), and opened a consultation on the measures. The consultation is open until 23 December 2016.
On 23 November 2016, the European Parliament published the adopted provisional text of its resolution on the European Commission’s Green Paper on Retail Financial Services, calling for the European Commission to remain ambitious in breaking down barriers and protectionist tendencies that block innovation in retail financial services. The Green Paper states that a true single market will make the EU attractive as the hub for innovative financial services and calls for an update and promotion of the ‘FIN-NET’ financial dispute resolution network.
On 17 November 2016, the Association of British Insurers (ABI) called on the government not to scrap Solvency II entirely when Britain exits the EU. It has warned that any replacement regulatory regime should support UK competitiveness. It has called on the government to introduce UK-level changes to risk margin, the removal of barriers to long-term investments, and an easing up on reporting requirements.
On 19 November 2016, responding to the news that the government will ban cold-calling on pensions in the Autumn Statement, the director of long-term savings and protection policy at the ABI, Yvonne Braun, said the move ‘should do a lot to help’ in the fight against scams.
On 21 November 2016, the FCA announced that Gable Insurance AG (a Liechtenstein insurance company that provided private motor and commercial insurance for UK customers) has gone into liquidation. This follows a formal order that was issued to Gable on 7 September 2016 by the Liechtenstein Financial Market Authority (FMA) to stop writing insurance over concerns with Gable’s financial position. Gable was also placed into special administration by the FMA on 10 October 2016 to protect the interests of policyholders.
On 21 November 2016, the FSB published the 2016 list of global systemically important insurers (G-SIIs). The insurers on the 2016 G-SII list remain the same as those on the 2015 list.
On 22 November 2016, the chair of the executive committee of the International Association of Insurance Supervisors (IAIS), Vicky Saporta, gave a speech setting out the role of macroprudential regulation in the insurance sector, and how it interacts with microprudential measures.
In a speech delivered on 22 November 2016 to the ABI, the chief executive of the FCA, Andrew Bailey, looked at how big data is going to affect the industry and asked insurers to help devise fairer models of risk and incentive.
On 23 November 2016, the IAIS released a call for feedback on its Draft Stakeholder Engagement Plan. IAIS has made effective stakeholder engagement an institutional priority, and has been looking at ways to improve the process of obtaining quality stakeholder input. Feedback is requested by 31 December 2016.
On 23 November 2016, the PRA and the FCA issued a joint consultation paper on the authorisation and supervision of insurance special purpose vehicles (PRA CP42/16 and FCA CP16-34). The consultation sets out the detail on the PRA and FCA proposed authorisation and supervision regime for ISPVs in the UK. The consultation should be read alongside HM Treasury’s consultation document, also published on 23 November 2016. The consultation closes on 23 February 2017.
On 17 November 2016, the Payment Systems Regulator (PSR) issued CP16/5, a consultation on the financial penalty scheme for the use of the retained amount from PSR regulatory penalty receipts. The consultation will affect participants in regulated payment systems under the Financial Services (Banking Reform) Act 2013 (FSBRA), and regulated persons under the Interchange Fee Regulation (IFR). A key element of the consultation is the proposal to use money retained under the scheme to reduce annual regulatory fees. Responses are required by 13 January 2017.
On 23 November 2016, the European Parliament published a letter of 24 October 2016 from the chair of the EBA, Andrea Enria, to the European Parliament’s Markus Ferber and Antonio Tajani’s, raising concerns about the EBA’s proposal in draft art 9 of the RTS for a mandatory ‘dedicated interface’, and about the current drafting of the RTS, with regards to the exemptions from strong customer authentication. Andrea Enria responded that in the development of the mandate they had to make ‘difficult trade-offs’ between various competing objectives of the PSD2, but promised to consider carefully the concerns raised.
 EWCA Civ 1041
The Court of Appeal Civil Division held that the claimant's appeal against the decision of the trial judge regarding overpayment would be dismissed. The court found that when the claimant had made the final payments on each of the five completed developments, he was not acting on the basis of a mistake or under the influence of an erroneous assumption. He had taken a conscious decision to pay the sums requested without investigation, because that suited his purposes.
 EWCH 2824 (Comm)
The Commercial Court handed down a further judgment following an earlier decision dismissing a claim by an Italian bank (Dexia) on the ground that six interest rate swaps were invalid and unenforceable against the defendant Italian local authority because they contravened Italian law. Among other things, the court held that Dexia's alternative claim for restitution succeeded; and that Prato's counterclaim also succeeded. In respect of the latter, the court held that no regard would be had to the provisions in the master agreement and schedule identifying English law as the governing law and recording an irrevocable submission to the jurisdiction of the English court and that the obligation to give restitution to Prato had its closest and most real connection to Italy, such that Prato's restitution counterclaim was governed by Italian law.
Guideline (EU) 2016/1993 laying down the principles for the coordination of assessment pursuant to the CRR and monitoring of ISP including significant and less significant institutions (ECB/2016/37)
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